UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934 (Amendment No. )
Filed
by the Registrant [X]
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Filed
by a Party other than the Registrant [ ]
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the appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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[X]
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Definitive
Proxy Statement
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Definitive
Additional Materials
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[ ]
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Soliciting
Material under §240.14a-12
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MTS
Systems Corporation
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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of Filing Fee (Check the appropriate box):
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fee required.
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computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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maximum aggregate value of transaction:
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box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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Party:
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MTS
Systems Corporation
14000
Technology Drive
Eden
Prairie, MN 55344-2290
Telephone
952-937-4000
Fax:
952-937-4515
Info@mts.com
www.mts.com
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January
3, 2019
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Dear
MTS Shareholder:
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MTS
is holding a virtual Annual Meeting of Shareholders this year on Wednesday, February 13, 2019, at 8:30 a.m. Central Standard
Time. You may attend the Annual Meeting, vote and submit a question during the Annual Meeting by visiting www.virtualshareholdermeeting.com/MTSC2019.
You will need to provide your 16-digit control number that is on your Notice of Internet Availability of Proxy Materials or
on your proxy card if you receive materials by mail.
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Your
vote is important to us
. Approximately 95% of MTS’s outstanding shares were voted at our prior Annual Meeting held
in February 2018 and we thank our shareholders for their response. We urge you to cast your vote, as instructed in the Notice
of Internet Availability of Proxy Materials, over the Internet or by telephone as promptly as possible. You may also request
a paper proxy card to submit your vote by mail, if you prefer. And, as indicated above, you may vote during the Annual Meeting
online at www.virtualshareholdermeeting.com/MTSC2019.
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I
encourage you to attend our virtual Annual Meeting of Shareholders on February 13, 2019, at 8:30 a.m., Central Standard Time,
by visiting www.virtualshareholdermeeting.com/MTSC2019.
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Very
truly yours,
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David
J. Anderson
Chairman
of the Board
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NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
DATE
AND TIME
February
13, 2019 8:30 a.m. (Central Standard Time)
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MTS
Systems Corporation
14000
Technology Drive
Eden
Prairie, MN 55344-2290
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VIRTUAL
MEETING
The
annual meeting of shareholders of MTS Systems Corporation (the “Company”)
will be held on Wednesday, February 13, 2019, as a virtual meeting at www.virtualshareholdermeeting.com/MTSC2019.
ITEMS
OF BUSINESS
1.
To elect seven directors to hold office until the next annual meeting of shareholders or until their successors are duly
elected;
2.
To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal
year ending September 28, 2019 (“fiscal year 2019”);
3.
To hold a non-binding, advisory vote to approve the compensation of the Company’s named executive officers; and
4.
To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.
The
foregoing items of business are more fully described in the proxy statement made available over the internet and, upon
request, in paper copy.
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The
Board of Directors has set the close of business on December 18, 2018, as the Record
Date for the determination of shareholders entitled to notice of and to vote at, the
meeting and at any adjournments or postponements thereof.
HOW
TO VOTE
All
shareholders are cordially invited to attend the virtual Annual Meeting of Shareholders at
www.virtualshareholdermeeting.com/MTSC2019
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Whether or not you expect to attend, please vote:
By
Internet:
www.proxyvote.com
By
Phone: Call 1.800.690.6903
By
Mail: You may request a paper proxy card, which you may complete, sign and return by mail.
The
proxy is solicited by the Board of Directors and may be revoked or withdrawn by you at any time before it is exercised.
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January
3, 2019
On
behalf of the Board of Directors,
David
J. Anderson
Chairman
of the Board
TABLE
OF CONTENTS
MTS
SYSTEMS CORPORATION
14000
Technology Drive
Eden
Prairie, Minnesota 55344
PROXY
STATEMENT
GENERAL
This
proxy statement is furnished to the shareholders of MTS Systems Corporation (the “Company,” “we,” “us,”
or “our”) in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board”)
to be voted at the virtual Annual Meeting of Shareholders to be held on Wednesday, February 13, 2019 (the “Annual Meeting”),
at 8:30 a.m., Central Standard Time, or any adjournments or postponements thereof. This proxy statement and the form of proxy,
along with the Annual Report for the fiscal year ended September 29, 2018 (“fiscal year 2018”), is being first sent
or given to shareholders on or about January 3, 2019.
PROPOSAL
1
ELECTION
OF DIRECTORS
General
Information
Seven
directors will be elected at the Annual Meeting. Upon the recommendation of the Governance and Nominating Committee, the Board
has nominated for election the seven persons named below. Each has consented to being named a nominee and will, if elected, serve
until the next annual meeting of shareholders or until a successor is elected. Each nominee listed below is currently a director
of the Company and each was elected by the shareholders. In addition to the nominees listed below, Maximiliane C. Straub served
as a member of our Board for fiscal year 2018. Ms. Straub’s term will expire at the Annual Meeting. Proxies solicited by
the Board will, unless otherwise directed, be voted to elect the seven nominees named below to constitute the entire Board.
Nominees
The
names of the nominees, their principal occupations for at least the past five years and other information are set forth below:
David
J. Anderson – Age 71
Director
since 2009
Chair
since 2011
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Director
of Modine Manufacturing Company since 2010 and a member of its Corporate Governance and
Nominating Committee, Audit Committee, and Technology Committee; Co-Vice Chairman of
Sauer-Danfoss, Inc. (developer and manufacturer of fluid power and electronic components
and systems for mobile equipment applications) from 2008 until June 2009; President,
Chief Executive Officer and Director of Sauer-Danfoss Inc. from 2002 until he retired
in 2009; various senior management positions with Sauer-Danfoss Inc. from 1984 to 2008;
and prior to 1984, various positions in business development, strategic planning, sales,
marketing, within several industrial manufacturing and distribution businesses. He previously
served as a director of Schnitzer Steel Industries, Inc. (a steel manufacturing and scrap
metal recycling company) from 2009 to January 2018 and a member of its Audit Committee,
Compensation Committee and Nominating & Corporate Governance Committee at various
times during the same period.
Mr.
Anderson’s qualifications to serve on our Board and to serve as the Chair of the Board include his more than 40
years of international, industrial business experience and his chief executive officer and operations experience. He also
has technology and engineering experience, the ability to formulate and execute strategy and financial expertise.
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Jeffrey
A. Graves – Age 57
Director
since 2012
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President
and Chief Executive Officer of the Company since May 2012; President, Chief Executive
Officer and a director of C&D Technologies, Inc. (a manufacturer, marketer and distributer
of electrical power storage systems for the standby power storage market) from July 2005
until May 2012; various executive positions at Kemet Electronics Corporation from 2001
to 2005, including Chief Executive Officer; various leadership positions with General
Electric Company’s Power Systems Division and Corporate Research & Development
Center from 1995 to 2001; prior to 1995, various positions of increasing responsibility
at Rockwell International Corporation and Howmet Corporation. Dr. Graves has served as
a director of Hexcel Corporation since 2007 and as a director of Faro Technologies since
December 2017. He previously served as a director of Teleflex Incorporated from 2007
through December 2017.
As
the only member of management serving on our Board, Dr. Graves contributes an in-depth understanding of the opportunities
and challenges facing our Company. His experience in both executive and board positions at various technology companies
gives him insight into strategic, financial and personnel matters, as well as the considerations particular to public
companies.
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David
D. Johnson – Age 62
Director
since 2013
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Retired;
Director of Nuvectra Corporation since 2016 and the Chair of its Audit Committee; Executive
Vice President, Treasurer and Chief Financial Officer of Molex LLC (manufacturer of electronic
connectors) from 2005 to 2016; Vice President, Treasurer and Chief Financial Officer
of Sypris Solutions, Inc., from 1996 to 2005; served as Regional Controller for Molex’s
Far East Region; Financial Director for New Ventures and Acquisitions; and Financial
Director for the Far East South Region from 1984 to 1996. From 1978 to 1984, Mr. Johnson
worked for the public accounting firm KPMG LLP.
Mr.
Johnson’s qualifications to serve on our Board include his chief financial officer experience for a global industrial
company. Mr. Johnson has had executive-level responsibility for financial and accounting matters in a number of settings,
including international contexts.
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Randy
J. Martinez – Age 63
Director
since 2014
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Former
Corporate Vice President of Strategy and Business Development for AAR Corporation (a
provider of aviation services to the worldwide commercial aerospace and governmental/defense
industries) from August 2015 to May 2017. Prior to this role, Mr. Martinez held other
leadership roles within AAR, including Group Vice President, Aviation Services and President
and Chief Executive Officer, AAR Airlift Group (March 2012 to August 2015) and Group
Vice President, Government and Defense Services and Senior Vice President, Government
and Defense Programs (2009 to 2012). Before joining AAR in 2009, Mr. Martinez was the
Chief Executive Officer at World Air Holdings, Inc. (Nasdaq). As a graduate of the United
States Air Force Academy, Mr. Martinez served with distinction in the U.S. Air Force
for over 21 years, holding a wide variety of leadership roles, including both line command
and senior staff positions.
Mr.
Martinez currently serves on the Board of the National Defense Transportation Association (NDTA), serving as Chair for
the Aviation Sector.
Mr.
Martinez’s qualifications to serve on our Board include his experience as a chief executive officer at a public
company and his particular knowledge of the aviation and defense industries. His diverse industry experience assists in
helping to understand our customers who are also diverse by industry and geography.
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Michael
V. Schrock – Age 65
Director
since 2014
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Advisor
for Oak Hill Capital Partners (a private equity investment firm) since March 2014; President
and Chief Operating Officer of Pentair LLC (a global water, fluid, thermal management
and equipment protection company) from 2006 through 2013. Prior to that role, Mr. Schrock
held several leadership positions at Pentair over his 16-year career, including President
of Water Technologies Americas, President of the Pump and Pool Group and President/COO
of Pentair Technical Products. Before joining Pentair, Mr. Schrock held numerous senior
leadership roles in both the US and Europe at Honeywell International Inc. Mr. Schrock
has served on the Board of Directors of Plexus Corporation since 2006 and as its Lead
Director since 2013, and has served on the Board of Directors of Atkore International
Group, Inc. since May 2018 and as its Chairman of the Board since August 2018.
Mr.
Schrock’s experience includes more than 35 years in senior roles at major industrial companies. His deep management
and operating experience both domestically and internationally and strong track record leading and integrating strategic
acquisitions give our Board valuable insight into global business and acquisition matters.
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Gail
P. Steinel – Age 61
Director
since 2009
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Owner
of Executive Advisors (provider of leadership development services and strategic/profit
improvement consulting) since 2007; Executive Vice President, Consumer, Industrial &
Technology business unit at BearingPoint (a global technology and management consulting
company) from 2002 to 2007; and progressive management positions at Arthur Andersen (provider
of audit, tax and consulting services), where her final position was Global Managing
Partner of the Business Consulting Division, from 1979 to 2002. Ms. Steinel serves on
several boards, including the Board of Trustees of Federal Realty Investment Trust and
is Chairperson of its Audit Committee.
Ms.
Steinel’s qualifications to serve on our Board include her global managing partner experience running a large global
business, more than 35 years of business management consulting providing global strategy, policy development, complex
problem solving and operations consulting services, as well as her financial expertise and experience as a certified public
accountant.
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Chun
Hung (Kenneth) Yu – Age 69
Director
since 2013
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Retired;
Vice President, Global Channel Services, International Operations for 3M Company (diversified
manufacturer of consumer, industrial and health products) from May 2013 to December 2013;
President, China Region and 3M China from 2000 to May 2013; President, 3M Taiwan from
1999 to 2000; served in several Director and leadership roles within the 3M organization
from 1969 to 1999, located in St. Paul, Minnesota and the Asian-Pacific region.
Mr.
Yu’s qualifications to serve on our Board include his extensive operations experience in the Asian-Pacific region,
a market we have identified as a growth opportunity for our Company’s products and services. Mr. Yu also contributes
significant leadership, planning and management skills developed during his long tenure with a successful and growing
global manufacturing company.
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Voting
Information and Board Voting Recommendation
In
accordance with Minnesota law, directors are elected by a plurality of votes cast. The seven nominees receiving the highest number
of votes will be elected. If any nominee is unable to serve as a director, the Board may act to reduce the number of directors
or the persons named in the proxies may vote for the election of such substitute nominee as the Board may propose. It is intended
that proxies will be voted for such nominees in the latter circumstance. The proxies cannot be voted for a greater number of persons
than seven.
THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” EACH NOMINEE LISTED
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Other
Information Regarding the Board
Meetings
and Independence.
The Board met five times during fiscal year 2018. All of the current directors attended at least 75% of
the number of Board meetings and meetings of Board committees on which he or she served that were held during fiscal year 2018.
Our policy is that all directors should attend the Annual Meeting and all of the directors who were serving at the time of the
prior annual meeting of shareholders, which was held in February 2018, did so.
Independence
determinations concerning the Board are made by the Governance and Nominating Committee and, with regard to related party transactions,
by the Audit Committee. The Governance and Nominating Committee of the Board has determined that Messrs. Anderson, Johnson, Martinez,
Schrock and Yu and Ms. Steinel are independent, as defined by the applicable rules for companies listed on the Nasdaq Stock Market.
Dr. Graves is not independent due to his service as Chief Executive Officer of the Company. In making the independence determination
with respect to related party transactions during fiscal year 2018, the Audit Committee considered the following, with regard
to Mr. Anderson that the Company sold less than $20,000 in goods and services to Modine Manufacturing Company; Mr. Martinez that
the Company sold less than $5,000 in goods and services to AAR Corp; and Mr. Schrock that the Company sold less than $5,000 in
goods and services to the Atkore International Group, Inc., sold less than $275,000 in goods and services to The University of
St. Thomas School of Engineering, purchased less than $275,000 in goods and services from Plexus Corporation, and sold less than
$5,000,000 in goods and services to Plexus Corporation. The Audit Committee determined that the aggregate dollar amounts of the
transactions are below the threshold for the Nasdaq Stock Market independence rules and/or that the transactions do not present
a real, potential or perceived conflict between the Company’s interests and the direct or indirect interests of Messrs.
Anderson, Martinez and Schrock, as applicable.
Board
Committees.
Each of our three standing committees operates under a written charter adopted by the Board. These charters are
available to shareholders on our website at www.mts.com (select “Investor Relations” and click on “Corporate
Governance”).
The
Audit Committee of the Board, composed of Mr. Johnson (Chair), Ms. Steinel and Messrs. Anderson, and Martinez, held seven meetings
during fiscal year 2018. All members of the Audit Committee during fiscal year 2018 satisfied the Nasdaq Stock Market listing
standards for Audit Committee membership. The Board determined that Ms. Steinel and Messrs. Anderson, Johnson and Martinez are
each an “audit committee financial expert” under the Sarbanes-Oxley Act of 2002. Among other duties, the Audit Committee:
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selects
our independent registered public accounting firm;
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reviews
and evaluates significant matters relating to our audit and internal controls;
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reviews
the scope and results of the audits by, and the recommendations of, our independent registered public accounting firm;
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is
responsible for monitoring risks related to financial assets, accounting, legal and corporate compliance, discusses legal
and compliance matters and assesses the adequacy of Company risk-related internal controls;
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pre-approves,
in accordance with its pre-approval policy, all audit and permissible non-audit services and fees provided by our independent
registered public accounting firm;
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reviews
our audited consolidated financial statements and meets prior to public release of quarterly and annual financial information;
and
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meets
with our management prior to filing our quarterly and annual reports containing financial statements with the Securities and
Exchange Commission (“SEC”).
