SRI Stoneridge Inc

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If you hold your common shares in “street name”, in order to change or revoke your voting instructions you must follow the specific voting directions provided to you by your bank, broker or other holder of record.

In order to address concerns and continuing government restrictions related to the ongoing global coronavirus pandemic (“COVID-19”) this year we are again holding a virtual Annual Meeting. In addition to concerns related to COVID-19, holding a virtual Annual Meeting provides expanded access, improved communication and potential cost savings to our shareholders and our Company. We believe that holding a virtual Annual Meeting will enable more shareholders to attend and participate in the meeting because our shareholders can fully participate from any location with Internet access.

The Annual Meeting will be conducted exclusively online via live, audio-only, webcast, allowing all of the Company’s shareholders the option to participate in the live, online shareholder meeting from any location convenient to them. Only shareholders at the close of business on the record date may attend, vote and ask questions at the Annual Meeting by following the instructions provided. The virtual Annual Meeting can be accessed by visiting:

www.virtualshareholdermeeting.com/SRI2021

You will need to have your 16-digit Control Number included on our Notice of Internet Availability and/or your proxy card (if you received a printed copy of the proxy materials) to join and participate in the Annual Meeting. If you hold any of your shares through a bank, broker or other holder of record (i.e., in street name) the control number is issued to you by your bank, broker or other holder of record.

We encourage you to access the Annual Meeting before the start time of 11:00 a.m. (Eastern Time), on May 11, 2021. Please allow ample time for online check-in, which will begin at 10:30 a.m. (Eastern Time) on May 11, 2021.

If you encounter difficulties accessing the virtual meeting, please call the technical support number that will be posted at www.virtualshareholdermeeting.com/SRI2021.

Shareholders who participate in the virtual Annual Meeting by means of the hyperlink above will be deemed to be “present in person,” as such term is used in this Proxy Statement, including for purpose of determining a quorum and counting votes.

Only shareholders at the close of business on the record date, March 19, 2021, are entitled to receive notice of the Annual Meeting and to vote the common shares held on the record date at the meeting. On the record date, our outstanding voting securities consisted of 27,161,776 common shares, without par value, each of which is entitled to one vote on each matter properly brought before the meeting.

The Board is asking for your proxy in advance of the Annual Meeting. Giving your proxy means you authorize the individuals designated as proxies to vote your common shares at the Annual Meeting in the manner you direct. You may give your proxy or otherwise vote your common shares in one of several ways, depending on how you hold your shares.

If your common shares are registered directly in your name with the Company’s transfer agent, you are considered the “shareholder of record” of those shares and you may:

If you do not instruct your broker, bank or other nominee on how to vote your shares, it will have discretionary authority, under New York Stock Exchange (“NYSE”) rules, to vote your shares on the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2021 (“Proposal 2”). However, your broker, bank or other nominee will not be permitted to vote your shares (a “broker non-vote”) on the election of directors (“Proposal 1”), the advisory vote to approve our compensation of our Named Executive Officers (“Proposal 3”), or proposal to approve the Annual Incentive Plan (“Proposal 4”).

generally provided for up to one year, is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee also pre-approves particular services on a case-by-case basis. In accordance with this policy, the Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee. The Chairman may pre-approve services and inform the Audit Committee at the next scheduled meeting.

All services provided by Ernst & Young during fiscal year 2020, as noted in the previous table, were authorized and approved by the Audit Committee in compliance with the pre-approval policies and procedures described above.

In accordance with its written charter, the Audit Committee assists the Board in fulfilling its responsibility relating to corporate accounting, our reporting practices, and the quality and integrity of the financial reports and other financial information provided by us to any governmental body or to the public. Management is responsible for the financial statements and the financial reporting process, including assessing the effectiveness of the Company’s internal control over financial reporting. The independent registered public accounting firm is responsible for conducting audits and reviews of our financial statements in accordance with standards established by the Public Company Accounting Oversight Board, expressing an opinion on the conformity of the Company’s financial statements in accordance with generally accepted accounting principles, and auditing and reporting on the Company’s effectiveness of internal controls over financial reporting. The Audit Committee is comprised of five directors, each of whom is “independent” for audit committee purposes under the listing standards of the NYSE.

In discharging its oversight responsibility as to the audit process, the Audit Committee reviewed and discussed our audited financial statements for the year ended December 31, 2020, with management, including a discussion of the quality, not just the acceptability, of the accounting principles; the reasonableness of significant judgments; and the clarity of disclosures in the financial statements. The Audit Committee also discussed with our independent registered public accounting firm, Ernst & Young, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC. The Audit Committee has received the written disclosures and letter from Ernst & Young required by the applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young’s communication with the Audit Committee concerning independence. The Audit Committee discussed Ernst & Young’s independence with Ernst & Young. The Audit Committee also considered whether the provision of non-audit services by Ernst & Young is compatible with maintaining Ernst & Young’s independence.

The Audit Committee discussed with our Internal Audit Director and Ernst & Young the overall scope and plans for their respective audits. The Audit Committee also met with the Internal Audit Director and Ernst & Young, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls, and the overall quality of the Company’s financial reporting.

Based on the above-referenced review and discussions with management, the Internal Audit Director and Ernst & Young, the Audit Committee recommended to the Board, and the Board approved, that the audited consolidated financial statements for fiscal 2020 be included in the Company’s Annual Report on Form 10-K filed with the SEC.

