Executive Compensation
The study identified Peer Group pay for each position at the 25th, 50th, and 75th percentile levels. The
50th percentile is referred to here as the market median and represents Applieds target pay objective.
Beyond the Peer Group data, Pay
Governance presented other pay data from broad multi-industry surveys, produced by leading compensation consulting firms. The Committee requested this supplemental data as a secondary resource to help confirm the reliability of the Peer Group data.
Pay Governance analyzed base salary, annual incentive target compensation, total cash target compensation (base salary plus annual incentive target compensation),
long-term incentive target compensation, and total direct target compensation (total cash target compensation plus long-term incentive target compensation).
The
study also compared Applieds performance in the past three and five years with the Peer Group companies performance, considering metrics such as sales growth, EBITDA growth, cash flow growth, EBITDA margin, net income margin, ROA, and
total shareholder return. The comparisons assist the Committee in examining how Applieds executive pay aligns with company performance relative to peers.
Using Pay Governances study, the Committee evaluated each primary compensation component. In most years, including 2019, the Committee seeks to compensate
executives near the market median if Applieds performance targets are met. Sustained performance below target levels should result in realized total compensation below market medians, and performance that exceeds target levels should result in
realized total compensation above market medians.
However, market medians and ranges only represent beginning reference points; the Committee also uses its
subjective judgment to adjust targeted compensation to reflect factors such as individual performance and skills, long-term potential, tenure in the position, internal equity, retention considerations, and the positions importance in
Applieds organization.
Detailed Review of Compensation Components
Base Salary. The Committee observes a general policy that base salaries for
executive officers who have been in their positions for at least three years and are meeting performance expectations should approximate the market median for comparable positions. As with all pay components, however, the Committee, using its
subjective judgment, sets salaries higher or lower to reward individual performance and skills and other considerations such as those mentioned above.
In 2019,
after considering the Peer Group data, executive pay trends in the broader market, and the more subjective factors referenced above, the Committee approved adjustments to the NEOs base salaries, with Mr. Schrimsher earning a 2.9%
increase. The Committees actions maintained the officers pay at competitive levels relative to market medians and reflected a discipline of managing base salaries within the framework of Applieds pay philosophy and competitive
data.
Annual Incentive Pay. With the annual Management Incentive Plan,
the Committee seeks to reward the executive officers, in cash, for achieving fiscal year goals. In general, the Committee seeks to pay total cash compensation near the market median when Applied meets its goals, and to pay above (or below) the
median when Applied exceeds (or falls short of) its goals.
At the beginning of the fiscal year, after the Board reviews Applieds annual business plan as
prepared and presented by management, the Committee develops objective goals and targets for the Management Incentive Plan. The Committee considers the market outlook and the business plan, along with the available opportunities and attendant risks.
In 2019, consistent with historical practice, the Committee established goals based on company-wide measures that it considers to be key indicators of shareholder
value creation:
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Net Income bottom-line profitability; and
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Cash Provided by Operating Activities a cash-based measure of company performance.
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Applied Industrial Technologies 2019 Proxy Statement
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