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A
report of the Audit Committee is contained in this proxy statement.
The
Compensation and Leadership Development Committee (the “Compensation Committee”) of the Board, composed of Mr. Schrock
(Chair) and Messrs. Johnson and Martinez, held five meetings during fiscal year 2018. All members of the Compensation Committee
are independent directors as defined by the rules applicable to companies listed on the Nasdaq Stock Market and are “non-employee
directors” as that term is defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Among other duties, the Compensation Committee:
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reviews
and makes recommendations to the Board regarding our employment practices and policies;
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in
executive session, reviews and recommends to the independent directors of the full Board the compensation paid to our Chief
Executive Officer and evaluates the performance of our Chief Executive Officer;
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annually
approves all compensation paid to the other executive officers;
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reviews
and approves the Company’s retirement plans and approves any amendments related to such plans;
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recommends
stock incentive and employee stock purchase plans to the Board;
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reviews
and approves stock ownership guidelines for executive officers and monitors adherence to such guidelines;
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determines
whether risks arising from the Company’s compensation policies and practices for its employees are reasonably likely
to have a material adverse effect on the Company;
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oversees
the Company’s talent review, leadership development process and succession planning for executive officers; and
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approves
the Compensation Discussion and Analysis (the “CD&A”) for our proxy statement.
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A
report of the Compensation Committee is contained in this proxy statement.
The
Governance and Nominating Committee of the Board, composed of Ms. Steinel (Chair) and Messrs. Schrock and Yu, held four meetings
in fiscal year 2017. All members are independent directors as defined by the rules applicable to companies listed on the Nasdaq
Stock Market. Among other duties, the Governance and Nominating Committee:
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reviews
and approves Board governance practices;
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administers
the Board evaluation process;
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reviews
and approves compensation of non-employee directors;
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monitors
adherence to the stock ownership guidelines applicable to non-employee directors;
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identifies,
evaluates and recommends potential director candidates and director nominees for selection
by the Board; and
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identifies,
evaluates and recommends potential candidates for Chairman of the Board and Chief Executive
Officer positions when vacancies arise.
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Director
Nomination Process
. In identifying prospective director candidates, the Governance and Nominating Committee (for purposes
of this
Director Nomination Process
sub-section, the “Committee”) considers recommendations from shareholders
and recommendations from business and professional sources, including executive search firms.
In
evaluating director candidates, the Committee believes that all members of the Board should have personal and professional integrity,
an absence of conflicts of interest and an ability to understand and respect the advisory and proactive oversight responsibility
of the Board. In addition, all non-employee members of the Board should meet independence requirements, comply with director orientation
and education guidelines, commit sufficient time to attend Board and committee meetings and fully perform the duties of a director.
In
addition to these threshold criteria, the Committee also considers the contributions a candidate is expected to make to the collective
functioning of the Board. The Committee seeks directors who will contribute to the Board in areas such as strategy and policy
development, technology and engineering, human capital development, financial expertise, international business development and
best practices, industrial business value creation, acquisition expertise and public company chief executive officer perspective.
Candidates
are expected to effectively perform the role of a director by demonstrating broad perspectives and an inquiring mind, being well
prepared for and actively participating in Board and committee meetings, contributing expertise to the Board and committees, listening
well, expressing views candidly, applying experience and expertise, being respectful of others and appropriately representing
the shareholders.
While
it does not have a specific written policy with regard to the consideration of diversity in identifying director nominees, the
Committee believes the Board should reflect a variety of opinions, perspectives, personal and professional experiences and backgrounds.
The goal is to have a balanced and diverse Board, with members whose skills, backgrounds and experiences will enhance the quality
of the Board’s deliberations and decisions and cover the spectrum of areas that impact the Company’s business. Each
member of the Board should contribute to the overall Board composition, with the goal of creating a diverse Board that works collaboratively
to guide the success of the Company and represent shareholder interests.
The
Committee’s policy is to consider qualified candidates for positions on the Board who are recommended in writing by shareholders.
Shareholders wishing to recommend candidates for Board membership rather than directly nominating an individual should submit
the written recommendations to our Secretary at least 90 days prior to the date corresponding to the date of the previous year’s
annual meeting of shareholders, with the submitting shareholder’s name, address and pertinent information about the proposed
nominee. See “Other Information – Shareholder Proposals” for additional information regarding the submission
of candidates for Board membership in the event of a change in the annual meeting date from the previous year.
A
shareholder intending to nominate an individual as a director at an annual meeting of shareholders, rather than recommend the
individual to the Committee for consideration as a nominee, must comply with the advance notice requirements set forth in our
Bylaws. Our Bylaws provide that any shareholder entitled to vote generally in the election of directors may nominate one or more
persons for election as directors provided that such shareholder has provided written notice of such intention to our Secretary.
Such notice must be given not fewer than 90 days nor more than 120 days prior to the date corresponding to the date of the previous
year’s annual meeting of shareholders, except in certain circumstances, and must contain certain required information about
the nominee.
Shareholders
wishing to recommend for nomination or nominate a director should contact the Company’s Secretary for a copy of the relevant
procedure and the criteria considered by the Committee when evaluating potential new directors or the continued service of existing
directors.
Board
Leadership Structure
. Our Board leadership structure currently includes a non-executive Chairman of the Board and a separate
Chief Executive Officer. The Board has not adopted a policy of separateness and will periodically re-evaluate its leadership structure.
The
primary role of our Chief Executive Officer is to manage the business affairs of the Company and the primary role of our Chairman
is to preside over all Board activities and ensure the effectiveness of the Board in all aspects of its areas of responsibility.
This role includes working with the Chief Executive Officer to set the Board agenda; ensuring that clear, accurate and timely
information is provided to the Board; managing Board meetings to allow time for discussion of complex or difficult issues; and
promoting active participation by all Board members. The Chairman may also assist the Chief Executive Officer in managing the
Company’s relationships with investors and other external stakeholders.
The
Board has determined that the separation of the Chairman and Chief Executive Officer roles is appropriate for the Company at this
time because it enables the Chief Executive Officer to focus more closely on the day-to-day operations of the Company. The Board
also values the involvement of Mr. Anderson as a leader and, through his service as Chairman, benefits more directly from his
extensive industry and executive experience than it would if he did not hold such position.
Board
Role in Risk Management Oversight.
Management is responsible for designing and implementing the Company’s day-to-day
risk management processes, controls and oversight. The Board, as a whole and through its committees, has broad responsibility
for the oversight of risk management. The Board has the responsibility to satisfy itself that risk management processes and controls
are adequate and functioning as designed and that Company business is conducted in compliance with proper governance procedures
and applicable laws and regulations. The Board views risk in the context of major strategic and operational decisions relative
to the anticipated benefits. The Board recognizes that it is neither possible nor prudent to eliminate all risk because purposeful
and appropriate risk taking is essential for the Company to be competitive and to achieve its performance goals.
The
Board believes the Company has good internal processes, controls and resources to identify, manage and mitigate risk, including
a robust code of conduct and the compliance oversight role held by the Chief Risk and Compliance Officer. As a critical part of
its risk management oversight role, the Board encourages full, open and ongoing communication with management. The Board regularly
engages in discussions with management on strategic, operational and governance matters to ensure that processes and controls
are in place so risks are identified, managed and mitigated in a timely fashion.
The
Board implements its risk management oversight function both as a whole and through committees. Much of the work is delegated
to various committees, which meet regularly and report back to the full Board. All committees have significant roles in carrying
out the risk management oversight function. The chair of each committee provides a committee report at each Board meeting that
enables the Board to fulfill its risk management oversight responsibilities. Since risk management oversight is an ongoing process
and inherent in the Company’s strategic and operational decisions, the Board also discusses risk in relation to specific
proposed actions.
Each
committee is comprised entirely of independent directors and is responsible for overseeing risks associated with its respective
area of responsibility.
The
Audit Committee:
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assists
the Board in fulfilling its oversight responsibilities with respect to accounting and financial reporting principles and policies
and internal audit controls and procedures;
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oversees
the preparation by management of the financial statements and the independent audit thereof;
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evaluates
the performance and independence of outside auditors and selects appropriate outside auditors annually;
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is
responsible for monitoring risks related to financial assets, accounting, legal and corporate compliance;
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discusses
legal and compliance matters and assesses the adequacy of Company risk-related internal controls; and
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meets
separately with representatives of our independent auditing firm, the Internal Assurance leader and the Chief Risk and Compliance
Officer.
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The
Compensation Committee:
|
●
|
assists
the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with our compensation
policies and programs;
|
|
|
|
|
●
|
is
responsible for determining salaries, incentives and other elements of total compensation for our executive officers; and
|
|
|
|
|
●
|
administers
our various compensation and benefit plans to ensure sound pay practices with features that mitigate risk without changing
the incentive nature of the compensation.
|
The
Governance and Nominating Committee:
|
●
|
assists
the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with Board organization,
membership and structure;
|
|
|
|
|
●
|
is
responsible for recommending director candidates to our Board, overseeing processes for shareholders to nominate director
candidates and evaluating the performance of directors, committees and the Board; and
|
|
|
|
|
●
|
is
responsible for developing, periodically reviewing and recommending corporate governance principles and procedures to the
Board, as well as overseeing director orientation and continuing education.
|
A
separate discussion regarding the risk considerations in our compensation programs, including the processes that have been put
in place by the Compensation Committee and management to identify, manage and mitigate potential risks in compensation, can be
found on page 22 of this proxy statement.
Communications
with the Board
. The Board provides a process for shareholders to communicate with its members. The manner in which shareholders
may send communications to the Board is set forth on our website at www.mts.com (select “Investor Relations” and click
on “Corporate Governance”).
Board
Evaluation.
The Governance and Nominating Committee leads the Board in an annual evaluation of its performance as a board
of directors. Our Corporate Governance Guidelines provide that the Board annually evaluate its performance to determine whether
the Board, its committees and its individual members are functioning effectively.
Code
of Conduct.
We adhere to a code of ethics, known as the “MTS Code of Conduct.” It applies to our directors, officers,
employees and contractors. The MTS Code of Conduct sets forth guidelines for ensuring that all personnel act in accordance with
the highest standards of integrity. The MTS Code of Conduct, as well as any waivers from and amendments to it, are posted on our
website at www.mts.com (select “Investor Relations” and click on “Corporate Governance”).
Non-Employee
Director Compensation
The
table below reflects the cash compensation for annual service during fiscal year 2018 to our non-employee directors:
Role
|
|
Fiscal
Year 2018 Annual Cash Retainer
|
|
Chairman
of the Board
|
|
$
|
130,000
|
|
All
other non-employee directors
|
|
$
|
55,000
|
|
Audit
Committee
|
|
|
|
|
Chair
|
|
$
|
20,000
|
|
All
other committee members
|
|
$
|
10,000
|
|
Compensation
Committee
|
|
|
|
|
Chair
|
|
$
|
15,000
|
|
All
other committee members
|
|
$
|
7,500
|
|
Governance
and Nominating Committee
|
|
|
|
|
Chair
|
|
$
|
11,000
|
|
All
other committee members
|
|
$
|
5,000
|
|
Upon
election or re-election to the Board at each of our annual meetings of shareholders, the directors receive an annual grant of
restricted stock units under our 2017 Stock Incentive Plan with the number of shares equal to the amounts set forth in the table
below. The annual restricted stock unit award will vest on the one year anniversary of the date of grant.
Name
|
|
Fiscal
Year 2018
Award
Amount
|
|
|
Calculation
|
David
J. Anderson (Chairman of the Board)
|
|
$
|
154,000
|
|
|
|
David
D. Johnson
|
|
|
|
|
|
|
Randy
J. Martinez
|
|
|
|
|
|
FMV
÷ Grant Date Stock
|
Michael
V. Schrock
|
|
|
|
|
|
Price
rounded down to the
|
Gail
P. Steinel
|
|
$
|
115,000
|
|
|
next
whole number
|
Maximiliane
C. Straub
|
|
|
|
|
|
|
Kenneth
Yu
|
|
|
|
|
|
|
If
a non-employee director is appointed to the Board prior to the annual meeting of shareholders, the non-employee director may receive
a pro-rated restricted stock unit award depending upon, among other factors, the length of time until the next annual meeting
of shareholders. If a non-employee director resigns, retires or otherwise terminates his or her service as a director, a pro-rata
portion of any restricted stock units held by such director shall vest prior to the date that the restrictions would otherwise
vest.
Non-employee
directors are also reimbursed for travel expenses to Board meetings.
Non-employee
directors are also eligible to participate in the Executive Deferred Compensation Plan and may elect to defer up to 100% of the
director’s fees we pay in cash and to defer the settlement of up to 100% of the restricted stock unit awards that they are
eligible to receive. At the time of the deferral election, participants must select a distribution date and form of distribution.
The plan provides for the crediting of dividend equivalents on such deferred settlement restricted stock units and for the crediting
of interest on cash amounts (deferred director fees and dividend equivalents amounts) that are credited to a participant’s
deferred account. The interest rate utilized is approved by the Compensation Committee in November of each year for the following
calendar year. Historically, the ten-year government treasury note rate as of the first business day of the calendar year has
been used. The interest rate for calendar year 2018 was 2.46%. For fiscal year 2018, Ms. Straub elected to defer 100% of her director’s
fees and settlement of 100% of her restricted stock unit grant and associated dividend equivalents paid on such grant, and each
of Mr. Johnson and Ms. Steinel elected to defer settlement of 100% of his or her respective restricted stock unit grant and associated
dividend equivalents paid on such grant. Earnings on the deferred compensation accounts (dividend equivalents and interest credits)
do not represent above-market or preferential earnings.
The
table below shows cash compensation earned by non-employee directors for fiscal year 2018 and either paid in cash or deferred
at the election of the director as described above. The table also shows the dollar amounts recognized by us for financial statement
reporting purposes during fiscal year 2018 for restricted stock unit awards granted for service during fiscal year 2018.
