Item 5.02
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(e)
Compensatory Arrangements of Certain Officers
On February 15, 2019, the Compensation and Leadership Development Committee (the “Committee”) of the Board of Directors (the “Board”) of Simpson Manufacturing Co., Inc. (the “Company”) approved certain updates to the compensatory arrangements for the named executive officers (“NEOs”). The Committee believes that, with these updates, median Company performance will result in median compensation for the NEOs and above average performance will result in above average compensation. These arrangements as updated are set forth below.
2019 Salaries and Profit Sharing Trust Contributions
For each of our Named Executive Officers set forth in the table below, his or her respective 2019 annual salary and the contribution that we expect to make to his or her respective profit sharing trust account for 2019, as increased from 2018, are as follows:
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2019 Annual Salary
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Estimated 2019 Profit Sharing Trust Contribution
{1}
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Karen Colonias
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$
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775,000
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$
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28,000
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President and Chief Executive Officer
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Brian J. Magstadt
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500,000
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28,000
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Chief Financial Officer, Treasurer and Secretary
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Ricardo Arevalo
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460,000
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28,000
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Chief Operating Officer, Simpson Strong-Tie Company Inc.
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Roger Dankel
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460,000
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28,000
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President of North American Sales, Simpson Strong-Tie Company Inc.
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Kevin Swartzendruber
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288,900
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28,000
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Senior Vice President
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{1} If we employ him or her on December 31, 2019, or if he or she retires after reaching the age of 60 or older during 2019, we will contribute to his or her profit sharing trust account 10% of his or her salary, with a contribution limit of $28,000 for 2019, plus a pro rata share of forfeitures by other participants in our profit sharing trust program. The estimates in this table assume that no such forfeitures will occur. Of this 10% contribution, 7% will be paid in 2020, and 3% will be paid quarterly in the month following the last month of each calendar quarter of 2019.
Executive Officer Cash Profit Sharing Plan
The Company has maintained an Executive Officer Cash Profit Sharing Plan to (i) parallel the Company’s Cash Profit Sharing Plan and provide cash awards for our Named Executive Officers, and (ii) meet, at the same time, the requirements of section 162(m) of the Internal Revenue Code of 1986 for the cash awards to be fully deductible as “performance-based compensation” in excess of the $1,000,000 limit for each of the “covered employees” under section 162(m) and regulations and interpretations promulgated thereunder.
For each of the four quarters in 2019, a Named Executive Officer will receive the awards based on 50% of his or her applicable individual percentage of the respective quarterly Qualified Amount. As for the last payment, the Named Executive Officer will receive the awards based on 50% of his or her applicable individual percentage of the annual Qualified Amount for 2019.
Under the Executive Officer Cash Profit Sharing Plan, the Committee will base the determination of periodic awards to a covered employee on his or her applicable individual percentage of the amount (each, a “Qualified Amount”) by which the net profit, operating income or any other performance goal (each, a “Performance Goal”) of the Company or the employee’s relevant branch or subsidiary
for the applicable period exceed a qualifying level
for the Company, branch or subsidiary for that same period.
The framework of the short-term variable component of the 2019 compensatory arrangements for our Named Executive Officers has not been materially changed from what the Company announced previously in December 2016 (see the Company’s current report on Form 8-K, dated December 6, 2016).
On February 15, 2019, the Committee determined to use 2019 qualified operating profit of Simpson Strong-Tie Company Inc., a subsidiary of the Company, as the Performance Goal for 2019 and base the determination of periodic awards to a Named Executive Officer in 2019 under the Executive Officer Cash Profit Sharing Plan on his or her applicable individual percentage of the amount of that Performance Goal in excess of a specified qualifying level, a threshold amount of profit that must be exceeded before any profit-sharing payments to our Named Executive Officers are made. Such Performance Goal uses the same methodology that was used in 2018 and prior fiscal years to measure Qualified Amounts under the Executive Officer Cash Profit Sharing Plan. Qualified operating profit of Simpson Strong-Tie Company Inc. is calculated as follows:
Income from operations
Plus: Stock compensation charges
Certain incentive compensation and commissions
Salaried pension contributions
Self-insured workers’ compensation costs
Equals: Qualified operating profit
The CLDC has also established the 2019 quarterly and annual target qualified operating profit, qualifying level and target qualified amounts for 2019 as follows:
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2019 EOCPS Targets
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First Quarter
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Second Quarter
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Third Quarter
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Fourth Quarter
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2019 Year
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Target Annual Qualified Operating Profit
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$
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47,410,000
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$
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86,460,000
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$
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83,670,000
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$
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61,360,000
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$
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278,900,000
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Less: Qualifying Level
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37,930,000
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69,160,000
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66,930,000
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49,080,000
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223,100,000
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Target Annual Qualified Amount
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$
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9,480,000
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$
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17,300,000
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$
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16,740,000
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$
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12,280,000
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$
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55,800,000
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Assuming that the qualified operating profit exceeds the qualifying level for each quarter of 2019, and therefore annually for the entire year of 2019, each of our Named Executive Officers will receive 4 quarterly payouts and 1 annual payout. If the qualified operating profit is less than the qualifying level in one or more quarters of 2019, our Named Executive Officers will receive no quarterly payments for such quarters. In addition, if the qualified operating profit is less than the 2019 annual qualifying level, our Named Executive Officers will receive no annual payment following the end of 2019 but may still receive one or more quarterly payments during 2019.
The target and maximum annual amounts that may be paid out under the EOCPS Plan to each of our NEOs for 2019 are as follows:
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2019 Targeted Annual Payout{1}
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2019 Maximum Annual Payout
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Karen Colonias
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$
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775,000
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$
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1,550,000
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Brian J. Magstadt
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250,000
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500,000
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Ricardo Arevalo
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230,000
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460,000
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Roger Dankel
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230,000
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460,000
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Kevin Swartzendruber
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144,450
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288,900
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{1} Amounts expected to be paid for the full year of 2019 if 2019 qualified operating profit of Simpson Strong-Tie Company Inc. is $278,900,000.
NEOs’ 2019 Equity Awards
Based on the Board’s review and the recommendations of Mercer, its independent compensation consultant, the Committee updated the NEOs’ 2019 equity awards. The number of the target shares of common stock of the Company under equity awards to be granted to the NEOs in 2019 will be split approximately between 20% under time-based equity awards and 80% under performance-based equity awards, and no 2019 time-based equity awards will vest on the date of grant. The NEOs’ 2019 awards of performance-based restricted stock units (“PSUs”) will be measured against the updated performance goals set by the Committee for a three-year cliff-vesting period starting on January 1, 2019, and ending on December 31, 2021 (the “Measurement Period”), and the number of shares of common stock of the Company that will eventually vest in favor of a NEO under his or her 2019 PSU awards, following the end of the Measurement Period, will be between 0% and 200% of his or her target shares, depending on the extent to which the performance goals will have been achieved at the end of 2021. The target and maximum amounts of shares of common stock of the Company that could eventually vest under the 2019 PSU awards to be granted to each of the NEOs are as follows:
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Target Shares Under 2019 PSU Awards
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Maximum Shares Under 2019 PSU Awards
{1}
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Karen Colonias
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29,834
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59,668
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Brian J. Magstadt
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7,812
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15,624
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Ricardo Arevalo
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6,464
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12,928
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Roger Dankel
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6,464
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12,928
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Kevin Swartzendruber
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3,054
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6,108
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{1} No fractional shares will be issued or delivered pursuant to any PSU award.
The NEOs’ 2019 awards of time-based restricted stock units (“RSUs”) will vest over the three years from the effective date of the award, with 20% of the RSUs expected to vest after one year, 40% of the RSUs expected to vest after two years and 40% of the RSUs expected to vest after three years. The total number of shares of common stock of the Company that could eventually vest under the 2019 RSU awards to be granted to each of the NEOs is as follows:
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Shares Under 2019 RSU Awards
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Karen Colonias
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7,459
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Brian J. Magstadt
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1,955
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Ricardo Arevalo
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1,616
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Roger Dankel
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1,616
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Kevin Swartzendruber
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764
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