The Audit Committee

 

Douglas C. Jacobs, Chairman

Ira C. Kaplan

William M. Lasky

George S. Mayes, Jr.

Paul J. Schlather

The Company’s Corporate Governance Guidelines, Code of Conduct, Code of Ethics for Senior Financial Officers and the charters of the Board of Directors’ Audit, Compensation, Nominating and Corporate Governance and Compliance and Ethics committees are posted on our website at www.stoneridge.com.

Written copies of these documents are available without charge to any shareholder upon request. Requests should be directed to Investor Relations at the address listed on the Notice of Annual Meeting of Shareholders.

We established a corporate ethics hotline as part of our Whistleblower Policy and Procedures to allow persons to lodge complaints about accounting, auditing and internal control matters, and to allow an employee to lodge a concern, confidentially and anonymously, about any accounting and auditing matter. Information about lodging such complaints or making such concerns known is contained in our Whistleblower Policy and Procedures, which is posted on our website at www.stoneridge.com.

The NYSE rules require listed companies to have a Board of Directors comprised of at least a majority of independent directors. Under the NYSE rules, a director qualifies as “independent” upon the affirmative determination by the Board of Directors that the director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). The Board has not adopted categorical standards of independence. The Board has determined that the following directors and nominees for election as a director are independent:

Our Corporate Governance guideline requires that the Board and each committee conduct an annual self-evaluation. The self-evaluations are intended to facilitate a candid assessment and discussion by the Board and each committee of its effectiveness as a group in fulfilling its responsibilities. Each year the Board and each committee conducts a self-evaluation/assessment using questionnaires to facilitate the evaluation. The Board and each Committee then reviews a summary of the questionnaires in connection with discussions to determine which areas the Board and Committee would like to focus on during the coming year to enhance its effectiveness.

It is management’s responsibility to manage risk and bring to the Board’s attention the most material risks to the Company. The Board has oversight responsibility of the processes established to report and monitor systems for material risks applicable to us. The Audit Committee regularly reviews enterprise-wide risk management, which includes treasury risks (foreign exchange rates, and credit and debt exposures), financial and accounting risks, legal and compliance risks, and other risk management functions. The Compensation Committee considers risks related to the attraction and retention of talent and related to the design of compensation programs and arrangements. The full Board considers strategic risks and opportunities and regularly receives reports from management on risk and from the committees regarding risk oversight in their areas of responsibility.

The Company is committed to a culture of integrity and trust, to conducting all of its business dealings in compliance with applicable federal, state and foreign laws, rules and regulations and to operating with the highest standards of business ethics. The Board established the Compliance and Ethics Committee to

assist the Board in overseeing (i) the Company’s activities in the areas of corporate responsibility, compliance and ethics, including oversight of the Company’s Code of Business Conduct and Stoneridge Integrity Program Charter, and (ii) the Company’s compliance with legal and regulatory requirements. Members of the Compliance and Ethics Committee are Ira C. Kaplan, Kim Korth, George S. Mayes, Jr. (chair) and Paul Schlather.

The Company strives to create a welcoming work environment and inclusive culture that allows all our employees to feel valued and have the confidence to do their jobs well. The Board understands the importance of an inclusive, performance-driven culture to our ongoing success and is actively engaged with our President and Chief Executive Officer and our Chief Human Resources Officer across a broad range of human capital management topics. On an annual basis, the Board reviews the results of our annual talent review process and succession plans for our President and Chief Executive Officer and our other executive officers. In addition, talent strategy and the results of employee engagement surveys are regularly discussed with the Board, including retention, engagement and talent development.

Our Insider Trading Policy prohibits Company directors, officers and key employees covered by the pre-clearance procedures of the Insider Trading Policy from engaging in hedging transactions designed to offset decreases in the market value of the Company’s securities, including transactions in prepaid variable forward contracts, equity swaps, collars, exchange funds, put options, call options or other derivative securities, on an exchange or in any other organized market.

Our Insider Trading Policy prohibits directors, officers and key employees covered by the pre-clearance provisions of the Insider Trading Policy from holding Company securities in a margin account or pledging Company securities as collateral for a loan.

In 2020 the Board held ten meetings. Each Board member attended at least 75% of the meetings of the Board and of the committees on which he or she serves. Our policy is that directors are to attend the Annual Meeting of Shareholders. All of our directors attended the 2020 Annual Meeting of Shareholders. Mr. Lasky has been appointed as the lead independent director by the independent directors to preside at the executive sessions of the independent directors. The Board’s independent directors meet regularly in executive session. All directors, except Mr. DeGaynor, the Company’s President and CEO, are independent.

The Board does not have a formal policy regarding the separation of the roles of CEO and Chairman of the Board as the Board believes it is in the best interest of the Company and our shareholders to make that determination based on the position and direction of the Company and the membership of the Board. At this time, the Board has determined that having an independent director serve as Chairman is in the best interest of the Company and our shareholders. This structure ensures a greater role for the independent directors in the oversight of the Company and active participation of the independent directors in setting agendas and establishing Board priorities and procedures. Further, this structure permits our President and CEO to devote more time focusing on the strategic direction and management of our day-to-day operations.

This committee held eight meetings in 2020. Information regarding the functions performed by the Audit Committee is set forth in the “Audit Committee Report,” included in this Proxy Statement. The Board has determined that each Audit Committee member is financially literate under the listing standards of the NYSE. The Board also determined that Mr. Jacobs and Mr. Schlather each qualify as an “audit committee financial expert” as defined by the SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002. In addition, under the Sarbanes-Oxley Act of 2002 and the NYSE rules mandated by the SEC, members of the audit committee must have no affiliation with the issuer, other than their Board seat, and receive no compensation in any capacity other than as a director or committee member. Each member of the Audit Committee meets this additional independence standard applicable to audit committee members of NYSE listed companies.

This committee held four meetings in 2020. Each member of our Compensation Committee meets the independence requirements of the NYSE, including the enhanced independence requirements applicable to Compensation Committee members under NYSE rules and is a non-employee director under Rule 16b-3 of the Exchange Act. The Compensation Committee is responsible for establishing and reviewing our compensation philosophy and programs with respect to our executive officers; approving executive officer compensation and benefits; recommending to the Board the approval, amendment and termination of incentive compensation and equity-based plans; and certain other compensation matters, including director compensation. Our CEO makes recommendations regarding compensation of other officers to the Compensation Committee. The Compensation Committee can exercise its discretion in modifying any amount presented by our CEO. The Compensation Committee regularly reviews the total compensation obligations to each of our executive officers. During 2020, the Compensation Committee retained Total Rewards Strategies LLC to provide compensation related consulting services. Specifically, the compensation consultant provided relevant market data, current trends in executive and director compensation and advice on program design. In accordance with its charter, the Compensation Committee may delegate power and authority as it deems appropriate for any purpose to a subcommittee of not fewer than two members.

This committee held two meetings in 2020. The purpose of the Nominating and Corporate Governance Committee is to evaluate the qualifications of director nominees, to recommend candidates for election as directors, to make recommendations concerning the size and composition of the Board, to develop and implement our corporate governance policies and to assess the effectiveness of the Board.

This committee held seven meetings in 2020. The purposes of the Compliance and Ethics Committee are to assist the Board in overseeing (a) the Company’s activities in the areas of corporate responsibility, compliance and ethics, including oversight of the Stoneridge Integrity Program, (b) in collaboration with the Audit Committee the Company’s compliance with legal and regulatory requirements, and (c) to oversee the Company’s commitment to establishing a culture of integrity and trust, to conducting all of its business dealings in compliance with applicable federal, state and foreign laws, rules and regulations and to operating with the highest standards of business ethics.

It is the policy of the Nominating and Corporate Governance Committee to consider individuals recommended by shareholders for membership on the Board. If a shareholder desires to recommend an individual for membership on the Board, then that shareholder must provide a written notice (the “Recommendation Notice”) to the Secretary of the Company at Stoneridge, Inc., 39675 MacKenzie Drive, Suite 400, Novi, Michigan 48377, on or before January 15 for consideration by this committee for that year’s election of directors at the Annual Meeting of Shareholders.

In order for a recommendation to be considered by the Nominating and Corporate Governance Committee, the Recommendation Notice must contain, at a minimum, the following:

The Nominating and Corporate Governance Committee determines, and periodically reviews with the Board, the desired skills and characteristics for directors as well as the composition of the Board as a whole. This assessment considers the directors’ qualifications and independence, as well as diversity, experience, skill, and experience in the context of the needs of the Board. Directors should share our values and should possess the following characteristics: high personal and professional integrity; the ability to exercise sound business judgment; an inquiring mind; and the time available to devote to Board activities and the willingness to do so. The Nominating and Corporate Governance Committee does not have a formal policy specifically focusing on the consideration of diversity; however, diversity is one of the factors that the Nominating and Corporate Governance Committee considers when identifying candidates and making its recommendations to the Board. In addition to the foregoing considerations, generally with respect to nominees recommended by shareholders, the Nominating and Corporate Governance

Committee will evaluate such recommended nominees considering the additional information regarding them contained in the Recommendation Notices. When seeking candidates for the Board, the Nominating and Corporate Governance Committee may solicit suggestions from incumbent directors, management and third-party search firms. Ultimately, the Nominating and Corporate Governance Committee will recommend to the Board prospective nominees who the Nominating and Corporate Governance Committee believes will be effective, in conjunction with the other members of the Board, in collectively serving the long-term best interests of our shareholders.

The Nominating and Corporate Governance Committee recommended to the Board each of the nominees identified in “Election of Directors” beginning on page 6 of this Proxy Statement.

None of the members of the Board’s Compensation Committee served as an officer at any time or as an employee during 2020. In addition, no Compensation Committee interlocks existed during 2020.

The Board believes that it is important for interested parties to have the ability to send communications to the Board. Persons wishing to communicate with the Board may do so by sending a letter to the Secretary of the Company at Stoneridge, Inc., 39675 MacKenzie Drive, Suite 400, Novi, Michigan 48377. The envelope must contain a clear notation indicating that the enclosed letter is a “Board Communication” or “Director Communication.” All such letters must identify the author and clearly state whether the intended recipients are all members of the Board or certain specified individual directors (such as the lead independent director or non-management directors as a group). The Secretary will make copies of all such letters and circulate them to the appropriate director or directors. The directors are not spokespeople for the Company and responses or replies to any communication should not be expected.

There were no reportable transactions involving related persons in 2020.

The Board has adopted a written statement of policy with respect to related party transactions. Under the policy, a related party transaction is a transaction required to be disclosed pursuant to Item 404 of Regulation S-K or any other similar transaction involving the Company or the Company’s subsidiaries and any Company employee, officer, director, 5% shareholder or an immediate family member of any of the foregoing if the dollar amount of the transaction or series of transactions exceeds $25,000. A related party transaction will not be prohibited merely because it is required to be disclosed or because it involves related parties. Pursuant to the policy, such transactions are presented to the Nominating and Corporate Governance Committee for evaluation and approval by the committee, or if the committee elects, by the full Board. If the transaction is determined to involve a related party, the Nominating and Corporate Governance Committee will either approve or disapprove the proposed transaction. Under the policy, in order to be approved, the proposed transaction must be on terms that are fair to the Company and are comparable to market rates, where applicable.

We delivered strong performance in 2020, despite the external challenges of COVID-19, by adapting our cost structure to current market conditions and managing our cash position throughout the year. The Company believes that focusing on products that address industry megatrends will have a positive impact on both our top-line growth and underlying margins.

COVID-19 began to impact our operations in the first quarter of 2020 as government authorities imposed mandatory closures, work-from-home orders, social distancing protocols, and other restrictions. These actions materially affected our ability to adequately staff and maintain our operations and supply chain and significantly impacted our financial results in the first half of 2020. The adverse conditions caused by COVID-19 initially reduced demand for our products and increased operating costs, which resulted in lower overall margins. We instituted Safe Workplace Guidelines, which required changes to our manufacturing operations to reduce the spread of COVID-19 and keep our employees safe. In the second half of 2020, as a result of recovery across our global end-markets, we experienced significant sales growth compared to the second quarter 2020. Although our end-markets showed strong recovery in the second half of 2020, during the fourth quarter of 2020, certain European, North American and South American countries began to initiate new governmental restrictions in response to renewed pandemic impacts and concerns, and many of these restrictions have continued into the first quarter of 2021. As a result, COVID-19 may continue to adversely impact demand for our products, financial condition and results of operations in the near term.

The actions of the Compensation Committee (the “Committee”) and our pay-for-performance philosophy functioned such that compensation earned by our executives was aligned with our financial performance for 2020. Highlights from the year and our performance are as follows:

The impact of the global COVID-19 pandemic on our company, our employees and our 2020 financial results was significant. The challenges that we faced included a 22.3% decline in volumes compared to prior year, complex governmental requirements that differed greatly by geography and resulted in partial or full office and plant shutdowns, as well as a significant impact on our employees and their families. Our response to the crisis included implementing stringent and consistent health and safety protocols across all of our locations, imposing travel restrictions, swiftly reacting to declining volumes by reducing work hours or furloughing employees where needed, increasing global employee communication and engagement activities, and actively managing costs throughout our businesses. We also implemented temporary executive officer base salary reductions and delayed merit increases for salaried employees. While customer volumes began to rebound later in 2020, the pandemic adversely and significantly impacted our 2020 financial results, especially our second quarter results.

The Compensation Committee considered many factors when making compensation decisions in light of the pandemic’s impact in 2020. Of particular importance, it considered management’s effective response to the crisis and the Company’s performance on controllable factors, the impact to shareholders, the overall financial results, and the need to retain and motivate critical talent to ensure continued progress on longer-term strategic goals. The 2020 financial metrics and associated targets in the Annual Incentive Plan (“AIP”) and Long-Term Incentive Plan (“LTIP”) were established before the start of the pandemic. With no modification of those targets or adjustment to results, the achievement on the 2020 portion of those metrics would have been below threshold and, therefore, generate no payment to plan participants.

Results at year-end showed that the Company’s performance was positively impacted by strong cost mitigation actions, conversion on incremental volumes and focused continuous improvement activities. Had volume been at the levels forecasted prior to the pandemic, the Company’s performance would have resulted in an AIP payout estimated at 108% of target. Based on these results, and weighing the need to retain and motivate critical talent, the Committee approved the following actions:

The Committee believes these actions appropriately balance the rewards to management and the impact on shareholders, and will positively impact employee retention and motivation. Further details of these actions are included in the applicable sections of this CD&A.

As of December 31, 2020, Stoneridge employed approximately 4,500 employees in 13 countries, with about 84% located outside of the United States. Although we have no collective bargaining agreements covering U.S. employees, a significant number of employees located in Brazil, China, Estonia, Mexico, Netherlands, Sweden and the United Kingdom either (i) are represented by a union and are covered by a collective bargaining agreement, or (ii) are covered by a works council or other employment arrangements required by law. We work to ensure positive relations with our employees.

We strive to create a work environment that enhances employee engagement, fosters productivity, and is aligned with our values of Integrity, Accountability, Teamwork, Adaptability, Customer Orientation, and Social Responsibility. We know that our success is dependent on our employees’ engagement, performance, skills, and development. To that end, we have established talent management programs at Stoneridge, which include but are not limited to the following:

When we hire new employees, we focus not just on the skills required for current positions, but the ever-changing complex skills and competencies that will be required as we move forward on our path to being the mobility industry’s integrated technology partner. We seek diverse sources for candidates and we offer wages and benefits that are competitive in the markets where employees are located.

It is always a top priority, but in 2020 employee health and safety was of paramount importance due to the global COVID-19 pandemic. Wherever possible, employees began working from home in March 2020 through the remainder of the year. For jobs that could not be performed remotely, extensive safety measures were implemented through our Safe Workplace Guidelines, including temperature and health screenings, distanced workstations, plexiglass barriers, enhanced cleaning and disinfection protocols, required face coverings, contact tracing when needed and employee training. Our safety measures are aligned with the recommendations of US and global health organizations, and have continued into 2021.

We believe a diverse workforce and an inclusive work environment is required for us to achieve our full potential as an organization. We further recognize the importance of having a strong Diversity, Equity & Inclusion (“DEI”) strategy. In 2020, we embarked on an initiative to reassess our DEI strategy, identify gaps between our ideal and current states, and develop goals and actions to realize measurable improvement. We look forward to continuing this work in 2021.

The Human Resources function at Stoneridge is an active and visible partner to the business at all levels. Our Chief Human Resources Officer reports directly to the Chief Executive Officer and interacts frequently with the Board of Directors. In 2021, our human capital focus will continue to be on employee engagement, employee and leadership development, communications, and employee health and safety.

Our Company’s compensation programs for executive officers are designed to attract, retain, motivate, and reward talented executives who advance our strategic, operational, and financial objectives and thereby enhance shareholder value. The primary objectives of our compensation programs for executive officers are to:

A substantial portion of our executive officers’ annual and long-term compensation is tied to quantifiable measures of the Company’s financial performance and will not be earned unless at least the minimum threshold performance is achieved.

Our executive compensation is based on our pay-for-performance philosophy, which emphasizes executive performance measures that closely correlate with the achievement of both short-term performance objectives and long-term shareholder value. A significant portion of our executive officers’ annual and long-term performance-based compensation is at-risk, with the amount of risk increasing with the officer’s position level. This provides more upside potential as well as downside risk for more senior positions because they have greater influence on our overall performance.

There is no pre-established policy or target for the allocation between cash and non-cash or short-term and long-term incentive compensation. Rather, the Committee reviews competitive market compensation information provided by our compensation consultant and considers the Company’s historical compensation practices in determining the appropriate level and mix of incentive compensation for each executive position.

Total target compensation is the value of the compensation package that is intended to be delivered if performance goals are met. Actual compensation depends on the payouts realized under the annual and long-term incentive plans, as determined by results on the performance metrics. For awards under the long-term incentive plan, the value is also based on the price of our common shares. The following charts show the weighting of each element of total target compensation for the CEO, and average for the other NEOs. This demonstrates our pay-for-performance philosophy, showing that annual and long-term incentive-based compensation comprises the majority of total target compensation.

 

To achieve the goals of aligning executive compensation with Company performance while maintaining strong corporate governance and minimizing risk, the Committee and the Company review and adopt

policies and best practices that they believe are in the best interest of the Company and our shareholders. Following are some of the practices that have been adopted over time that we believe help us to achieve these goals.

The Committee has the responsibility for determining the compensation paid to the Company’s executive officers. In carrying out its responsibilities, among other things, the Committee does the following:

The Committee retains the services of an independent compensation consultant to assist the Committee with the following:

In 2020, the Committee’s compensation consultant was Total Rewards Strategies, LLC (“TRS”).

The Committee considers the recommendations and evaluations of the CEO when setting the compensation of the other executive officers.

TRS provides the Committee with the 50^th and 75^th percentiles of the Comparator Group for base salary, cash bonus, long-term incentives, and total direct compensation. The Committee uses as a primary reference point the 50^th percentile when determining base salary, annual incentive, and long-term incentive targets; each element of pay is adjusted to reflect competitive market conditions. The goal of the executive compensation program is to target overall compensation at the 50^th percentile of pay practices of the Comparator Group of companies. Actual target pay for an individual may be more or less than the referenced percentiles based on the Committee’s evaluation of the individual’s performance and potential. Consistent with the Committee’s philosophy of pay-for-performance, incentive payments can exceed target levels only if overall Company financial targets are exceeded and will fall below target levels if overall financial goals are not achieved.

At our 2020 Annual Meeting of Shareholders, our executive compensation program received the support of approximately 95.2% of shares represented at the meeting. The Committee has considered the results of this vote and views this outcome as evidence of shareholder support of its executive compensation decisions and policies. The Committee will continue to review and consider the annual shareholder votes on our executive compensation program.

Base salary sets the foundation of our compensation program for our executive officers. The annual cash incentive compensation targets and long-term incentive targets are typically established as a percentage of base compensation. The base salary is set at competitive market levels to attract and retain our executive officers. Base salary levels for our executive officers are set on the basis of the executive’s responsibilities, the current general industry, and competitive market data, as discussed above. In each case, due consideration is given to individual factors, such as the officer’s experience, competencies, performance, and contributions, and to external factors, such as salaries paid to similarly situated executive officers by like-sized companies and in particular our Comparator Group. The Committee considers the evaluation and recommendation of the CEO in determining the base salary of the other executive officers. The Committee typically approves executive officer base salaries with an effective date of January 1^st. Executive officers’ base salaries remain fixed throughout the year unless a promotion, change in responsibilities, or special circumstances occur.

