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 several broad industrial company surveys. The Committee requested this supplemental data to help confirm the reliability of the Peer Group data.
Pay Governance analyzed base salary, annual incentive target compensation as a percentage of base salary, 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 one, three, and five years with the Peer Group companies performance, considering metrics such as
sales growth, EBITDA growth, cash flow growth, EBITDA margin, cash flow 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 2020, the Committee
seeks to compensate executives near the market median if Applieds performance targets are achieved. 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 2020, after considering the Peer
Group data, executive pay trends in the broader market, and the more subjective factors referenced above, the Committee approved increases of less than 4% to two NEOs base salaries. Mr. Schrimshers base salary was not adjusted. 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.
Amid the economic downturn that arose out of the COVID-19 pandemic and the responsive actions of governmental authorities and
businesses, management temporarily reduced its salaries beginning in mid-April and continuing into fiscal 2021, with Mr. Schrimshers reduced by 20%; the Committee ratified these reductions.
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 2020, consistent with historical practice, the Committee established goals based on company-wide measures that it considers key indicators of shareholder value
creation:
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Applied Industrial Technologies 2020 Proxy Statement
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