Director
Compensation for Fiscal Year 2018
Name
|
|
Fees
Earned or Paid in Cash
($)
(1)
|
|
|
Stock
Awards ($)
(2)(3)
|
|
|
All
Other Compensation ($)
(4)
|
|
|
Total
($)
|
|
David
J. Anderson
|
|
|
130,000
|
|
|
|
154,027
|
|
|
|
10,031
|
|
|
|
294,058
|
|
David
D. Johnson
|
|
|
82,500
|
|
|
|
115,025
|
|
|
|
10,164
|
|
|
|
207,689
|
|
Randy
J. Martinez
|
|
|
72,500
|
|
|
|
115,025
|
|
|
|
3,442
|
|
|
|
190,967
|
|
Michael
V. Schrock
|
|
|
75,000
|
|
|
|
115,025
|
|
|
|
3,442
|
|
|
|
193,467
|
|
Gail
P. Steinel
|
|
|
76,000
|
|
|
|
115,025
|
|
|
|
6,643
|
|
|
|
197,668
|
|
Maximiliane
C. Straub
|
|
|
55,000
|
|
|
|
115,025
|
|
|
|
4,732
|
|
|
|
174,757
|
|
Kenneth
Yu
|
|
|
60,000
|
|
|
|
115,025
|
|
|
|
3,442
|
|
|
|
178,467
|
|
(1)
|
Includes
annual retainer and committee meeting fees paid in cash.
|
|
|
(2)
|
Amounts
represent aggregate grant date fair value during fiscal year 2018 under Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 718 based on the valuation and utilizing the assumptions discussed
in Note 6 to our Notes to Consolidated Financial Statements for the fiscal year ended September 29, 2018 included in our Annual
Report on Form 10-K for fiscal year 2018. Mr. Anderson was awarded 3,202 shares and each of Mr. Johnson, Mr. Martinez, Mr.
Schrock, Ms. Steinel, Ms. Straub, and Mr. Yu were awarded 2,391 shares of restricted stock units during fiscal year 2018 with
a grant date fair value of $48.10 per share.
|
|
|
(3)
|
As
of September 29, 2018, the directors held the following number of restricted stock units: Mr. Anderson – 3,202; Mr.
Johnson – 2,391; Mr. Martinez – 2,391; Mr. Schrock – 2,391; Ms. Steinel – 2,391; Ms. Straub –
2,391; and Mr. Yu – 2,391.
|
|
|
(4)
|
Reflects
cash dividends paid on unvested restricted stock units in fiscal year 2018.
|
PROPOSAL
2
RATIFICATION
OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THIS
SECTION SHOULD BE READ IN CONJUNCTION
WITH THE “AUDIT COMMITTEE REPORT” BELOW.
KPMG
LLP (“KPMG”), an independent registered public accounting firm, has been our independent registered public accounting
firm since May 31, 2002. The Audit Committee has selected KPMG to serve as our independent registered public accounting firm and
to serve as auditors for the fiscal year ending September 28, 2019. Shareholder ratification of the appointment is requested.
Consistent with our Audit Committee Charter and the requirements of the Sarbanes Oxley Act of 2002 and applicable rules and regulations
of the SEC and the Nasdaq Stock Market, the ratification of the appointment of independent auditors by the shareholders will in
no manner impinge upon or detract from the authority and power of the Audit Committee to appoint, retain, oversee and, if necessary,
disengage the independent auditors. In the event the appointment of KPMG is not ratified by the shareholders, the Audit Committee
will reconsider the appointment.
Representatives
of KPMG are expected to be present at the virtual Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
Fees
and Services
The
following table presents aggregate fees for professional services rendered by KPMG in fiscal year 2018 and fiscal year 2017 for
the audit of our annual financial statements and for other services.
|
|
Fiscal
Year ($000’s)
|
|
|
|
2018
|
|
|
2017
|
|
Audit
Fees
(1)
|
|
$
|
3,477
|
|
|
$
|
3,599
|
|
Audit-Related
Fees
(2)
|
|
|
80
|
|
|
|
21
|
|
Tax
Fees
(3)
|
|
|
295
|
|
|
|
221
|
|
All
Other Fees
(4)
|
|
|
-
|
|
|
|
-
|
|
Total
fees
|
|
$
|
3,852
|
|
|
$
|
3,841
|
|
(1)
|
Includes
annual audit of consolidated financial statements, certain statutory audits, Sarbanes-Oxley Section 404 attestation services,
and work related to other filings with the SEC.
|
|
|
(2)
|
Audit-related
fees consist of fees for audits of our employee benefit plans and fees for due diligence.
|
|
|
(3)
|
Tax
fees consist of fees for tax compliance and tax consultation services.
|
|
|
(4)
|
There
were no other fees in fiscal year 2018 or fiscal year 2017.
|
The
amounts in the table include out-of-pocket expenses incurred by KPMG. The Audit Committee pre-approved all non-audit services
described in the table. The Audit Committee has determined that the provision of the services identified in the table is compatible
with maintaining the independence of KPMG.
Pre-Approval
Policy
The
Audit Committee’s current practice on pre-approval of services performed by the independent registered public accounting
firm is to require pre-approval of all audit services and permissible non-audit services. The Audit Committee reviews each non-audit
service to be provided and assesses the impact of the service on the firm’s independence. In addition, the Audit Committee
has delegated authority to grant certain pre-approvals to the Audit Committee Chair. Pre-approvals granted by the Audit Committee
Chair are reported to the full Audit Committee at its next regularly scheduled meeting.
Board
Voting Recommendation
THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
RATIFICATION OF THE APPOINTMENT OF KPMG LLP.
AUDIT
COMMITTEE REPORT
The
Audit Committee is currently composed of four directors who are independent, as defined by the applicable rules for companies
listed on the Nasdaq Stock Market. The Audit Committee operates under a written charter adopted by the Board, a copy of which
is available to shareholders on our website at www.mts.com (select “Investor Relations” and click on “Corporate
Governance”).
Management
is responsible for preparing the financial statements, establishing and maintaining the system of internal controls over the financial
reporting processes, and assessing the effectiveness of the Company’s internal control over financial reporting. The independent
registered public accounting firm is responsible for performing an independent audit of our consolidated financial statements
and internal controls in accordance with auditing standards generally accepted in the United States and for issuing reports on
such audit. The Audit Committee’s responsibility is to monitor and oversee these processes.
Management
has represented to the Audit Committee that our consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States and the Audit Committee has reviewed and extensively discussed the consolidated
financial statements with management and KPMG, our independent registered public accounting firm.
In
reviewing our fiscal year 2018 audited consolidated financial statements, the Audit Committee discussed with KPMG matters required
to be discussed by the applicable Public Company Accounting Oversight Board (“PCAOB”) Standards. In addition, the
Audit Committee received from the independent registered public accounting firm the written disclosures required by the PCAOB
regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence
and discussed with them their independence from us and our management. The Audit Committee determined that the tax services provided
to our Company by our independent registered public accounting firm are compatible with the independent registered public accounting
firm’s independence.
Based
upon the Audit Committee’s discussions with management and KPMG and the Audit Committee’s review of the representations
of management and the reports of KPMG, the Audit Committee recommended that the Board include the audited consolidated financial
statements in the Company’s Annual Report on Form 10-K for the fiscal year ended `September 29, 2018.
SUBMITTED
BY THE AUDIT COMMITTEE
OF THE COMPANY’S BOARD OF DIRECTORS
David
D. Johnson (Chair)
David J. Anderson
Randy J. Martinez
Gail P. Steinel
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This
Compensation Discussion and Analysis (CD&A) explains the compensation programs for our Named Executive Officers (NEOs) and
the oversight by the Compensation and Leadership Development Committee (for purposes of this CD&A, the Committee) in setting
executive pay for fiscal year 2018. This CD&A should be read together with the compensation tables and related disclosures
that follow this CD&A.
Our
fiscal year 2018 Named Executive Officers are:
|
●
|
Jeffrey
A. Graves, President and Chief Executive Officer;
|
|
|
|
|
●
|
Brian
T. Ross, Senior Vice President and Chief Financial Officer;
|
|
|
|
|
●
|
William
C. Becker, President, MTS Test and Simulation Sales, Service, and Marketing;
|
|
|
|
|
●
|
Steven
B. Harrison, President, MTS Test and Simulation Engineering, Operations and Order Fulfillment; and
|
|
|
|
|
●
|
David
T. Hore, President, MTS Sensors.
|
This
CD&A is organized into the following sections:
CD&A
Section
|
|
Summary
|
|
Page
|
Executive
Summary
|
|
Highlights
our philosophy, governance practices, and the fiscal year 2018 executive compensation program
|
|
12
|
Say-on-Pay
Results
|
|
Recaps
previous results and existing processes
|
|
14
|
Our
Compensation Process
|
|
Details
how the Committee governs the executive pay program
|
|
14
|
Components
of Pay
|
|
Provides
the key components of fiscal year 2018 executive pay
|
|
16
|
Other
Compensation and Policies
|
|
Discusses
other aspects of our executive pay
|
|
20
|
Executive
Summary
We
consider our executive pay program to be instrumental in helping us achieve our business objectives and effective in rewarding
our overall financial and operational performance.
Our
overarching philosophy is that we should structure executive pay to be consistent with market competitive practices and to align
the long-term interests of our executive officers, shareholders, and customers so that pay appropriately reflects the executive
officers’ performance. We believe that a significant portion of an executive officer’s pay should be at risk in the
form of performance-based incentive awards that are only paid if performance targets are met.
The
Committee leverages the following best practices in designing, administering and governing our executive compensation programs:
|
We
Do
|
|
|
We
Don’t
|
●
|
Target
executive pay around the market median, while also considering retention, tenure, experience, and other factors
|
|
●
|
Provide
single trigger change-in-control cash severance payments
|
|
|
|
|
|
●
|
Emphasize
the majority of our program in variable pay
|
|
●
|
Allow
stock option repricing or discounted stock option granting
|
|
|
|
|
|
●
|
Require
executive officers to hold MTS stock through stock ownership guidelines
|
|
●
|
Offer
tax gross-ups related to 280G parachute payments upon change-in-control
|
|
|
|
|
|
●
|
Vest
equity awards over a minimum of one year to promote retention
|
|
●
|
Pay
accumulated dividends on unearned equity-based compensation until and unless shares are earned
|
|
|
|
|
|
●
|
Mitigate
risk associated with compensation by using multiple performance metrics, caps on potential incentive payments, and a clawback
policy
|
|
●
|
Allow
our executive officers or directors to hedge or pledge MTS stock
|
The
primary components of our fiscal year 2018 executive compensation program consisted of base salary, short-term incentives, and
long-term incentives, as summarized in the following table, along with the Committee’s decisions for fiscal year 2018:
Element
|
|
Key
Features
|
|
Decisions
for Fiscal Year 2018
|
Base
Salary
Purpose:
Attract and retain executive officers, reward talent development
|
|
●
|
Fixed
pay that changes only as a result of the Committee’s annual process for assessing market and executive talent
|
|
●
|
Our CEO
received a 3% increase in base salary, while the average increase for all NEOs was less than 2%
|
|
|
|
|
|
|
|
Short-Term
Incentives
Purpose:
Provide formulaic incentives to achieve or exceed annual operating objectives; encourage a balanced approach to profitability,
growth, and strengthening of balance sheet
|
|
●
|
Executive Variable
Compensation Plan (EVC Plan)
|
|
●
|
Three
performance metrics were utilized for 2018: EPS
(1)
or
EBIT
(2)
(depending on the individual executive officer), Revenue and Leverage Ratio
(3)
|
|
|
|
|
|
|
●
|
Incentive payouts
range from threshold to maximum levels, depending on level of performance
|
|
|
|
|
|
|
|
|
|
●
|
Performance below
the threshold level will result in zero payout
|
|
●
|
2018 target incentives,
as a percentage of base salary, are unchanged from 2017
|
|
|
|
|
|
|
|
Long-Term
Incentives
Purpose:
Create alignment to shareholders via a long-term shareholder return perspective; retain top talent
|
|
●
|
Stock options with
three-year graded vesting and a seven year term
|
|
●
|
No changes to the
LTI design
|
|
|
|
|
|
|
|
●
|
Time-based restricted
stock units with three-year graded vesting
|
|
●
|
The total
LTI grant value awarded to our CEO in 2018 increased by 18%, as compared to the 2017 grant, while the average increase for
all NEOs was 15%
|
|
|
|
|
|
|
●
|
Performance-based
restricted stock units that vest based on average Adjusted ROIC for LTIs measured over a three-year period
|
|
|
(1)
|
EPS
is equivalent to diluted earnings per share.
|
|
|
(2)
|
EBIT
is equivalent to income before income taxes, less interest expense, net.
|
|
|
(3)
|
Leverage
Ratio is a non-GAAP financial measure. For more information on how this non-GAAP financial measure is derived from our audited
financial statements, see page 21 of this proxy statement.
|
The
following chart shows the relative weighting of target pay across these three components for fiscal year 2018:
*
|
Excludes
Mr. Hore, as he did not participate in the standard executive compensation program in fiscal year 2018. Mr. Hore’s compensation
was previously set pursuant to an employment agreement that we assumed in connection with the acquisition of PCB in 2016 (the
Hore Employment Agreement). The Hore Employment Agreement ended on July 5, 2018; however, Mr. Hore’s executive compensation
program continues to include base salary, discretionary bonus based on business unit performance, and standard executive long-term
incentives.
|
Say-on-Pay
Results
At
our annual shareholder meeting in February 2018, our shareholders continued to show strong support of our executive pay program,
with 98.1 percent of the votes approving the say-on-pay resolution.
The
Committee believes this result affirms our shareholders’ continuing support of the Committee’s approach to executive
pay. Thus, the Committee made only nonsubstantive changes to executive pay for fiscal year 2018. We continue to solicit and accept
shareholder feedback regarding our compensation programs, and take this input into consideration along with market trends and
our business environment, both internal and external.
Our
Compensation Process
Independent
Compensation Consultant
Under
the Committee’s charter, the Committee has the authority to select, retain and compensate executive compensation consultants
and other advisors as it deems necessary to carry out its responsibilities. For fiscal year 2018, the Committee engaged Willis
Towers Watson to provide information regarding compensation of our executive officers. Specifically, Willis Towers Watson was
asked by the Committee to:
|
●
|
Review
and provide information on our compensation peers;
|
|
|
|
|
●
|
Provide
market competitive data on executive compensation for base salary, short-term incentives, and long-term incentives; and
|
|
|
|
|
●
|
Provide
market competitive data on incentive design structures and performance measures.
|
Determining
Competitive Compensation
The
Committee works with Willis Towers Watson to analyze competitive market data to determine appropriate base salary levels, short-term
incentive target pay, and long-term incentive grant values for all of our executive officers. When making comparisons to the market
data, the Committee generally seeks to establish compensation levels that approximate the market median.
With
respect to our CEO’s pay, the Committee conducts an annual performance assessment of the CEO and determines appropriate
adjustments to all elements of his pay based on his individual performance and the Company’s performance. The Committee
recommends CEO pay to the Board for approval. The CEO does not participate in these Committee deliberations and does not vote
on Board matters concerning CEO pay.
For
other executive officers, the CEO makes recommendations to the Committee for all elements of pay based on individual and Company
performance and market data. The Committee reviews, discusses, modifies, and approves the recommendations, as appropriate.
Market
Data Sources and Analysis
The
Committee annually assesses “competitive market” compensation for each element of executive compensation using a number
of sources. A primary source is our peer group and the related data provided by Willis Towers Watson. In determining our peer
group, we recognize that many of our direct competitors are either privately-owned companies, or divisions of much larger, more
diversified, public companies. However, by considering relevant industries (e.g., industrial, manufacturing, engineering and electrical
components) and size parameters (e.g., revenue, earnings and market capitalization) we developed the following list of peer companies:
Badger
Meter Inc.
|
Kimball
Electronics, Inc.
|
|
|
Cognex
Corporation
|
Littelfuse,
Inc.
|
|
|
Coherent
Inc.
|
Methode
Electronics, Inc.
|
|
|
CTS
Corporation
|
MKS
Instruments, Inc.
|
|
|
Daktronics
Inc.
|
National
Instruments Corporation
|
|
|
ESCO
Technologies Inc.
|
Novanta
Inc.
|
|
|
Fabrinet
|
OSI
Systems, Inc.
|
|
|
FARO Technologies
Inc.
|
RBC
Bearings Inc.
|
|
|
HEICO
Corporation
|
Standex
International Corporation
|
John
Bean Technologies Corporation
In
addition to the data from these peer companies, market competitive data was obtained from the 2017 Willis Towers Watson Compensation
DataBank Survey and the 2017 Willis Towers Watson Compensation Survey Report for companies with less than $1 billion in revenue.
The
Committee does not have a set policy or formula for weighting the elements of compensation (i.e., base salary, short-term incentives,
and long-term incentives) for each executive officer. Instead, the Committee considers market factors relevant to each executive
officer and their tenure, role within the Company and contributions to the Company’s performance. In general, as executive
officers assume greater responsibility, a larger portion of their total cash compensation is payable as short-term cash incentive,
which is variable based on performance, as opposed to base salary and a larger portion of their total direct compensation comes
in the form of long-term equity incentives.
Components
of Pay
Fiscal
Year 2018 Base Salaries
The
Committee reviews executive officer base salaries annually and may choose to make adjustments. The following table outlines fiscal
year 2018 base salary increases for our NEOs as approved by the Committee:
Named
Executive Officer
|
|
Fiscal
Year 2018
Base Salary
|
|
|
Fiscal
Year 2017
Base Salary
|
|
|
Increase
Percentage
|
|
Jeffrey
A. Graves
|
|
$
|
695,250
|
|
|
$
|
675,000
|
|
|
|
3.0
|
%
|
Brian
T. Ross
|
|
$
|
355,000
|
|
|
$
|
335,000
|
|
|
|
6.0
|
%
|
William
C. Becker
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
|
|
0
|
%
(1)
|
Steven
B. Harrison
|
|
$
|
335,000
|
|
|
$
|
335,000
|
|
|
|
0
|
%
(1)
|
David
T. Hore
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
|
0
|
%
(2)
|
(1)
|
A
salary freeze was in effect for senior management of the Test and Simulation segment during fiscal year 2018.
|
|
|
(2)
|
Mr.
Hore’s base salary based on the Hore Employment Agreement.
|
Fiscal
Year 2018 Short-Term Incentives
Under
the EVC Plan, all of the NEOs employed by the Company at the end of fiscal year 2018, other than Mr. Hore, were eligible for cash
payments as determined based upon our financial performance as compared to set performance standards. Mr. Hore does not participate
under the EVC Plan because the Hore Employment Agreement provides that payment of any bonus to him is at the sole discretion of
the Board.
The
following table shows the fiscal year 2018 target incentive opportunity for the EVC Plan:
Named
Executive Officer
|
|
2018
EVC Plan Target Incentive
(% of Base Salary)
|
|
Jeffrey
A. Graves
|
|
|
100
|
%
|
Brian
T. Ross
|
|
|
55
|
%
|
William
C. Becker
|
|
|
40
|
%
|
Steven
B. Harrison
|
|
|
45
|
%
|
The
following diagram shows the fiscal year 2018 EVC Plan Metrics and Weightings for our NEOs:
2018
EVC Plan Metrics and Weightings for
Named
Executive Officers
For
Dr. Graves and Mr. Ross, all performance metrics, Leverage Ratio, revenue and EPS, were based on total Company performance. For
Messrs. Becker and Harrison, the Leverage Ratio performance metric was based on total Company performance, while the revenue performance
metric was based upon achievement of financial targets for the Test and Simulation segment. In lieu of an EPS metric for Messrs.
Becker and Harrison, a performance metric of EBIT was used, which was also based on achievement of financial targets for the Test
and Simulation segment. The Committee established these revenue and EBIT goals based on segment (rather than total Company) performance
for these executive officers to reflect their accountability for the performance of that segment. The Committee believes that
the leader of the segment has a meaningful opportunity to directly impact the achievement of the performance goals through his
individual performance as the leader of that segment.
The
Committee established minimum, target and maximum levels of achievement for each of the performance metrics, as shown in the following
table:
Corporate
Goal
(1)
|
|
Weight
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Result
|
|
|
Percent
of Target
Performance Achieved
|
|
EPS
(2)
|
|
|
45
|
%
|
|
$
|
2.00
|
|
|
$
|
2.31
|
|
|
$
|
2.61
|
|
|
$
|
3.18
|
|
|
|
138
|
%
(2)
|
Revenue (000s)
|
|
|
30
|
%
|
|
$
|
736,814
|
|
|
$
|
848,335
|
|
|
$
|
959,857
|
|
|
$
|
778,032
|
|
|
|
92
|
%
|
Leverage
Ratio
(3)
|
|
|
25
|
%
|
|
|
3.80
|
|
|
|
3.30
|
|
|
|
2.70
|
|
|
|
3.6
|
|
|
|
92
|
%
|
Payout
as % of Target Incentive
|
|
|
|
|
|
|
50
|
%
|
|
|
100
|
%
|
|
|
200
|
%
|
|
|
—
|
|
|
|
60.1
|
%
|
(1)
|
Specific
EBIT and revenue performance goals for the Test and Simulation segment and the corresponding minimum, target and maximum amounts
are not disclosed due to the potential competitive harm of such disclosure. For fiscal year 2018, the Committee followed the
same pattern in setting segment-specific performance levels as for setting the corporate performance levels: for EBIT and
revenue, minimum is equal to 80% of the expected results under the applicable segment’s annual plan, target is equal
to expected results, and maximum is equal to 120% of expected results.
|
|
|
(2)
|
The
Committee determined that the impact of the Tax Cuts and Jobs Act of 2017 was outside of plan performance and therefore utilized
downward discretion to reduce the EPS payout to Threshold value.
|
|
|
(3)
|
Leverage
Ratio is a non-GAAP financial measure. For more information on how this non-GAAP financial measure is derived from our audited
financial statements, see page 21 of this proxy statement.
|
The
Committee believes that the EPS and EBIT performance goals provide a strong link between the EVC Plan and shareholder value, and
therefore, if the target level of EPS or EBIT achievement, as applicable, is not met, participants are limited to target payouts
under the EVC Plan regardless of the results of other performance goals.
Based
on the results for fiscal year 2018, the payouts to each NEO, other than Mr. Hore, under the EVC Plan by performance goal were
calculated as follows based upon their respective fiscal year 2018 base salaries:
Performance
Goal
|
|
Percent
of Target
Payout Achieved
|
|
|
Jeffrey
A.
Graves
|
|
|
Brian
T.
Ross
|
|
|
William
C.
Becker
(1)
|
|
|
Steven
B.
Harrison
(1)
|
|
EPS
(2)
or EBIT
|
|
|
50
|
%
|
|
$
|
155,553
|
|
|
$
|
43,455
|
|
|
|
0
|
|
|
|
0
|
|
Revenue
|
|
|
69
|
%
|
|
$
|
142,030
|
|
|
$
|
39,677
|
|
|
|
0
|
|
|
|
0
|
|
Leverage
Ratio
(3)
|
|
|
68
|
%
|
|
$
|
118,100
|
|
|
$
|
32,992
|
|
|
$
|
20,499
|
|
|
|
25,752
|
|
Total
|
|
|
—
|
|
|
$
|
415,683
|
|
|
$
|
116,124
|
|
|
$
|
20,499
|
|
|
|
25,752
|
|
Total
as % of Target
|
|
|
—
|
|
|
|
60.1
|
%
|
|
|
60.1
|
%
|
|
|
17.1
|
%
|
|
|
17.1
|
%
|
(1)
|
Achievement
of the performance goals relating to revenue and EPS for Company performance for fiscal year 2018 does not apply to Messrs.
Becker and Harrison. Amounts attributable to each of these measures represent amounts attributable to actual achievement in
fiscal year 2018 by the Test and Simulation segment of the revenue and EBIT performance goals, respectively.
|
|
|
(2)
|
The
Committee determined that the impact of the Tax Cuts and Jobs Act of 2017 was outside of plan performance and therefore utilized
downward discretion to reduce the EPS payout to Threshold value. The payout achieved prior to applying downward discretion
was 200%.
|
|
|
(3)
|
Leverage
Ratio is a non-GAAP financial measure. For more information on how this non-GAAP financial measure is derived from our audited
financial statements, see page 21 of this proxy statement.
|
Mr.
Hore does not participate in the EVC Plan, so he also did not qualify for a payout under the EVC Plan. However, taking into consideration
the performance of the Sensors segment, the Committee decided to provide Mr. Hore a discretionary bonus of $107,100 for fiscal
year 2018.
Fiscal
Year 2018 Long-Term Incentives
The
long-term incentives (LTIs) granted to each NEO in fiscal year 2018 consisted of stock options, restricted stock units (RSUs),
and performance-based restricted stock units (PRSUs), according to the following mix:
2018
LTI Type Mix
(% of total grant dollar value)
LTI
Type
|
|
Key
Features
|
Stock
Options
|
●
|
Non-qualified
stock options
|
|
|
|
|
●
|
Vest
one-third per year commencing on the first anniversary of the date of grant
|
|
|
|
|
●
|
Seven
year term
|
|
|
|
RSUs
|
●
|
Restricted
stock units
|
|
|
|
|
●
|
Vest
one-third per year commencing on the first anniversary of the date of grant
|
|
|
|
PRSUs
|
●
|
Performance-based
restricted stock units
|
|
●
|
Adjusted
ROIC for LTIs as the performance measure, emphasizing profitability with a longer-term
view
|
|
|
|
|
●
|
The
performance measure is expressed as average Adjusted ROIC for LTIs over a three-year performance period
|
|
|
|
|
●
|
The
performance range has threshold, target and maximum performance expectations for each three-year cycle
|
|
|
|
|
●
|
Payouts
are 50%, 100%, and 200% at threshold, target, and maximum performance, respectively
|
The
fiscal year 2018 LTIs are summarized for each NEO in the following table (except as noted below, all LTIs were granted in April
2018):
Named
Executive Officer
|
|
Number
of
Stock Options
|
|
|
Number
of
Restricted Stock
Units
|
|
|
Number
of Performance
Restricted Stock Units
|
|
|
Aggregate
Value of
Awards
|
|
Jeffrey
A. Graves
|
|
|
38,934
|
|
|
|
8,308
|
|
|
|
16,616
|
|
|
$
|
1,738,029
|
|
Brian
T. Ross
|
|
|
5,600
|
|
|
|
1,195
|
|
|
|
2,390
|
|
|
$
|
250,000
|
|
Brian
T. Ross*
|
|
|
–
|
|
|
|
917
|
|
|
|
–
|
|
|
$
|
50,000
|
|
William
C. Becker
|
|
|
4,480
|
|
|
|
956
|
|
|
|
1,912
|
|
|
$
|
200,000
|
|
Steven
B. Harrison
|
|
|
5,040
|
|
|
|
1,076
|
|
|
|
2,151
|
|
|
$
|
225,000
|
|
David
T. Hore
|
|
|
5,040
|
|
|
|
1,076
|
|
|
|
2,151
|
|
|
$
|
225,000
|
|
David
T. Hore*
|
|
|
–
|
|
|
|
2,049
|
|
|
|
–
|
|
|
$
|
100,000
|
|
*
|
Messrs.
Ross and Hore received additional RSUs in December 2017 and February 2018, respectively, in recognition of the satisfactory
outcome of SOX compliance requirements related to the integration of PCB Group, Inc.
|
In
determining the number of stock options to grant, 25% of the aggregate value of the award is divided by the average of the Black
Scholes values over the 90 days prior to the end of the fiscal year. This methodology, versus determining the number of stock
options to grant based on the closing price of the Company’s common stock on the date of grant, better represents the value
of our equity over a period of time prior to the date of the award and signals that pay realized from stock option grants will
be more sensitive to future stock price appreciation and less sensitive to past stock price volatility. In determining the number
of RSUs and PRSUs to grant, 25% and 50%, respectively, of the aggregate value of the award is divided by the closing price of
the Company’s common stock on the date of grant.
The
table below sets forth the threshold, target and maximum levels for the three-year average Adjusted ROIC performance goal for
the performance period of fiscal year 2016 through fiscal year 2018 as well as the actual achievement of that performance goal
and the percentage of the target level of that achievement.
Performance
Goal
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Result
|
|
|
Percent
of Target
Performance Achieved
|
|
|
Percent
of Target
Payout Achieved
|
|
Adjusted
ROIC for LTIs*
|
|
|
10.6
|
%
|
|
|
17.6
|
%
|
|
|
22.6
|
%
|
|
|
14.2
|
%
|
|
|
80.7
|
%
|
|
|
88.0
|
%
|
*
|
Represents
a non-GAAP financial measure. For more information on how this non-GAAP financial measure is derived from our audited financial
statements, see page 21 of this proxy statement.
|
The
payout for the PRSUs granted on December 9, 2015 was calculated as follows based upon fiscal years 2016 through 2018 performance.
|
|
|
|
|
|
Target
PRSUs
|
|
|
Actual
PRSUs
|
|
Named
Executive Officer
|
|
Performance
Period
|
|
Vesting
and
Payout Date
|
|
Number
of
Shares
Awarded
(#)
|
|
|
Grant
Date
Fair Value
(1)
($)
|
|
|
Number
of
Shares
Acquired
(#)
|
|
|
Value
Realized at
Vest
(2)
($)
|
|
Jeffrey
A. Graves
|
|
Fiscal
Years 2016 - 2018
|
|
12/9/2018
|
|
|
10,123
|
|
|
$
|
624,994
|
|
|
|
8,906
|
|
|
$
|
423,837
|
|
(1)
|
Target
PRSU value represents number of shares granted multiplied by the share price of $61.74 on the date of the grant (December
9, 2015).
|
|
|
(2)
|
The
value realized on the vesting of the PRSUs is the fair market value of our common stock at the time of vesting (December 9,
2018).
|
Other
Compensation and Policies
Benefits
and Perquisites
Our
executive officers are provided retirement and health benefits that are generally available to our other salaried employees, including:
|
●
|
Retirement
savings plan with a Company match (not available to Mr. Hore);
|
|
|
|
|
●
|
Disability
and life insurance; and
|
|
|
|
|
●
|
Medical,
vision and dental insurance (not available to Mr. Hore).
|
Our
executive officers, other than Mr. Hore, are eligible to participate in our Executive Deferred Compensation Plan, which allows
us to provide non-qualified retirement benefits that are identical to the tax-qualified benefits but on income above the allowable
level of qualified plans.
We
provide limited executive perquisites, based upon competitive market data and, in the case of physical examinations, to promote
vitality and succession in the executive team, including:
|
●
|
A
car allowance, except for Mr. Hore, who has use of a Company-owned vehicle; and
|
|
|
|
|
●
|
Reimbursement
for an executive physical examination for amounts not covered by insurance, up to $3,000 (not available to Mr. Hore).
|
Executive
Compensation Clawback Policy
The
EVC Plan, the 2011 Stock Incentive Plan (the 2011 Plan) and the 2017 Stock Incentive Plan (the 2017 Plan) include clawback provisions.
The provisions require an executive officer to forfeit and allow us to recoup from the executive officer any payments or benefits
received by the executive officer under the EVC Plan, the 2011 Plan or the 2017 Plan under certain circumstances, such as certain
restatements of our financial statements, termination of employment for cause, violation of the MTS Code of Conduct and breach
of an agreement between us and the executive officer.
Stock
Ownership Guidelines
To
align our executive officers’ interests with our shareholders’ interests, the Committee expects our executive officers
to acquire significant equity ownership in the Company. Accordingly, we have adopted stock ownership guidelines requiring each
executive officer to achieve an equity ownership level equal to a specified multiple of his or her base salary within five years
of being appointed as an executive officer or within five years of a change in executive officer status resulting in an increased
required level of ownership.
The
current minimum equity ownership levels as a multiple of base pay are as follows:
|
●
|
Five
times for the CEO;
|
|
|
|
|
●
|
Four
times for the Chief Financial Officer; and
|
|
|
|
|
●
|
A
multiple equal to their executive salary grade level for any other President and Senior Vice President (ranging from one time
to four times) and one-half time for a senior level executives.
|
The
policy requires that our executive officers hold equity acquired through our equity compensation plans in a minimum amount of
75% of the net shares acquired (net of taxes) until ownership levels are met. The policy also provides that failure by a participant
to meet the required ownership level within the time period established will result in a requirement that such participant retain
100% of the net shares acquired (net of taxes) through our equity compensation programs until ownership levels are met.
Our
independent directors also have a guideline for achieving significant equity ownership. Our independent directors are expected
to achieve ownership of our common stock equal to a minimum of five times their annual cash retainer.
The
Committee reviews the progress of our executive officers toward the ownership guidelines on a regular basis and has determined
that all of the executive officers are on track for meeting the ownership guidelines within the established timeframes.
Non-GAAP
Financial Measures and Performance Metrics
Below
is information on how we calculate target levels and actual results for certain metrics discussed above:
|
●
|
Adjusted
ROIC for LTIs: Adjusted ROIC for LTIs is a non-GAAP financial measure and is calculated by dividing Adjusted Performance Net
Income (as defined below) by Average Adjusted Invested Capital (as defined below) over a three-year time period. Adjusted
Performance Net Income is a non-GAAP financial measure and is calculated by excluding the following from net income: after-tax
interest expense; the estimated impact of the PCB acquisition to net income, including discrete tax benefits results
from the Tax Cuts and Jobs Act of 2017; acquisition-related expenses, net of tax; acquisition integration expenses, net of
tax; acquisition inventory fair value adjustment, net of tax; restructuring expense, net of tax; and China investigation expense,
net of tax. Average Adjusted Invested Capital is a non-GAAP financial measure and is defined as the aggregate of average interest-bearing
debt, excluding interest-bearing debt incurred as a result of the acquisition of PCB, and average shareholders’ equity,
excluding equity incurred as a result of the acquisition of PCB and including cumulative adjustments to net income to arrive
at Adjusted Performance Net Income, and is calculated as the sum of current and prior year ending amounts divided by two.
|
|
|
|
|
●
|
Leverage
Ratio: Leverage Ratio is a non-GAAP financial measure and is calculated as the ratio of our total interest-bearing debt to
our Adjusted EBITDA for Leverage Ratio (as defined below).
|
|
|
|
|
●
|
Adjusted
EBITDA for Leverage Ratio: Adjusted EBITDA for Leverage Ratio is a non-GAAP financial measure and our measurement of Adjusted
EBITDA may differ from other companies. We calculate EBITDA by adding back interest, taxes, depreciation and amortization
expense to net income. Adjusted EBITDA for Leverage Ratio is calculated by adding back stock-based compensation expense, restructuring
expense and the gain recognized on the sale of one of our China manufacturing facilities to EBITDA.
|
Compensation
and Leadership Development Committee Report
The
Compensation and Leadership Development Committee has discussed and reviewed the Compensation Discussion and Analysis set forth
above with management. Based upon this review and discussion, the Compensation and Leadership Development Committee recommended
to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
SUBMITTED
BY THE COMPENSATION AND LEADERSHIP DEVELOPMENT
COMMITTEE OF THE COMPANY’S BOARD OF DIRECTORS
Michael
V. Schrock (Chair)
David D. Johnson
Randy J. Martinez
Risk
Considerations in Our Compensation Programs
In
fiscal year 2018, management and the Compensation Committee continued to focus on responsible pay practices designed to produce
positive results for the Company and its shareholders without encouraging excessive or inappropriate risk-taking. The Compensation
Committee’s analysis identified the following components of our compensation programs that it believes effectively reduce
risk without reducing incentives:
|
●
|
Our
use of different types of compensation (cash, cash bonus and equity) provides an appropriate balance of short-term and long-term
incentives with fixed and variable components;
|
|
|
|
|
●
|
Our
compensation plan design and the governance processes work together to minimize exposure to excessive risk, while creating
a focus on operational activities that contribute to long-term shareholder value creation;
|
|
|
|
|
●
|
Our
metrics used to determine the amount of a participant’s bonus under our short-term incentive plans focus on a combination
of Company-wide and business unit performance using a balance of top and bottom line growth measures;
|
|
|
|
|
●
|
Our
metric used to determine the amount of a participant’s award under our long-term incentive plan focuses on our ability
to create value for investors from our operating activities;
|
|
|
|
|
●
|
Our
bonus plans impose threshold and maximum payout levels on bonus awards to ensure that we are rewarding desired performance
and limiting windfalls;
|
|
|
|
|
●
|
Our
commission-based plans are aligned to drive business growth and support achievement of short- and long-term strategic objectives;
|
|
|
|
|
●
|
Our
incentive programs include clawback provisions and allow the use of negative discretion for named executive officers;
|
|
|
|
|
●
|
Our
stock ownership guidelines encourage prudent contribution to shareholder value and discourage excessive risk taking; and
|
|
|
|
|
●
|
Our
system of internal controls places a strong focus on avoiding undue financial risk through a well-developed design and administrative
review processes.
|
Based
on the Company’s use of these programmatic safeguards and on the Compensation Committee’s continued review of the
Company’s incentive compensation policies and practices for all of the Company’s worldwide locations, the Compensation
Committee concluded in fiscal year 2018 that any risks arising from the Company’s compensation policies and practices are
not reasonably likely to have a material adverse effect on the Company.
Conflict
of Interest Analysis
Our
Compensation Committee has considered the relationships that its independent compensation consultants have had with the Company,
the members of the Compensation Committee and our executive officers, as well as the policies that the consultants have in place
to maintain their independence and objectivity and has determined that the work performed by its compensation consultants has
raised no conflicts of interest.
Summary
Compensation Table
The
following table sets forth the cash and non-cash compensation with respect to each named executive officer during the prior three
fiscal years.
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
(1)
($)
|
|
|
Stock
Awards
(2)
($)
|
|
|
Option
Awards
(2)
($)
|
|
|
Non-
Equity
Incentive
Plan
Compen-
sation
(3)
($)
|
|
|
All
Other
Compensation
(4)
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
A. Graves
President
and Chief Executive Officer
|
|
2018
2017
2016
|
|
|
691,348
670,194
647,500
|
|
|
|
—
—
—
|
|
|
|
1,303,525
1,124,985
624,994
|
|
|
|
431,988
345,975
722,274
|
|
|
|
415,683
237,778
647,500
|
|
|
|
20,892
20,667
20,667
|
|
|
|
2,863,436
2,399,599
2,662,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
T. Ross
Senior
Vice President and Chief Financial Officer
|
|
2018
2017
|
|
|
351,415
260,190
|
|
|
|
—
—
|
|
|
|
237,518
171,151
|
|
|
|
62,133
88,213
|
|
|
|
116,124
62,646
|
|
|
|
20,892
15,977
|
|
|
|
788,082
598,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
C. Becker
President,
MTS Test and Simulation Sales, Service and Marketing
|
|
2018
2017
|
|
|
299,998
288,460
|
|
|
|
—
25,000
|
|
|
|
144,213
123,732
|
|
|
|
49,706
28,830
|
|
|
|
20,499
41,079
|
|
|
|
20,892
20,638
|
|
|
|
535,308
527,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
B. Harrison
President,
MTS Test and Simulation Engineering, Operations and Order Fulfillment
|
|
2018
2017
|
|
|
335,005
206,157
|
|
|
|
—
112,771
|
|
|
|
168,772
181,254
|
|
|
|
55,921
40,362
|
|
|
|
25,752
—
|
|
|
|
21,685
82,346
|
|
|
|
607,135
622,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
T. Hore
President,
MTS Sensors
|
|
2018
2017
2016
|
|
|
500,000
490,385
125,000
|
|
|
|
107,100
—
—
|
|
|
|
268,763
206,229
269,994
|
|
|
|
55,921
63,426
—
|
|
|
|
—
—
—
|
|
|
|
35,813
34,322
14,955
|
|
|
|
967,597
794,362
409,949
|
|
(1)
|
Amount
for Mr. Becker represents an inducement cash bonus. Amount for Mr. Harrison includes an inducement cash bonus ($20,000) plus
the guaranteed EVC Plan payout at target ($92,771) pursuant to the terms of his employment offer. Amount for Mr. Hore represents
a discretionary cash bonus.
|
|
|
(2)
|
Amounts
represent the aggregate grant date fair value of RSUs and stock options that were granted in each fiscal year as computed
in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 718 utilizing the assumptions discussed in Note 6 to our Notes to Consolidated Financial Statements for the fiscal year
ended September 29, 2018 included in our Annual Report on Form 10-K for fiscal year 2018.
|
|
|
(3)
|
Represents
amounts awarded for fiscal year 2018 performance under the EVC Plan and paid out in the first quarter of fiscal year 2019.
|
|
|
(4)
|
The
table below describes the amounts in the “All Other Compensation” column above.
|
Supplemental
Table to the “All Other Compensation” Column
|
|
Retirement
Plan
|
|
|
|
|
|
|
|
|
Life
Insurance
Premiums, Executive
Physical and Health
|
|
|
|
|
Name
|
|
Match
($)
|
|
|
Fiscal
Year
Contribution
(1)
($)
|
|
|
Car
($)
|
|
|
Club
Membership
($)
|
|
|
Saving
Account
Contributions
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
A. Graves
|
|
|
12,150
|
|
|
|
—
|
|
|
|
8,040
|
|
|
|
—
|
|
|
|
702
|
|
|
|
20,892
|
|
Brian
T. Ross
|
|
|
12,150
|
|
|
|
—
|
|
|
|
8,040
|
|
|
|
—
|
|
|
|
702
|
|
|
|
20,892
|
|
William
C. Becker
|
|
|
12,150
|
|
|
|
—
|
|
|
|
8,040
|
|
|
|
—
|
|
|
|
702
|
|
|
|
20,892
|
|
Steven
B. Harrison
|
|
|
12,150
|
|
|
|
—
|
|
|
|
8,040
|
|
|
|
—
|
|
|
|
1,495
|
|
|
|
21,685
|
|
David
T. Hore
|
|
|
—
|
|
|
|
2,700
|
|
|
|
23,898
|
|
|
|
6,225
|
|
|
|
2,990
|
|
|
|
35,813
|
|
(1)
|
For
Messrs. Graves, Ross, Becker, and Harrison, no discretionary Fiscal Year Contribution was made in fiscal year 2018 given overall
Company performance. Mr. Hore received an Employer Nonelective Contribution according to the terms of the PCB Group, Inc.
Profit Sharing 401(k) Retirement Plan.
|
Grants
of Plan-Based Awards in Fiscal Year 2018
As
reflected in the table below, the named executive officers received four types of plan-based awards for their service in fiscal
year 2018: a cash award under the EVC Plan, payable in the first quarter of fiscal year 2019; stock options granted on April 17,
2018 under the 2017 Plan; RSUs granted on April 17, 2018 under the 2017 Plan; and PRSUs granted on April 17, 2018 under the 2017
Plan.
EVC
Awards
Under
our EVC Plan, the named executive officers may receive cash payouts after the completion of each fiscal year if specified performance
goals established at the beginning of the fiscal year are attained. For each named executive officer, a cash incentive amount,
expressed as a percentage of his or her base salary, is established for performance at each of the target and maximum levels.
The EVC Plan awards for fiscal year 2018 were structured so that the cash incentive paid to each named executive officer would
be 0% to 200% of the payout level established for performance at the target level for each goal. Mr. Hore did not participate
in the EVC Plan during fiscal year 2018 and, as a result, did not receive any cash payouts under the EVC Plan. However, based
on Sensors segment performance, Mr. Hore did receive a discretionary bonus.
Information
about the potential payout levels established for each named executive officer, other than Mr. Hore, and the nature and weighting
of the goals selected for fiscal year 2018 can be found under “Compensation Discussion and Analysis.” The actual amounts
paid pursuant to the EVC Plan for fiscal year 2018 performance are listed in the “Non-Equity Incentive Plan Compensation”
column to the Summary Compensation Table.
Stock
Options
Unless
an option holder is terminated for cause, vested stock options are exercisable for 90 days after the termination of the option
holder’s employment, or 180 days upon death, disability or retirement. If an option holder’s employment is terminated
for “Cause,” as such term is defined in our 2011 Plan or 2017 Plan, as applicable, all unexercised options will immediately
terminate. The Committee may, at any time after the award is granted, accelerate the vesting of some or all of the unvested options
as it deems appropriate.
These
stock options would become fully exercisable upon the occurrence of a “Change in Control,” as such term is defined
in our 2011 Plan or 2017 Plan, as applicable, unless the acquiring entity assumed or provided a substitute for the award. The
Committee may require options be exercised prior to the Change in Control and may pay cash or other securities to cancel awards
in connection with the Change in Control.
Restricted
Stock Units
If
a unit holder’s employment is terminated, the unvested units will be forfeited. The Committee may, at any time after the
award is granted, accelerate the vesting of some or all of the unvested units as it deems appropriate.
These
RSUs would become fully exercisable upon the occurrence of a “Change in Control,” as such term is defined in our 2011
Plan or 2017 Plan, as applicable, unless the acquiring entity assumed or provided a substitute for the award. The Committee may
pay cash or other securities to cancel awards in connection with the Change in Control.
Grants
to named executive officers of plan-based awards in fiscal year 2018 are set forth in the table below.
|
|
|
|
|
|
|
|
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards
(2)
|
|
|
Estimated
Future Payouts Under Equity Incentive Plan Awards
|
|
|
All
Other
Stock
Awards:
Number
of
Shares
of
Stock
|
|
|
All
Other
Options
Awards:
Number
of
Securities
|
|
|
Exercise
or
Base
Price of
Options
|
|
|
Grant
Date Fair
Value of
Stock
and
Option
|
|
Name
|
|
Grant
Date
|
|
Approval
Date
|
|
Award
Type
(1)
|
|
Threshold
(3)
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Threshold
(4)
(#)
|
|
|
Target
(#)
|
|
|
Maximum
(#)
|
|
|
or
Units
(#)
|
|
|
Underlying
Options
(5)
(#)
|
|
|
Awards
(5)
($/Sh)
|
|
|
Awards
(6)
($)
|
|
Jeffrey
A. Graves
|
|
|
|
|
|
Cash
|
|
|
84,375
|
|
|
|
675,000
|
|
|
|
1,350,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,934
|
|
|
$
|
52.30
|
|
|
|
431,988
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
PRSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,308
|
|
|
|
16,616
|
|
|
|
33,232
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
869,017
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
RSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,308
|
|
|
|
—
|
|
|
|
—
|
|
|
|
434,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
T. Ross
|
|
|
|
|
|
Cash
|
|
|
23,031
|
|
|
|
184,250
|
|
|
|
368,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,600
|
|
|
$
|
52.30
|
|
|
|
62,133
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
PRSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,195
|
|
|
|
2,390
|
|
|
|
4,780
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124,997
|
|
|
|
12/15/2017
|
|
11/13/2017
|
|
RSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
917
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,022
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
RSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
C. Becker
|
|
|
|
|
|
Cash
|
|
|
15,000
|
|
|
|
120,000
|
|
|
|
240,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,480
|
|
|
$
|
52.30
|
|
|
|
49,706
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
PRSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
956
|
|
|
|
1,912
|
|
|
|
3,824
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
99,998
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
RSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
956
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
B. Harrison
|
|
|
|
|
|
Cash
|
|
|
18,844
|
|
|
|
150,750
|
|
|
|
301,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,040
|
|
|
$
|
52.30
|
|
|
|
55,921
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
PRSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,076
|
|
|
|
2,151
|
|
|
|
4,302
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
112,497
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
RSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,076
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
T. Hore
|
|
4/17/2018
|
|
11/13/2017
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,040
|
|
|
$
|
52.30
|
|
|
|
55,921
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
PRSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,076
|
|
|
|
2,151
|
|
|
|
4,302
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
112,497
|
|
|
|
2/15/2018
|
|
11/13/2017
|
|
RSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,049
|
|
|
|
—
|
|
|
|
—
|
|
|
|
99,991
|
|
|
|
4/17/2018
|
|
11/13/2017
|
|
RSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,076
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,275
|
|
(1)
|
The
cash awards are made pursuant to the EVC Plan. The grants of stock options, RSUs and PRSUs were made pursuant to the 2017
Plan.
|
|
|
(2)
|
The
EVC Plan performance goals for fiscal year 2018 are described under “Compensation Discussion and Analysis – 2018
Short-Term Incentives.”
|
|
|
(3)
|
Threshold
amounts can be calculated for each individual performance measure, and in each case are equal to 50% of the target amount
payable with respect to that measure. The amounts reported as threshold amounts in the table represent the payout that would
have been made if threshold performance were achieved for the performance measure assigned the lowest weight for the respective
named executive officer, assuming that threshold performance was not achieved for any other performance measure.
|
|
|
(4)
|
Threshold
amounts represent minimum number of PRSUs, equal to 50% of the target number of PRSUs available if threshold performance is
achieved.
|
|
|
(5)
|
Equal
to the closing market value of shares of our common stock on Nasdaq on the grant date.
|
|
|
(6)
|
The
grant date fair value of options is calculated using a multiple option form of the Black-Scholes option valuation model with
assumptions for interest rate, expected life, share price volatility and dividend yield. The grant date fair value of RSUs
is calculated with reference to the fair market value of the underlying shares (the closing market value of shares of our
common stock on Nasdaq on the grant date). See Note 6 to our Notes to Consolidated Financial Statements for the fiscal year
ended September 29, 2018 included in Item 8 of Part II of our Annual Report on Form 10-K for fiscal year 2018.
|
Outstanding
Equity Awards at 2018 Fiscal Year-End
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
|
Number
of Securities
Underlying
Unexercised
|
|
|
|
|
|
|
|
Number
of
Shares or
Units of
Stock
|
|
|
Market
Value
of Shares or
Units
of
Stock
|
|
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights
|
|
|
Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares,
Unites or
Other Rights
|
|
|
|
Options
(1)
|
|
|
|
|
|
|
|
That
|
|
|
That
|
|
|
That
|
|
|
That
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
Have
|
|
|
Have
|
|
|
Have
|
|
|
Have
|
|
|
|
|
|
|
Un-
|
|
|
Exercise
|
|
|
Option
|
|
Not
|
|
|
Not
|
|
|
Not
|
|
|
Not
|
|
|
|
Exercisable
|
|
|
Exercisable
|
|
|
Price
|
|
|
Expiration
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
Name
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
(#)
|
|
|
($)
(2)
|
|
|
(#)
(3)
|
|
|
($)
(2)
|
|
Jeffrey
A. Graves
|
|
|
68,241
|
|
|
|
—
|
|
|
$
|
64.90
|
|
|
12/4/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,854
|
|
|
|
—
|
|
|
$
|
66.98
|
|
|
12/3/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,970
|
|
|
|
20,485
|
|
|
$
|
61.74
|
|
|
12/9/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,981
|
|
|
|
25,960
|
|
|
$
|
46.25
|
|
|
4/17/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
38,934
|
|
|
$
|
52.30
|
|
|
4/17/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,713
|
|
|
|
750,787
|
|
|
|
42,955
|
|
|
|
2,351,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
T. Ross
|
|
|
1,898
|
|
|
|
—
|
|
|
$
|
71.52
|
|
|
1/15/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,950
|
|
|
|
1,475
|
|
|
$
|
61.74
|
|
|
12/9/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,558
|
|
|
|
3,115
|
|
|
$
|
46.25
|
|
|
4/17/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,456
|
|
|
|
2,911
|
|
|
$
|
52.65
|
|
|
5/15/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
5,600
|
|
|
$
|
52.30
|
|
|
4/17/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,680
|
|
|
|
201,480
|
|
|
|
3,987
|
|
|
|
218,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
C. Becker
|
|
|
1,082
|
|
|
|
2,163
|
|
|
$
|
46.25
|
|
|
4/17/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
4,480
|
|
|
$
|
52.30
|
|
|
4/17/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,628
|
|
|
|
101,288
|
|
|
|
3,263
|
|
|
|
178,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
P. Harrison
|
|
|
1,515
|
|
|
|
3,028
|
|
|
$
|
46.25
|
|
|
4/17/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
5,040
|
|
|
$
|
52.30
|
|
|
4/17/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,426
|
|
|
|
132,824
|
|
|
|
4,043
|
|
|
|
221,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
T. Hore
|
|
|
2,380
|
|
|
|
4,759
|
|
|
$
|
46.25
|
|
|
4/17/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
5,040
|
|
|
$
|
52.30
|
|
|
4/17/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,976
|
|
|
|
327,186
|
|
|
|
5,124
|
|
|
|
280,539
|
|
(1)
|
Stock
options granted are exercisable in three equal installments each year beginning on the first anniversary of the grant date
and have a seven-year term.
|
|
|
(2)
|
The
market value of unvested RSUs equals the closing price of our common stock on the Nasdaq Stock Market at the end of fiscal
year 2018 ($54.75) multiplied by the number of shares or units. The RSUs vest in three equal annual installments beginning
on the first anniversary of the grant date.
|
|
|
(3)
|
The
number of PRSUs reported in this column is based on achieving target payouts for future equity performance.
|
Option
Exercises and Stock Vested in Fiscal Year 2018
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of
Shares
Acquired
on Exercise
(#)
|
|
|
Value
Realized
on Exercise
($)
|
|
|
Number
of
Shares
Acquired
on Vest
(1)
(#)
|
|
|
Value
Realized
on Vest
(2)
($)
|
|
Jeffrey
A. Graves
|
|
|
—
|
|
|
|
—
|
|
|
|
3,513
|
|
|
|
98,063
|
|
Brian
T. Ross
|
|
|
—
|
|
|
|
—
|
|
|
|
722
|
|
|
|
38,534
|
|
William
C. Becker
|
|
|
—
|
|
|
|
—
|
|
|
|
291
|
|
|
|
15,366
|
|
Steven
B. Harrison
|
|
|
—
|
|
|
|
—
|
|
|
|
428
|
|
|
|
22,153
|
|
David
T. Hore
|
|
|
—
|
|
|
|
—
|
|
|
|
1,559
|
|
|
|
80,308
|
|
(1)
|
The
number of shares acquired equals the difference between the number of RSUs vested and the number of shares of stock withheld
by the Company to cover tax obligations. The number of RSUs that vested before the withholding for each named executive officer
was: Dr. Graves 5,170, Mr. Ross 1,124, Mr. Becker 448, Mr. Harrison 677, and Mr. Hore 2,357.
|
|
|
(2)
|
The
value realized on the vesting of the RSUs is the fair market value of our common stock at the time of vesting.
|
Non-Qualified
Deferred Compensation
Our
Executive Deferred Compensation Plan is a non-qualified plan that provides a select group of employees, including all of the named
executive officers, with the option to defer up to 90% of base salary or short-term cash incentive. Independent directors are
also eligible to participate in the Executive Deferred Compensation Plan and may elect to defer up to 100% of the director’s
fees we pay.
Participants’
deferred compensation accounts earn a monthly rate of return based on an established interest rate. The interest rate is approved
by the Committee in November of each year for the following calendar year. Historically, the ten-year government treasury note
rate as of the first business day of the calendar year has been used. As such, the interest rate for calendar year 2018 was 2.46%.
At
the time of the deferral election, participants must also select a distribution date and form of distribution. Participants may
elect to receive distribution in a single payment, installments, or combination thereof. Distribution elections cannot change
unless the election is to postpone payment until the fifth anniversary of separation from service or, if later, age 60 and the
election must be made at least 12 months before separation from service. In no case can an earlier distribution election be allowed.
None
of our named executive officers elected to participate in the Executive Deferred Compensation Plan during fiscal year 2018.
Potential
Payments Upon Termination or Change in Control
Payments
and benefits receivable by the named executive officers upon termination of employment or a change in control of our Company are
governed by the arrangements described below.
Executive
Change in Control Severance Plan
We
adopted the Executive Change in Control Severance Plan (the “Change in Control Severance Plan”) on September 30, 2013,
which became effective January 1, 2014, so that the treatment of all eligible named executive officers would be consistent if
such individual’s employment with the Company or an affiliate was terminated without Cause or for Good Reason following
a Change in Control, each such capitalized term as defined in the Change in Control Severance Plan. Under the Change in Control
Severance Plan, the Company will pay and provide to the eligible participants benefits in a sum equal to 200% of the following:
annualized basic cash remuneration in effect during the then current year; average annual Executive Variable Compensation paid
for the preceding three years (or the actual number of years of receipt of such incentive compensation if less than three years);
and any other form of compensation paid to the participant and included in such individual’s gross income during the 12-month
period immediately prior to the date of termination. The cash severance benefit will be paid in a lump sum following termination.
The executive will also receive certain life, disability, accident, and health insurance coverage for a period of up to 18 months
following termination and officers’ liability insurance for not less than six years from the date of a Change in Control.
As a condition to the receipt of such benefits, the executive may not render services to any entity offering any competing product
for a period of two years following the date of termination unless the change in control was not approved by the Board of Directors.
Mr. Hore was previously provided a change in control severance benefit under the Hore Employment Agreement, which agreement expired
on July 5, 2018. Upon expiration of the Hore Employment Agreement, Mr. Hore became an eligible participant under the Change in
Control Severance Plan.
Executive
Severance Plan
We
adopted the Executive Severance Plan on September 30, 2013 (the “Severance Plan”), so that the treatment of all eligible
named executive officers would be consistent if such individual’s employment with the Company or an affiliate was terminated
without Cause or for Good Reason, each as defined in the Severance Plan. In the event of such termination, the Severance Plan
provides that the eligible participant would receive as benefits a sum equal to 100% of his or her annualized basic cash remuneration
in effect during the then current year and certain life, accident and health insurance coverage. The cash severance benefit would
be paid in equal installments on each payroll pay date during the 12 month period beginning no later than 60 days following the
date of termination. As a condition of the receipt of these benefits, the executive may not render services to any entity offering
any competing product for a period of one year following the date of termination. In addition, payments to be paid under the Severance
Plan can be forfeited, and certain payments already made can be recaptured, if the executive engaged or engages in conduct detrimental
to the Company while employed by the Company or violates the Severance Plan’s non-compete provisions. Mr. Hore was previously
provided a severance benefit under the Hore Employment Agreement, which agreement expired on July 5, 2018. Upon expiration of
the Hore Employment Agreement, Mr. Hore became an eligible participant under the Severance Plan.
Equity
Incentives
The
2011 Plan and the 2017 Plan provide that, if any awards have not been assumed or substituted by an acquiring entity, any stock
incentives accelerate upon a change in control. Notwithstanding the foregoing, unless the Committee determines otherwise at or
prior to the change in control, no stock incentive that is subject to any performance criteria for which the performance period
has not expired shall accelerate at the time of a change in control.
Short-Term
Cash Incentives
Under
the terms of the awards made pursuant to the EVC Plan, if a named executive officer’s employment with the Company is terminated
for any reason other than death before the end of the fiscal year on which the performance goals are based, the officer will not
receive any payout under the EVC Plan. If a named executive officer dies during the fiscal year on which the performance goals
are based, a prorated payout based on actual achievement of the performance goals at the end of the fiscal year will be made to
the officer’s estate. Such a payout will be proportionately reduced based upon the time such named executive officer was
employed during the fiscal year.
Estimated
Payments for Named Executive Officers
Assuming
that a termination of employment and/or change in control occurred on September 29, 2018, the total compensation payable to the
following named executive officers in accordance with the Executive Change in Control Severance and Executive Severance Plans
that were in place at that time is as set forth in the table below.
|
|
Termination
of Employment in Conjunction
with a Change in Control
|
|
|
Change
in
Control
(without
Termination
of
Employment)
|
|
|
Termination
(without Change in Control)
|
|
Name
|
|
Cash
Payment
($)
(1)
|
|
|
Accelerated
Vesting
($)
(2)
|
|
|
Benefits
($)
(3)
|
|
|
Total
Value
($)
|
|
|
Accelerated
Vesting
($)
(2)
|
|
|
Cash
Payment
($)
(4)
|
|
|
Benefits
($)
(5)
|
|
|
Total
Value
($)
|
|
Jeffrey
A. Graves
|
|
|
2,273,887
|
|
|
|
3,418,621
|
|
|
|
32,230
|
|
|
|
5,724,738
|
|
|
|
3,418,621
|
|
|
|
695,250
|
|
|
|
20,772
|
|
|
|
716,022
|
|
Brian
T. Ross
|
|
|
958,328
|
|
|
|
466,079
|
|
|
|
11,820
|
|
|
|
1,436,227
|
|
|
|
466,079
|
|
|
|
355,000
|
|
|
|
7,166
|
|
|
|
362,166
|
|
William
L. Becker
|
|
|
677,658
|
|
|
|
309,298
|
|
|
|
24,862
|
|
|
|
1,011,818
|
|
|
|
309,298
|
|
|
|
300,000
|
|
|
|
15,861
|
|
|
|
315,861
|
|
Steven
B. Harrison
|
|
|
737,584
|
|
|
|
392,264
|
|
|
|
3,226
|
|
|
|
1,133,074
|
|
|
|
392,264
|
|
|
|
335,000
|
|
|
|
1,437
|
|
|
|
336,437
|
|
David
T. Hore
|
|
|
1,274,447
|
|
|
|
660,525
|
|
|
|
28,920
|
|
|
|
1,963,892
|
|
|
|
660,525
|
|
|
|
500,000
|
|
|
|
18,840
|
|
|
|
518,840
|
|
(1)
|
Pursuant
to the Change in Control Severance Plan, represents two times each named executive officer’s respective annual compensation,
which consists of annual base salary, the average of the cash incentive payment made pursuant to the EVC Plan for each of
the prior three fiscal years, excluding any payments made with respect to a partial fiscal year, and other non-EVC Plan based
payments during the previous 12-month period prior to the date of termination.
|
|
|
(2)
|
Represents
the aggregate value of stock options and restricted stock units held by each named executive officer that were not vested
as of September 29, 2018 but whose vesting and exercisability would have been accelerated under the terms of the 2011 Plan
and 2017 Plan (assuming that the awards were not assumed or substituted by an acquiring entity). The value of accelerating
each unvested stock option is equal to the difference between the stock price and the exercise price of such option. The value
of accelerating each unvested restricted stock unit is equal in each case to the stock price.
|
|
|
(3)
|
Pursuant
to the Change in Control Severance Plan, represents payments made to each named executive officer for life, disability, and
accident and health insurance benefits for 18 months following termination.
|
|
|
(4)
|
Pursuant
to the Severance Plan, represents each named executive officer’s annual base salary.
|
|
|
(5)
|
Pursuant
to the Severance Plan, represents payments made for each named executive officer’s life, accident and health insurance
benefits for 12 months following termination.
|
CEO
Pay Ratio
As
required by Item 402(u) of Regulation S-K, we are providing the following information regarding the ratio of the median of the
annual total compensation of our employees and the annual total compensation of Jeffrey A. Graves, our President and Chief Executive
Officer. For fiscal year 2018:
|
●
|
The
median of the annual total compensation of all employees of our company (excluding Dr. Graves) was reasonably estimated to
be $51,996;
|
|
|
|
|
●
|
The
annual total compensation of Dr. Graves was $2,863,436.
|
|
|
|
|
●
|
Based
on this information, the ratio of the annual total compensation of our chief executive officer to the median of the annual
total compensation of all other employees is estimated to be 55 to 1.
|
To
identify our median employee, we began by considering each individual employed by us worldwide on July 1, 2018, which included
approximately 3,500 total employees. We then calculated total cash compensation for each employee including both current base
salary (or annual wage rate) and bonuses paid during the prior 12 months. To calculate total cash compensation for any employee
that we paid in currency other than U.S. Dollars, we applied the applicable foreign currency exchange rate in effect on July 1,
2018 to determine the amount in U.S. Dollars. Once compiled into a single database, we analyzed the compensation amounts for all
of our employees (excluding Dr. Graves) to determine our median employee.
Once
we identified our median employee, we added together all of the elements of such employee’s compensation for fiscal year
2018 in the same way that we calculate the annual total compensation of our Named Executive Officers in the Summary Compensation
Table. To calculate our ratio, we divided Dr. Graves’s annual total compensation, as reported in the Summary Compensation
Table above, by the median employee’s annual total compensation.
PROPOSAL
3
NON-BINDING,
ADVISORY VOTE TO APPROVE THE COMPENSATION
OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
General
Information
In
accordance with Section 14A of the Exchange Act, shareholders are being asked to vote on the following resolution:
RESOLVED,
that the shareholders of MTS Systems Corporation approve, on an advisory basis, the compensation of the Company’s named
executive officers, as described in the Compensation Discussion and Analysis section, the compensation tables and the accompanying
narrative disclosure, set forth in the Company’s proxy statement.
The
compensation of our named executive officers is disclosed in the Compensation Discussion and Analysis, the compensation tables
and the related disclosures contained on pages 12 to 30 of this proxy statement. As discussed in those disclosures,
we believe that our compensation policies and decisions are focused on pay-for-performance principles and are strongly aligned
with the long-term interests of our shareholders. Compensation of our named executive officers is designed to enable us to attract
and retain talented and experienced senior executives to lead the Company successfully in a competitive environment.
Your
vote on Proposal 3 is advisory and therefore not binding on the Company, the Compensation Committee, or the Board. The vote will
not be construed to create or imply any change to the fiduciary duties of the Company or the Board, or to create or imply any
additional fiduciary duties for the Company or the Board. However, our Board and our Compensation Committee value the opinions
of our shareholders and to the extent there is any significant vote against the named executive officer compensation as disclosed
in this proxy statement, we will consider our shareholders’ concerns and the Compensation Committee will evaluate whether
any actions are necessary to address those concerns.
The
Board believes that the Company should hold an advisory vote on the compensation of the Company’s named executive officers
(the “Say-on-Pay Vote”) annually, and plans to hold a similar Say-on-Pay Vote each year until the next required vote
on the frequency of Say-on-Pay Votes or until the Board determines that it is in the best interest of the Company to hold such
vote with a different frequency. The next Say-on-Pay Vote will be held at our fiscal year 2019 annual meeting to be held early
in calendar year 2020.
Board
Voting Recommendation
THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE PROPOSAL TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED
EXECUTIVE OFFICERS, AS DESCRIBED IN THE COMPENSATION DISCUSSION AND ANALYSIS SECTION, THE COMPENSATION TABLES AND THE ACCOMPANYING
NARRATIVE DISCLOSURE, SET FORTH IN THIS PROXY STATEMENT.
OTHER
INFORMATION
Security
Ownership of Principal Shareholders and Management
The
following table sets forth, as of the close of business on December 18, 2018, the number and percentage of outstanding shares
of our Common Stock beneficially owned by each person who is known to us to beneficially own more than five percent of our Common
Stock.
Name
and Address of Beneficial Owner
|
|
Number
of Shares
|
|
|
Note
|
|
|
Percent
|
|
BlackRock,
Inc.
55
East 52
nd
St.
New York, NY 10055
|
|
|
2,201,945
|
|
|
|
(1
|
)
|
|
|
12.3
|
%
|
The
Vanguard Group, Inc.
100
Vanguard Blvd.
Malvern, PA 19355
|
|
|
1,789,907
|
|
|
|
(2
|
)
|
|
|
10.0
|
%
|
Ariel
Investments, LLC
200
E. Randolph Drive, Suite 2900
Chicago, IL 60601
|
|
|
1,680,002
|
|
|
|
(3
|
)
|
|
|
9.4
|
%
|
Fuller
& Thaler Asset Management, Inc.
411
Borel Avenue, Suite 300
San Mateo, CA 94402
|
|
|
1,430,627
|
|
|
|
(4
|
)
|
|
|
8.0
|
%
|
Clearbridge
Investments, LLC
620
8
th
Avenue
New
York, NY 10018
|
|
|
1,066,110
|
|
|
|
(5
|
)
|
|
|
6.0
|
%
|
Barrow,
Hanley, Mewhinney & Strauss, LLC
2200
Ross Avenue, 31
st
Floor
Dallas, TX 75201
|
|
|
990,704
|
|
|
|
(6
|
)
|
|
|
5.5
|
%
|
(1)
|
According
to the Schedule 13G/A filed on February 2, 2018 with the SEC. Includes 2,161,650 shares over which BlackRock, Inc. has sole
voting power and 2,201,945 shares over which BlackRock, Inc. has sole dispositive power.
|
|
|
(2)
|
According
to the Schedule 13G/A filed on August 8, 2018 with the SEC. Includes 17,351 shares over which The Vanguard Group, Inc. has
sole voting power, 2,526 shares over which The Vanguard Group, Inc. has shared voting power, 1,771,404 shares over which The
Vanguard Group, Inc. has sole dispositive power and 18,503 shares over which The Vanguard Group, Inc. has shared dispositive
power.
|
|
|
(3)
|
According
to the Schedule 13G/A filed on February 13, 2018 with the SEC. Includes 1,527,092 shares over which Ariel Investments, LLC
has sole voting power and 1,680,002 shares over which Ariel Investments, LLC has sole dispositive power.
|
|
|
(4)
|
According
to the Schedule 13G/A filed on February 13, 2018 with the SEC. Includes 1,402,907 shares over which Fuller & Thaler Asset
Management, Inc. has sole voting power and 1,430,627 shares over which Fuller & Thaler Asset Management, Inc. has sole
dispositive power.
|
|
|
(5)
|
According
to the Schedule 13G filed on February 14, 2018 with the SEC. Includes 1,009,199 shares over which Clearbridge Investments,
LLC has sole voting power and 1,066,110 shares over which Clearbridge Investments, LLC has sole dispositive power.
|
|
|
(6)
|
According
to the Schedule 13G filed on February 12, 2018 with the SEC. Includes 676,704 shares over which Barrow, Hanley, Mewhinney
& Strauss, LLC has sole voting power, 314,000 shares over which Barrow, Hanley, Mewhinney & Strauss, LLC has shared
voting power, and 990,704 shares over which Barrow, Hanley, Mewhinney & Strauss, LLC has sole dispositive power.
|
The
following table sets forth information regarding the beneficial ownership of shares of the Company’s common stock as of
December 18, 2018 by:
|
●
|
Each
director, director-nominee and “named executive officer”; and
|
|
|
|
|
●
|
all
directors and executive officers of the Company as a group.
|
Name
|
|
Number
of Shares
of Common Stock
|
|
|
Phantom
Stock
Settleable
within 60 days
of December
18, 2018
|
|
|
Options
Exercisable
within 60 days
of December
18, 2018
|
|
|
RSUs
vesting
within
60 days of
December 18, 2018
|
|
|
Total
|
|
|
Percent
of Class
|
|
David
J. Anderson
|
|
|
13,349
|
|
|
|
7,397
|
|
|
|
-
|
|
|
|
3,202
|
|
|
|
23,948
|
|
|
|
*
|
|
David
D. Johnson
|
|
|
12,142
|
|
|
|
5,353
|
|
|
|
-
|
|
|
|
2,391
|
|
|
|
19,886
|
|
|
|
*
|
|
Randy
J. Martinez
|
|
|
6,639
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,391
|
|
|
|
9,030
|
|
|
|
*
|
|
Michael
V. Schrock
|
|
|
6,639
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,391
|
|
|
|
9,030
|
|
|
|
*
|
|
Gail
P. Steinel
|
|
|
12,220
|
|
|
|
2,523
|
|
|
|
-
|
|
|
|
2,391
|
|
|
|
17,134
|
|
|
|
*
|
|
Maximiliane
C. Straub
|
|
|
2,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,391
|
|
|
|
4,541
|
|
|
|
*
|
|
Chun
Hung (Kenneth) Yu
|
|
|
15,495
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,391
|
|
|
|
17,886
|
|
|
|
*
|
|
Jeffrey
A. Graves
|
|
|
48,158.6843
|
|
|
|
-
|
|
|
|
175,531
|
|
|
|
-
|
|
|
|
223,689.6843
|
|
|
|
1.2
|
%
|
Brian
T. Ross
|
|
|
1,566
|
|
|
|
-
|
|
|
|
9,337
|
|
|
|
-
|
|
|
|
10,903
|
|
|
|
*
|
|
William
C. Becker
|
|
|
4,782.9230
|
|
|
|
-
|
|
|
|
1,082
|
|
|
|
-
|
|
|
|
5,864.9230
|
|
|
|
*
|
|
Steven
B. Harrison
|
|
|
1,326.3548
|
|
|
|
-
|
|
|
|
1,515
|
|
|
|
-
|
|
|
|
2,841.3548
|
|
|
|
*
|
|
David
T. Hore
|
|
|
23,134.1788
|
|
|
|
-
|
|
|
|
2,380
|
|
|
|
683
|
|
|
|
26,197.1788
|
|
|
|
*
|
|
All
Directors and Executive Officers as a group (13 persons)
|
|
|
148,974.1409
|
|
|
|
15,273
|
|
|
|
197,247
|
|
|
|
18,231
|
|
|
|
379,725.1409
|
|
|
|
2.1
|
%
|
*
|
Represents
less than one percent.
|
Related
Party Transactions
The
Audit Committee is responsible for the review and approval of all related party transactions between the Company and any of our
executive officers, directors or director nominees, or any immediate family member of any such person. Pursuant to a related party
transactions approval procedure adopted by the Audit Committee, all related party transactions that involve amounts in excess
of $120,000 and in which a related party has or will have a direct or indirect material interest, must be approved in advance
by the Audit Committee. If the proposed transaction involves a member of the Audit Committee, such member will not participate
in the deliberations or vote on the proposed transaction. Related party transactions may be approved if the Audit Committee in
good faith determines them to be (i) fair and reasonable to us, (ii) on terms no less favorable than could be obtained by us if
the transaction did not involve a related party and (iii) in our best interests.
There
were no related party transactions during fiscal year 2018.
Section
16(a) Beneficial Ownership Reporting Compliance
The
rules of the SEC require us to disclose the identity of directors, executive officers and beneficial owners of more than 10% of
our Common Stock who did not file on a timely basis reports required by Section 16(a) of the Exchange Act. Based solely on a review
of copies of such reports and written representations from reporting persons, we believe that all directors and executive officers
complied with all filing requirements applicable to them during fiscal year 2018.
Information
Regarding Equity Compensation Plans
The
following table sets forth information regarding our equity compensation plans as of September 29, 2018.
(shares
in thousands)
|
|
Securities
Authorized for Issuance Under Equity Compensation Plans
|
|
Plan
category
|
|
Number
of shares of Common Stock to be issued upon exercise of outstanding options, warrants and rights
(1)
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(2)
|
|
|
Number
of shares of Common Stock remaining available for future issuance under equity compensation plans
(3)
|
|
Equity
compensation plans approved by shareholders
|
|
|
881
|
|
|
$
|
56.57
|
|
|
|
1,047
|
|
Equity
compensation plans not approved by shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
881
|
|
|
$
|
56.57
|
|
|
|
1,047
|
|
(1)
|
Reflects
securities to be issued upon the exercise of vested stock options and the vesting of restricted stock units under the 2017
Plan.
|
|
|
(2)
|
The
weighted-average exercise price set forth in this column is calculated excluding outstanding restricted stock and restricted
stock unit awards, since recipients are not required to pay an exercise price to receive the shares subject to these awards.
|
|
|
(3)
|
Includes
securities available for future issuance under the 2017 Plan other than those listed in the first column and approximately
615 shares of common stock available for issuance under our 2012 Employee Stock Purchase Plan (the “2012 ESPP”).
|
Under
the 2012 ESPP, there is a two-year mandatory holding period for stock acquired upon exercise of options granted thereunder. In
contrast, there is no mandatory holding period for stock acquired upon exercise of options granted under the 2017 Plan. However,
the federal income tax consequences to an employee for immediate disposition of stock acquired upon exercise of incentive stock
options may make it more advantageous to the employee to hold such shares for at least one year from the date of exercise and
two years from the date of grant. In addition, our executive officers and directors are subject to stock ownership guidelines
that may encourage our executive officers and directors to hold shares acquired upon exercise of options. See the section of this
proxy statement entitled “Executive Compensation – Compensation Discussion and Analysis – Compensation Policies
– Stock Ownership Guidelines” for more information.
Compensation
Committee Interlocks and Insider Participation
No
member of our Compensation Committee has been an officer or employee of our Company or any of our subsidiaries and affiliates
or has had any relationship with our Company requiring disclosure in our proxy statement other than service as a director. None
of our executive officers has served on the board of directors or on the compensation committee of any other entity, any officer
of which served either on our Board of Directors or on our Compensation Committee.
Shareholder
Proposals
Proposals
Included in the Proxy Statement
Proposals
of our shareholders that are intended to be presented by such shareholders at our fiscal year 2019 annual meeting that we anticipate
will be held in early calendar year 2020 and that shareholders desire to have included in our proxy materials related to such
meeting must be received by us at our principal executive offices no later than 5:00 p.m., Central Time, September 5, 2019, which
is 120 calendar days prior to the anniversary of this year’s mailing date. Upon timely receipt of any such proposal we will
determine whether or not to include such proposal in the proxy statement and proxy in accordance with applicable regulations governing
the solicitation of proxies.
Proposals
Not Included in the Proxy Statement
If
a shareholder wishes to present a proposal at our fiscal year 2019 annual meeting to be held in early calendar year 2020 or to
nominate one or more directors and the proposal is not intended to be included in our proxy statement relating to that meeting,
the shareholder must give advance notice to us prior to the deadline for such meeting determined in accordance with our Bylaws.
In general, our Bylaws provide that such notice should be addressed to the Secretary and be no less than 90 days nor more than
120 days prior to the first anniversary of the preceding year’s annual meeting, except in certain circumstances as further
described in our Bylaws. For purposes of our fiscal year 2019 annual meeting, such notice must be received no earlier than October
16, 2019 and not later than November 15, 2019. These time limits also apply in determining whether notice is timely for purposes
of rules adopted by the SEC relating to the exercise of discretionary voting authority. Our Bylaws set out specific requirements
that such shareholders and written notices must satisfy. Copies of those requirements will be forwarded to any shareholder upon
written request to the Secretary of the Company.
Our
management knows of no matters other than the foregoing to be brought before the Annual Meeting. However, this proxy gives discretionary
authority in the event that additional matters should be presented.
A
copy of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, which includes audited financial statements,
will be furnished without charge to any shareholder who requests it in writing from Treasurer, MTS Systems Corporation, 14000
Technology Drive, Eden Prairie, Minnesota 55344 and are also available from the SEC’s Internet site at www.sec.gov or via
our Internet site at www.mts.com.
Important
Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Annual Report
are available at www.proxyvote.com.
ABOUT
THE ANNUAL MEETING AND PROXY MATERIALS
What
is the purpose of the Annual Meeting?
At
the Annual Meeting, shareholders will vote upon (1) the election of seven directors, (2) the ratification of the appointment of
KPMG LLP as our independent registered public accounting firm for fiscal year 2019, (3) a non-binding, advisory vote to approve
the compensation of the Company’s named executive officers, and (4) such other business as may properly come before the
Annual Meeting or any adjournments or postponements thereof. In addition, our management will report on the performance of the
Company and respond to questions from shareholders.
Why
did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
Pursuant
to rules adopted by the SEC, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending
a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) to our shareholders of
record and beneficial owners. All shareholders will have the ability to access the proxy materials on the website referred to
in the Notice of Internet Availability or request a printed set of the proxy materials at no cost to the shareholder. Instructions
on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice of Internet Availability.
If
you do not affirmatively elect to receive printed copies of the proxy materials, you will only be able to view our proxy materials
electronically on the Internet. Providing our proxy materials to shareholders on the Internet rather than printing and mailing
hard copies saves us these costs. We encourage you to view our proxy materials on the Internet. Shareholders who have affirmatively
elected to receive a printed set of our proxy materials may change their election and elect to view all future proxy materials
on the Internet instead of receiving them by mail.
Who
is entitled to vote?
Only
shareholders of record at the close of business on December 18, 2018 (the “Record Date”) will be entitled to vote
at the Annual Meeting, or any adjournments or postponements thereof. Each outstanding share of the Company’s common stock,
$0.25 par value per share (the “Common Stock”), entitles its holder to cast one vote on each matter to be voted upon.
Shareholders
have cumulative voting rights in the election of directors. If any shareholder gives proper written notice to any officer of the
Company before the Annual Meeting, or to the presiding officer at the Annual Meeting, that shareholder may cumulate their votes
for the election of directors by multiplying the number of votes to which the shareholder is entitled by the number of directors
to be elected and casting all such votes for one nominee or distributing them among any two or more nominees. If such notice is
given by any shareholder, votes for directors by such shareholder will be cumulated. For instance, if a shareholder only votes
for one nominee, such vote will be automatically cumulated and cast for that nominee. If a shareholder has voted for more than
one nominee, the total number of votes that the shareholder is entitled to cast will be divided equally among the nominees for
whom the shareholder has voted.
Who
can attend the Annual Meeting?
All
shareholders as of the Record Date, or their duly appointed proxies, may attend the virtual Annual Meeting at www.virtualshareholdermeeting.com/MTSC2019.
If you hold your shares in street name, you must request a legal proxy from your broker or nominee to attend and vote at the Annual
Meeting.
What
constitutes a quorum?
The
presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the shares of our Common Stock outstanding
on the Record Date will constitute a quorum. A quorum is required for business to be conducted at the Annual Meeting. As of the
Record Date, 17,886,001 shares of our Common Stock were outstanding, so holders of at least 8,943,001 shares of our Common Stock
must be present, attending the virtual Annual Meeting or by proxy, to have a quorum. If you vote your proxy electronically through
the Internet or by telephone, or submit a properly executed paper proxy card, your shares will be considered part of the quorum
even if you abstain from voting.
How
do I vote?
You
may vote in one of the following ways:
|
●
|
By
Internet before the Annual Meeting:
You may access the website at
www.proxyvote.com
to cast your vote 24 hours
a day, 7 days a week. You will need your control number found in the Notice of Internet Availability or proxy card. Follow
the instructions provided to obtain your records and create an electronic ballot.
|
|
|
|
|
●
|
By
telephone before the Annual Meeting:
If you reside in the United States or Canada, you may call
1-800-690-6903
by using any touch-tone telephone, 24 hours a day, 7 days a week. Have your Notice of Internet Availability or proxy card
in hand when you call and follow the voice prompts to cast your vote.
|
|
|
|
|
●
|
By
mail before the Annual Meeting:
If you request a paper proxy card, mark, sign and date each proxy card you receive
and return it in the postage-paid envelope provided or to the location indicated on the proxy card.
|
|
|
|
|
●
|
At
the Annual Meeting:
If you are a shareholder of record, you may attend the Annual Meeting and vote your shares at
www.virtualshareholdermeeting.com/MTSC2019
during the meeting. You will need your control number found in the Notice
of Internet Availability or proxy card. Follow the instructions provided to vote.
|
Shares
represented by proxies submitted through the Internet or by telephone, or those paper proxy cards properly signed, dated and returned,
will be voted at the Annual Meeting in accordance with the instructions set forth therein. If a proxy is properly submitted, whether
through the Internet, by telephone, or by mail using a paper proxy card, but contains no instructions, the shares represented
thereby will be voted:
|
●
|
FOR
the election of each of the nominated directors (see Proposal 1 on page 1 of this proxy statement);
|
|
|
|
|
●
|
FOR
the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2019
(see Proposal 2 on page 10 of this proxy statement);
|
|
|
|
|
●
|
FOR
the non-binding, advisory vote to approve the compensation of the Company’s named executive officers (see Proposal
3 on page 30 of this proxy statement); and
|
|
|
|
|
●
|
In
the discretion of the proxy holders for any other matters properly presented at the meeting.
|
The
Internet and telephone voting procedures are designed to verify shareholders’ identities, allow them to give voting instructions
and confirm that their instructions have been recorded properly. Shareholders voting through the Internet should be aware that
they may incur costs to access the Internet and that these costs will be at the expense of the shareholder.
When
do I vote?
If
you wish to vote by Internet or telephone, you must do so before 11:59 p.m. Eastern Standard Time on February 12, 2019, using
www.proxyvote.com or calling 1-800-690-6903, as applicable. If you want to vote after February 12, 2019, or revoke an earlier
proxy, you must submit a signed proxy card or vote during the virtual Annual Meeting at
www.virtualshareholdermeeting.com/MTSC2019
.
Can
I change my vote after I vote electronically or return my proxy card?
Yes.
Even after you have voted electronically through the Internet or by telephone or submitted your proxy card, you may change your
vote at any time before the proxy is exercised at the Annual Meeting. You may change your vote by:
|
●
|
Returning
a later-dated proxy by Internet, telephone or mail;
|
|
|
|
|
●
|
Delivering
a written notice of revocation to our Corporate Secretary at 14000 Technology Drive, Eden Prairie, Minnesota 55344; or
|
|
|
|
|
●
|
Attending
the virtual Annual Meeting and voting. Your attendance at the Annual Meeting will not by itself revoke a proxy that you have
previously submitted.
|
Shareholders
who hold shares through a broker or other intermediary should consult that party as to the procedures to be used for revoking
a vote.
What
does the Board recommend?
The
Board’s recommendations are set forth after the description of the proposals in this proxy statement. In summary, the Board
recommends a vote:
|
●
|
FOR
the election of each of the nominated directors (see Proposal 1 on page 1);
|
|
|
|
|
●
|
FOR
the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2019
(see Proposal 2 on page 10 of this proxy statement); and
|
|
|
|
|
●
|
FOR
the non-binding, advisory vote to approve the compensation of the Company’s named executive officers (see Proposal
3 on page 30 of this proxy statement).
|
If
you return a properly executed proxy card without specific voting instructions, the persons named as proxy holders on the proxy
card will vote in accordance with the recommendations of the Board. With respect to any other matter that properly comes before
the Annual Meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, at their own discretion.
What
vote is required to approve each proposal?
For
Proposal 1, the seven nominees receiving the highest number of
“FOR”
votes will be elected.
For
Proposals 2 and 3, each shareholder is entitled to one vote for each share of Common Stock held and the affirmative vote of the
holders of a majority of the shares of Common Stock represented in person or by proxy and entitled to vote on the proposal will
be required for approval.
With
respect to any other matter that properly comes before the Annual Meeting, the affirmative vote of the holders of a majority of
the shares of Common Stock represented in person or by proxy and entitled to vote on the proposal will be required for approval.
A
“WITHHELD”
vote will be counted for purposes of determining whether there is a quorum, but will not be considered
to have been voted in favor of the director nominee with respect to whom authority has been withheld.
A
properly executed proxy marked
“ABSTAIN”
with respect to Proposals 2 or 3, and any other matter that properly
comes before the Annual Meeting, will not be voted, although it will be counted for purposes of determining whether there is a
quorum. In Proposals 2 and 3, abstentions will have the same effect as a negative vote.
If
your shares are held in the “street name” of a broker or other nominee, your broker or nominee may not be permitted
to exercise voting discretion with respect to the proposal to be acted upon. If you do not give your broker instructions as to
how to vote your shares, your broker has authority under New York Stock Exchange rules to vote those shares for or against “routine”
matters, such as the ratification of accounting firms. Brokers cannot vote on their customers’ behalf on “non-routine”
proposals such as the election of directors and the non-binding, advisory vote to approve the compensation of the Company’s
named executive officers. These rules apply notwithstanding the fact that shares of our Common Stock are traded on the Nasdaq
Global Select Market.
If
your brokerage firm votes your shares only on “routine” matters because you do not provide voting instructions, your
shares will be counted for purposes of establishing a quorum to conduct business at the Annual Meeting and in determining the
number of shares voted for or against the routine matter. If your brokerage firm lacks discretionary voting power with respect
to an item that is not a routine matter and you do not provide voting instructions (a “broker non-vote”), your shares
will be counted for purposes of establishing a quorum to conduct business at the Annual Meeting, but will not be counted in determining
the number of shares voted for or against non-routine matters.
Who
will count the vote?
Broadridge
Financial Solutions, Inc. will act as inspector of elections to determine whether or not a quorum is present and tabulate votes
cast by proxy or at the Annual Meeting.
What
does it mean if I receive more than one Notice of Internet Availability?
If
your shares are held in more than one account, you will receive more than one Notice of Internet Availability. To ensure that
all your shares are voted, vote electronically through the Internet or by telephone, or sign, date and return a paper proxy card
for each Notice of Internet Availability you receive. We encourage you to have all accounts registered in the same name and address
(whenever possible). You can accomplish this by contacting Broadridge Financial Solutions, Inc. by telephone at 800-542-1061 or
in writing at Broadridge, 51 Mercedes Way, Edgewood, New York 11717.
How
will voting on any other business be conducted?
We
do not know of any business to be considered at the Annual Meeting other than the matters described in this proxy statement. However,
if any other business is properly presented at the Annual Meeting, your proxy gives authority to each of David J. Anderson and
Jeffrey A. Graves to vote on such matters at their discretion.
How
are proxies solicited?
In
addition to use of the Internet and mail, proxies may be solicited by our officers, directors and other employees by telephone,
through electronic transmission, facsimile transmission, or personal solicitation. No additional compensation will be paid to
such individuals for such activity.
What
is “householding”?
We
may send a single Notice of Internet Availability, as well as other shareholder communications, to any household at which two
or more shareholders reside unless we receive other instruction from you. This practice, known as “householding,”
is designed to reduce duplicate mailings and printing and postage costs and conserve natural resources. If your Notice of Internet
Availability is being householded and you wish to receive multiple copies of the Notice of Internet Availability, or if you are
receiving multiple copies and would like to receive a single copy, or if you would like to opt out of this practice for future
mailings, you may contact Broadridge Financial Solutions, Inc., by telephone at 800-542-1061 or in writing at Broadridge, Householding
Department, 51 Mercedes Way, Edgewood, New York 11717.
Who
pays for the cost of this proxy solicitation?
We
will bear the entire cost of the solicitation of proxies, including the preparation, assembly, printing and mailing of the Notice
of Internet Availability, the proxy statement and any additional information furnished to shareholders. We will reimburse banks,
brokerage houses and other custodians, nominees and certain fiduciaries for their reasonable expenses incurred in mailing proxy
materials to their principals.
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