On January 1, 2020, our executive officers’ base salary merit increase adjustments were implemented, as approved by the Compensation Committee in December 2019. On April 1, 2020, those merit increase adjustments were suspended and the executive officers’ base salaries were correspondingly reduced as the financial uncertainty of the impact of the COVID-19 pandemic intensified. In addition, the merit increases for salaried employees, which are typically effective April 1, were delayed. As the impact of the pandemic and our forecasted performance began to stabilize, merit increases were reinstated for executive officers and were implemented for salaried employees, effective August 1, 2020.

Our executive officers and other key employees participate in our AIP which provides for annual cash payments based on the achievement of specific financial goals. As described above, the Company believes that a substantial portion of each executive’s overall compensation should be directly tied to quantifiable measures of financial performance. At the early March 2020 Compensation Committee meeting, the Committee approved the Company’s 2020 AIP targets and performance metrics. The AIP targets are expressed as a percentage of the executive officer’s base salary.

For 2020, the structure of our AIP included both consolidated financial performance metrics and, where appropriate, divisional metrics to incentivize specific performance. In addition, there is an individual performance metric for executive officers (excluding Mr. DeGaynor) and certain other leaders in the Company as a way to incentivize and reward specific strategic and measurable activities that are particular to each leader’s area of responsibility. The individual metrics are considered critical to the achievement of the overall financial and operational metrics. The individual performance metric functions as a multiplier to the overall weighted achievement, and can range from 90% to 110%.

The consolidated and divisional financial performance metric targets were established based on our 2020 business plan. The targets were intended to be challenging but achievable based on industry conditions known at the time they were established. Under the 2020 AIP, the threshold level for achievement on the consolidated and divisional financial metrics was based on 80% of target while the maximum level was based on 130% of target.

For each performance metric, specific levels of achievement for threshold, target, and maximum were established. At target, 100% payout is achieved for each element of the plan; at maximum, 200% payout is achieved; and at threshold, 50% payout is achieved. Below the threshold, no incentive is earned on that metric. Threshold achievement on the Operating Income metric is required for the other metrics to pay out above their threshold levels. The AIP incentive compensation payout earned between the threshold and maximum levels is prorated.

The stated objectives of the AIP include retaining key employees and rewarding them for performance aligned with the growth and profitability of the Company. In 2020, the AIP performance targets were established prior to the start of the global pandemic. As a result of the impact of COVID-19, achievement on the metrics was below threshold. The Compensation Committee considered the Company’s performance on controllable factors, conversion on incremental volume and the plan’s objective of retaining critical talent, and exercised its discretion to approve payment under the plan at 63% of target. The Committee also considered that, eliminating the impact of COVID-19, the estimated payout under AIP would have been 108% of target.

The AIP metrics, weighting, performance targets, and achievement for 2020 are summarized as follows:

The following table provides the 2020 AIP targets and achievement, as well as the discretionary bonus that was paid to our NEOs.

The payment of compensation under the 2020 AIP was a result of a discretionary award approved by the Compensation Committee and is included in the “Bonus” column of the Summary Compensation Table.

We believe that long-term incentive awards are a valuable motivation and retention tool and provide a long-term performance incentive to management. Under our LTIP, executive officers may be granted share options, share units, performance shares, restricted common shares, and other equity-based awards. The long-term awards are calculated based on the fair value of the shares, shares equivalent or cash at the time of grant. In 2020, we used the following long-term incentive vehicles to provide grants to our executive officers.

These cumulative targets, established prior to the pandemic, no longer met the intended goal of being challenging but achievable. Because they were rendered likely unachievable less than one year into the three-year performance period, in December 2020, the Committee approved a modification of the target-setting methodology. The modified EPS metric will be based on our actual average EPS over a three-year performance period, when compared to the average of the Board approved budgeted EPS for each year in the performance period. Similarly, the modified ROIC metric will be based on our actual average ROIC over a three-year performance period, when compared to the average of the Board approved budgeted ROIC for each year in the performance period. The modified methodology retains the same metrics but results in performance targets that will be closely aligned with actual Company goals and provide performance motivation by being challenging but achievable.

Provided the executive officer remains employed, and depending on performance relative to the target, the number of vested Performance Shares is prorated between the minimum and maximum amounts. The Performance Shares earned based on the EPS and ROIC metrics will be paid after a three-year vesting period by the issuance on a one-for-one basis of common shares.

The following chart shows the allocation of the LTIP awards that were granted in 2020:

 

The Committee determines the value of the annual grant to the executive officers by considering the comparison to our Comparator Group obtained during the annual compensation review process, as well as the executives’ responsibilities, performance, and potential contributions. The targeted value of 2020 LTIP grants were established as listed in the table below.

The grant date fair value of the RSUs and Performance Shares awarded in 2020 are included in the “Stock Awards” column of the Summary Compensation Table. The RSUs awarded in 2020 are included in the “All Other Stock Awards” column of the Grants of Plan-Based Awards table, and the grant date fair value of the Performance Shares awarded are included in the “Estimated Future Payouts Under Equity Incentive Plan Awards” columns of the Grants of Plan-Based Awards table.

The Committee’s practice has been to approve the long-term incentive awards at the first regular meeting of the calendar year. As a general practice, awards under the long-term incentive plans are approved once a year unless a situation arises whereby a compensation package is approved for a newly hired or promoted executive officer and equity-based compensation is a component.

In addition to his LTIP grant at the targeted value shown above, Mr. Borne received an additional grant of 17,026 time-based shares with a grant value of $300,000 that will vest after three years. This grant was in recognition of performance and for retention purposes. This grant is included in the Grants of Plan-Based Awards table.

The performance period for the Performance Shares that were granted in 2018 ended on December 31, 2020. The shares vested on March 6, 2021, as shown below. These shares are included for the NEOs, as applicable, in the “Outstanding Equity Awards at Year-End” table.

The TSR Peer Group for the 2018 grant consisted of the following companies⁽¹⁾:

We provide executive officers with limited perquisites that we and the Committee believe are reasonable and consistent with the overall compensation program to better enable us to attract and retain superior employees for key positions. The Committee periodically reviews the levels of perquisites provided to executive officers. The incremental costs of the perquisites for the NEOs are included in the “All Other Compensation” column of the Summary Compensation Table.

We use employment agreements in limited situations. In 2015, we entered into an Employment Agreement with Mr. DeGaynor, which provides for a minimum annual base salary of $500,000; participation in the annual incentive plan at a target of 100% of base salary; a monthly auto allowance, participation in the Company’s customary benefit plans including an annual executive physical; and participation in the long-term incentive plan. In addition, if Mr. DeGaynor is terminated without cause, we will be obligated to pay him the sum of his annual base salary and target annual incentive as well as health and welfare benefits for one year, and if the termination occurs in the last six months of the fiscal year, he would be paid a prorated annual incentive.

On February 23, 2021, the Company and Mr. DeGaynor entered into an amendment (the “Amendment”) to Mr. DeGaynor’s 2015 Employment Agreement. The Amendment also amended the Change in Control Agreement by and between Mr. DeGaynor and the Company (the “DeGaynor CIC Agreement”).

The Amendment was designed to conform the Employment Agreement and the DeGaynor CIC Agreement to other compensation plans and practices applicable to the Company’s other executive officers in terms of the vesting of equity-based awards under the Company’s Long-Term Incentive Plan and the treatment of certain payments in the event of a Company change in control. The material changes made by the Amendment (i) eliminate automatic (single trigger) vesting of equity-based awards under the Company’s Long-Term Incentive Plan pursuant to the Employment Agreement so that all current and future awards under the Company’s Long-Term Incentive Plan will be subject to “double trigger” vesting in the event of a change in control, and (ii) adjust the provisions related to payment in connection with total compensation in excess of the safe harbor amount of Section 208G of the Internal Revenue Code so that Mr. DeGaynor will receive the greater of safe harbor amount (as defined) or aggregate parachute value (as defined) of the total payments (as defined) less applicable excise tax.

The Employment Agreement will be automatically renewed annually unless notice of termination is delivered by either party before the end of the then current term.

In 2020, we entered into an employment agreement with Mr. Heigel. This agreement provides for an annual base salary of $325,000; participation in the annual incentive plan at a target of 50% of base

salary; participation in the Company’s customary benefit plans; and a one-time grant under the long-term incentive plan with a targeted value of 150% of base salary. If Mr. Heigel is terminated without cause, we will be obligated to provide him with ninety days’ written notice or pay in lieu of notice, plus ninety days of his base salary.

The Company has not entered into an employment agreement with any other NEO.

The Company provides executive severance through the Officers’ and Key Employees’ Severance Plan (the “Severance Plan”). The NEOs covered under the Severance Plan include Mr. Krakowiak, Mr. Borne, and Mr. Dono. If a covered executive is terminated by us without cause, we will be obligated under the Severance Plan to pay the executive’s salary for 12 months and continue health and welfare benefits coverage over the same period of time. Severance protection for Mr. DeGaynor and Mr. Heigel is provided in their respective employment agreements, as described above.

We have entered into change-in-control agreements with Mr. DeGaynor, Mr. Krakowiak, Mr. Borne, and Mr. Dono, and certain other senior management employees. These agreements are designed to promote stability and continuity of senior management, both of which are in the best interest of Stoneridge and our shareholders. Our termination and change-in-control provisions for the NEOs are summarized below under “Potential Change in Control and Other Post-Employment Payments.”

After the fiscal year ended December 31, 2020, each of the following NEOs entered into a new change in control agreement with the Company (the “CIC Agreement”): Thomas M. Dono Jr, Robert R. Krakowiak and Laurent Borne. The material amendments to the prior change in control agreements are that the new CIC Agreement changes (i) the defined term “Executives Annual Bonus” to mean the greater of the target annual incentive award at the time of termination or the actual incentive award received for the year prior to termination, and (ii) the provisions related to payment in connection total compensation in excess of the safe harbor amount of Section 208G of the Internal Revenue Code so that the covered executive will receive the greater of safe harbor amount (as defined) or aggregate parachute value (as defined) of the total payments (as defined) less applicable excise tax.

Section 162(m) of the Internal Revenue Code (“Code”) generally limits tax deductibility of compensation paid by a public company to its chief executive officer and certain other executive officers in any year to $1 million in the year compensation becomes taxable to the executive. Prior to the 2017 Tax Cuts and Jobs Act, certain compensation was exempt from the deduction limit to the extent it met the requirements to be considered “qualified performance-based compensation” as previously defined in Section 162(m). The 2017 Tax Cuts and Jobs Act eliminated that exemption. Certain arrangements entered into prior to November 2, 2017 are considered “grandfathered” and compensation paid under such arrangements will continue to be deductible until the arrangements are materially modified.

The Compensation Committee has historically considered Section 162(m) in the design of incentive plans to preserve the corporate tax deductibility of compensation. Although the exception to the deduction limitation under Section 162(m) performance-based compensation has been eliminated for incentive awards granted after November 2, 2017, the Compensation Committee recognizes that factors other than tax deductibility should be considered in determining the forms and levels of executive compensation most appropriate and in the best interests of the Company and its stockholders. The Compensation Committee will continue to require that a major portion of executive compensation is at risk and subject to the attainment of performance goals. Annually, the Compensation Committee reviews all compensation programs and payments, including the tax impact on the Company.

As one of many factors, the Committee considers the financial impact in determining the amount of and allocation of the different pay elements, including Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 Stock Compensation.

The Committee has established share ownership guidelines for our executive officers to enhance the linkage between the interests of our executive officers and those of our shareholders. These guidelines provide that the CEO, CFO and other executive officers must retain Company common shares equal in market value to five, four and three times, respectively, of their annual base salaries. The executive officers have a five year accumulation period to achieve compliance and are restricted from selling any common shares earned under a Company equity-based compensation plan until their ownership guideline has been reached. The accumulation period begins on the date of their first grant following their date of hire or promotion which subjects them to the guidelines.

The Company has a clawback policy which provides for recoupment of performance-based executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under federal securities laws. The policy applies to current and former executives and requires reimbursement or forfeiture of any excess performance-based compensation received by an executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement.

The Compensation Committee reviews the Company’s incentive compensation structure practices for all employees to evaluate any risks associated with the Company’s compensation programs.

As part of the evaluation, the Compensation Committee reviews a compensation risk assessment that was prepared by Company management and its independent compensation consultant. The compensation risk assessment analyzes all Company compensation programs for various categories of compensation related risk.

The Compensation Committee considers, among other factors, the design of the incentive compensation programs, which are closely aligned to corporate performance, the mix of short-term and long-term compensation, the maximum payout levels for short-term and long-term incentives, the distribution of compensation between equity and cash, and other factors that mitigate risk.

The Compensation Committee determined that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

We have reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on that review and discussion, we recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

The Compensation Committee

 

The following table provides information regarding the compensation of our NEOs for 2020.

The Compensation Committee approved implementation of a non-qualified deferred compensation plan for our executive officers and certain other leaders in the organization, effective June 1, 2017. The plan provides the opportunity to defer current compensation and taxes until a future date, and to receive tax deferred investment returns on deferred amounts. The Company will provide matching contributions to the extent that participants are unable to receive a full match in the 401(k) plan, due to contribution and/or compensation limits. The plan allows eligible employees to defer up to 80% of their base salary, up to 100% of AIP and up to 100% of LTIP. The minimum deferral period is three years.

We have entered into a Change in Control Agreement (the “CIC Agreement”) with certain executive officers. There is no excise tax gross-up payment under the CIC Agreements. Our change in control agreements were designed to provide for continuity of management in the event of change in control of the Company. We think it is important for our executives to be able to react neutrally to a potential change in control and not be influenced by personal financial concerns. We believe our arrangements are consistent with market practice. For our NEOs covered under a CIC Agreement we set the level of benefits, as described below, to remain competitive with our select peer group. All payments under the CIC Agreement are conditioned on a non-compete, non-solicitation and non-disparagement agreement.

We believe that the CIC Agreements should compensate executives displaced by a change in control and not serve as an incentive to increase personal wealth. Therefore, our CIC Agreements are “double trigger” arrangements. In order for the executives to receive the payments and benefits set forth in the agreement, both of the following must occur:

In March 2015, we entered into a CIC Agreement with Mr. DeGaynor as part of his employment agreement. The terms of this CIC Agreement were recently amended (as described in the Employment Agreements section of this CD&A), and are substantially similar to those described above. If the events listed above occur, and the executive delivers a release to the Company, we will be obligated to provide the following to Mr. DeGaynor:

If the events listed above occur and the executive delivers a release to the Company, we will be obligated to provide the following to Mr. Krakowiak, Mr. Borne, and Mr. Dono:

Upon a change in control as defined by the 2016 LTIP, time-based RSUs and Performance Shares granted under that plan remain subject to forfeiture under the original terms of the grant unless a triggering event, as described above, occurs within two years of the effective date of the change in control.

We have a Severance Plan. The NEOs covered under the Severance Plan include Mr. Krakowiak, Mr. Borne, and Mr. Dono. If we terminate a covered executive without cause, we will be obligated under the Severance Plan to pay the executive’s salary for one year and continue health and welfare benefits coverage over the same period of time. Mr. DeGaynor’s and Mr. Heigel’s severance protection is provided in their respective employment agreements. If Mr. DeGaynor is terminated without cause, we will be obligated to pay an amount equal to the sum of one year of base salary and target annual incentive, and continue health and welfare benefits coverage for twelve (12) months. If Mr. Heigel is terminated without cause, we will be obligated to provide him with a 90-day notice or pay in lieu of notice, as well as 90 days of base salary. No severance is payable if the NEO’s employment is terminated for “cause”.

Value of Payment Presuming Hypothetical December 31, 2020 Termination Date

Upon resignation, no payments are due to any NEO in the table below. Assuming the events described in the table below occurred on December 31, 2020, each NEO would be eligible for the following payments and benefits: