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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 |
☐ |
Filed by a party other
than the Registrant |
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| CHECK THE APPROPRIATE BOX: |
| ☐ |
|
Preliminary Proxy Statement |
| ☐ |
|
Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)) |
| ☑ |
|
Definitive Proxy Statement |
| ☐ |
|
Definitive Additional Materials |
| ☐ |
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Soliciting Material under §240.14a-12 |
AAR CORP.
(Name of Registrant as Specified In Its
Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
| PAYMENT OF FILING FEE (CHECK ALL BOXES THAT APPLY): |
| ☑ |
|
No fee required |
| ☐ |
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Fee paid previously with preliminary materials |
| ☐ |
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Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11 |
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| Doing It Right® |
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 |
|
Our Vision:
Be the most respected global independent provider of aviation parts and repair services
Create value for customers through differentiated capabilities and offerings, resulting in a sustainable, unique competitive advantage |
ESG commitments statement
In July 2023, our Board of Directors (“Board”) adopted commitments in each of our environmental, social and governance (“ESG”) focus areas. See “Environmental, social and governance focus – ESG commitments statement” at the end of “Proxy statement summary” for details. Along with our guiding principle of Doing It Right®, our ESG commitments help inform AAR’s decision-making as we navigate an ever-changing world. We are committed to analyzing and better understanding how AAR impacts our local and global communities, the environment, and our industry so that we may reduce potential risk, promote resiliency, and drive value for all stakeholders. Our ESG commitments are embedded in our strategy, which is overseen by our Board, and our assessment of risk through our enterprise risk management program, which is overseen by our Audit Committee. At the management level, a cross-functional team oversees the implementation of our ESG commitments.
ESG focus areas
Environment
Protecting the planet |
Social
Empowering people |
Governance
Governing with integrity |
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●Energy
●Materials
●Waste
●Greenhouse
gas emissions |
●Aviation
safety
●Employee
engagement
●Diversity
and inclusion
●Employee
health, safety, and well-being |
●Nondiscrimination
●Training
and education
●Local
communities
●Occupational
health and safety |
●Information
security
●Ethics
and compliance
●Anti-corruption
●Risk
identification / mitigation |
Fiscal 2023 highlights in ESG
| ● |
Named to Newsweek’s America’s Greatest Workplaces 2023 |
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Named to Newsweek’s America’s Greatest Workplaces for Diversity 2023 |
| ● |
Received recognition from FAA for Corporate Safety Management System program |
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Awarded first Captains of Industry contract by U.S. DoD’s Defense Logistics Agency focused on distribution of sustainment services |
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Named to Bloomberg Government’s BGOV 200 list of top federal contractors |
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Received additional Military Friendly® awards, including as employer, spouse employer, top 10 brand and top 10 supplier diversity program |
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Announced additional AAR Fellowship Programs to build aviation maintenance talent pipeline |
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Published second ESG report |
This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our ESG goals, commitments, and strategies, and our executive compensation program. These statements involve risks and uncertainties. Actual results could differ materially from any future results expressed or implied by the forward-looking statements for various reasons, including due to the risks, uncertainties, and other important factors that are discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023 and subsequent filings. We assume no obligation to update any forward-looking statements or information, which speak as of the date of this proxy statement.
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AAR CORP.
1100 North Wood Dale Road
Wood Dale, Illinois 60191
August 8, 2023 |
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 |
Dear fellow stockholders:
AAR began Fiscal 2023 strongly positioned to reach new heights, and I am pleased to share that we have delivered on our goals. We established new partnerships, expanded our service offerings, and continued to invest in our world-class quality and safety processes to best serve our customers across 100+ countries.
The global recovery in air travel drove increased demand for our services, enabling us to achieve strong results across our portfolio, particularly in used serviceable material, new parts distribution, and airframe maintenance. Our actions to reduce costs and improve operating efficiency were reflected in our adjusted operating margin improvement over nine consecutive quarters and led to record adjusted diluted earnings per share from continuing operations for the fiscal year.
We broadened many areas of our business, including significantly growing our parts business as customers turned to used serviceable material given ongoing supply chain challenges. We also further expanded our aftermarket product distribution services through several contract wins and the growth of our relationship with Unison Industries, becoming their exclusive global distributor for multiple product offerings.
AAR’s leaders, officers, and directors share a strong commitment to Doing It Right® and are supported by what we believe is the best team in aviation. When I became the Chairman of the Board earlier this year, the Company’s third, I was humbled and honored to succeed my longtime mentor David Storch. I am grateful for the opportunity to lead this Company on its next phase of growth and build on the foundation that David established.
With that, I am pleased to invite you to AAR’s 2023 annual meeting of stockholders, which will be a virtual meeting of the stockholders. The annual meeting will be held on Tuesday, September 19, 2023, at 9:00 a.m., Central Time and you will be able to attend the annual meeting online, vote your shares electronically, and submit your questions during the annual meeting by visiting www.virtualshareholdermeeting.com/AIR2023 and entering your control number. You will not be able to attend the annual meeting in person.
I encourage you to read our 2023 proxy statement, our annual report, and our other proxy materials. Please see Appendix B for reconciliations of non-GAAP financial measures. Whether or not you plan to attend the annual meeting of stockholders, your vote is important. Please follow the voting instructions to ensure that your shares are represented and voted at the meeting.
We are grateful to our employees for their hard work and commitment, and to you, our stockholders, for choosing to invest in AAR.
Sincerely,
John M. Holmes
Chairman, President and Chief Executive Officer
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| Notice
of 2023 annual meeting of stockholders |
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 |
To our stockholders:
| We are pleased to invite you to attend our 2023 annual meeting of stockholders. Please read the information in this notice and proxy statement to learn more about AAR and the matters to be voted on at the annual meeting. |
|
Date and time
Tuesday,
September 19, 2023
9:00 a.m.
Central Time |
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Place
www.virtualshareholder
meeting.com/AIR2023 |
|
Record date
You may vote your shares at the annual meeting if you were a stockholder on Thursday, July 27, 2023. |
Items of business
You will be asked at our annual meeting to:
| Items
of business |
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Board
recommendation |
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Page |
| 1 |
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Elect four directors included in our annual proxy statement |
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FOR
each director nominee |
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13 |
| 2 |
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Vote on an advisory proposal to approve our Fiscal 2023 executive compensation |
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FOR |
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36 |
| 3 |
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Vote on an advisory proposal to approve the frequency for future advisory proposals to approve our executive compensation |
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“1
year“ |
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78 |
| 4 |
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Approve an amendment to our stock plan |
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FOR |
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79 |
| 5 |
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Ratify the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2024 |
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FOR |
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85 |
Stockholders will transact any other business that may properly come before the annual meeting or any adjournment or postponement of the annual meeting.
Voting
Your vote is important. We encourage you to vote your shares as soon as possible. You may vote by proxy over the Internet, by telephone, or by completing and returning the enclosed proxy card in the postage-paid envelope provided. If you are a “street name” stockholder (meaning that your shares are registered in the name of your bank or broker), you will receive instructions from your bank, broker or other nominee describing how to vote your shares. We also welcome you to attend the virtual meeting and vote online.
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| www.proxyvote.com |
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www.virtualshareholdermeeting.com/AIR2023 |
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1-800-690-6903 |
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Complete and return the proxy card or voting information card |
Please see Appendix A for important information about voting your shares at our 2023 annual meeting.
By Order of the Board,
Jessica A. Garascia
Senior
Vice President, General Counsel, Chief Administrative Officer and Secretary
August 8, 2023
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| Table of contents |
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Important notice regarding the availability of the proxy materials for our annual meeting of stockholders to be held on Tuesday, September 19, 2023:
The notice and proxy statement, our proxy card, our 2023 Annual Report to Stockholders and our Annual Report on Form 10-K for the fiscal year ended May 31, 2023, are available free of charge at www.proxyvote.com. Proxy materials or a Notice of Internet Availability of Proxy Materials are first being made available, released, or mailed to shareholders on August 8, 2023. |
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| Proxy statement summary |
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 |
This summary highlights selected information contained in this proxy statement. Please read the entire proxy statement carefully before voting your shares. We are providing the enclosed proxy materials to you in connection with the solicitation by the Board of proxies to be voted at the annual meeting of stockholders to be held on September 19, 2023. We began providing these proxy materials to our stockholders on August 8, 2023.
Proposals to be voted on at the annual meeting
| Proposal 1 |
Election of four directors named in this proxy statement |
 |
FOR each director nominee |
► See (pages 13-35) |
 |
John
W. Dietrich Independent Director |
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Robert
F. Leduc Independent Director |
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Duncan
J. McNabb Independent Director |
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Peter
Pace Independent Director |
| Executive Vice President and Chief Financial Officer, FedEx Corp., a global provider of transportation, e-commerce and business services, since August 2023. Previously he served as President and Chief Executive Officer of Atlas Air Worldwide Holdings, Inc. from January 2020 until June 2023. He also served on the Atlas Air board during that time. Prior to 2020, he served in a number of other leadership positions since joining Atlas Air in 1999. |
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Retired President of Pratt & Whitney, an aerospace manufacturer and a subsidiary of United Technologies Corporation, where he served from 2016 until his retirement in early 2020. President of Sikorsky Aircraft, a helicopter manufacturer, from 2015 to 2016. Previously, he served in leadership positions at Hamilton Sundstrand and UTC Aerospace Systems. He also serves as an advisor to Advent International. |
|
Co-Founder and Managing Partner of Ares Mobility Solutions Inc., a privately-held logistics business, since 2011; General, U.S. Air Force (Retired) after 37 years of active commissioned service. Former Commander, U.S. Air Mobility Command, 33rd Vice Chief of Staff of the U.S. Air Force and Former Commander of US TRANSCOM. |
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General, U.S. Marine Corps (Retired). From 2005 to 2007, Chairman of the Joint Chiefs of Staff, the most senior position in the United States Armed Forces. |
| Proposal 2 |
Advisory proposal to approve our Fiscal 2023 executive compensation |
|
|
FOR |
► See (pages 36-77) |
| Proposal 3 |
Advisory proposal to approve the frequency for future advisory proposals to approve our executive compensation |
|
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“1 year” |
► See (page 78) |
| Proposal 4 |
Approval of an amendment to our stock plan |
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|
FOR |
► See (pages 79-84) |
| Proposal 5 |
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2024 |
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|
FOR |
► See (pages 85-86) |
| 4 |
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Table of Contents
Proxy statement summary
AAR – Who we are and what we do
AAR is a global aerospace and defense aftermarket solutions company that operates in over 60 sites around the world. Headquartered in the Chicago area, AAR supports commercial and government customers across 100+ countries.
Business overview
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| Parts Supply |
Repair & Engineering |
Integrated Solutions |
Expeditionary Services |
|
●Used serviceable material (USM)
●New parts distribution
●Online PAARTSSM Store
●24/7 global aircraft on-ground (AOG) service |
●Airframe MRO
●Component Repair & Landing Gear Overhaul
●Engineering
●Development of proprietary Parts Manufacturer Approval (PMA) parts |
●Government aircraft maintenance, logistics, and operations support programs
●Commercial flight-hour-based aircraft component support
●Consumable and expendable parts programs
●Trax ERP software for aircraft MRO |
Mobility Systems: Rapid deployment sustainment solutions for government applications
●Pallets for use in military transport aircraft
●Containers for customized air-mobile shipping and storage of equipment
●Shelter systems for military operations |
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Connected businesses model
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Integrated Solutions
●Programmatic parts and repair solutions
●Fuels Parts Supply activities
●Funds component repair capability development
●Government USM customer relationships |
 |
Parts Supply:
USM & Distribution
●Sourcing to supply Repair & Engineering and Integrated Solutions
●Data for use in repair capability development
●Sales channels supported by maintenance relationships
Repair & Engineering
●Strategic relationships with blue chip airlines that support parts volumes
●Repair knowledge and data collection
●PMA parts development for internal and external consumption |
Customers (percentage of Fiscal 2023 sales)
Table of Contents
Proxy statement summary
Key business achievements in Fiscal 2023
 |
Continued execution and expansion in commercial and government markets |
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● |
Our sales to commercial customers in Fiscal 2023 increased by $245.0 million, or 22.6%, over the prior year reflecting continued recovery in commercial passenger air traffic from the impact of the pandemic as well as growth from recently awarded new parts distribution contracts. |
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● |
We were successful in winning new long-term agreements in both our commercial and government markets. |
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● |
We were awarded a significant expansion of our exclusive agreement with Unison Industries which broadens our distribution of select Unison ignitor plugs, ignition leads, harnesses, and related spare parts. |
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● |
We also extended our distribution relationship with Leach International Corp. to supply electromechanical and solid-state switch gears to the electronics end-market. |
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● |
In our commercial programs activities, we were awarded a multi-year, flight-hour component support contract with flydubai for their growing Boeing 737 MAX fleet. |
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● |
In our government market, we were awarded a firm-fixed price contract from the U.S. Air Force to produce Next Generation All Aluminum Cargo Pallets with a total contract value, including option periods, of $173.5 million. We were also awarded a contract from the Norwegian Defence Logistics Organisation to provide commercial common parts for the Royal Norwegian Air Force P-8A fleet. |
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Acquired leading provider of airframe MRO and fleet management software to drive growth |
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● |
In March 2023, we acquired Trax USA Corp. (“Trax”), a leading independent provider of aircraft MRO and fleet management software incorporated in 1999. Trax offers critical software applications to a diverse global customer base of airlines and MROs supporting approximately 5,000 aircraft. |
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● |
Trax’s comprehensive solutions support the entire spectrum of maintenance activities and create the system of record required by airlines and MROs. |
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● |
The Trax acquisition adds established, higher-margin aviation aftermarket software offerings with recurring revenue to our portfolio and provides opportunities to cross-sell products and services. |
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Financial highlights
AAR had strong financial performance for Fiscal 2023 as the commercial aviation industry continued its recovery from the COVID-19 pandemic. Consolidated sales were $2.0 billion, diluted earnings per share from continuing operations were $2.52 (an increase of 17% over Fiscal 2022) and adjusted diluted earnings per share from continuing operations, a non-GAAP financial measure, were $2.86 (an increase of 20% from Fiscal 2022). Further, AAR drove significant cash generation in Fiscal 2023, which enabled it to make investments to drive growth, return capital to stockholders, and maintain an exceptionally strong balance sheet.
For a definition of adjusted diluted earnings per share from continuing operations and a reconciliation of this measure to the closest comparable GAAP financial measure, see Appendix B.
Selected financial information
(dollars in millions except per share data)
For the fiscal year ended May 31 |
|
2023
($) |
|
2022
($) |
|
2021
($) |
| Sales |
|
1,990.5 |
|
1,820.0 |
|
1,652.3 |
| Operating income |
|
133.9 |
|
106.9 |
|
85.2 |
| Diluted earnings per share from continuing operations |
|
2.52 |
|
2.16 |
|
1.30 |
| Cash provided from operations – continuing operations |
|
23.8 |
|
89.8 |
|
108.5 |
| |
| As of May 31 |
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| Working capital |
|
746.4 |
|
659.0 |
|
600.2 |
| Total assets |
|
1,833.1 |
|
1,573.9 |
|
1,539.7 |
| Total debt |
|
272.0 |
|
100.0 |
|
135.2 |
| Equity |
|
1,099.1 |
|
1,034.5 |
|
974.4 |
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Table of Contents
Proxy statement summary
Key financial achievements
| Sales |
Adjusted
diluted EPS from continuing operations* |
 |
 |
| * |
See prior page for diluted EPS from continuing operations (GAAP) and Appendix B for a reconciliation of adjusted diluted EPS from continuing operations (non-GAAP) to the GAAP measure. |
Stockholder engagement
We recognize and value the importance of engaging with our stockholders and other key constituents in an open and constructive manner.
Why we engage
The purposes of our stockholder engagement program are to promote communication, increase transparency and most importantly, better understand and address the perspectives of our stockholders. We believe that opportunities to receive and consider stockholder feedback enhance our corporate governance, strategic vision, and executive compensation practices, which in turn contributes to the long-term value of the Company.
Stockholder outreach
In Fiscal 2023, we continued our longstanding practice to regularly engage with stockholders on a host of topics including company strategy and performance, corporate governance, sustainability, and other topics. Members of our senior management team participated from time to time in numerous stockholder meetings and virtual or in-person investor conferences. These interactions allow investors the opportunity to meet, ask questions of, and provide advice to, our key executives. Our independent Lead Director attends these meetings when requested by stockholders.
In connection with the say-on-pay proposal for Fiscal 2022, the Human Capital and Compensation Committee led extensive stockholder outreach and engagement efforts, together with a thorough evaluation of our executive compensation program. In 2022, the principal focus of our outreach was to discuss the grant of one-time awards to our CEO, which received negative attention from proxy advisors in advance of our 2022 say-on-pay vote. In 2023, the principal focus of the outreach was to understand the factors that impacted our 2022 say-on-pay vote, which ultimately did not receive majority support from our stockholders. These discussions were led by the Chair of our Human Capital and Compensation Committee and included our CFO, General Counsel and Chief Human Resources Officer.
Table of Contents
Proxy statement summary
|
EXECUTIVE SUMMARY:
Through 2022-2023, we contacted stockholders representing over 85% of our outstanding shares of common stock, and held 17 meetings about our executive compensation program with stockholders representing over 55% of our outstanding shares of common stock.
Our Human Capital and Compensation Committee:
●listened to stockholder concerns;
●considered changes to address the identified concerns;
●reached out once more to stockholders to discuss potential changes; and
●adopted the changes to our executive compensation program for Fiscal 2024 as described in this proxy statement. |
See “Stockholder engagement” and “Response to stockholder feedback” in the “Compensation discussion and analysis” (“CD&A”) section for details on how we engaged with stockholders, what we heard from them and how we responded to their feedback related to executive compensation. The feedback received from our stockholder outreach efforts was shared with and considered by our Board. Our engagement has generated valuable input that helps inform our decisions and strategy regarding executive compensation.
We also engaged directly with and carefully considered the viewpoints of the proxy advisory firms that represent the interests of various stockholders. In calendar year 2023, we engaged with Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co. (“Glass Lewis”) regarding our executive compensation practices. These engagements further informed the actions that our Board and Human Capital and Compensation Committee are taking to enhance our executive compensation program as further described in the “Response to stockholder feedback” section of the CD&A.
Executive compensation highlights
Pay-for-performance and stockholder alignment
| ● |
Annual cash bonuses are linked to two key performance metrics critical to the success of our business strategy: adjusted diluted earnings per share from continuing operations (60%) and adjusted net working capital turns (20%). In addition, certain strategic objectives (20%) are included in the annual cash bonus program for Fiscal 2023 to align management interests with priorities that are important to the Company. |
| ● |
The Fiscal 2023 long-term incentive program is 100% equity based, consisting of performance-based restricted stock (50%), stock options (25%) and time-based restricted stock (25%). |
| ● |
Performance-based restricted stock for Fiscal 2023 is linked to three key performance metrics: adjusted income from continuing operations (70%), return on invested capital (20%) and relative total stockholder return (10%). |
| ● |
AAR targets total pay opportunities for its executive officers, individually and as a group, within a competitive range around the median of the market. |
| ● |
AAR’s compensation mix – cash versus equity, fixed versus variable, and annual versus longer-term – is consistent with competitive best practices. |
Cash bonuses under
the Fiscal 2023 short-term incentive plan
| Strategic goal |
Compensation measure |
| Drive profitability and deliver value to stockholders |
60 |
% |
Adjusted diluted earnings per share from continuing operations |
| Make efficient use of stockholder capital in support of Company sales |
20 |
% |
Adjusted net working capital turns |
| Align management’s interests with priorities that are important to the Company |
20 |
% |
Strategic objectives |
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Table of Contents
Proxy statement summary
Performance shares under the Fiscal
2023 long-term incentive plan
| Strategic goal |
Compensation measure |
| Increase profitability and deliver value to stockholders |
70 |
% |
Adjusted income from continuing operations |
| Enhance efficiency in allocating capital to generate higher returns |
20 |
% |
Average return on invested capital |
| Outperform peer group* companies in generating stockholder value |
10 |
% |
Relative total stockholder return |
| * |
Companies include a custom peer group of companies in commercial aviation-linked lines of business. |
Fiscal 2023 compensation
of our Chief Executive Officer, John M. Holmes
Fiscal 2023 compensation of other named
executive officers as a group
Executive compensation program enhancements
We continue to be committed to pay-for-performance. We believe the outcomes of our 2019 through 2021 say-on-pay votes (at least 97% support each year) demonstrated strong stockholder support for our executive compensation program. In response to feedback from stockholders following our 2022 say-on-pay vote, our Human Capital and Compensation Committee made enhancements to our executive compensation program for the fiscal year ending May 31, 2024 (“Fiscal 2024”). See the “Letter from our human capital and compensation committee” and “Compensation discussion and analysis” for further information.
We will continue to consider investor feedback relating to our executive compensation program.
Executive compensation practices
| What
We Do |
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What
We Do Not Do |
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 Annual say-on-pay stockholder vote Emphasis on performance-based or at-risk compensation
Multi-year vesting periods for stock awards
Limited perquisites
“Double trigger” change-in-control provisions in executive agreements
Meaningful stock ownership and retention guidelines for directors and executive officers
Prohibition on short sales, pledging and hedging transactions
Claw-backs of incentive compensation in the event of certain financial restatements
Annual assessment of incentive compensation plans
|
 No tax gross-ups No repricing of stock options
No dividends or dividend equivalents paid on stock or stock unit awards unless vesting conditions are met
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Note about links to websites
Links to websites included in this proxy statement are provided solely for convenience purposes. Content on the websites, including content on our website, is not, and shall not be deemed to be, part of this proxy statement or incorporated herein or into any of our other filings with the Securities and Exchange Commission. |
Table of Contents
Proxy statement summary
Corporate governance highlights
Our goal is to ensure that our corporate governance practices reflect best practices tailored, as necessary, to our culture, strategy and performance.
Corporate governance practices
| 10 |
9 |
65.6 |
8.7
years |
| directors |
independent directors |
Average age of directors |
Average tenure of directors |
 Independent Lead Director
Majority voting in uncontested director elections
Stock ownership and retention guidelines
Annual stock grant to non-employee directors
Executive sessions of independent directors
Independent compensation consultant
Annual Board and Board Committee self-evaluations
Director orientation and continuing education programs
All directors on the Audit Committee are “audit committee financial experts”
Three of our ten directors are female or racially/ethnically diverse |
Code of business ethics and conduct
Ethics hotline policy
Related person transaction policy
Disclosure committee for financial reporting
Annual stockholder approval of executive compensation
Stockholder engagement program
Independent Board Committees
Enterprise risk management program
Active board refreshment processes |
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Table of Contents
Proxy statement summary
Environmental, social and governance focus
Our ESG commitments statement
In July 2023, our Board adopted a commitments statement reflecting AAR’s objectives in each of our ESG focus areas. Along with our guiding principle of Doing It Right®, our ESG commitments help inform AAR’s decision-making as we navigate an ever-changing world. We are committed to analyzing and better understanding how AAR impacts our local and global communities, the environment, and our industry so that we may reduce potential risk, promote resiliency, and drive value for all stakeholders. Our commitments include:
| ● |
Environmental: We are committed to carefully monitoring environmental impacts and instituting safeguards for preserving the natural environment, reducing climate-related risks, and creating opportunities for the prevention, reduction, and recycling of waste and other materials used in our business processes, wherever possible. Key impact areas include energy, materials, waste, and greenhouse gas emissions. |
| ● |
Social: We are committed to managing our relationships with all stakeholders, including our employees, customers, supply chain partners, and communities, in an inclusive, fair, and respectful manner. Key impact areas include aviation safety, employment, employee health, safety, and well-being, diversity and inclusion, nondiscrimination, training & education, occupational health & safety, and local communities. |
| ● |
Governance: We are committed to establishing, implementing, and maintaining an effective governance structure that is agile and responsive to business needs and evolving best practices, and sets high ethical standards. Key impact areas include information security, risk identification / mitigation, anti-corruption, and ethics and compliance. |
Our ESG governance framework
Our focus on ESG matters is embedded in our strategy, which is overseen by the Board.
The Board’s standing committees oversee our ESG focus areas based on the delegated subject matter:
| ● |
The Aviation Safety and Training Committee oversees all aspects of aviation safety, including our culture of safety compliance; |
| ● |
The Nominating and Governance Committee oversees our governance policies and practices, reviews various components of our ESG framework, including our ESG oversight structure, overall ESG strategy and material disclosures regarding the oversight process and our ESG initiatives; |
| ● |
The Human Capital and Compensation Committee oversees our activities with respect to our human capital function, including succession planning and talent development as well as the oversight of ESG goals, if any, in our compensation plans; and |
| ● |
The Audit Committee receives reports related to our ethics hotline, oversees AAR’s cybersecurity planning and protection efforts, oversees the internal and external review of quantitative environmental data and related disclosures included in our ESG report or any interim reports, and oversees our enterprise risk management process, including environmental (such as climate) risks. |
At the management level, a cross-functional team of senior leaders represents legal, communications, human resources, and environmental, health and safety and receives input and guidance from senior business leaders. Together, this group assesses risks and opportunities related to our ESG focus areas, monitors and implements our ESG strategies, tracks our progress and guides our reporting to stakeholders.
Table of Contents
Proxy statement summary
Our ESG focus areas
Our ESG focus areas are long-standing AAR priorities that align with our business and our values and are also areas where we believe that we have the greatest opportunity to make a meaningful impact.
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Environment
Protecting the planet |
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Social
Empowering people |
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Governance
Governing with integrity |
|
●Energy
●Materials
●Waste
●Greenhouse gas emissions |
|
●Aviation safety
●Employee engagement
●Diversity and inclusion
●Employee health, safety,
and well-being
●Nondiscrimination
●Training and education
●Local communities
●Occupational health and safety |
|
●Information security
●Ethics and compliance
●Anti-corruption
●Risk identification / mitigation |
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Public diversity statement
As reflected in our values, we have a long-standing commitment to embracing diversity and fostering a culture of inclusion. Below is our public diversity statement:
| Just as unique parts are essential to an aircraft’s ability to fly, unique talent is essential to AAR’s ability to succeed. Our strength is rooted in our commitment to diversity, equity and inclusion. We create opportunity through new thoughts and ideas to embrace an ever-changing world. These values empower our people to be a team of producers, innovators and world class leaders, who are “Doing It Right” to better connect the world. |
This statement was developed by a group of employees selected from throughout the business, reflecting the varied perspectives, experiences and priorities of our workforce.
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Table of Contents
Proposal
1
Election of directors |
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| Proposal 1 |
Election of four directors named in this proxy
statement |
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| Board recommendation |
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Our Board unanimously recommends
that you vote FOR each
director nominee. |
Proposal summary
We are asking you to elect four directors named in this proxy statement at this annual meeting. The director nominees are: John W. Dietrich, Robert F. Leduc, Duncan J. McNabb and Peter Pace.
Each director nominee is currently serving as a director of the Company. All of the director nominees have been determined by the Board to be “independent” within the meaning of the rules of the New York Stock Exchange (“NYSE”) and the SEC.
Director skills & qualifications
The Nominating and Governance Committee believes that the Board is currently well-balanced and able to address our Company’s needs. As evidenced by the biographical information provided below, our directors have significant experience in chief executive or other senior level operating, financial and international management positions.
Four of our existing directors currently serve as a director of other public companies, which provides them with diverse experiences that can enhance their contribution to our Board.
Table of Contents
Proposal 1 Election of directors
Set forth below is information regarding the nominees for election as directors and information regarding the directors in each class continuing in office after the annual meeting. Also discussed below are specific experience, qualifications, attributes and skills of our directors considered by the Nominating and Governance Committee as part of its review of our Board’s membership and in connection with its nomination of the candidates for election to the Board at the annual meeting.
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Anthony K.
Anderson |
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Michael R.
Boyce |
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John
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Dietrich |
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John M.
Holmes |
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Robert F.
Leduc |
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Ellen M.
Lord |
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Duncan J.
McNabb |
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Peter
Pace |
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Jennifer L.
Vogel |
Marc J.
Walfish |
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CEO
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Finance |
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Accounting |
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Commercial
aerospace |
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Military
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Services |
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International
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Sales &
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Supply
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Operating |
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M&A |
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Manufacturing |
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Government
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Information
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Human
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Risk
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Corporate
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Safety |
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Racial diversity |
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Gender diversity |
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Table of Contents
Proposal 1 Election of directors
Information about our director nominees
and our
continuing directors
Information about our director
nominees and our continuing directors whose terms expire in future years is set forth below.
Our director nominees
Class III Directors whose terms
expire at the 2023 annual meeting:
Age: 58
Director since: 2023
Other public company directorships:
●None
Other public company directorships held in the past five years:
●Atlas Air Worldwide Holdings, Inc.
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John
W. Dietrich Independent
Director
Skills and qualifications
CEO experience, Finance, Accounting, Commercial aerospace, Military aerospace, Services, International business, Sales & marketing, Supply chain & logistics, Operating, M&A, Human resources, Risk management, Corporate governance, Government contracting, Safety
Career highlights
Executive Vice President and Chief Financial Officer, FedEx Corp., a global provider of transportation, e-commerce and business services, since August 2023. He previously served as President and Chief Executive Officer, Atlas Air Worldwide Holdings, Inc., a leading global provider of outsourced aircraft and aviation operating services, where he served from January 2020 until June 2023. He also served on the board of Atlas Air during that time. Prior to January 2020, he served in a number of executive leadership positions at Atlas Air, including President and Chief Operating Officer from July 2019 and Executive Vice President and Chief Operating Officer from September 2006. He previously held several senior leadership roles in legal, human resources and communications since joining Atlas Air in 1999. He also served as a litigation attorney at United Airlines prior to joining Atlas Air.
Director qualifications
The
Board concluded that Mr. Dietrich should serve as a director of the Company based on his experience in the aviation industry,
including as President and CEO of a public company, his knowledge of commercial and government aircraft services, and his expertise
in operations, supply chain, human resources and risk management.
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Age: 67
Director since: July 2020
Other public company directorships held in the past five years:
●JetBlue Airways Corporation
●Howmet Aerospace, Inc.
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Robert
F. Leduc Independent
Director
Skills and qualifications
CEO experience, Finance, Commercial aerospace, Military aerospace, Services, International business, Sales & marketing, Supply chain & logistics, Operating, M&A, Manufacturing, Human resources, Risk management, Corporate governance, Government contracting, Safety
Career highlights
President of Pratt & Whitney, an aerospace manufacturer and a subsidiary of United Technologies Corporation, from 2016 until his retirement early 2020. President of Sikorsky Aircraft, a helicopter manufacturer, from 2015 to 2016. Previously, served in leadership positions at Hamilton Sundstrand and UTC Aerospace Systems. He also serves as an advisor to Advent International.
Director qualifications
The
Board concluded that Mr. Leduc should serve as a director of the Company based on his extensive experience in the aviation sector,
his operational expertise managing through various down cycles, and his significant experience in enhancing brands and managing
talent, in addition to his experience serving on other public company boards.
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Table of Contents
Proposal 1 Election of directors
Age: 71
Director since: 2017
Other public company directorship:
●None
Other public company directorships held in the past five years:
●Atlas Air Worldwide Holdings, Inc.
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Duncan
J. McNabb Independent
Director
Skills and qualifications
Commercial aerospace, Military aerospace, Services, Supply chain & logistics, Operating, Government contracting, Risk management, Corporate governance, Safety
Career highlights
Since 2011, Co-Founder and Managing Partner of Ares Mobility Solutions Inc., a privately-held logistics business; General, U.S. Air Force (Retired) after 37 years of active commissioned service. Former Commander, U.S. Air Mobility Command, 33rd Vice Chief of Staff of the U.S. Air Force and Former Commander of US TRANSCOM.
Director qualifications
The
Board concluded that General McNabb should serve as a director of the Company based on his government resourcing and government
affairs expertise, his strategic planning, operations and leadership skills and his 37-year record of service with the United
States Air Force, including his service as Commander of the United States Transportation Command (the single manager for global
air, land and sea transportation for the Department of Defense).
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Age: 77
Director since: 2011
Other public company directorship:
●None
Other public company directorships held in the past five years:
●Qualys, Inc.
●Rigetti Computing, Inc.
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Peter
Pace Independent
Director
Skills and qualifications
Commercial aerospace, Military aerospace, Services, Supply chain & logistics, Operating, Government contracting, Information technology / cyber / innovation, Human resources, Risk management, Corporate governance, Safety
Career highlights
General, U.S. Marine Corps (Retired). From 2005 to 2007, Chairman of the Joint Chiefs of Staff, the most senior position in the United States Armed Forces.
Director qualifications
The
Board concluded that General Pace should serve as a director of the Company based on his leadership and management skills and
experience from over 40 years of service with the United States Marine Corps, culminating in his appointment as the 16th Chairman
of the Joint Chiefs of Staff (where he served from 2005 to 2007 as the principal military advisor to the President, the Secretary
of Defense, the National Security Council and the Homeland Security Council), his understanding of the government and defense
markets, his cybersecurity expertise and his current and prior service as a director of other public companies.
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Table of Contents
Proposal 1 Election of directors
Class I Directors whose terms expire at the 2024 annual meeting:
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Age: 67
Director since: 2012
Other public company directorships:
●Avery Dennison Corp.
●Exelon Corp.
●Marsh & McLennan Companies
Other public company directorships held in the past five years:
●First American Financial Corporation |
Anthony K.
Anderson Independent
Director
Skills and qualifications
CEO experience, Finance, Accounting, Services, Sales & marketing, Operating, M&A, Risk management, Corporate governance
Career highlights
Since April 2012, an independent business consultant. From 2006 to April 2012, Vice Chair and Managing Partner of Midwest Area at Ernst & Young LLP, a global accounting and consulting firm. Prior thereto, Mr. Anderson served in various management positions during a 35-year career with Ernst & Young LLP.
Director qualifications
The Board concluded that Mr. Anderson
should serve as a director of the Company based on his 35 years working with a global accounting and consulting firm, his accounting
and financial knowledge, his leadership in developing talent management programs, his service as a director of other public companies,
and his professional, civic and charitable service, including as a director of private companies and numerous not-for-profit organizations.
The Board also values his risk management experience and his knowledge and experience with corporate governance matters.
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Age: 75
Director since: 2005
Other public company directorships:
●None
Other public company directorships held in the past five years:
●Stepan Company |
Michael R.
Boyce Independent Director
Skills and qualifications
CEO experience, Finance, International business, Sales & marketing, Supply chain & logistics, Operating, M&A, Manufacturing, Risk management, Corporate governance, Safety
Career highlights
Since 2018, Chairman, Chief Executive Officer and Managing Director of Peak Investments, LLC (an operating and acquisition company). Retired Chairman of the Board of PQ Corporation (a specialty chemicals and catalyst company) where he served from 2017 to 2019. From 2005 to 2017, Chairman and Chief Executive Officer of PQ Corporation.
Director qualifications
The Board concluded that Mr. Boyce
should serve as a director of the Company based on his experience in leading two global organizations, his insight into global manufacturing,
supply and distribution practices and his international business development skills.
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Table of Contents
Proposal 1 Election of directors
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Age: 61
Director since: 2016
Other public company directorships:
●Sun Country Airlines Holdings, Inc.
Other public company directorships held in the past five years:
●American Science and Engineering, Inc.
●Clearwire Corporation
●Virgin America, Inc. |
Jennifer L.
Vogel Independent Director
Skills and qualifications
Commercial aerospace, Services, International business, M&A, Government contracting, Human resources, Risk management, Corporate governance, Safety
Career highlights
2012 to 2020, co-founder and owner of InVista Advisors, an advisory firm focused on legal department effectiveness, leadership, compliance, crisis readiness and risk management. From 2003 to 2010, Senior Vice President, General Counsel, Secretary and Chief Compliance Officer of Continental Airlines, Inc.
Director qualifications
The Board concluded that Ms. Vogel
should serve as a director of the Company based on her experience as a highly successful corporate executive with over 25 years of
leadership experience in the airline and energy industries, including her leadership positions with Continental Airlines, her legal
and corporate governance expertise, her experience in regulatory issues, mergers and acquisitions, ethics and compliance matters and
her experience as a director of other public companies, including Sun Country Airlines Holdings, Inc. and Virgin America, Inc. |
Class II Directors whose terms expire at the 2025 annual meeting:
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President and Chief Executive Officer of AAR CORP.
Age: 46
Director since: 2017
Other public company directorships:
●None |
John M. Holmes Chairman
of the Board
Skills and qualifications
CEO experience, Finance, Commercial aerospace, Services, International business, Sales & marketing, Supply chain & logistics, Operating, M&A, Human resources, Risk management, Corporate governance, Safety
Career highlights
Chairman of the Board since January 2023. President and Chief Executive Officer of AAR CORP. since June 1, 2018. President and Chief Operating Officer from June 1, 2017 to June 1, 2018. From 2015 to June 1, 2017, Chief Operating Officer of the Aviation Services business group of AAR CORP. From 2012 to 2015, Group Vice President, Aviation Services – Inventory Management and Distribution; and prior thereto, General Manager and Division President of AAR Allen Asset Management.
Director qualifications
The Board concluded that Mr. Holmes
should serve as a director of the Company based on his position as President and Chief Executive Officer, his demonstrated leadership
and management abilities, and his knowledge of the Company’s businesses, its portfolio of services and the markets in which
it competes, and the customer and supplier relationships that Mr. Holmes has developed during his 20-year tenure with the Company. |
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Table of Contents
Proposal 1 Election of directors
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Age: 63
Director since: 2021
Other public company directorships:
●Comtech Telecommunications Corp.
●Parsons Corporation |
Ellen M. Lord Independent
Director
Skills and qualifications
CEO experience, Finance, Commercial aerospace, Military aerospace, Services, International business, Sales & marketing, Supply chain & logistics, Operating, M&A, Manufacturing, Government contracting, Information technology / cyber / innovation, Risk management, Safety
Career highlights
Served as the Under Secretary of Defense for Acquisition and Sustainment for the United States Department of Defense from August 2017 until January 2021. President and Chief Executive Officer of Textron Systems from October 2012 to August 2017. Prior to that, served in other leadership positions at Textron Systems and related companies.
Director qualifications
The Board concluded that Ms. Lord
should serve as a director of the Company based on her leadership, management and strategic planning expertise she acquired while
serving as the Under Secretary of Defense for Acquisition and Sustainment for the United States Department of Defense, as well as
her experience in the private sector working as the Chief Executive Officer of Textron Systems, where she led a multi-billion dollar
company with products and services supporting defense, homeland security, aerospace and infrastructure protection.
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Age: 71
Director since: 2003
Other public company directorships:
●None |
Marc J. Walfish Lead
Independent Director
Skills and qualifications
Finance, Accounting, Sales & marketing, M&A, Risk management
Career highlights
Founding Partner of Merit Capital Partners, a mezzanine investor company formerly known as William Blair Mezzanine Capital Partners, since 1991. From 1978 to 1991, various positions at Prudential Capital Corporation.
Director qualifications
The Board concluded that Mr. Walfish
should serve as a director of the Company based on his experience in the finance industry, including as a founding partner of Merit
Capital Partners, his knowledge of the capital markets and his expertise in corporate finance, strategic planning and risk management. |
Table of Contents
Proposal 1 Election of directors
Our culture
Our purpose—doing it right to better connect the world
At AAR, we constantly search for the right thing to do for our customers, for our employees, for partners and for society. We wake up in the morning knowing we have to deliver and we leave at the end of the day having done our best and determined to return the next day to do even better. We do not rest on our earlier accomplishments.
In 1955, American aviation was the new tech industry. AAR—a startup—was already supplying parts to the aviation industry—efficiently moving inventory, setting in motion our participation in America’s great boom.
Today, from Chicago to London to Singapore to Dubai, our customers, employees and partners are helping us do what is right worldwide—and that includes being a vital link in commercial airline safety and supporting the U.S. military and its allies. Our commitment to our government customers also continued in Fiscal 2023 as demonstrated, in particular, by the logistics and supply chain programs we provide in support of the U.S. Navy, U.S. Air Force, U.S. Marshals Service, and U.S. Department of State.
Through our AAR Aviation Services and Expeditionary Services businesses, we design technical, operational, logistic and financial solutions—doing it right and quickly delivering our customers safety, efficiencies and competitiveness. This lets them do what they do best—fly and connect the world.
Our vision
Our vision is to be the most respected global independent provider of aviation parts and repair services, and to create value for customers through differentiated capabilities and offerings, resulting in a sustainable, unique competitive advantage.
Our values
Our strategy
Our strategy is to become the leading independent provider of innovative solutions to the aviation aftermarket. We will achieve this strategy through our ability to:
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Execute through focus on customer satisfaction
and cost leadership; |
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Pursue connected businesses that reinforce
collective growth prospects; |
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Leverage data and digital to deliver better
customer-focused offerings; |
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Expand margins through intellectual property; |
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Increase our global footprint into emerging
markets; |
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Leverage our independence to provide unbiased
solutions; and |
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Attract, empower and deploy exceptional, entrepreneurial
talent. |
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Table of Contents
Proposal 1 Election of directors
Connected businesses model
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Parts Supply: USM & Distribution
●Sourcing to supply Repair & Engineering and Integrated Solutions
●Data for use in repair capability development
●Sales channels supported by maintenance relationships |
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Repair & Engineering
●Strategic relationships with blue chip airlines that support parts volumes
●Repair knowledge and data collection
●PMA parts development for internal and external consumption |
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Integrated Solutions
●Programmatic parts and repair solutions
●Fuels Parts Supply activities
●Funds component repair capability development
●Government USM customer relationships |
Together, our “Connected Businesses” – Parts Supply (Used Serviceable Material and Distribution), Repair & Engineering and Integrated Solutions – aim to drive growth through best–in–class services within each discipline and leverage each to reinforce and grow the whole.
We also remain focused on enhancing our Expeditionary Services at our Mobility Systems business.
Corporate governance
Good corporate governance is an essential part of our corporate culture. We review our corporate governance policies and procedures on an annual basis. We strive to emulate “best practices,” tailoring them, as appropriate, to fit our culture, strategy and performance. We believe that we comply with all applicable SEC and NYSE corporate governance rules and regulations. We also have adopted additional corporate governance practices that we believe are in the best interests of the Company and its stockholders.
Copies of the following corporate governance documents are available on the Company’s website at www.aarcorp.com under “Investors / Corporate Governance”:
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Audit Committee Charter |
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Human Capital and Compensation Committee Charter |
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Nominating and Governance Committee Charter |
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Aviation Safety and Training Committee Charter |
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Executive Committee Charter |
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Corporate Governance Guidelines |
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Categorical Standards for Determining Director Independence |
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Code of Conduct |
These corporate governance documents are also available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.
Table of Contents
Proposal 1 Election of directors
Director nominations and qualifications
The Board, acting through its Nominating and Governance Committee, is responsible for identifying, evaluating and recommending candidates for director.
Solicitation of director candidate recommendations
The Nominating and Governance Committee solicits director candidate recommendations from management, other directors, business and community leaders and stockholders. The Nominating and Governance Committee also may retain the services of a search firm to assist in identifying director candidates.
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Candidate considerations
The Nominating and Governance Committee considers all director candidates in the same manner, regardless of whether recommendations come from the Board, stockholders or other sources. In its evaluation of director candidates, the Nominating and Governance Committee considers the factors specified in the Company’s Corporate Governance Guidelines, including:
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A high level of integrity and professional and personal ethics and values consistent with those of the Company; |
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Professional background and relevant business and industry experience; |
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Current employment, leadership experience and other board service; |
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Demonstrated business acumen or special technical skills or expertise (e.g., auditing, financial, law and aviation/aerospace); |
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A commitment to enhancing stockholder value and serving the interests of all stockholders; |
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Independence (including within the meaning of the applicable SEC rules and applied to all NYSE rules) and freedom from any conflicts of interest that may interfere with a director’s ability to discharge his/her fiduciary duties; |
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Willingness and ability to make the commitment of time and attention necessary for effective Board service; |
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A balance of business, financial and other experience, expertise, capabilities and perspectives among sitting directors in the context of the current composition of the Board, operating requirements of the Company and long-term interests of stockholders; and |
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Other factors the Nominating and Governance Committee deems appropriate. |
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Consideration of inclusive diversity and expertise
The Nominating and Governance Committee considers the racial, ethnic and gender diversity of the Board and director candidates, as well as the diversity of their knowledge, skills, experience, background and perspective, to ensure that the Company maintains the benefit of a diverse, balanced and effective Board. In order to help facilitate the evaluation of diverse candidates, our Corporate Governance Guidelines mandate that a diverse candidate must be included in any director search. The Nominating and Governance Committee and the full Board maintain a current matrix of skills, competencies and experiences of each director. This matrix enables the Committee and the Board to ensure that the Board as a whole has the diversity of expertise and experience necessary for the effective oversight of the Company.
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Recommendation
Following its evaluation of director candidates, the Nominating and Governance Committee recommends its director nominees to the full Board. Based on its review and consideration of the Committee’s recommendation, the Board makes the final determination of the director nominees to be presented for election by the Company’s stockholders. |
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Table of Contents
Proposal 1 Election of directors
A full list of the qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Company’s website at www.aarcorp.com under “Investors/Corporate Governance” and is available in print to any stockholder upon written request to the Secretary of the Company at the address listed on the first page of this proxy statement. The Nominating and Governance Committee regularly reviews these qualifications and the performance of individual directors and the Board as a whole.
Stockholders may submit a proposed director nomination to the Nominating and Governance Committee for consideration at the 2024 annual meeting of stockholders by writing to the Secretary, AAR CORP., 1100 North Wood Dale Road, Wood Dale, Illinois 60191. To be eligible for consideration under the Company’s By-Laws, a proposed nomination must be received by the Secretary of the Company no later than March 23, 2024, must state the reasons for the proposed nomination and must contain the information required under the Company’s By-Laws, including the full name and address of the proposed nominee, a brief biographical background setting forth the nominee’s past and present directorships, principal employment and occupation and information as to stock ownership and certain arrangements regarding the Company’s common stock. A proposed nomination must also include a statement indicating that the proposed nominee has consented to being named in the proxy statement and to serve if elected.
Universal Proxy Rules. In addition to satisfying the requirements under our By-Laws, to comply with the universal proxy rules, stockholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Securities Exchange Act of 1934 (including a statement that such stockholder intends to solicit the holders of shares representing at least 67% of the voting power of the Company’s shares entitled to vote on the election of directors in support of director nominees other than the Company’s nominees), which notice must be postmarked or transmitted electronically to the Company at its principal executive offices no later than 60 calendar days prior to the anniversary date of the annual meeting (for the 2024 annual meeting of stockholders, no later than July 22, 2024). However, if the date of the 2024 annual meeting is changed by more than 30 calendar days from such anniversary date, then notice must be provided by the later of 60 calendar days prior to the date of the 2024 annual meeting of stockholders or the 10th calendar day following the day on which public announcement of the date of the 2024 annual meeting of stockholders is first made.
Director independence
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A majority of the members of the Board must be independent directors under the Company’s Corporate Governance Guidelines and applicable SEC and NYSE rules. The Nominating and Governance Committee and the Board review each director annually and make a determination concerning independence after consideration of all known facts and circumstances. The Board has established categorical standards to assist it in determining director independence. The Company’s “Categorical Standards for Determining Director Independence” include all of the elements of the applicable SEC and NYSE rules with respect to director independence.
Based on these categorical standards, its review of all relevant facts and information available, and the recommendations of the Nominating and Governance Committee, the Board, at its meeting in July 2023, affirmatively determined that no director has a material relationship with the Company that would impair the director’s ability to exercise independent judgment and, accordingly, that each director is an independent director, except for Mr. Holmes. |
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Director independence
9 of 10
directors are independent
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The Board also determined that Mr. H. John Gilbertson, Jr., who served as a director during Fiscal 2023 prior to his resignation effective October 27, 2022, and Mr. James E. Goodwin, who served as a director during Fiscal 2023 prior to his retirement at the 2022 annual meeting of stockholders, were each independent within the meaning of applicable independence standards. The Board determined that Mr. Storch, who served as a director prior to his retirement effective January 10, 2023, was not independent within the meaning of applicable independence standards.
The Board’s independence determinations consider the impact of Board service tenure on a director’s independence, particularly with respect to directors with 10 or more years of Board service. The Board concluded that all longer-tenured directors, based on their communications and interactions with management, their decisions and their adherence to their fiduciary duties to stockholders, have demonstrated their independence from management.
Table of Contents
Proposal 1 Election of directors
Board composition and refreshment
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The Board currently consists of ten directors that are divided into three classes, designated as Class I, Class II and Class III. Three of the directors — Robert F. Leduc, Ellen M. Lord and John W. Dietrich — have joined in the last three years as a part of ongoing Board refreshment processes. David P. Storch, the Company’s former Chairman, retired effective January 2023, and John M. Holmes became Chairman of the Board. The Board will continue to adjust its composition as needed to lead the Company as it seeks to solidify and enhance its status in the aviation services markets.
We do not currently have a mandatory retirement age. The Board reviews director succession on an annual basis, and evaluates director skills, experience, diversity, qualifications and other attributes, including tenure and age, as well as fit with the Company's current business needs, before nominating such Board member for re-election. Recognizing the value of continuity of directors who have experience with the Company, there are no limits on the number of terms a director may hold office. As an alternative to term limits, the Board’s goal is to seek to maintain an average tenure of ten years or less for the independent directors as a group.
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Average tenure: 8.7 years |
In considering new director candidates, the Board takes into account the skills, tenure and diversity of current directors to ensure that there is a proper balance between director stability and fresh perspectives in the boardroom.
As a part of this effort, the Board maintains a director matrix as shown on page 14, to ensure that the Board, as a whole, has the expertise, experience, diversity and skillset critical to the Company’s continued success.
| 24 |
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Table of Contents
Proposal 1 Election of directors
The Board’s role and responsibilities
Role and responsibilities of the Board
The Board is elected by our stockholders and represents their interests in overseeing our management, strategic direction and financial success. The Board exercises its oversight responsibilities directly and through its Committees.
The Board identified and gives particular attention to four “Critical Areas of Board Focus”.
| 1 |
Risk management (including
cybersecurity) |
|
Effective risk management is an important Board priority. The risk oversight function at the Board begins with a fundamental understanding of the Company’s culture, business and strategy. The Board delegates significant aspects of its risk management oversight responsibilities to its committees, as detailed below for each committee under “Key Risk Oversight Responsibilities.” The Board also works with management in managing risk through robust and comprehensive internal processes, an effective internal control environment and an enterprise risk management program. Our enterprise risk management program is designed to identify, assess and prioritize our risk exposures across various timeframes, from the short term to the long term. Further, the enterprise risk management program and our disclosure controls and procedures are designed to appropriately escalate key risks to the Audit Committee as well as analyze potential risks for disclosure.
In addition, the Board regularly reviews the identification and management of cybersecurity risks. The Board and Audit Committee receive regular reports from management on system vulnerabilities and security measures in effect to deter or mitigate breaches or hacking activities.
The Company’s Annual Report on Form 10-K for Fiscal 2023 includes in Part I, “Item 1A, Risk Factors” a listing of the significant risks facing the Company. |
| 2 |
Strategic
planning |
|
The Board oversees the Company’s business and capital allocation strategies. It discusses strategic planning at each Board meeting and typically holds a special strategy session with management each year dedicated exclusively to strategic planning. This session focuses on the development and implementation of the Company’s short-term, intermediate-term and long-term strategic plans. The Board and management review and discuss the Company’s operations, and financial and non-financial performance. They analyze aviation industry developments and trends, the Company’s service and solution offerings and the competitive landscape in which the Company operates.
The Board monitors management’s performance in the execution of the Company’s strategy throughout the year. It receives regular updates from management at each meeting on strategic opportunities and risks that the Company is currently assessing or addressing, including through the oversight of management’s enterprise risk management program. |
| 3 |
Management
development, succession planning and diversity |
|
AAR’s Board places a high priority on senior management development and succession planning. The Nominating and Governance Committee conducts an annual evaluation review focused on CEO succession planning, and the Human Capital and Compensation Committee evaluates succession planning and retention practices for senior management leaders.
The annual review addresses the development and evaluation of current and potential senior leaders, and the development of short-term and longer-term succession plans for key positions, including a succession plan for the CEO position. The Board also has a CEO emergency succession planning process to address unanticipated events and emergency situations.
The annual review also includes a diversity presentation that provides information on minority hiring and retention, as well as the status of our diversity and inclusiveness programs, including outreach programs focused on increasing the employee applicant pool, particularly for women, minorities and veterans. The Board is focused on improving diversity at all levels of the Company, but particularly at the middle and senior management levels. In order to help facilitate the evaluation of diverse candidates, the Corporate Governance Guidelines mandate that a diverse candidate must be included in any director search. In addition, management, with the Board’s oversight, published an ESG Report that further discusses AAR’s efforts in this regard. |
| 4 |
Company
performance |
|
The Board receives regular updates relating to our financial performance against key measures, including sales growth, earnings per share growth, selling, general and administrative expense as a percentage of sales, return on invested capital and working capital turnover. The Board oversees operational performance at our business units through management presentations at each meeting.
The Board regularly reviews and compares its corporate governance profile against its peer group companies, competitors and market indices and is committed to engaging with and listening to its various stakeholders. See “Stockholder engagement” in the proxy summary and “Stockholder engagement” and “Response to stockholder feedback” in the CD&A for examples of how AAR listens and responds to its stockholders. |
Table of Contents
Proposal 1 Election of directors
Role and responsibilities of the Board
committees
The Board has an Audit Committee, a Human Capital and Compensation Committee, a Nominating and Governance Committee, an Aviation Safety and Training Committee, and an Executive Committee. The following table outlines the risk oversight and general responsibilities of the Board committees as well the composition of such committees during Fiscal 2023:
Nominating and Governance Committee
|
Anthony K.
Anderson
Chair
Members
Michael R. Boyce
Ellen
M. Lord
Duncan J. McNabb
Jennifer L. Vogel
Marc J. Walfish |
Role and responsibilities
The Nominating and Governance Committee is comprised entirely of independent directors qualified to serve on the Committee under applicable SEC and NYSE rules and our Categorical Standards for Determining Director Independence.
The Nominating and Governance
Committee acts under a written charter adopted by the Board. The charter was last reviewed and approved by the Committee and the Board
at their July 2023 meetings. The full text of the Committee charter appears on our website at www.aarcorp.com/investor-relations/corporate-governance
and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address
listed on the first page of this proxy statement.
The Nominating and Governance Committee is responsible for both nominating and governance matters as described in its charter. The Committee performs the specific functions described in its charter, including:
●Oversees the composition, structure and evaluation of the Board and its committees;
●Conducts, together with the Human Capital and Compensation Committee and Lead Director, an annual performance evaluation of the Chief Executive Officer;
●Reviews, considers, and acts upon related person transactions;
●Reviews succession plans for the Chairman and committee chairs, as well as the Chief Executive Officer, and recommends individuals to fill these positions;
●Reviews various components of our ESG framework, including our ESG oversight structure, overall ESG strategy and material disclosures regarding the oversight process and our ESG initiatives, and, if appropriate, make recommendations to the Board concerning the same;
●Develops and recommends Corporate Governance Guidelines for Board approval; and
●Monitors and screens directors for independence and recommends to the Board qualified candidates for election as directors and to serve on Board committees.
The Nominating and Governance Committee held five meetings during Fiscal 2023.
Key risk oversight
responsibilities
●Corporate
governance
●Board
and committee membership
●Director
succession planning
●Corporate
responsibility strategy, practices and policies
●Board,
committee and CEO effectiveness
●Related
person transactions
The Nominating
and Governance Committee oversees and reports to the Board on corporate governance risks, including Board and committee membership,
director independence and related person transactions. |
| 26 |
|
Table of Contents
Proposal 1 Election of directors
Human Capital and Compensation Committee
|
Jennifer L. Vogel
Chair
Members
Anthony K. Anderson
Michael R. Boyce*
Robert F. Leduc
Ellen M. Lord
Peter Pace
* Note that Mr. Dietrich has been appointed to serve as a member in place of Mr. Boyce effective on the date of the 2023 annual meeting. |
Role and responsibilities
The Human Capital and Compensation Committee is comprised entirely of independent directors qualified to serve on the Committee under applicable SEC and NYSE rules and our Categorical Standards for Determining Director Independence.
The Human Capital and Compensation Committee acts under a written charter adopted by the Board. The charter was last reviewed and approved by the Committee and the Board at their July 2023 meetings. The full text of the Committee charter appears on our website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.
The Human Capital and Compensation Committee is primarily concerned with establishing, reviewing and approving Chief Executive Officer compensation, reviewing and approving other senior executive compensation and overseeing our stock plans and other executive compensation and employee benefit plans and human capital management and related initiatives. The Committee performs the specific functions described in its charter, including:
●Sets the compensation of the Chief Executive Officer and, together with the Nominating and Governance Committee and Lead Director, conducts an annual performance review of the Chief Executive Officer;
●Reviews and approves compensation policies and practices for all elected corporate officers, including named executive officers;
●Administers our short-term incentive plan and the long-term incentive stock plan, and reviews and monitors awards under such plans, including, if desired, by delegating to the Chief Executive Officer in his capacity as a director of the Company, the authority, consistent with applicable law, to grant to persons other than himself and any Section 16 officers of the Company stock-based awards under incentive compensation and stock plans of up to an aggregate of 50,000 shares in any one fiscal year and in accordance with the terms of such plans;
●Recommends director compensation and benefits to the Board for approval;
●Reviews and approves any clawback policy allowing the Company to recoup compensation paid to employees;
●Oversees administration of certain other employee benefit, director deferred compensation, savings and retirement plans;
●Reviews succession plans for Company officers other than the Chief Executive Officer; and
●Reviews our activities with respect to our human capital function, including succession planning and talent development.
The Human Capital and Compensation Committee held five meetings during Fiscal 2023. Information about the roles of the Committee’s independent compensation consultant and management in the executive compensation process is set forth under “Executive compensation — Compensation, discussion and analysis.”
Key risk oversight responsibilities
●Target-setting under annual cash bonus programs
●Target-setting under performance-based restricted share programs
●Compensation policies and practices
●Impact of performance-based compensation on risk-taking by management
●Compensation consultant independence
●Executive employment agreements
●Human capital management
●Succession planning for Company officers
The Human Capital and Compensation Committee oversees and reports to the Board on our cash bonus and stock-based compensation programs to ensure that they are appropriately structured to incentivize officers and key employees while avoiding unnecessary or excessive risk-taking. |
Table of Contents
Proposal 1 Election of directors
Audit Committee
|
Marc J. Walfish
Chair
Members*
Robert F. Leduc
Duncan J. McNabb
Peter Pace
* Note that Mr. Boyce and Mr. Dietrich have been appointed to serve as members effective on the date of the 2023 annual meeting. |
Role and responsibilities
The Audit Committee is comprised entirely of independent directors qualified to serve on the Committee under applicable SEC and NYSE rules and our Categorical Standards for Determining Director Independence. The Board has determined that each Committee member is financially literate and that each of Messrs. Walfish, Leduc, McNabb and Pace is an “audit committee financial expert” within the meaning of applicable SEC rules.
The Audit Committee acts under a written charter adopted by the Board. The charter was last reviewed and approved by the Committee and the Board at their July 2023 meetings. The full text of the Committee charter appears on our website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.
The Audit Committee’s primary responsibility is to assist the Board in fulfilling its duty to stockholders to oversee and review: the quality and integrity of our financial statements and internal controls over financial reporting; the qualifications, independence and performance of our independent registered public accounting firm; and the performance of our Internal Audit function.
The Audit Committee performs the specific functions described in its charter, including:
●Approves and engages the independent registered public accounting firm that audits our consolidated financial statements;
●Pre-approves all non-audit and audit-related services furnished by the independent registered public accounting firm;
●Maintains communication between the Board and the independent registered public accounting firm;
●Monitors the qualifications, independence and performance of the independent registered public accounting firm;
●Oversees and reviews our financial reporting processes and practices;
●Oversees and reviews the quality and adequacy of internal controls over financial reporting, disclosure controls and the organization and performance of our internal audit department;
●Reviews the scope and results of audits;
●Oversees the Company’s internal and external review of quantitative environmental data and related disclosures included in the Company’s ESG Report or any interim reports, as applicable;
●Oversees our enterprise risk management program, including environmental (such as climate) risks; and
●Meets with the independent registered public accounting firm representatives and internal audit department representatives without members of management present.
The Audit Committee held five meetings during Fiscal 2023.
Key risk oversight responsibilities
●Risk assessment and risk management practices
●Financial reporting and investor disclosure
●Accounting and auditing
●Quality and adequacy of processes and internal controls
●Cybersecurity risk
●Ethics Hotline
●Oversight of enterprise risk management program, including environmental (such as climate) risks
The Audit Committee reviews and assesses management’s processes for managing risks relating to accounting, financial reporting, investment, tax and legal compliance, risks identified by our internal and external auditors, and matters raised through our Ethics Hotline.
The Audit Committee oversees the enterprise risk management process, which is led by our internal audit department and includes developing and implementing risk mitigation strategies, overseeing the effectiveness of the risk mitigation strategies, and reporting to the Committee. The results of our enterprise risk management process are reported to the Committee to review and discuss our principal risks and outline the risk mitigation approach for addressing these risks. |
| 28 |
|
Table of Contents
Proposal 1 Election of directors
Aviation Safety and Training Committee
|
Duncan J. McNabb
Chair
Members
Robert F. Leduc
Jennifer L. Vogel*
* Note that Ms. Lord has been appointed to serve as a member in place of Ms. Vogel effective on the date of the 2023 annual meeting. |
Role and responsibilities
The Aviation Safety and Training Committee is comprised entirely of independent directors, as determined by our Categorical Standards for Determining Director Independence.
The Aviation Safety and Training Committee was formed in December 2020 and acts under a written charter adopted by the Board. The charter was last reviewed and approved by the Committee and the Board at their July 2023 meetings. The full text of the Committee charter appears on our website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.
The Aviation Safety and Training Committee assists the Board in the oversight of aviation safety matters relating to our operations as described in its charter. The Committee performs the specific functions described in its charter, including:
●Monitors policies and processes relating to the delivery of services and products in a manner to promote safety;
●Monitors efforts to ensure the safety of employees and create a culture of safety compliance; and
●Periodically reviews all aspects of aviation safety as it may affect business operations including, without limitation:
○The Federal Aviation Administration’s Voluntary Disclosure Reporting Program;
○Regulatory findings and corrective actions;
○Safety training and programs; and
○Our safety management system and reporting of injury/lost time and aircraft damage/accidents, and any response thereto.
The Aviation and Safety Training Committee held four meetings during Fiscal 2023.
Key risk oversight responsibilities
●Safety compliance
●Reporting practices
●Training programs
The Aviation Safety and Training Committee oversees and reports to the Board on aviation safety-related risks. |
Table of Contents
Proposal 1 Election of directors
Executive Committee
|
John M. Holmes
Chair
Members*
Jennifer L. Vogel
Marc J. Walfish
* Note that Mr. Anderson has been appointed to serve as a member effective on the date of the 2023 annual meeting. |
Role and responsibilities
The Executive Committee acts under a written charter adopted by the Board. The charter was last reviewed and approved by the Board at its July 2023 meeting. The full text of the Committee charter appears on our website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.
The Executive Committee is authorized to meet between meetings of the Board and exercise certain powers of the Board with respect to urgent matters or other matters referred to it by the Board for deliberation or action, subject to limitations imposed by the Committee’s charter, the Board, applicable law and the Company’s By-Laws.
The Executive Committee did not meet during Fiscal 2023. |
Board, management and employee interaction
The Board and its committees receive information from, and have regular access to, individual members of management responsible for managing risk, including the Company’s President and Chief Executive Officer, the Chief Financial Officer, the Controller and Chief Accounting Officer, the General Counsel, the Internal Auditor, the Chief Compliance Officer and the business group leaders.
The directors, when possible, also meet each quarter with a broader group of the Company’s employees at regularly scheduled Board dinners and in other informal settings to learn more about the Company’s businesses, employees and culture. The Board also periodically holds meetings at a Company facility other than the corporate headquarters to promote interaction with local management and employees and allow directors a first-hand opportunity to inspect and better understand the Company’s business operations.
Executive sessions
The independent directors of the Board meet in executive session without management as part of each regular Board meeting and otherwise when circumstances make it advisable or necessary. The independent directors also hold meetings with and without the Chairman of the Board. The Lead Director presides at all executive sessions of the independent directors. The independent directors met separately as a group on four occasions in Fiscal 2023.
| 30 |
|
Table of Contents
Proposal 1 Election of directors
Board structure
Board leadership
The Board determines the appropriate leadership structure for the Board and the Company consistent with the best interests of stockholders. The leadership structure is intended to promote strong oversight, encourage open and independent viewpoints, and contribute to the long-term success of the Company and the effective performance of the Board. The Board regularly reviews the Company’s leadership structure.
When David M. Storch, our former Chairman, announced in July 2022 that he planned to retire in January 2023, the Board appointed John M. Holmes as Chairman effective upon Mr. Storch’s retirement, subject to Mr. Holmes’ re-election at the Fiscal 2022 annual meeting, because the Board believes that having a consolidated role is in the best interests of our stakeholders at this time. Mr. Holmes became Chairman on January 10, 2023.
Marc J. Walfish serves as the Independent Lead Director of the Board of the Directors, a position established under the Corporate Governance Guidelines and elected annually by the independent directors.
The following provides a brief description of the key responsibilities of our Chairman, President and Chief Executive Officer and Lead Director:
 |
John M. Holmes
Chairman, President and Chief
Executive Officer |
|
 |
Marc J. Walfish
Lead Independent Director |
|
Key responsibilities
●Chairs Board meetings and annual meetings of stockholders
●Has the authority to call Board meetings
●Collaborates on Board meeting agendas, meeting schedules and information sent to the Board
●Chairs the Executive Committee of the Board
●Manages our day-to-day operations
●Develops and implements our business strategy and capital allocation strategy
●Serves as our principal spokesperson
●Represents the Company to customers, suppliers and industry partners |
|
Key responsibilities
●Presides at all Board meetings when the Chairman is not present
●Has the authority to call Board meetings and meetings of the independent directors
●Chairs executive sessions of the independent directors
●Consults with and serves as a liaison between the Chairman, President and Chief Executive Officer and the independent directors
●Facilitates the Board and Board Committee self-evaluation process and participates in the Chief Executive Officer evaluation process |
Table of Contents
Proposal 1 Election of directors
Board practices and policies
Board meetings and attendance
During Fiscal 2023, the Board held seven meetings. All current directors attended at least 75% of the Board meetings and meetings of Board committees on which they served in Fiscal 2023.
Our Corporate Governance Guidelines provide that directors are expected to attend all stockholder meetings. All directors serving at the time attended the Company’s 2022 annual meeting of stockholders.
Board and committee evaluations
Our Nominating and Governance Committee conducts an annual evaluation of the performance of the Board. The Board’s Lead Director reports the evaluation results — which include an assessment of the Board’s performance as well as the identification of specific areas for improvement — to the full Board. Each Board committee also conducts an annual evaluation of its performance and reports the results to the full Board.
Board refreshment
In order to take a more holistic and active approach to managing the composition of the Board, the Board eliminated its mandatory retirement age policy in its Corporate Governance Guidelines in July 2023. The Board reviews succession planning on an annual basis, and evaluates director skills, experience, diversity, qualifications and other attributes, including tenure and age, before nominating directors for re-election. Recognizing the value of continuity of directors who have experience with the Company, there are no limits on the number of terms a director may hold office. As an alternative to term limits, the Board’s goal is to seek to maintain an average tenure of ten years or less for the independent directors as a group.
Corporate governance guidelines
The Board adopted Corporate Governance Guidelines to codify its policies and procedures and to demonstrate its commitment to corporate governance best practices. These Guidelines address director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, management evaluation and succession, and the annual performance evaluation of the Board. These Guidelines are reviewed and approved annually, most recently in July 2023, by the Nominating and Governance Committee and the Board. The full text of these Guidelines appears on the Company’s website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.
Code of conduct
“AAR’s culture of ethics and compliance
depends upon leadership by example, a commitment to shared values, an environment where employees are encouraged to speak up, and a respect
for cultural diversity and inclusion.”
– John M. Holmes, Chairman, President & CEO
The Company’s Code of Conduct adopted by the Board applies to all directors, officers, and employees, including the President and Chief Executive Officer, the Chief Financial Officer, the Controller and Chief Accounting Officer, the General Counsel, the Internal Auditor and the business group leaders.
The purpose of the Code of Conduct is to promote the highest ethical standards in the Company’s business practices and procedures, including: the ethical handling of actual or apparent conflicts of interest; full, fair and timely disclosure; and compliance with applicable laws and governmental rules and regulations.
Employees are encouraged to report to the Company any conduct
that they believe in good faith to be in violation of the Code of Business Ethics and Conduct. The Company has a strict non-retaliation
policy for employees who report good-faith violations of the Code of Business Ethics and Conduct. We post any amendments to the Code
of Conduct and any waivers from the Code granted by the Board to directors or executive officers on the Company’s website, as required
under SEC rules. The full text of the Code of Conduct appears on the Company’s website at www.aarcorp.com/investor-relations/corporate-governance
and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address
listed on the first page of this proxy statement.
| 32 |
|
Table of Contents
Proposal 1 Election of directors
Director orientation and continuing education
We hold director orientation sessions with new directors to familiarize them with our businesses, business strategies and corporate policies and practices. Our goal is to assist our new directors in understanding the Company and developing the skills and knowledge that they need to serve the interests of our stockholders. We regularly provide education materials to our directors on leadership, governance, compensation, risk and other topics of interest to public company directors. We also make external continuing education programs available to our directors to help them maintain and enhance their skills and knowledge in carrying out their ongoing responsibilities as directors of a public company.
Ethics hotline
The Company maintains an Ethics Hotline through an independent third-party provider to receive confidential complaints, information, suggestions or recommendations concerning the Company, its officers, directors, employees, policies, procedures, employment and business practices, accounting or audit matters, financial reporting or compliance with other Company policies or applicable regulatory or legal requirements. The Ethics Hotline, which is toll-free and also accessible through the Company’s website, permits individuals to identify themselves or remain anonymous at their election.
Related person transaction policy
The purpose of the written Related Person Transaction Policy, as adopted by the Board, is to provide for the identification, review, and consideration of transactions between the Company or its subsidiaries and any related persons. “Related persons” means: the Company’s directors; director nominees; executive officers; greater than five percent beneficial owners of the Company’s voting securities; members of their immediate families; and any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, a principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest.
Under the Policy, any related person transaction involving amounts in excess of $120,000 must be reviewed, considered, and approved by the Board directly or through the Nominating and Governance Committee. Review of a proposed related person transaction takes into consideration the purpose of, and the potential benefits to the Company from, the related person transaction and the impact of the related person transaction on a director’s independence in the event that the related person is a director or an immediate family member of a director. No member of the Board or the Nominating and Governance Committee may participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person.
The Policy provides that the Company may undertake certain pre-approved related person transactions (e.g., transactions in which the related person’s interest derives solely from his or her service as a director of another corporation or entity that is a party to the transaction) without further specific review, consideration and approval.
In Fiscal 2023, the Board reviewed and approved the following related person transactions involving directors of the Company, and concluded that the transactions were fair and in the best interests of the Company:
| ● |
David P. Storch was Chairman of the Board of the Company until January 10, 2023. Mr. Storch’s son, Michael E. Storch, was an employee of the Company in the Aviation Services business group until August 6, 2022. Michael E. Storch received total compensation of $171,161 in Fiscal 2023. |
| ● |
The Company entered into a consulting agreement with Mr. Storch as of September 20, 2022, effective upon his retirement from the Board on January 10, 2023, and in effect through the earlier of: (1) our 2024 annual meeting, (2) his death or disability, or (3) the termination of the agreement by the Company in the event of his uncured material breach of the agreement. The compensation paid to Mr. Storch under the agreement is an annualized amount of $400,000 per year, payable in arrears in equal monthly installments, reimbursement of travel and related business expenses in accordance with Company policy, and information technology support services. Mr. Storch received $156,989 in consulting fees from the Company in Fiscal 2023. |
Table of Contents
Proposal 1 Election of directors
Communications with the board of directors
Stockholders and other interested parties may communicate with the Board, the Chairman of the Board, the Lead Director, the independent directors as a group, or any individual director or Committee Chair by mail addressed to:
AAR CORP.
Attention: Independent Directors, Lead Director or the name of the individual director
c/o Corporate Secretary
1100 North Wood Dale Road
Wood Dale, Illinois 60191
The independent members of the Board have approved procedures for the processing, review and disposition of all communications sent by stockholders or other interested parties to the Board. The Secretary forwards communications relating to matters within the Board’s purview to the appropriate directors, communications relating to matters within a Board committee’s area of responsibility to the chair of the appropriate committee and communications relating to ordinary business matters to the appropriate Company officer. The Secretary generally does not forward complaints about service, new services suggestions, resumes and other forms of job inquiries, surveys, business solicitations, advertisements or inappropriate communications.
Director compensation
The Board reviews director compensation annually to ensure that it is fair, appropriate and in line with AAR’s peer group companies. The Board’s policy is to periodically undertake an in-depth analysis of the type and amount of each element of director compensation in consultation with the Human Capital and Compensation Committee’s independent compensation consultant.
The Fiscal 2023 director compensation program, as approved by the Board, consists of the following compensation elements:
| Compensation
element |
|
Fiscal
2023 non-employee director compensation program |
| Board chair additional annual retainer |
|
None* |
| Non-employee director annual retainer |
|
$95,000 |
| Lead director additional annual retainer |
|
$30,000 |
| Audit Committee chair annual retainer |
|
$20,000 |
| All other Committee chair additional annual retainer |
|
$15,000 |
| Annual restricted stock award |
|
Shares of common stock with a total grant date dollar value of $125,000 (vesting after one year) |
| * |
Our current Chairman, John M. Holmes, does not receive any director-related compensation because he is an employee of the Company. Our former Chairman, David M. Storch, received compensation under our director compensation program in Fiscal 2023, including an additional annual retainer of $150,000 for serving as Chairman through his retirement date of January 10, 2023. |
All retainers are paid quarterly. The annual stock award for Fiscal 2023 had an effective date of June 1, 2022 and a vesting date of June 1, 2023, subject to the director’s continued service through such date.
Each non-employee director, upon being elected a director, receives term life insurance coverage of $200,000 (unless or until they notify the Company that they wish to opt out of coverage and sign a waiver) and is eligible (along with their spouse, as applicable) to participate in a Company-paid annual physical program. The Company also reimburses its non-employee directors for travel, lodging and related expenses that they incur in attending Board and committee meetings and for other Company business expenses.
Cap on director compensation
Our stock plan, as approved by the Company’s stockholders, caps the annual compensation of non-employee directors at $500,000 per director. This cap takes into account all cash and non-cash compensation (including the dollar value of all stock awards) paid in a single fiscal year.
The reasons for this cap on director compensation are to protect against conflicts of interest given that the directors approve their own compensation and to ensure that directors receive fair and reasonable, but not excessive, compensation for their services.
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Table of Contents
Proposal 1 Election of directors
Ability to defer director compensation
Non-employee directors may elect to defer receipt of their compensation under the Company’s Non-Employee Directors’ Deferred Compensation Plan (the “Director Plan”). Under the Director Plan, non-employee directors may defer retainers and stock awards into (a) a stock account, with the deferred compensation converted into stock units equivalent to shares of common stock based on the then current stock price, or (b) a cash account, with the deferred compensation credited with interest quarterly based on the 10-year United States Treasury Bond rate. Distributions of deferred compensation are made, at the participant’s election, in cash or in shares of common stock. Distribution occurs upon termination of service on the Board or on other dates as specified by the participant.
Director compensation table
Fiscal 2023 director compensation
The table below sets forth all compensation paid to each non-employee director for Fiscal 2023.
| Name1 |
|
Fees
earned
or paid in cash
($)2 |
|
Stock
awards
($)3 |
|
Option
awards
($)4 |
|
All
other
compensation
($)5 |
|
Total
($) |
| Anthony
K. Anderson |
|
95,000 |
|
125,000 |
|
— |
|
7,509 |
|
227,509 |
| Michael
R. Boyce |
|
95,000 |
|
125,000 |
|
— |
|
20,905 |
|
240,905 |
| John
W. Dietrich |
|
19,878 |
|
28,075 |
|
— |
|
311 |
|
48,264 |
| H.
John Gilbertson, Jr. |
|
55,975 |
|
125,000 |
|
— |
|
598 |
|
181,573 |
| James
E. Goodwin |
|
53,942 |
|
125,000 |
|
— |
|
478 |
|
179,420 |
| Robert
F. Leduc |
|
95,000 |
|
125,000 |
|
— |
|
4,769 |
|
224,769 |
| Ellen
M. Lord |
|
95,000 |
|
125,000 |
|
— |
|
1,614 |
|
221,614 |
| Duncan
J. McNabb |
|
110,000 |
|
125,000 |
|
— |
|
2,746 |
|
237,746 |
| Peter
Pace |
|
95,000 |
|
125,000 |
|
— |
|
1,614 |
|
221,614 |
| David
P. Storch |
|
150,403 |
|
125,000 |
|
— |
|
186,989 |
|
462,392 |
| Jennifer
L. Vogel |
|
95,000 |
|
125,000 |
|
— |
|
1,148 |
|
221,148 |
| Marc
J. Walfish |
|
135,934 |
|
125,000 |
|
— |
|
1,614 |
|
262,548 |
| 1 |
Mr. Holmes is not included in this table because, as an employee director of the Company, he received no additional compensation for his service as a director in Fiscal 2023. Mr. Holmes’s compensation is set forth in the Summary Compensation Table in this proxy statement. Mr. Dietrich’s compensation for Fiscal 2023 was pro-rated based on his appointment to the Board on March 16, 2023. Mr. Gilbertson resigned from the Board effective October 27, 2022. Mr. Goodwin retired from the Board effective September 20, 2022. Mr. Storch retired from the Board effective January 10, 2023. |
| 2 |
The following table provides a breakdown of director fees earned or paid in cash for Fiscal 2023. Messrs. Leduc and Walfish elected to defer their retainers pursuant to the Company’s Non-Employee Directors’ Deferred Compensation Plan. |
| |
Name |
|
Annual
retainer
($) |
|
Board
chair and committee
chair retainer fees
($) |
|
Lead
director
fee
($) |
|
Total
($) |
|
Anthony
K. Anderson |
|
95,000 |
|
— |
|
— |
|
95,000 |
|
Michael
R. Boyce |
|
95,000 |
|
— |
|
— |
|
95,000 |
|
John
W. Dietrich |
|
19,878 |
|
— |
|
— |
|
19,878 |
|
H.
John Gilbertson |
|
38,626 |
|
17,349 |
|
— |
|
55,975 |
|
James
Goodwin |
|
28,970 |
|
15,824 |
|
9,148 |
|
53,942 |
|
Robert
F. Leduc |
|
95,000 |
|
— |
|
— |
|
95,000 |
|
Ellen
M. Lord |
|
95,000 |
|
— |
|
— |
|
95,000 |
|
Duncan
J. McNabb |
|
95,000 |
|
15,000 |
|
— |
|
110,000 |
|
Peter
Pace |
|
95,000 |
|
— |
|
— |
|
95,000 |
|
David
Storch |
|
58,320 |
|
92,083 |
|
— |
|
150,403 |
|
Jennifer
L. Vogel |
|
95,000 |
|
— |
|
— |
|
95,000 |
|
Marc
J. Walfish |
|
95,000 |
|
20,000 |
|
20,934 |
|
135,934 |
| 3 |
The amounts in this column reflect the aggregate grant date fair value of the Fiscal 2023 stock award of 2,574 shares of time-based restricted stock granted on June 1, 2022 to each non-employee director computed in accordance with FASB ASC Topic 718. These shares subsequently vested on June 1, 2023. General McNabb elected to defer his entire stock award. |
| 4 |
No stock options were granted to non-employee directors in Fiscal 2023. No current non-employee director held any stock options as of May 31, 2023. |
| 5 |
This column includes the cost of the annual physical program, reimbursements for travel, lodging and hotel expenses in connection with the annual physical program, and the cost of term life insurance coverage. For Mr. Storch, this column includes $30,000 in office/secretarial support and $156,989 in consulting fees from the Company in Fiscal 2023 pursuant to a consulting agreement as noted under the heading “Related person transaction policy.” |
Table of Contents
Proposal
2
Executive compensation |
|
|
| Proposal 2 |
Advisory proposal to approve our Fiscal 2023 executive compensation |
|
|
Our
Board unanimously recommends that you vote FOR
this resolution approving the Fiscal 2023 compensation paid to our
named executive officers. |
Proposal summary
We are asking you to approve the following advisory proposal — commonly known as a “say-on-pay” proposal — on the compensation awarded to our named executive officers for Fiscal 2023 as disclosed in this proxy statement:
“RESOLVED, that the stockholders
of the Company approve, on an advisory basis, the compensation of the named executive officers for Fiscal 2023 as reported in this proxy
statement pursuant to Item 402 of Regulation S-K under the Securities Exchange Act of 1934, including the Compensation Discussion and
Analysis, compensation tables and narrative discussion.”
We hold an annual vote on say-on-pay because we believe it is important to obtain the input of our stockholders on our executive compensation program. Each year our Human Capital and Compensation Committee takes a careful look at the Company’s executive compensation program to determine whether to make any design or implementation changes. Reasons to make changes may include the results of prior say-on-pay stockholder votes, stockholder feedback, the financial and operating performance of the Company, the performance of individual senior management members, peer group changes or market trends.
As in prior years, the Human Capital and Compensation Committee designed the Fiscal 2023 executive compensation program to align executive pay with Company performance in order to create an identity of interest between management and stockholders. This goal is accomplished principally through the payment of performance-based cash bonuses and the grant of equity awards.
The Board encourages you to read the “Compensation Discussion and Analysis” and the accompanying executive compensation tables in this proxy statement for a comprehensive description of the Fiscal 2023 executive compensation program.
All Fiscal 2023 executive compensation paid to the named executive officers was performance-based or at-risk compensation, other than base salaries, as shown below:
| Plan |
|
Performance
goals or vesting criteria |
| FY23 short-term incentive plan – cash bonuses |
|
●Adjusted diluted earnings per share from continuing operations
●Adjusted net working capital turns
●Strategic objectives |
| FY23 long-term incentive plan – time-based restricted stock |
|
●Aligned with stockholder value creation with three-year cliff vesting |
| FY23 long-term incentive plan – performance-based restricted stock |
|
●Adjusted income from continuing operations
●Average return on invested capital
●Relative total stockholder return |
| FY23 long-term incentive plan – stock options |
|
●Stock price appreciation |
| 36 |
|
Table of Contents
Proposal 2 Executive compensation
The charts below show the breakdown of variable compensation and fixed compensation paid to our named executive officers in Fiscal 2023.
| John
M. Holmes |
 |
| Sean
M. Gillen |
 |
| Jessica
A. Garascia |
 |
| Christopher
A. Jessup |
 |
| Eric
S. Pachapa |
 |
Table of Contents
Proposal 2 Executive compensation
Stockholder engagement
Please see “A letter from our human capital and compensation committee” and “Stockholder engagement” and “Response to stockholder feedback” in the CD&A section for more details as to what we heard from our stockholders regarding our executive compensation program during our Fiscal 2023 engagement and how we responded to their feedback in designing the executive compensation program for Fiscal 2024.
Executive compensation program for Fiscal 2023
Our Human Capital and Compensation Committee believes that the executive compensation paid to our named executive officers in Fiscal 2023, in form and amount, was appropriate and in the best interests of the Company and its stockholders.
This say-on-pay advisory vote is not binding on the Board. The Board, however, will review and consider the voting results and other relevant factors in responding to this advisory vote.
Human capital and compensation committee Fiscal 2023 report
The Human Capital and Compensation Committee of the Board of the Company furnishes the following report to the stockholders of the Company in accordance with applicable SEC rules.
The Human Capital and Compensation Committee reviewed and discussed the “Compensation discussion and analysis” section of this proxy statement with the Company’s management. Based on that review and discussion, the Human Capital and Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Respectfully submitted,
The Human Capital and Compensation Committee of the Board of AAR CORP.
Jennifer L. Vogel, Chair
Anthony
K. Anderson, Member
Michael R. Boyce, Member
Robert
F. Leduc, Member
Ellen M. Lord, Member
Peter
Pace, Member
Human capital and compensation committee interlocks and insider participation
Messrs. Anderson, Boyce and Leduc, General Pace and Ms. Vogel and Ms. Lord, all of whom are independent non-employee directors, are the current members of the Human Capital and Compensation Committee of the Board of the Company. None of the members of the Human Capital and Compensation Committee is or ever was an officer or employee of the Company or any of its subsidiaries, and none of the executive officers of the Company served on the board of directors or compensation committee of any entity whose officers served either on the Board of the Company or on the Human Capital and Compensation Committee of the Board of the Company.
| 38 |
|
Table of Contents
Proposal 2 Executive compensation
A letter from our human capital and compensation committee
Dear fellow AAR CORP. stockholder:
We thank you for your continued support of AAR CORP. through Fiscal 2023. Looking back, Fiscal years 2021 and 2022 were marked by extraordinary challenges for the aviation industry. In the face of these challenges, AAR’s senior management team led by Mr. Holmes, our CEO, delivered successful financial and operating performance, which contributed to a stock price increase from $20.08 on June 1, 2020 (the start of Fiscal 2021) to $48.22 on May 31, 2022 (the end of Fiscal 2022). In Fiscal 2023, our senior management team continued to deliver solid financial results and execute on our growth strategies, contributing to a stock price increase to $50.11 on May 31, 2023 (the end of Fiscal 2023).
As directors and members of the Human Capital and Compensation Committee, we are committed to implementing compensation programs that pay for performance, that attract and retain key executives critical to the success of our business, and that align the focus of our management team with the Company’s strategic goals and our stockholders’ long-term interests. The macroeconomic environment in Fiscal years 2021 and 2022 made it especially challenging for the Committee to design compensation programs that achieve these goals, due primarily to: (1) decreased visibility into the Company’s results in the near and long-term given the disruption to the commercial aviation sector during the COVID-19 pandemic, which caused difficulties setting financial goals, and (2) restrictions on the amount of compensation that could be paid to certain senior executives, including our CEO, through March 24, 2022, under the terms of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) federal funding that the Company accepted in July 2020, which resulted in setting compensation for certain senior executives substantially below competitive market levels and historical practices. Compensation decisions in Fiscal 2022, after the CARES Act restrictions lapsed, included special awards of cash and equity without performance conditions to certain members of our senior management team, including our CEO.
We believe these actions were necessary to support executive retention and mitigate the misalignment of pay and performance stemming from adherence to requirements under the CARES Act. In doing so, we recognized the superior leadership and financial performance delivered by Mr. Holmes and his senior management team during this most challenging period. These actions were a departure from our general practice of not making special one-time awards of share-based compensation without performance conditions or cash bonuses.
Stockholder engagement and responsiveness to 2022 say-on-pay vote
In connection with the say-on-pay proposal for Fiscal 2022, the Human Capital and Compensation Committee led extensive stockholder outreach and engagement efforts, together with a thorough evaluation of our executive compensation program. In 2022, the principal focus of the outreach was to discuss the grant of one-time awards to our CEO, which award received negative attention from proxy advisors in advance of our 2022 say-on-pay vote. In 2023, the principal focus of the outreach was to understand the factors that impacted our 2022 say-on-pay vote, which ultimately did not receive majority support from our stockholders.
In total, during 2022-2023, we contacted stockholders representing over 85% of our outstanding shares of common stock, and held 17 meetings about our executive compensation program with stockholders representing over 55% of our outstanding shares of common stock. These discussions were led by the Chair of our Human Capital and Compensation Committee and included our CFO, General Counsel and Chief Human Resources Officer.
Table of Contents
Proposal 2 Executive compensation
In general, feedback from stockholders and proxy advisors on the design of our executive compensation program was modest in scope and nature, consistent with previously high levels of support for our say-on-pay proposals (approximately 97%, on average, for 2018 through 2021). Most of the feedback was related to the special award made to our CEO in Fiscal 2022, which was the biggest contributing factor to the low support from stockholders for say-on-pay for Fiscal 2022. Specifically, the Committee heard and evaluated concerns related to:
| ● | Grants of special awards without performance conditions; |
| ● | The use of qualitative strategic goals, which may be hard to measure, in determining short-term incentive compensation; |
| ● | A potential payout of 250% for performance-based restricted stock awards; and |
| ● | The use of, and goal-setting for, TSR as a performance metric in determining long-term incentive compensation. |
The Committee sought input from stockholders and proxy advisors on changes to the executive compensation program for Fiscal 2024 that might address each concern above. For additional detail regarding how we engaged, what we heard and how we responded, see “Stockholder engagement” and “Response to stockholder feedback” in the CD&A section. We have been pleased with the positive reception by stockholders of our outreach efforts and remain committed to addressing stockholder feedback in the design of our executive compensation program.
Our compensation decisions in Fiscal 2023 and 2024
Following the unique challenges in Fiscal 2022, the Human Capital and Compensation Committee continued to take actions in Fiscal 2023 that we believe best serve the alignment of pay with performance and the retention of key members of our executive leadership team going forward. In Fiscal 2023, the Committee resumed the pre-pandemic era executive compensation program that had received high levels of say-on-pay support (approximately 97%, on average, for 2018 through 2021) – namely to reintroduce performance-based share awards at a 50% mix in the long-term incentive plan.
As noted above, for Fiscal 2024, we have sought to enhance our executive compensation program in response to stockholder feedback as further described below in “Stockholder engagement” in the CD&A. These changes for Fiscal 2024 include, but are not limited to, (1) a commitment to limit the use of special equity awards, and a commitment to attach performance conditions to any future special equity awards (except in very limited circumstances where it is customary not to include performance conditions, such as grants to replace foregone compensation at the time of hire); (2) an increase in the weighting of performance-based restricted stock to 60% of the long-term incentive plan mix as well as broader participation in our performance-based restricted stock program; (3) the removal of the qualitatively measured strategic objectives in the short-term incentive plan; and (4) capping the payout on performance-based restricted stock at 200% (reduced from 250%).
Ongoing commitment to stockholder engagement
The Committee values the perspectives of the Company’s stockholders and the importance of stockholder feedback expressed directly and through the annual say-on-pay voting process. We remain committed to maintaining a compensation structure that aligns pay with performance, drives long-term value creation, and reflects the perspectives of our stockholders. You may provide feedback to the Committee at any time by sending correspondence to AAR CORP., Office of the Corporate Secretary, 1100 N. Wood Dale Road, Wood Dale, Illinois 60191.
Thank you for your continued support and investment in AAR CORP.
Jennifer L. Vogel, Chair
Anthony
K. Anderson, Member
Michael R. Boyce, Member
Robert
F. Leduc, Member
Ellen M. Lord, Member
Peter
Pace, Member
| 40 |
|
Table of Contents
Proposal 2 Executive compensation
Compensation discussion and analysis
Executive summary
Named executive officers
This Compensation Discussion and Analysis describes and explains our Fiscal 2023 executive compensation program for the following executive officers of the Company (the “named executive officers” or “NEOs”):
John M. Holmes, Chairman,
President and Chief Executive Officer
Sean M. Gillen, Senior Vice President and Chief Financial
Officer
Jessica A. Garascia, Senior Vice President, General Counsel, Chief Administrative
Officer and Secretary
Christopher A. Jessup, Senior Vice President and Chief Commercial
Officer
Eric S. Pachapa, Vice President, Controller and Chief Accounting Officer
Financial highlights
AAR had strong financial performance for Fiscal 2023. Consolidated sales were $2.0 billion, diluted earnings per share from continuing operations was $2.52 (an increase of 17% over Fiscal 2022) and adjusted diluted earnings per share from continuing operations, a non-GAAP financial measure, was $2.86 (an increase of 20% from Fiscal 2022). During Fiscal 2023, we continued our strong focus on working capital management with cash flows from operating activities from continuing operations of $23.8 million, which included significant investments in inventory, rotable assets, and licensing arrangements to support further growth.
For a definition of adjusted diluted earnings per share from continuing operations and a reconciliation of this measure to the closest comparable GAAP financial measure, see Appendix B.
Selected financial information
(dollars
in millions except per share data)
For the fiscal year ended May 31 |
|
2023
($) |
|
2022
($) |
|
2021
($) |
| Sales |
|
1,990.5 |
|
1,820.0 |
|
1,652.3 |
| Operating income |
|
133.9 |
|
106.9 |
|
85.2 |
| Diluted earnings per share from continuing operations |
|
2.52 |
|
2.16 |
|
1.30 |
| Cash provided from operations – continuing operations |
|
23.8 |
|
89.8 |
|
108.5 |
| As
of May 31 |
|
|
|
|
|
|
| Working capital |
|
746.4 |
|
659.0 |
|
600.2 |
| Total assets |
|
1,833.1 |
|
1,573.9 |
|
1,539.7 |
| Total debt |
|
272.0 |
|
100.0 |
|
135.2 |
| Equity |
|
1,099.1 |
|
1,034.5 |
|
974.4 |
Table of Contents
Proposal 2 Executive compensation
Key financial achievements
| Sales |
|
Adjusted diluted EPS from continuing operations* |
 |
|
 |
| * |
See prior page for diluted EPS from continuing operations (GAAP) and Appendix B for a reconciliation of adjusted diluted EPS from continuing operations (non-GAAP) to the GAAP measure. |
For more information about our Fiscal 2023 performance, please see “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on July 18, 2023. For more information about our stock price performance, please see “Comparison of Cumulative Five-Year Total Return” in our Form 10-K.
Stockholder engagement
In Fiscal 2023, we continued our longstanding practice to regularly engage with stockholders on a host of topics including company strategy and performance, corporate governance, sustainability, and other topics. members of our senior management team participated from time to time in numerous stockholder meetings and virtual or in-person investor conferences. These interactions allow investors the opportunity to meet, ask questions of, and provide advice to, our key executives. We include our independent Lead Director when requested by stockholders.
Further, during 2022-2023, we conducted a comprehensive outreach campaign to specifically solicit feedback from our stockholders on our executive compensation practices in the months before and following our say-on-pay vote in September 2022, which failed to receive majority support. Our executive compensation program has historically received strong stockholder support (approximately 97% in each of the four years prior to 2022). In 2022, the principal focus of our outreach was to discuss the grant of one-time awards to our CEO, which received negative attention from proxy advisors in advance of our 2022 say-on-pay vote. In 2023, the principal focus of our outreach was to understand the factors that impacted our 2022 say-on-pay vote, which ultimately did not receive majority support from our stockholders. These discussions were led by the Chair of our Human Capital and Compensation Committee and included our CFO, General Counsel and Chief Human Resources Officer.
| 2022 Reach Out |
|
|
|
|
|
|
|
|
 |
 |
 |
 |
 |
40
stockholders |
|
88%
shares outstanding |
|
8
stockholder
meetings |
|
48%
shares outstanding |
|
100%
of meetings with Chair of the Human Capital and Compensation Committee |
| 42 |
|
Table of Contents
Proposal 2 Executive compensation
| WHAT WE DID: |
|
|
WHAT WE HEARD: |
|
| Prior to the 2022 annual meeting we reached out to stockholders to engage about our executive compensation program in light of concerns expressed about the grant of one-time awards made in Fiscal 2022 to our Chief Executive Officer after the CARES Act restrictions lapsed. |
|
Stockholders expressed general alignment with our existing compensation program. The majority of the conversations with stockholders focused on the grant of one-time awards made in Fiscal 2022 to our Chief Executive Officer after the CARES Act restrictions lapsed, with stockholders seeking to understand the amount of the award and why the award did not have performance conditions. |
| 2023 Reach Out |
|
|
|
|
|
|
|
|
 |
 |
 |
 |
 |
41
stockholders |
|
85%
shares outstanding |
|
9
stockholder
meetings |
|
33%
shares outstanding |
|
100%
of meetings with Chair of the Human Capital and Compensation Committee |
| WHAT WE DID: |
|
|
WHAT WE HEARD: |
|
| After our 2022 say-on-pay proposal did not pass, the Human Capital and Compensation Committee and the Board discussed feedback from our 2022 stockholder engagement process described above and considered several changes to our executive compensation program, the most significant of which was to consider adopting a policy of refraining from granting one-time awards to executive officers unless the award contains performance conditions (other than reasonable make-whole grants to new hires). In addition, the Human Capital and Compensation Committee determined to continue its policy of general prohibitions on one-time awards (other than reasonable make-whole grants to new hires). We also sought out, and held, meetings with two proxy advisory firms as noted below. |
|
The stockholders we met with expressed overall support for the changes to our executive compensation program being considered by our Human Capital and Compensation Committee, all of which were subsequently adopted by the Committee for Fiscal 2024 and are described in this proxy statement. |
| EXECUTIVE SUMMARY:
Through 2022-2023, we contacted stockholders representing over 85% of our outstanding shares of common stock, and held 17 meetings about our executive compensation program with stockholders representing over 55% of our outstanding shares of common stock.
Our Human Capital and Compensation Committee:
●listened to stockholder concerns;
●considered changes to address the identified concerns;
●reached out once more to stockholders to discuss potential changes; and
●adopted the changes to our executive compensation program for Fiscal 2024 as described in this proxy statement.
|
See “Response to stockholder feedback” below for details on what we heard from stockholders and how we responded to their feedback related to executive compensation. The feedback received from our stockholder outreach efforts was shared with and considered by our Board. Our engagement has generated valuable input that helps inform our decisions and strategy regarding executive compensation.
We also engaged directly with and carefully considered the viewpoints of the proxy advisory firms that represent the interests of various stockholders. In calendar year 2023, we engaged with Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co. (“Glass Lewis”) regarding our executive compensation practices. These engagements further informed the actions that our Board and Human Capital and Compensation Committee are taking to enhance our executive compensation program as further described in “Response to stockholder feedback” below.
Table of Contents
Proposal 2 Executive compensation
Response to stockholder feedback
Feedback received by stockholders and proxy advisors on the overall design of our executive compensation program was modest in scope and nature, consistent with the previously high levels of support for our say-on-pay proposals noted above. Most of the feedback was related to the special award made to our CEO in Fiscal 2022.
The Human Capital and Compensation Committee considered the feedback that it received when it evaluated and approved changes to our executive compensation program for Fiscal 2024. Below is a summary of the feedback we heard from many of our investors and how we responded.
| WHAT WE HEARD… |
|
HOW WE RESPONDED FOR FISCAL 2024… |
Stockholders questioned both the design and the magnitude of the CEO’s special award of cash and equity in Fiscal 2022 (that was intended to compensate him for two years of forgone equity awards due to CARES Act restrictions). In particular, stockholders noted that the award was entirely time-based (lacking performance conditions). |
|
We engaged with our stockholders and noted the unusual circumstances during Fiscal years 2021 and 2022 that influenced the decisions to grant special awards without performance conditions to certain members of our senior management team, including our CEO, in Fiscal 2022, as set forth above in the Letter from our Human Capital and Compensation Committee.
In response to stockholder concerns following the 2022 say-on-pay vote, the Committee has committed to both continue to limit the usage of one-time, special awards outside of our annual compensation program and, if granted to our executive officers, to include performance conditions when making such one-time, special awards (except in very limited circumstances where it is customary not to include performance conditions, such as grants to replace foregone compensation at the time of hire).
To further demonstrate the Committee’s commitment to performance-based compensation, the Committee is making the following changes to the Company’s annual executive compensation program for Fiscal 2024:
●Increasing the weighting of performance-based share awards (performance-based restricted stock) for executive officers in the long-term incentive plan from 50% to 60% and reducing the weighting of time-based share awards (i.e., changing the components of the long-term incentive plan from 50% performance-based restricted stock, 25% options and 25% time-based restricted stock in the current program to 60% performance-based restricted stock, 20% options and 20% time-based restricted stock in the program for Fiscal 2024); and
●Broadening participation in our performance-based restricted stock program.
|
Stockholders questioned the use of qualitative strategic goals as metrics for determining short-term incentive compensation and suggested eliminating such strategic goals in favor of quantitative and measurable financial goals. |
|
In response to stockholder feedback, the Committee is making the following change to the Company’s short-term incentive compensation program for Fiscal 2024:
●Eliminating the qualitative strategic goals component of awards under the short-term incentive plan and reverting to a split of 80% earnings per share (“EPS”) and 20% working capital turns (i.e., changing the components from 60% EPS, 20% working capital turns and 20% strategic objectives in Fiscal 2023).
The Committee will continue to evaluate appropriate quantitative goals that can be introduced into the Company’s short-term incentive compensation program, including potential quantitative ESG metrics.
|
Stockholders questioned the 250% maximum payout opportunity for performance-based restricted stock awards in the long-term incentive program and noted that they considered 200% to be more typical. |
|
Although unusual circumstances influenced the special awards to the CEO in Fiscal 2022, the Committee acknowledges stockholder feedback regarding the magnitude of long-term incentive awards generally. In response to stockholder concerns, the Committee is making the following change to the Company’s executive compensation program for Fiscal 2024:
●Reducing the maximum payout for performance-based restricted stock in the long-term incentive plan from 250% in the Fiscal 2023 program to 200% in the Fiscal 2024 program. |
Stockholder feedback was varied in terms of whether and how to incorporate relative total shareholder return (TSR) in relation to company-specific financial and operational metrics for determining long-term incentive compensation. Select stockholders indicated a preference to see target payout anchored at some level above median performance. |
|
The Human Capital and Compensation Committee thoughtfully considered the varied stockholder feedback on the use of relative TSR as a performance metric for determining long-term incentive compensation.
After careful consideration, the Committee is making the
following change to the Company’s executive compensation program for Fiscal 2024 in response to stockholder feedback:
●Setting the
TSR target payout at outperformance of the market rather than median performance (i.e., 55th percentile as compared
to 50th percentile used in the Fiscal 2023 program).
|
| 44 |
|
Table of Contents
Proposal 2 Executive compensation
We remain committed to giving our investors clear and concise proxy statement disclosure so that they can fully understand our executive compensation program and, in turn, vote on an informed basis on our say-on-pay proposal. To that end, our proxy statement disclosure explains both how our executive compensation program operates and how it aligns the interests of our executives with the long-term investment interests of our stockholders.
Our ongoing, open dialogue with our stockholders helps ensure that our Board and management regularly consider investor perspectives. The Human Capital and Compensation Committee continues to believe in flexibility to properly incentivize and reward management for successfully managing the Company in unusual circumstances and positioning it for future growth. This flexible approach to executive compensation is consistent with our Board’s priorities to guide the Company in the proper strategic direction.
Pay and Performance Alignment. The graph below highlights our recent relative share performance as compared to the share performance of our peer group and also demonstrates the strong linkage between our TSR performance and our CEO’s pay. The peer group used is the Company’s “2023 peer group” as reflected in our 2023 Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K and “Fiscal 2023 peer group” in this proxy statement. Each year reflects what the cumulative value of $100 would be, including reinvestment of dividends, if such amount were invested on June 1, 2020.
Company TSR, Peer Group TSR and Company CEO Pay
Executive compensation highlights
Pay-for-performance and stockholder alignment
| ● | Annual cash bonuses are linked to two key performance metrics critical to the success of our business strategy: adjusted diluted earnings per share from continuing operations (60%) and adjusted net working capital turns (20%). In addition, certain strategic objectives (20%) are included in the annual cash bonus program for Fiscal 2023 to align management interests with priorities that are important to the Company. |
| ● | The Fiscal 2023 long-term incentive program is 100% equity based, consisting of performance-based restricted stock (50%), stock options (25%) and restricted stock awards (25%). |
| ● | Performance-based restricted stock for Fiscal 2023 are linked to three key performance metrics: adjusted income from continuing operations (70%), return on invested capital (20%) and relative total stockholder return (10%). |
| ● | AAR targets total pay opportunities for its executive officers, individually and as a group, within a competitive range around the median of the market. |
| ● | AAR’s compensation mix – cash versus equity, fixed versus variable, and annual versus longer-term – is consistent with competitive best practices. |
Table of Contents
Proposal 2 Executive compensation
Cash bonuses under the Fiscal 2023 short-term incentive plan
| Strategic goal |
Compensation measure |
| Drive profitability and deliver value to stockholders |
60 |
% |
Adjusted diluted earnings per share from continuing operations |
| Make efficient use of stockholder capital in support of Company sales |
20 |
% |
Adjusted net working capital turns |
| Align management’s interests with priorities that are important to the Company |
20 |
% |
Strategic objectives |
Performance stock under the Fiscal 2023 long-term incentive plan
| Strategic goal |
Compensation measure |
| Increase profitability and deliver value to stockholders |
70 |
% |
Adjusted income from continuing operations |
| Enhance efficiency in allocating capital to generate higher returns |
20 |
% |
Average return on invested capital |
| Outperform peer group companies* in generating stockholder value |
10 |
% |
Relative total stockholder return |
| * |
Reflects a custom group of companies that derive a significant portion of their revenues from commercial aviation-linked businesses. For Fiscal 2023, this group included Alaska Air Group, Allegiant Travel Company, American Airlines Group Inc., Atlas Air Worldwide Holdings, Inc., Delta Air Lines, Inc., Hawaiian Holdings, Inc., Hexcel Corporation, JetBlue Airways Corporation, Moog Inc., Southwest Airlines Co., Spirit AeroSystems Holdings, Inc., Spirit Airlines, Inc., The Boeing Company, Triumph Group, Inc., United Airlines Holdings, Inc., and Woodward, Inc. |
Executive compensation program enhancements
We continue to be committed to pay-for-performance. We believe the outcomes of our 2019 through 2021 say-on-pay votes (at least 97% support each year) demonstrated strong stockholder support for our executive compensation program. In response to feedback from stockholders following our 2022 say-on-pay vote, our Human Capital and Compensation Committee made enhancements to our executive compensation program for Fiscal 2024. See the “Letter from our human capital and compensation committee” and “Stockholder engagement” and “Response to stockholder feedback” in “Compensation discussion and analysis” for further information.
We will continue to consider investor feedback relating to our executive compensation program.
Our executive compensation goals and philosophy
Our executive compensation program has three principal goals:
| Engage executive talent |
|
|
Align pay and performance |
|
|
Diversify pay mix |
|
| |
|
|
|
|
| Attract and retain talented executives capable of producing outstanding business results for the Company and its stockholders. |
|
|
Motivate and reward executives by paying for performance in a manner that reflects the Company’s performance, business group performance and individual performance. |
|
|
Provide compensation that strikes a proper balance between short-term and long-term compensation, and between fixed compensation and at-risk performance compensation, and between cash and stock compensation, with an emphasis on stock compensation to align the interests of executives with the interests of the Company’s stockholders. |
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Proposal 2 Executive compensation
Our executive compensation philosophy for our named executive officers is to target compensation as follows:
| Compensation element |
|
Target |
| Base salary |
|
± |
10% |
of market median |
|
“Total annual cash compensation” (base salary + target annual cash bonus) |
|
± |
10% |
of market median |
|
“Total direct compensation” (base salary + target annual cash bonus + the grant date value of annual stock awards) |
|
± |
15% |
of market median |
Although targets are set with consideration to the market median, the program is designed to offer our named executive officers the opportunity to reach or exceed the market 75th percentile with exceptional performance.
The compensation opportunities for individual executives may vary depending on experience, effectiveness, performance and other relevant factors. By incentivizing and rewarding outstanding performance, our executive compensation program seeks to link the achievement of the Company’s key business performance goals and stock price performance directly with the pay outcomes for our named executive officers.
Executive compensation practices
| What
We Do |
|
|
What
We Do Not Do |
|
| |
|
|
 Annual say-on-pay stockholder vote Challenging performance targets under our incentive compensation plans
Emphasis on performance-based or at-risk compensation
Multi-year vesting periods for stock awards
Limited perquisites
“Double trigger” change-in-control provisions in executive agreements
Meaningful stock ownership and retention guidelines for directors and executive officers
Prohibition on short sales, pledging and hedging transactions
Claw-backs of incentive compensation in the event of certain financial restatements
Annual assessment of incentive compensation plans
|
 No tax gross-ups No repricing of stock options
No dividends or dividend equivalents paid on stock or stock unit awards unless vesting conditions are met
|
| |
|
|
|
The Company generally targets its annual pay mix for executive officers (particularly for its Chief Executive Officer) to place significant weight on performance-based and at-risk compensation over fixed compensation. This pay mix is reflected in the following breakdown of Fiscal 2023 target total direct compensation:
Fiscal 2023 compensation of our Chief Executive Officer, John M. Holmes
Fiscal 2023 compensation of our other named executive officers as a group
Table of Contents
Proposal 2 Executive compensation
Principal elements of our Fiscal 2023 executive compensation program
The table below describes and explains the purpose of the principal elements of the Fiscal 2023 executive compensation program for our named executive officers:
| |
|
|
Compensation
element |
|
Form of
compensation |
|
Performance
period |
|
Performance measures |
|
Purposes of the
compensation element |
|
 |
|
Base salary |
|
Cash |
|
1 year |
|
Individual performance and contributions
Qualifications and responsibilities
Experience and tenure with the Company
Competitive salary considerations |
|
Rewards individual performance and contributions consistent with an individual’s position and responsibilities
Provides competitive compensation
Balances risk-taking concerns associated with performance-based compensation |
| Annual cash bonus |
|
Cash |
|
1 year |
|
 |
Adjusted diluted earnings per share from continuing operations |
|
Promotes retention of executive talent
Provides short-term, cash-based incentive
Measures performance against key corporate goals
Aligns management’s interests with priorities that are important to the Company, including growth and ESG |
|
|
|
 |
Adjusted net working capital turns |
|
|
|
|
 |
Strategic objectives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
 |
|
Stock options (25%) |
|
Stock |
|
3 years
(vesting period)
Up to 10 years
(option term) |
|
|
Stock price |
|
Promotes retention of executive talent
Aligns payout directly with stockholder value creation |
| Time-based restricted stock (25%) |
|
Stock |
|
3 years |
|
|
Stock price |
|
Promotes retention of executive talent
Aligns payout directly with stockholder value creation |
| Performance-based restricted stock (50%) |
|
Stock |
|
3 years |
|
 |
Adjusted income from continuing operations |
|
Promotes retention of executive talent
Ties payout to achievement of key corporate goals
Aligns payout directly with stockholder value creation |
|
|
|
 |
Average return on invested capital |
|
|
|
|
 |
Relative shareholder return |
|
| 48 |
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Table of Contents
Proposal 2 Executive compensation
Our human capital and compensation committee’s decision-making process for Fiscal 2023
Each year the Human Capital and Compensation Committee reviews our executive compensation program and the programs of other companies, including the Company’s peer group companies. The Human Capital and Compensation Committee seeks to confirm that each compensation element of our program, as well as the compensation structure, is not only competitive within the Company’s marketplace, but also is appropriate for the Company in light of its history, culture, performance and strategy. Particular attention is given to our stock price and total stockholder return to ensure proper alignment between executive compensation and stock price performance.
The Human Capital and Compensation Committee took the following actions in setting and approving executive compensation for Fiscal 2023.
January 2022
| |
 |
Reviewed and approved the Company’s Fiscal 2023 peer group. |
| |
 |
June and July 2022
| |
|
Assessed the Company’s prior year’s target executive compensation against the target executive compensation of the Company’s peer group companies and of other aerospace and defense companies. |
| |
|
|
| |
|
Assessed the Company’s prior year performance against the performance of peer group companies. |
| |
|
|
| |
|
Considered other information available at the time relevant to the Fiscal 2023 executive compensation program (e.g., the prior year (Fiscal 2021) say-on-pay result and the CEO’s recommendations). |
| |
|
|
| |
|
Set target Fiscal 2023 compensation — base salaries, annual cash bonuses and stock awards — for the Company’s executive officers. |
| |
|
|
July 2023
| |
|
Approved Fiscal 2023 annual cash bonuses based on the Company’s performance in Fiscal 2023. |
| |
|
|
Fiscal 2023 executive compensation
CEO pay in Fiscal 2023
In determining Mr. Holmes’s Fiscal 2023 compensation, the Human Capital and Compensation Committee took into consideration the following principal factors:
| ● |
Mr. Holmes’s understanding of the Company’s culture, strategy, business and operations, as well as the going-forward challenges facing the Company; |
| ● |
A recognition that Fiscal 2023 would be Mr. Holmes’s fifth year as a Chief Executive Officer, in comparison to the median tenure of six years for CEOs in the Company’s peer group; |
| ● |
A competitive pay analysis prepared by the Human Capital and Compensation Committee’s independent compensation consultant in June 2022; and |
| ● |
The Human Capital and Compensation Committee’s belief that the substantial majority of Mr. Holmes’s compensation should be contingent on performance, have retentive value, or be linked with stockholder value creation. |
Based on these factors, the Human Capital and Compensation Committee set Mr. Holmes’s Fiscal 2023 target pay at $5,650,000, consisting of base salary of $1,000,000 (up 8% from Fiscal 2022), target cash bonus opportunity of $1,000,000 (100% of his base salary), and stock-based compensation with a target dollar value of approximately $3,650,000.
Table of Contents
Proposal 2 Executive compensation
Fiscal 2023 base salaries
The Human Capital and Compensation Committee believes that base salaries — representing fixed compensation — should be sufficiently competitive for AAR to attract and retain talented executives, but should be a less significant percentage of total compensation than performance-based compensation for AAR’s executive officers.
The following table shows Fiscal 2022 and Fiscal 2023 annual base salaries for the named executive officers, as set by the Human Capital and Compensation Committee. The Fiscal 2023 increases in base salary became effective June 1, 2022.
| Named executive officer |
|
Fiscal 2022
($) |
|
Fiscal 2023
($) |
|
Increase
% |
| John M. Holmes |
|
925,000 |
|
1,000,000 |
|
8 |
| Sean M. Gillen |
|
450,000 |
|
480,000 |
|
7 |
| Jessica A. Garascia |
|
412,000 |
|
430,000 |
|
4 |
| Christopher A. Jessup |
|
450,000 |
|
480,000 |
|
7 |
| Eric S. Pachapa |
|
345,000 |
|
360,000 |
|
4 |
Fiscal 2023 cash bonuses
Fiscal 2023 short-term incentive plan – setting targets
At its July 2022 meeting, the Human Capital and Compensation Committee approved the Fiscal 2023 short-term incentive plan for the named executive officers. The Fiscal 2023 short-term incentive plan used three performance goals to determine annual cash bonuses: (1) the Company’s earnings per share from continuing operations as adjusted (weighted 60%), (2) the Company’s adjusted net working capital turns (weighted 20%) and (3) certain strategic objectives (weighted 20%). The strategic objectives goal was added to the annual cash bonus program in Fiscal 2021 in order to align management’s interests with priorities that are important to the Company. The strategic objectives for Fiscal 2023 were the same as Fiscal 2022 and included the following: (A) identify and secure opportunities to deploy capital for organic and inorganic growth, and (B) drive an environmental, social and corporate governance program that addresses key areas of focus.
The following table shows each of the three performance goals at the threshold, target and maximum levels:
| Performance goal |
|
Threshold |
|
Target |
|
Maximum |
| 60% |
Adjusted diluted earnings per share from continuing operations (weighting) |
|
$1.93 |
|
$2.57 |
|
$3.21 |
| 20% |
Adjusted net working capital turns (weighting) |
|
2.29 |
|
3.05 |
|
3.81 |
| 20% |
Strategic objectives (weighting) |
|
N/A |
|
N/A |
|
N/A |
Each of the adjusted diluted earnings per share from continuing operations target ($2.57) and the adjusted net working capital turns target (3.05) for Fiscal 2023 represents an increase from both the prior year’s target (an increase of $0.77 and 0.35, respectively) and actual performance (an increase from the prior year’s results, which were $2.38 and 2.96, respectively).
| 50 |
|
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Proposal 2 Executive compensation
The Human Capital and Compensation Committee believes adjusted diluted earnings per share from continuing operations and adjusted net working capital turns are critical performance measures of the Company’s financial success. Adjusted diluted earnings per share from continuing operations measures the Company’s performance in delivering earnings to stockholders, and adjusted net working capital turns measures the Company’s effectiveness in using its working capital and, in particular, in using its cash.
| ● |
“Adjusted diluted earnings per share from continuing operations” is defined under the Fiscal 2023 short-term incentive plan as adjusted diluted earnings per share from continuing operations as disclosed by the Company in its earnings release furnished with the Securities and Exchange Commission, excluding non-GAAP items included on the Company’s quarterly earnings releases, special charges or unusual or infrequent items incurred during the performance period, and as may be adjusted for changes in generally accepted accounting principles. |
| ● |
“Adjusted net working capital turns” is defined under the Fiscal 2023 short-term incentive plan as net sales divided by adjusted average working capital, where working capital is defined as net accounts receivable plus net inventories minus accounts payable, excluding non-GAAP items included on the Company’s quarterly earnings releases, special charges or unusual or infrequent items incurred during the performance period, including changes in the Company’s accounts receivable financing program, and as may be adjusted for changes in generally accepted accounting practices. |
In calculating adjusted diluted earnings per share from continuing operations and adjusted net working capital turns, the Human Capital and Compensation Committee has the discretion to exclude special charges or unusual or infrequent items incurred during the performance period and to adjust for changes in GAAP if it determines that such exclusions or adjustments are appropriate. The Committee exercises this discretion with respect to special charges infrequently, typically limiting it to situations where the special charge was non-recurring or unforeseen and not within the control of management. In addition, the Committee maintains the discretion to adjust amounts further downward.
The Fiscal 2023 annual cash bonus opportunities (in dollar amounts and as a percentage of base salary), at the threshold, target and maximum levels for the named executive officers are set forth in the table below, with performance between threshold and target levels and between target and maximum levels resulting in proportionate straight-line payouts:
|
|
Threshold |
|
Target |
|
Maximum |
| Named executive officer |
|
Dollar
amount
($) |
|
Percent of
base salary
(%) |
|
Dollar
amount
($) |
|
Percent of
base salary
(%) |
|
Dollar
amount
($) |
|
Percent of
base salary
(%) |
| John M. Holmes |
|
500,000 |
|
50 |
|
1,000,000 |
|
100 |
|
2,000,000 |
|
200 |
| Sean M. Gillen |
|
240,000 |
|
50 |
|
480,000 |
|
100 |
|
960,000 |
|
200 |
| Jessica A. Garascia |
|
215,000 |
|
50 |
|
430,000 |
|
100 |
|
860,000 |
|
200 |
| Christopher A. Jessup |
|
240,000 |
|
50 |
|
480,000 |
|
100 |
|
960,000 |
|
200 |
| Eric S. Pachapa |
|
135,000 |
|
38 |
|
270,000 |
|
75 |
|
540,000 |
|
150 |
Fiscal 2023 short-term incentive plan – approving payouts
For Fiscal 2023, we reported adjusted diluted earnings per share from continuing operations of $2.86 and achieved adjusted net working capital turns of 3.06. As noted, the Human Capital and Compensation Committee has the discretion under the short-term incentive plan to exclude or add back one-time special charges that it considers unusual or unforeseen and outside of management’s control.
The adjusted net working capital turns of 3.06 resulted in a payout of 101% for that portion of the metric. Adjusted diluted earnings per share from continuing operations was $2.86, which has been adjusted to exclude non-GAAP adjustments externally reported of $0.52 which include losses related to sale and exit of business of $0.02, Trax acquisition and amortization expenses of $0.21, loss on equity investments, net of $0.01, investigation and remediation compliance costs of $0.13, contract termination/restructuring costs and loss provisions, net of $0.06, customer bankruptcy and credit charges of $0.04, and Russian bankruptcy court clawback judgment of $0.05, which were partially offset by government COVID-related subsidies, net of $0.05 and tax effect on adjustments of $0.13. The Human Capital and Compensation Committee determined that these adjustments were appropriate as they are the same adjustments made and reported in connection with the Company’s earnings releases. The resulting payout for this metric was 145%.
Table of Contents
Proposal 2 Executive compensation
For the strategic objectives the Human Capital and Compensation Committee reviewed each objective, and determined that due to the following factors, as well as the Company’s strong financial performance that was positively influenced by these factors, a payout of 150% for this metric was appropriate:
| Objective |
|
Factors |
| Identify and secure opportunities to deploy capital for organic and inorganic growth |
|
●Sourced, due diligenced and acquired Trax USA Corp.
●New or expanded distribution agreements with Unison, Leach, Ontic, and GE Aerospace
●Disciplined investments in USM market, including acquisition of nine B757 aircraft from American Airlines
●First and only non-OEM to receive a Captains of Industry contract award with Defense Logistics Agency
●Digital investments to foster top-line growth and improve efficiencies across the company
●Extension of our long-term component support contract with flydubai for their B737 fleet
●Evaluated hangar footprint to identify and progress expansion opportunities
●Evaluated multiple potential acquisition targets to expand the business
●Initial shipments to the Japanese Ministry of Defense from our new joint venture with Sumitomo
●Started up operations in Poland on the recently awarded long-term contract from USAFE to support F-16 aircraft in Europe
●Completed refinancing and extension of our revolving credit facility |
| Drive an environmental, social and corporate governance program that addresses key areas of focus |
|
●Performed materiality assessment to identify key areas of focus for ESG, and publicly reported results
●Launched second ESG report in Fiscal 2023, with plans to issue supplemental information in Fiscal 2024
●Won numerous awards as a result of ESG efforts including:
●Named to Newsweek’s America’s Greatest Workplaces 2023
●Named to Newsweek’s America’s Greatest Workplaces for Diversity 2023
●Continued community involvement by supporting numerous charities
●Continued compliance enhancements, including building out control environment for compliance testing
|
Giving weighting to all of these items, the total payout under the short-term incentive plan was 137%, and the resulting bonuses for each named executive officer are listed below.
|
|
Fiscal 2023 short-term
incentive plan |
| Named executive officer |
|
Target bonus
($) |
|
Actual bonus
($) |
| John M. Holmes |
|
1,000,000 |
|
1,370,000 |
| Sean M. Gillen |
|
480,000 |
|
657,600 |
| Jessica A. Garascia |
|
430,000 |
|
589,100 |
| Christopher A. Jessup |
|
480,000 |
|
657,600 |
| Eric S. Pachapa |
|
270,000 |
|
369,900 |
| 52 |
|
Table of Contents
Proposal 2 Executive compensation
Fiscal 2023 stock awards
In July 2022, the Human Capital and Compensation Committee approved awards of performance-based restricted stock,time-based restricted stock and stock options to our named executive officers under the Fiscal 2023 long-term incentive plan. The Committee continued from the prior year the practice of having 50% of the annual stock awards comprised of performance-based restricted stock.
The Human Capital and Compensation Committee determined the types and dollar amounts of stock awards to be granted for Fiscal 2023, based on a number of factors, including:
| ● |
The Fiscal 2023 executive compensation assessment prepared by its independent committee consultant; |
| ● |
The Company’s budget for compensation expense; |
| ● |
The Company’s stock price; |
| ● |
The Company’s burn rate experience under its stock plan; |
| ● |
The levels of responsibility, seniority and overall compensation of the participants; and |
| ● |
The Chief Executive Officer’s recommendations for participants other than himself. |
Annual stock awards for named executive officers
Stock awards for other employees
The Human Capital and Compensation Committee’s use of performance-based restricted stock is intended to motivate executives to drive corporate performance, specifically with respect to adjusted income from continuing operations performance, adjusted return on invested capital performance and relative total stockholder return. The performance-based restricted stock is forfeited unless the Company achieves these performance goals at designated threshold levels over the three-year performance period. The Committee’s use of stock options is intended to focus executives on stock price appreciation. Stock options only have value to an executive if the Company’s stock price increases above its grant date value, thus providing a “win-win” for the executives and the Company’s stockholders. The Committee’s use of time-vested restricted stock is intended to promote retention and align the interests of our named executive officers with those of our stockholders. In these ways, the stock component of the Company’s executive compensation program fully reflects a pay-for-performance emphasis.
Performance-based restricted stock
The Human Capital and Compensation Committee approved the following grants of restricted stock awards for Fiscal 2023, subject to performance-based vesting:
|
|
Fiscal 2023 performance-based
restricted stock |
| Named executive officer |
|
Number of
shares at target |
|
Grant date
fair value
($) |
| John M. Holmes |
|
43,580 |
|
1,825,130 |
| Sean M. Gillen |
|
10,150 |
|
425,082 |
| Jessica A. Garascia |
|
5,970 |
|
250,024 |
| Christopher A. Jessup |
|
10,150 |
|
425,082 |
| Eric S. Pachapa |
|
4,810 |
|
201,443 |
The grant date fair value in the table above was based on the $41.88 closing price of the Common Stock on the July 18, 2022 date of grant.
Table of Contents
Proposal 2 Executive compensation
The Human Capital and Compensation Committee designated adjusted income from continuing operations (weighted 70%), return on invested capital (weighted 20%) and relative total stockholder return (10%) as the three performance goals for the performance-based restricted stock under the Fiscal 2023 long-term incentive plan. The Committee believes these three measures are appropriate because they capture critical elements of the Company’s performance over the three-year performance period beginning June 1, 2022 and ending May 31, 2025.
The table below shows the threshold, target and maximum levels set by the Human Capital and Compensation Committee for each of these performance goals:
| Performance goal |
|
Threshold
(50%) |
|
Target
(100%) |
|
Maximum
(250%) |
| 70% |
Adjusted income from continuing operations (weighting) |
|
$241.6M |
|
$302.0 |
|
$362.4M |
| 20% |
Three-year return on invested capital (weighting) |
|
7.52% |
|
8.40% |
|
10.08% |
| 10% |
Relative total shareholder return (weighting) |
|
25th Percentile |
|
50th Percentile |
|
80th Percentile |
The performance-based restricted stock generally vests on July 31, 2025, subject to performance conditions. The Human Capital and Compensation Committee believes that performance-based restricted stock serves a valuable purpose aligning executive pay with the interests of stockholders.
The Fiscal 2023 long-term incentive plan provides that: performance below the threshold level results in a 0% payout; performance at the threshold level results in a 50% payout of the shares of performance-based restricted stock; performance at the target level results in a 100% payout; and performance at or above the maximum level results in a 250% payout. Performance between the threshold and target levels and between the target and maximum levels results in proportionate straight-line payouts.
Stock options
The Human Capital and Compensation Committee approved the following grants of stock option awards for Fiscal 2023, subject to time-based vesting:
|
|
Fiscal 2023 stock options |
| Named executive officer |
|
Number of
shares |
|
Grant date
fair value
($) |
| John M. Holmes |
|
51,820 |
|
912,550 |
| Sean M. Gillen |
|
12,065 |
|
212,465 |
| Jessica A. Garascia |
|
7,100 |
|
125,031 |
| Christopher A. Jessup |
|
12,065 |
|
212,465 |
| Eric S. Pachapa |
|
5,715 |
|
100,641 |
The grant date fair value in the table above was based on a Black-Scholes valuation, using the $41.88 closing price of the Common Stock on the July 18, 2022 date of grant.
The stock options vest 33 1 / 3 % on each of July 31, 2023, July 31, 2024 and July 31, 2025. The Human Capital and Compensation Committee believes that stock options serve a valuable purpose in helping to retain executives and reward them for building a career with the Company. Stock options, once vested, remain subject to the retention requirements under the Company’s stock ownership guidelines.
| 54 |
|
Table of Contents
Proposal 2 Executive compensation
Time-based restricted stock
The Human Capital and Compensation Committee approved the following grants of restricted stock awards for Fiscal 2023, subject to time-based vesting:
|
|
Fiscal 2023 restricted stock |
| Named executive officer |
|
Number of
shares |
|
Grant date
fair value
($) |
| John M. Holmes |
|
21,785 |
|
912,356 |
| Sean M. Gillen |
|
5,075 |
|
212,541 |
| Jessica A. Garascia |
|
2,985 |
|
125,012 |
| Christopher A. Jessup |
|
5,075 |
|
212,541 |
| Eric S. Pachapa |
|
2,410 |
|
100,931 |
The grant date fair value in the table above was based on the $41.88 closing price of the Common Stock on the July 18, 2022 date of grant.
The restricted stock vests 100% on July 31, 2025. The Human Capital and Compensation Committee believes that restricted stock serve a valuable purpose in helping to retain executives and reward them for building a career with the Company.
Fiscal 2023 total direct compensation
The following table shows target total direct compensation (base salary + target annual cash bonus + the target value of annual stock awards) set for each named executive officer for Fiscal 2023, compared to actual total direct compensation received by each named executive officer for Fiscal 2023.
|
|
Fiscal 2023 total direct compensation |
| Named executive officer |
|
Target
($) |
|
Actual
($) |
|
Actual as a %
of target |
| John M. Holmes |
|
5,650,000 |
|
6,020,036 |
|
107 |
% |
| Sean M. Gillen |
|
1,810,000 |
|
1,987,688 |
|
110 |
% |
| Jessica A. Garascia |
|
1,360,000 |
|
1,519,167 |
|
112 |
% |
| Christopher A. Jessup |
|
1,810,000 |
|
1,987,688 |
|
110 |
% |
| Eric S. Pachapa |
|
1,033,000 |
|
1,132,915 |
|
110 |
% |
Fiscal 2023 peer group
The Human Capital and Compensation Committee believes that total compensation opportunities for the Company’s key executives, including the named executive officers, should be competitive with those offered by other companies competing for talent in the Company’s employment market.
The goal of the Human Capital and Compensation Committee is to assemble a set of peer group companies that provide relevant pay and performance comparisons with the Company. The Committee and its independent compensation consultant recognize that any peer group of the Company will be imprecise given the Company’s unique characteristics, the diversity of its businesses and the diversity of the markets in which the Company operates. They further recognize that there will be larger-sized and smaller-sized companies in the Company’s peer group; companies that are competitors in some but not all of the Company’s businesses; and other financial, business or market attributes that the peer group companies may or may not share with the Company.
When determining the Fiscal 2023 peer group, the Human Capital and Compensation Committee used the following criteria: company type; industry classification (using Standard and Poor’s GICS codes); companies of comparable size to the Company by annual revenue (with secondary consideration given to market value); and business focus (organizations that conducted business similar in nature to that conducted by the Company).
Table of Contents
Proposal 2 Executive compensation
Following its review and analysis, the Human Capital and Compensation Committee recommended and the Board approved a Fiscal 2023 peer group consisting of the following 16 companies:
●Aerojet Rocketdyne Holdings, Inc.
●Applied Industrial Technologies, Inc.
●Barnes Group, Inc.
●Crane Co.
●Curtiss-Wright Corporation
●Ducommun Incorporated |
●Heico Corporation
●Hexcel Corporation
●Kaman Corporation
●Moog Inc.
●MSC Industrial Direct Co., Inc.
●Spirit Aerosystems Holdings, Inc. |
●The Timken Company
●TriMas Corporation
●Triumph Group, Inc.
●Woodward, Inc. |
The Fiscal 2023 peer group reflects the removal of CACI International Inc., Cubic Corporation and Teledyne Technologies, Inc. and the addition of Ducommun Incorporated and Spirit Aerosystems Holdings, Inc. The Human Capital and Compensation Committee noted the following reasons supporting its selection of the Fiscal 2023 peer group:
| ● |
The business and financial comparability of the peer group, on balance, to the Company; |
| ● |
The importance of year-to-year consistency in the comparisons of executive compensation; |
| ● |
The fact that eight of the 16 companies in the Company’s peer group were also listed as peer group companies by both ISS and Glass Lewis, which are large proxy advisory firms. |
Recommendations of the Chief Executive Officer
The Human Capital and Compensation Committee may consider the Chief Executive Officer’s recommendations but retains the ultimate decision-making authority and responsibility for compensation decisions affecting the Company’s executive officers.
The Human Capital and Compensation Committee considered the recommendations of the Chief Executive Officer in making Fiscal 2023 cash bonus and stock award decisions for the executive officers other than the Chief Executive Officer. In making his recommendations, the Chief Executive Officer evaluated the performance of the executives during the prior year against pre-established performance goals. Some of the performance goals related to the financial performance of the Company or the executive officer’s business group. Other performance goals were non-quantitative and related to leadership development, customer relationships, acquisition integration, diversity development, or similar Company initiatives. The Chief Executive Officer’s recommendations reflected his assessment of an individual executive officer’s overall contributions to the performance of the Company.
Other compensation information
The Human Capital and Compensation Committee also considered certain historical compensation data for the Company’s executives. This data included summaries of cash and equity compensation received in past years by each executive officer. The Committee also reviewed the executives’ total annual compensation, including cash and non-cash direct compensation, cumulative benefits and savings under retirement plans and equity compensation programs, perquisites and potential payments on termination of employment, whether on a change-in-control of the Company or otherwise. It reviewed the performance of the Company and the executive officers during the year, taking into account pre-established goals, operational performance, business responsibilities, career experience, and long-term potential to enhance stockholder value. The Committee reviewed internal pay comparisons among the Company’s executives to ensure that the Company’s executive compensation program reflects the executives’ relative positions, responsibilities, and contributions to the Company.
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Proposal 2 Executive compensation
Key executive compensation policies and practices
The following are key factors that also affect the executive compensation decisions made by the Human Capital and Compensation Committee for the Company’s executives, including its named executive officers:
Stock ownership guidelines
The Company has stock ownership guidelines requiring directors and executive officers to own and retain a meaningful amount of the Company’s stock.
The table below summarizes the current stock ownership guidelines:
| Applicable persons |
|
Stock ownership requirement market value |
| Non-Employee Directors |
|
Lesser of $410,000 market value of shares or 20,000 shares (within four years of joining the Board) |
| CEO |
|
 6x base salary |
| Direct Reports to CEO |
|
 2x base salary |
| Other Executive Officers |
|
 1x base salary |
Executive officers not in compliance with these guidelines must retain at least 50% of the net shares after the payment of the exercise price and the withholding of taxes in the case of an option exercise or the withholding of taxes in the case of the vesting of restricted stock. Failure to meet these stock ownership levels or to show sustained progress toward meeting them may result in a reduction in future stock awards. Stock values are measured as of each fiscal year-end, with unvested stock awards counted at 50% of their value and stock options counted at 0%.
All directors and named executive officers of the Company complied with the stock ownership requirements as of May 31, 2023.
Employment, severance and other agreements
The Company has an employment agreement with Mr. Holmes, its President and Chief Executive Officer, and as of May 31, 2023, had severance and change-in-control agreements in place with the remainder of the named executive officers. See “— Employment agreement with Mr. Holmes” for a description of the employment agreement between the Company and Mr. Holmes and “Potential payments upon a termination of employment or a change-in-control of the Company” for a description of the severance and change-in-control agreements with the remainder of the named executive officers.
The rationale for the employment agreement and the severance and change-in-control agreements is to provide an appropriate measure of security and incentive to the executive officers in line with market practice and to promote the Company’s goal of senior leadership stability.
The Company has no tax gross-up provisions or single trigger change-in-control provisions in any agreement with any executive officer.
Equity grant practices
The Human Capital and Compensation Committee meets from time to time to consider and act with respect to equity compensation awards for the Company’s executive officers. As described, the Committee typically grants annual stock awards at its July meeting. The Committee — or the Chief Executive Officer pursuant to authority delegated by the Committee — also grants stock awards to newly hired or newly promoted employees at other times during the year. The grant date is the date on which the Committee acts to approve the award, unless the Committee establishes the grant date at a specified future date, such as following the release of earnings or other potentially material non-public information. Board and Human Capital and Compensation Committee meetings are generally scheduled a year in advance and without regard to anticipated earnings or other major announcements by the Company. The Company does not time the granting of its equity compensation awards to affect the value of its executive compensation.
Perquisites
We provide limited perquisites to our executive officers. See footnotes to the “All Other Compensation” column of the Summary Compensation Table for a description and valuation of these perquisites. The Human Capital and Compensation Committee believes these perquisites are reasonable, market-competitive and consistent with the Company’s overall executive compensation program.
Table of Contents
Proposal 2 Executive compensation
Retirement benefits
The Company’s named executive officers participate in one or more of the following retirement plans:
| ● | Retirement Plan: A tax-qualified defined benefit plan whose benefit accruals ceased in June 2005. The Retirement Plan was terminated on May 31, 2022 and a plan distribution was made to the one named executive officer under the plan in July 2023. |
| ● | Retirement Savings Plan: A tax-qualified 401(k) savings plan available to all employees. |
| ● | SKERP: A non-qualified retirement plan that makes up 401(k) benefits that would otherwise be lost as a result of Internal Revenue Code limits and provides additional employer contributions. |
The Human Capital and Compensation Committee views the retirement benefits for the named executive officers as reasonable, market-competitive and consistent with the Company’s overall executive compensation program.
Risk management
The Human Capital and Compensation Committee considered, with the assistance of its independent compensation consultant, whether the Company’s compensation policies and practices in Fiscal 2023 for its employees, including the named executive officers, posed any significant risks or were reasonably likely to have a material adverse effect on the Company. The Human Capital and Compensation Committee determined that the Company’s compensation policies and practices did not encourage excessive or inappropriate risk-taking and that they were not reasonably likely to have any such material adverse effect on the Company.
The Human Capital and Compensation Committee believes that the design and operation of the Company’s executive compensation program are consistent with the Company’s risk management strategies for the following reasons:
| ● | The Fiscal 2023 executive compensation program was designed to provide a proper balance between cash and stock compensation, fixed and variable compensation, and short-term and long-term compensation. The Human Capital and Compensation Committee generally favors a heavier weighting of longer-term, stock compensation to align the executives’ interests with the interests of stockholders, to promote performance and to encourage long-term value creation. |
| ● | Fiscal 2023 short-term incentive plan awards — performance-based cash compensation — were based on three different performance metrics: adjusted diluted earnings per share from continuing operations, adjusted net working capital turns and strategic objectives, all of which provide benefits to the Company’s stockholders. In any year, regardless of the Company’s performance against these metrics, the Human Capital and Compensation Committee retains (and has exercised) the discretion to reduce any annual cash bonus for any reason. |
| ● | The balance built into the Fiscal 2023 short-term incentive plan was also reflected in the Fiscal 2023 long-term incentive plan awards, which consisted of performance-based restricted stock, stock options and time-based restricted stock. Each of these long-term equity-based incentive awards contains vesting periods designed to promote employee retention. They also are linked to the value of the Company’s common stock, thus aligning the executives’ interests with the interests of the Company’s stockholders. |
| ● | The Company’s stock ownership guidelines align the interests of directors and executive officers with the interests of stockholders, providing further assurance that decisions are made in the best interest of stockholders. |
| ● | The Human Capital and Compensation Committee, its independent compensation consultant and senior management work together to ensure that the aggregate level of executive compensation fits within the Company’s budget. |
Role of the independent compensation consultant
Semler Brossy served as the independent compensation consultant to the Human Capital and Compensation Committee in Fiscal 2023. Semler Brossy provides research, data analysis, market information and compensation plan design expertise and experience to the Human Capital and Compensation Committee. Semler Brossy assisted with the design and implementation of the Fiscal 2023 short-term and long-term incentive plans for the Company’s senior executives and the development of the Company’s peer group for executive compensation purposes. Semler Brossy also kept the Committee apprised of regulatory developments and market trends related to executive compensation practices. Representatives of Semler Brossy attended all meetings of the Human Capital and Compensation Committee in Fiscal 2023.
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Proposal 2 Executive compensation
The Human Capital and Compensation Committee considered the independence of Semler Brossy in Fiscal 2023. The Human Capital and Compensation Committee’s consideration of Semler Brossy’s independence focused on the following factors:
| ● | Semler Brossy provides no other services to the Company and received no other fees from the Company apart from its compensation for consulting with the Human Capital and Compensation Committee; |
| ● | The conflicts of interest policies and procedures of the Company and of Semler Brossy; |
| ● | The fact that the Semler Brossy employees who provided compensation consulting services did not own any shares of the Company’s common stock; |
| ● | The lack of any relationships between Semler Brossy and members of the Company’s Board; and |
| ● | The lack of any relationships between Semler Brossy and any of the Company’s executive officers. |
Based on this assessment, the Human Capital and Compensation Committee concluded that no conflicts of interest existed with respect to Semler Brossy and that Semler Brossy was independent of the Company.
Incentive compensation claw-back policy
The Company has an incentive compensation claw-back policy. The policy provides for the recoupment of incentive compensation, including bonuses and equity-based grants and awards, paid to a current or former executive officer of the Company where such person’s misconduct contributed to an accounting restatement of the Company’s financial statements.
The policy is being updated to reflect the final rule issued by the SEC and the recently issued NYSE listing standards implementing the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Anti-hedging and anti-pledging policies
The Company maintains a strong insider trading policy aimed at ensuring that its directors, officers and employees do not use confidential or material non-public information in connection with trading in Company securities or in the securities of other companies with which the Company does business. The purpose of the insider trading policy is to promote compliance with applicable securities laws governing insider trading.
An important part of the Company’s insider trading policy is the prohibition on directors, officers and employees engaging in short sales, market put and call options, margining and hedging, pledging or hypothecation of the Company’s securities, except for pledging or hypothecation in connection with a cashless exercise of stock options issued by the Company. The Company discourages its directors, officers and employees from engaging in short-term speculative trading, and the prohibition on hedging and pledging securities is consistent with this perspective.
Table of Contents
Proposal 2 Executive compensation
Executive compensation tables
Summary compensation table1
The following table sets forth compensation information for our named executive officers for Fiscal 2023, Fiscal 2022 and Fiscal 2021:
| Name and principal position |
|
Year |
|
Salary
($)2 |
|
Bonus
($) |
|
Stock
awards
($)3 |
|
Option
awards
($)4 |
|
Non-equity
incentive
plan
compensation
($)5 |
|
Change in
pension
value and
non-qualified
deferred
compensation
earnings
($)6 |
|
All other
compensation
($)7 |
|
Total
($) |
John M. Holmes
President and Chief
Executive Officer |
|
2023 |
|
1,000,000 |
|
— |
|
2,737,486 |
|
912,550 |
|
1,370,000 |
|
864 |
|
688,239 |
|
6,709,139 |
|
2022 |
|
925,000 |
|
— |
|
8,302,428 |
|
326,652 |
|
1,554,000 |
|
827 |
|
1,218,436 |
|
12,327,343 |
| |
2021 |
|
780,655 |
|
— |
|
— |
|
1,842,024 |
|
1,413,000 |
|
790 |
|
86,957 |
|
4,123,426 |
Sean M. Gillen
Senior Vice President and
Chief Financial Officer |
|
2023 |
|
480,000 |
|
— |
|
637,623 |
|
212,465 |
|
657,600 |
|
— |
|
165,573 |
|
2,153,261 |
|
2022 |
|
450,000 |
|
— |
|
600,066 |
|
199,999 |
|
756,000 |
|
— |
|
58,552 |
|
2,064,617 |
|
2021 |
|
392,845 |
|
— |
|
172,543 |
|
402,527 |
|
682,950 |
|
— |
|
24,151 |
|
1,675,016 |
Jessica A. Garascia
Senior Vice President, General
Counsel, Chief Administrative
Officer and Secretary |
|
2023 |
|
430,000 |
|
— |
|
375,036 |
|
125,031 |
|
589,100 |
|
— |
|
137,961 |
|
1,657,128 |
|
2022 |
|
412,000 |
|
— |
|
375,135 |
|
124,916 |
|
692,160 |
|
— |
|
46,333 |
|
1,650,544 |
|
2021 |
|
359,598 |
|
— |
|
250,008 |
|
250,021 |
|
628,000 |
|
— |
|
27,913 |
|
1,515,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A. Jessup
Senior Vice President, Chief
Commercial Officer |
|
2023 |
|
480,000 |
|
— |
|
637,623 |
|
212,465 |
|
657,600 |
|
— |
|
194,827 |
|
2,182,515 |
|
2022 |
|
450,000 |
|
— |
|
801,088 |
|
102,532 |
|
756,000 |
|
— |
|
86,331 |
|
2,195,951 |
|
2021 |
|
382,738 |
|
— |
|
195,082 |
|
455,007 |
|
667,250 |
|
— |
|
30,355 |
|
1,730,432 |
Eric S. Pachapa
Vice President, Controller
and Chief Accounting
Officer |
|
2023 |
|
360,000 |
|
— |
|
302,374 |
|
100,641 |
|
369,900 |
|
— |
|
108,927 |
|
1,241,842 |
|
2022 |
|
345,000 |
|
— |
|
375,103 |
|
65,380 |
|
434,700 |
|
— |
|
43,020 |
|
1,263,203 |
|
2021 |
|
309,968 |
|
— |
|
120,932 |
|
282,113 |
|
394,463 |
|
— |
|
8,638 |
|
1,116,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 |
General. The Summary Compensation Table provides specific compensation information for the Company’s named executive officers in accordance with applicable SEC rules. Please read the “Compensation discussion and analysis” section of this proxy statement for a more detailed explanation of the Company’s executive compensation program in Fiscal 2023.
|
| 2 |
Salary. In Fiscal 2023, each named executive officer received a base salary increase as follows: Mr. Holmes – 8%, Messrs. Gillen and Jessup – 7%, and Ms. Garascia and Mr. Pachapa – 4%, in each case for the reasons stated in the “Compensation discussion and analysis” section of the proxy statement. |
| 3 |
Stock Awards. The amounts in this column for Fiscal 2023 reflect the grant date fair values of the time-based restricted stock awards as well as the value of performance-based restricted stock awards at their target levels. These values were computed in accordance with FASB ASC Topic 718 based on the fair market value of the underlying common stock on the date of grant. The grant date fair values of the performance-based stock awards, assuming the performance conditions are met at the maximum level as required by SEC rules, are as follows: Mr. Holmes: $1,825,130; Mr. Gillen: $425,082; Ms. Garascia: $250,024; Mr. Jessup: $425,082 and Mr. Pachapa: $201,443. In July 2022, the Human Capital and Compensation Committee made grants of time-based restricted stock awards and performance-based restricted stock awards pursuant to the Company’s Fiscal 2023 Long Term Incentive Compensation Program to each named executive officer. The time-based restricted stock generally vests on July 31, 2025. |
|
The grant date fair values represent the Company’s accounting expense for the grants made to the named executive officers in a given year. These amounts do not represent the actual value that may be realized by the named executive officers because an award may be forfeited or may not vest or may vest at a lower or higher level. The “Compensation Discussion and Analysis” section of this proxy statement contains additional information about the awards of performance-based restricted stock in Fiscal 2023. Vesting information is presented under “Executive Compensation — Outstanding Equity Awards at Fiscal 2023 Year End —Vesting.” |
| 4 |
Option Awards. The amounts in this column for Fiscal 2023 reflect the grant date fair value of the stock option awards computed in accordance with FASB ASC Topic 718. In July 2022, the Human Capital and Compensation Committee made grants of stock options pursuant to the Company’s Fiscal 2023 Long Term Incentive Compensation Program to each named executive officer. The stock awards vest in 1/3 installments beginning on the first anniversary of the date of grant. See Note 5 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for Fiscal 2023 for an explanation of the assumptions made by the Company in the valuation of these awards. |
|
The grant date fair values represent the Company’s accounting expense for the grants of stock options made to the named executive officers in a given year. These amounts do not represent the actual value that may be realized by the named executive officers because a stock option may be forfeited, may not be exercised or may not vest. The “Compensation Discussion and Analysis” section of this proxy statement contains additional information about the awards of stock options granted in Fiscal 2023. Vesting information is presented under “Executive Compensation — Outstanding Equity Awards at Fiscal 2023 Year End — Vesting.” |
| 5 |
Non-Equity Incentive Plan Compensation. The Fiscal 2023 amounts in this column are the performance-based cash bonuses earned by each of the named executive officers under the Company’s Fiscal 2023 short-term incentive plan. The “Compensation discussion and analysis” section of this proxy statement contains additional information about the Fiscal 2023 bonuses. |
| 6 |
Change in Pension Value and Non-Qualified Deferred Compensation Earnings. This column shows the increased pension value under the Retirement Plan for Mr. Holmes, who is the only named executive officer with a benefit under the Retirement Plan. This column does not include any preferential or above-market earnings on deferred compensation as the Company does not pay such earnings on the deferred compensation of its named executive officers. |
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| 7 |
All Other Compensation. The table below provides a breakdown, by type and amount, of the totals shown in the “All Other Compensation” column for each named executive officer in Fiscal 2023. As required by the SEC rules, the Company values perquisites based on the aggregate incremental cost to the Company. From time to time, executive officers may use our tickets to sporting venues for personal use. We believe there is no incremental cost associated with our executive officers using our tickets to sporting venues for personal use because the tickets are purchased in advance for the entire season with the intention that they be used for business purposes, they cannot be returned for a refund if they are unused and use for personal purposes occurs only if the tickets have not been reserved for use for a business purpose. |
| Named executive officer |
|
Company 401(k)
plan contributions
($) |
|
Company
SKERP
contributions
($) |
|
Perquisites and
Other Personal
Benefits*
($) |
|
Total
($) |
| John M. Holmes |
|
18,819 |
|
613,810 |
|
55,610 |
|
688,239 |
| Sean M. Gillen |
|
12,581 |
|
135,123 |
|
17,869 |
|
165,573 |
| Jessica A. Garascia |
|
9,378 |
|
113,434 |
|
15,149 |
|
137,961 |
| Christopher A. Jessup |
|
18,681 |
|
152,931 |
|
23,215 |
|
194,827 |
| Eric S. Pachapa |
|
16,203 |
|
88,429 |
|
4,295 |
|
108,927 |
| * |
Amounts include club dues and expenses, financial planning, executive physicals and travel related benefits, including spousal travel, each of which was provided to one or more of our NEOs. The cost of any category of the listed perquisites and other personal benefits did not exceed the greater of $25,000 or 10% of total perquisites and other personal benefits for any NEO, except $30,753 for club dues and expenses for Mr. Holmes. |
Employment agreement with Mr. Holmes
We entered into an amended and restated employment agreement with John M. Holmes, effective when he became President and Chief Executive Officer of the Company on June 1, 2018, which agreement was amended on July 30, 2020, to, among other items, acknowledge that Mr. Holmes’s compensation may be reduced temporarily to comply with the restrictions of the CARES Act in connection with the Company receiving financial assistance under that Act. The agreement, as most recently amended in 2020, had an original term through May 31, 2023 with an automatic annual renewal thereafter, subject to either party’s right to terminate.
The table below outlines the principal terms of Mr. Holmes’s employment agreement.
| Type of benefit |
|
Description |
| Annual base salary |
|
$900,000 as may be subsequently increased by the Human Capital and Compensation Committee ($1,000,000 as of May 31, 2023) |
| Annual cash bonus |
|
Target cash bonus opportunity of 100% of base salary and a maximum opportunity based on achievement of performance goals established each year by the Human Capital and Compensation Committee |
| Annual stock and stock option awards |
|
As determined each year by the Human Capital and Compensation Committee |
| Perquisites |
|
Financial planning and tax preparation services (not to exceed $15,000 per calendar year); participation in the Company’s executive physical program; club dues; and participation in the defined contribution portion of the Company’s SKERP |
Termination / Change-in-
Control benefits |
|
See “Potential payments upon a termination of employment or a change-in-control of the Company — Employment agreement with Mr. Holmes” |
Agreements with other named executive
officers
The Company has a severance and change-in-control agreement with the remainder of the named executive officers. See “Potential payments upon a termination of employment or a change-in-control of the Company” for information about these severance and change-in-control agreements.
Table of Contents
Proposal 2 Executive compensation
Fiscal 2023 grants of plan-based awards
The following table sets forth information for each named executive officer with respect to: