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  ☐

Check the appropriate box:

 

 

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The 2017 Annual Meeting of the Shareholders (“Annual Meeting”) of P. H. Glatfelter Company (the “Company”), a Pennsylvania corporation, will be held on Thursday, May 4, 2017 at 9:00 a.m., to consider and act upon the following items:

Only holders of record of the Company’s common stock at the close of business on March 10, 2017 (the “Record Date”), will be entitled to notice of, and to vote at, the Annual Meeting.

It is important that your shares be represented and voted at the Annual Meeting. Whether you plan to attend the Annual Meeting or not, please vote your proxy by telephone at 1-800-652-VOTE (8683), online at http://www.investorvote.com/GLT or by completing and signing the enclosed proxy card and returning it promptly in the enclosed envelope (requiring no postage if mailed in the U.S.). If you choose, you may still vote in person at the Annual Meeting, even if you previously voted by telephone, internet or mail.

Kent K. Matsumoto, Secretary

March 30, 2017

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2017 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 4, 2017:  P. H. Glatfelter Company’s proxy statement for the 2017 Annual Meeting of Shareholders and 2016 Annual Report are available via the Internet at www.glatfelter.com/about_us/investor_relations/sec_filings.aspx

 

 

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FREQUENTLY ASKED QUESTIONS

When and where is the Annual Meeting?

The 2017 Annual Meeting of Shareholders will be held on Thursday, May 4, 2017, at 9:00 a.m., at the York County History Center, Historical Society Museum, 250 East Market Street, York, PA 17403.

Who may attend the meeting and what else is required for admittance?

Only shareholders of the Company’s common stock on the Record Date may attend the Annual Meeting, and those shareholders attending in person must present an admission ticket or other proof of stock ownership to be admitted to the Annual Meeting.  For example, a shareholder may present an account statement or a letter from his/her bank or broker confirming that the shareholder owned Company common stock on the Record Date.

What is the difference between a registered shareholder and a beneficial owner?

If your shares are registered in your name in the records of our transfer agent, Computershare, you are a “registered shareholder,” also sometimes called a shareholder (or stockholder) of record.  If you are a registered shareholder, we sent this Notice directly to you.

If your shares are held in the name of your broker or bank, your shares are held in “street name” and you are considered the “beneficial owner.” This Notice has been forwarded to you by your broker, bank or other holder of record, who is considered the shareholder of record for those shares.  As the beneficial owner, you have the right to direct your broker, bank or other holder of record how to vote your shares by following the voting instructions included in the mailing.

Why did I receive these materials?

You are receiving these materials because, as a shareholder, the Company is soliciting your vote on matters to be considered at the 2017 Annual Meeting.  No director of the Company has informed the registrant in writing that he or she intends to oppose any action.  The Notice of Annual Meeting, this proxy statement, the accompanying proxy card and our 2016 Annual Report to shareholders, were first sent or given on or about March 30, 2017.  Please read this proxy statement and vote your shares by mailing the attached proxy card, voting online, by telephone or in person at the Annual Meeting.  The Board has appointed directors Richard C. Ill and Ronald J. Naples, or either of them (the “Proxy Holders”) with power of substitution, to vote all properly executed proxies received from shareholders entitled to vote at the Annual Meeting or at any adjournment of the Annual Meeting.

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Who is entitled to vote?

Shareholders of record as of the close of business on March 10, 2017, the Record Date, may vote at the Annual Meeting.  At the close of business on March 10, 2017, there were 43,558,387 shares of the Company’s common stock issued and outstanding and eligible to vote at the Annual Meeting.

How do I vote?

If you are a registered shareholder.  If you hold your shares in your own name as a holder of record, you may vote in person at the Annual Meeting or instruct the proxy holders named in the enclosed proxy card how to vote your shares.  You may vote your proxy by telephone at 1-800-652-VOTE (8683), online at http://www.investorvote.com/GLT or by completing and signing the enclosed proxy card and returning it promptly in the enclosed envelope (requiring no postage if mailed in the United States).  Please make certain you mark, sign and date your proxy card prior to mailing.  All valid proxies received and not revoked prior to the Annual Meeting will be voted in accordance with your instructions.

If you are a beneficial owner.  If your shares are held by a brokerage firm, bank or other nominee (i.e., in “street name”), you should receive directions from your bank or broker that you must follow in order to have your shares voted.

Will my shares be voted if I do not sign and return my proxy card?

If a shareholder of record signs and returns the accompanying proxy card, but does not make any selections, the Board’s appointed Proxy Holders will have discretion to vote the shareholder’s shares on behalf of the shareholder at the Annual Meeting as recommended by the Board.

If a beneficial owner of shares does not provide the bank or broker holding such shares with specific voting instructions, under the rules of various national and regional securities exchanges, the shareholder’s bank or broker may generally vote on routine matters but cannot vote on non-routine matters.  Proposal 1 (election of directors), Proposal 3 (approval of amendments to the Long-Term Incentive Plan), Proposal 4 (advisory vote on executive compensation) and Proposal 5 (advisory vote on the frequency of holding the advisory vote on executive compensation) are non-routine matters.  The Company believes Proposal 2 (ratification of auditors) is routine.

If a shareholder’s bank or broker does not receive the shareholder’s instructions on how to vote the shareholder’s shares on a non-routine matter, the shareholder’s bank or broker will inform the Company it does not have the beneficial owner’s authority to vote on the non-routine matter.  We encourage beneficial shareholders to provide voting instructions to the bank, broker or agent holding their shares by carefully following the instructions in the notice provided by the shareholder’s bank, broker or agent.

How do I change my vote or revoke my proxy, if I wish to do so?

Shareholders of record can revoke their proxy at any time before their shares are voted if they (1) deliver a written revocation of their proxy to the Company’s Secretary; (2) submit a later-dated proxy (or voting instruction form if they hold their shares in street name); or (3) vote in person at the Annual Meeting.  Shareholders who are beneficial owners should follow the instructions provided by their respective broker or bank to change their vote.

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What is the required quorum to hold this Annual Meeting?

As of March 10, 2017, 43,558,387 shares of the Company’s common stock were outstanding and entitled to vote.  The presence of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter will constitute a quorum for the purposes of such matter.  Abstentions or broker “non-votes” are counted as present and entitled to vote for purposes of determining a quorum.  A broker “non-vote” occurs when a broker or bank holding shares for a beneficial owner does not vote on a particular matter because the broker or bank does not have discretionary voting authority to vote on the proposal, and the beneficial owner has not provided voting instructions.

May shareholders ask questions at the Annual Meeting?

Yes.  After the formal business of the meeting has concluded and adjourned, the chairman of the meeting will answer questions from shareholders during the designated question and answer period of the meeting.  To provide an opportunity for everyone wishing to ask a question, shareholders will be limited to three (3) minutes each to present their question.  When speaking, shareholders must direct questions to the chairman and confine their questions to matters relating directly to the business of the meeting.  Shareholders will not be permitted to make statements.

Who pays for the proxy solicitation related to the Annual Meeting?

The Company pays the cost of preparing, printing, assembling and mailing this proxy statement and other proxy solicitation materials.  The Company will also reimburse brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding the proxy statement and other proxy solicitation materials to beneficial owners.  In addition to the solicitation of proxies by mail, some of our directors, officers, other employees and agents may solicit proxies personally, by telephone and by other means.  The officers and directors who may solicit proxies personally receive no special compensation for any solicitation activities.

What proposals will be acted upon at the meeting, and what number of votes is needed for the proposals to be adopted?

 

 

Election of Directors.  As required by our bylaws, each of the nine nominees for election has submitted an irrevocable resignation in advance.  Because each of the nominees is an incumbent director, the following procedure applies if the nominee receives a plurality but not a majority of votes cast.  Although the nominee will have been elected, the Board will determine whether to accept the nominee’s advance

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irrevocable resignation, since the nominee did not receive a majority of the votes cast for each director.  For more information regarding the election of directors and the resignation procedure, see the discussion of the “Director Voting and Resignation Policy” in the “Corporate Governance and Board” section of this proxy statement.

Ratification of Independent Registered Public Accounting Firm.  A majority of the votes entitled to be cast at the meeting, in person or by proxy, must vote “For” the ratification of Deloitte & Touche LLP as the Company’s independent public accounting firm for the proposal to be adopted.

 

Approval of Amendments to the Long-Term Incentive Plan. A majority of the votes entitled to be cast at the meeting, in person or by proxy, must vote “For” the approval of the proposed amendments to the Company’s Long- Term Incentive Plan for the proposal to be adopted.

 

Advisory Vote on Executive Compensation (“Say-on-Pay” Vote).  This proposal gives you, as a shareholder, the opportunity to endorse, not endorse or take no position on our compensation program for the Named Executive Officers (“NEOs”).  A majority of the votes entitled to be cast at the meeting, in person or by proxy, must vote “For” the proposal to approve the executive compensation for the proposal to be adopted.  While the Board intends to carefully consider the shareholder vote on this proposal, this vote is not binding on the Company and is advisory in nature.

 

Frequency of Say-on-Pay Voting. This proposal gives you, as a shareholder, the opportunity to inform the Company as to how often you wish the Company to conduct a “Say-on-Pay” advisory vote on executive compensation. A majority of the votes entitled to be cast at the meeting, in person or by proxy, must vote “For” the approval of the frequency of Say-on-Pay voting.  If no option receives a majority of the votes entitled to be cast, then the option that receives the most votes will be deemed to be the shareholders’ recommendation with respect to the frequency with which the Say-on-Pay vote appears in the Company’s proxy statement.  While our Board intends to carefully consider the shareholder vote on this proposal, this vote is not binding on the Company and is advisory in nature.

What are the Board of Director’s recommendations for voting on these proposals?

The Board recommends a vote:

What are my options for voting on these proposals?

A shareholder is entitled to one vote per share of stock owned on the Record Date, on each item of business presented at the Annual Meeting, except each shareholder has cumulative voting rights for electing directors.  Cumulative voting means a shareholder is entitled to as many votes in electing directors as is equal to the number of shares of common stock owned by the shareholder on the Record Date, multiplied by the number of directors to be elected.  Accordingly, for the election of nine directors, a shareholder may either cast that total number of votes “For” or “Withhold” all of those votes from a

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single nominee. The shareholder may also distribute or withhold the total number of votes among the nine nominees as the shareholder determines, up to the number of shares of common stock owned by the shareholder on the Record Date, multiplied by nine. To utilize cumulative voting, a shareholder must check the appropriate box on the proxy card.

For the proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017, a shareholder may either vote “For” or “Against” the proposal or “Abstain” from voting.

For the proposal to approve amendments to the Company’s Long-Term Incentive Plan, a shareholder may either vote “For” or “Against” the proposal or “Abstain” from voting.

For the non-binding advisory vote on executive compensation, commonly known as a “say-on-pay” vote, a shareholder may either vote “For” or “Against” the proposal or “Abstain” from voting.

For the non-binding advisory vote on the frequency with which the Company will conduct an advisory vote on executive compensation, a shareholder may vote that such advisory vote be taken every year, every two years, or every three years, or “Abstain” from voting.

Aside from these proposals, will any other business be acted upon at the meeting?

No.  The Company’s by-laws required shareholders to submit to the Company, by December 1, 2016, notice of all director nominations and shareholder proposals to be considered at the 2017 Annual Meeting, regardless of whether shareholders sought inclusion of their nomination or proposal in this proxy statement or intended to solicit proxies on their own.  Because the Company did not receive any such notice of nominations or proposals, no other director nominations, shareholder proposals or other matters will be considered at the 2017 Annual Meeting.

How may a shareholder present a proposal for next year’s Annual Meeting?

A shareholder wishing to present a proposal at the 2018 Annual Meeting must submit it to the Company’s Secretary prior to the preparation of the 2018 proxy statement, and the Company’s by-laws prescribe the procedures a shareholder must follow.  To present a proposal for consideration at the 2018 Annual Meeting, whether or not the shareholder wishes to include the matter in the proxy statement for that meeting, a notice including all of the information required by the Company’s by-laws must be submitted in writing to the Company’s Secretary and delivered to, or mailed and received by, the Company no later than the close of business on November 30, 2017, regardless of delivery method.

How may a shareholder nominate a candidate to sit on the Board of Directors?

A shareholder may recommend nominees for consideration by the Board’s Nominating and Corporate Governance Committee for nomination for election to the Board.  Shareholder recommendations for director nominees will receive the same consideration by the Nominating and Corporate Governance Committee that all other director nominee recommendations receive.  If a shareholder wishes to recommend a nominee for director, the shareholder must submit such recommendation in writing, together with any supporting materials deemed appropriate, to the Company’s Secretary. Such recommendation must be made in accordance with the procedures described herein and in the Company’s by-laws.  To nominate a candidate for director at the 2018 Annual Meeting, notice of the nomination must be in writing and delivered to, or mailed and received by, the Company no later than the close of business on November 30, 2017.

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What must be included in the notice to submit a shareholder proposal or to nominate a director candidate?

Requirements for the notice are as follows:

This is a general description of the notice required to submit a proposal or nomination for consideration at the 2018 Annual Meeting.  The Company’s by-laws contain a complete description of the notice requirements for shareholder proposals.  Copies of the Company’s by-laws may be obtained from the Company’s website at www.glatfelter.com/about_us/corporate_governance/bylaws.aspx or at no charge from the Company’s Secretary.  The proposal and notice must otherwise comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

How may a shareholder communicate with the Company’s Board or the non-management directors of the Company?

A shareholder may address written correspondence to the Board or any individual director (whether management or non-management), c/o Company Secretary, P. H. Glatfelter Company, 96 South George Street, Suite 520, York, PA 17401-1434.  The Company’s Board has approved a process whereby the Secretary of the Company will receive, review and, as appropriate, forward any communications addressed to the Board or a director to the Chair of the committee responsible for the matter addressed in the communication.  All communications regarding accounting, internal controls or auditing matters will be forwarded to the Chair of the Audit Committee.  Alternatively, the Board has established a method for interested parties to communicate directly with the entire Board or any non-management director by calling the Company’s toll-free Integrity Helpline at 800-346-1676.

 

 

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PROPOSAL 1: ELECTION OF DIRECTORS

At the Annual Meeting, the Company’s shareholders will vote to fill nine director positions, each for one-year terms expiring on the date of the Company’s 2018 Annual Meeting of Shareholders and until their respective successors are elected and qualified.  The Board recommends that shareholders vote “For” each of the following director nominees: Bruce Brown, Kathleen A. Dahlberg, Nicholas DeBenedictis, Kevin M. Fogarty, J. Robert Hall, Richard C. Ill, Ronald J. Naples, Dante C. Parrini and Lee C. Stewart, each of whom is currently serving as a director of the Company, for a one-year term expiring at the 2017 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified.  

All nominees have consented to serve if elected to the Board.  If at the time of the Annual Meeting a director nominee is unable to serve, an event the Board does not anticipate, the Proxy Holders will vote for a substitute nominee as may be designated by the Board unless the Board reduces the number of directors accordingly.

The following table highlights director nominee information obtained in part from the respective nominees and in part from Company records.

 

 

 

 

The Board recommends a vote “FOR” each of the director nominees.

 

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Additional Information about Director Nominees

Bruce Brown

Mr. Brown joined the Company’s Board in 2014.  He retired in 2014 from his position as the Chief Technology Officer of Procter & Gamble, Inc. (“P&G”), a publicly traded consumer goods company.  With 34 years of experience at P&G, Mr. Brown’s responsibilities included leadership for P&G’s Innovation and Technology Program and Global Research & Development.  Globally recognized as an innovation thought leader, Mr. Brown also serves on the Board of Directors for Nokia in Finland; the Government of Singapore’s Agency for Science, Technology and Research; and the Board of Directors for Medpace Holdings, Inc. in the United States.

Specific qualifications and experience of particular relevance to the Company:

Mr. Brown is a proven leader in innovation, global expansion and organizational leadership development and he has familiarity with a number of the Company’s products and materials.  He brings over three decades of business-building experience to our Board and has five years of experience as a director of a public company.

Kathleen A. Dahlberg

Ms. Dahlberg joined the Company’s Board in 2001.  Since 2006 she has been the Chief Executive Officer of G.G.I., Inc. (formerly known as 2Unify LLC), a private company specializing in strategic consulting for companies in various industries and sectors. She served as a director of Theragenics Corporation from May 2008 to November 2013.  Ms. Dahlberg has held Vice President positions with BP Amoco, Viacom International, McDonalds Corporation, Grand Metropolitan PLC and American Broadcasting.

Specific qualifications and experience of particular relevance to the Company:

Ms. Dahlberg has significant experience in emerging technologies, acquisitions and divestitures, manufacturing, consumer goods, professional services, international operations, strategic planning, operations and risk management and corporate governance.  She has more than 20 years of experience as a director of public companies.

Nicholas DeBenedictis

Mr. DeBenedictis joined the Company’s Board in 1995.  He served as Chairman, Chief Executive Officer and President of Aqua America, Inc., a publicly traded water company, from May 1992 until July 2015, when he retired as CEO and remained as Chairman of the Board. He has also served as a director of Exelon Corporation since 2003 and joined the Board of Mistras Group in October 2015.  Prior to joining Aqua America, Mr. DeBenedictis was Senior Vice President of Corporate and Public Affairs for PECO Energy, a $4 billion nuclear utility, responsible for government relations, overseeing development of economic and environmental policies and implementation of the utility’s public policy positions.  Mr. DeBenedictis was President of the Greater Philadelphia Chamber of Commerce from 1986 to 1989.  He also served in two Pennsylvania government cabinet positions: Secretary of the Department of Environmental Resources and Director of the Office of Economic Development, and has held senior-level positions with the U.S. Environmental Protection Agency.

Specific qualifications and experience of particular relevance to the Company:

Mr. DeBenedictis has significant experience with government and public policy, regulated industries, public-company finance and financial reporting, as well as strategic planning, operations and risk management and corporate governance.  He has more than 20 years of experience as a director of public companies.

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Kevin M. Fogarty

Mr. Fogarty joined the Company’s Board in 2012.  He has been the President and Chief Executive Officer of Kraton Performance Polymers, Inc., a leading global producer of styrenic block copolymers, specialty polymers and high-value performance products derived from pine wood pulping co-products, since 2008.  Prior to being appointed President and Chief Executive Officer, Mr. Fogarty served as its Executive Vice President of Global Sales and Marketing from June 2005.  He was named a director of Kraton in 2009, and a director of its principal operating subsidiary, Kraton Polymers LLC, in 2008.  Prior to joining Kraton, Mr. Fogarty spent 14 years with the Koch Industries, Inc. family of companies, where he held a variety of roles, including President for Polymer and Resins at Invista and President of KoSa's Polymer and Intermediaries business. 

Specific qualifications and experience of particular relevance to the Company:

Mr. Fogarty has significant experience with manufacturing, international operations, strategic partnerships, public-company accounting and financial reporting and new product development, as well as strategic planning, operations and risk management and corporate governance.  He has more than seven years of experience as a director of public companies.

J. Robert Hall

Mr. Hall joined the Company’s Board in 2002.  He has been the Chief Executive Officer of Ole Smoky Distillery, a craft distillery in Tennessee, since July 2016. From January 2014 until July 2016, Mr. Hall served as a Managing Director of Centerview Capital, an operationally oriented private equity firm focused on the U.S. consumer middle market. Previously he was the Chief Executive Officer of Ardale Enterprises LLC, a private company specializing in acquisition-related activities in the food, beverage and consumer products industry, and in this role was a Senior Advisor to Centerview Capital since 2009. Prior to forming Ardale, Mr. Hall spent over 20 years in the food and consumer goods industry, holding various positions with Nabisco, Kraft and Nestle. While at Nabisco, he was President of Nabisco's Specialty Products Company in the United States and President of Christie Brown & Company, Ltd., the maker of Nabisco cookies and crackers in Canada. Mr. Hall has also been President of Lenox Brands, Chairman of Wise Foods and has served on the board of Ault Foods Ltd., a $1.3 billion dairy products company in Canada.

Specific qualifications and experience of particular relevance to the Company:

Mr. Hall has significant experience in general management, financial services, consumer goods, manufacturing, marketing, sales, new product development, strategic planning, M&A and corporate governance.  Mr. Hall has more than 17 years of experience as a director of public companies.

 

 

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Richard C. Ill

Mr. Ill joined the Company’s Board in 2004.  He served as the Chairman and Chief Executive Officer of Triumph Group, a publicly held, international aviation services company, from 2009 to 2012 and as its President and Chief Executive Officer from 1993 to 2009 and 2014 to 2016.  Mr. Ill held a variety of senior executive positions with Alco Standard Corporation before he founded what is now Triumph Group.  He has over 45 years of public company experience in management, manufacturing and operations.   In addition to his continued service on the Triumph board, Mr. Ill has served as a director of Mohawk Industries, Inc. since May 2011.  He also served as a director of Airgas, Inc., from July 2004 through September 2010 and November 2013 until the company was sold in 2016

Specific qualifications and experience of particular relevance to the Company:

Mr. Ill has significant experience with general management, acquisitions and strategic partnerships, manufacturing, professional services, international operations, research and development and regulated industries, strategic planning, operations and risk management and corporate governance.  He has over 20 years of experience as a director of public companies.

Ronald J. Naples

Mr. Naples joined the Company’s Board in 2000.  He served as Chairman of the Pennsylvania Stimulus Oversight Commission and Chief Accountability Officer for the Commonwealth of Pennsylvania, having been appointed to that position by the Governor of Pennsylvania, from April 2009 until February 2011. In this role he was tasked with reviewing, monitoring and advising on Pennsylvania’s spending of American Recovery and Reinvestment Act funds.  From 1997 until May 2009, Mr. Naples was the Chairman of Quaker Chemical Corporation, a publicly held, specialty chemical company serving the metalworking and manufacturing industries worldwide, and he served as Quaker's Chief Executive Officer from 1995 to 2008. From 1981 until July 1995, he was Chief Executive Officer of Hunt Manufacturing Company, a publicly held consumer and commercial products company, and served as Hunt’s Chairman from 1986 to 1995.  Mr. Naples is a former White House Fellow and served in the Ford Administration as Assistant to the Counselor to the President for Economic Affairs and as a Special Assistant to the head of the Federal Energy Administration. Mr. Naples currently serves as a director of Glenmede Trust Company, the Philadelphia Contributionship and Penn National Gaming, and is a former Chairman of the Federal Reserve Bank of Philadelphia.

Specific qualifications and experience of particular relevance to the Company:

Mr. Naples has significant experience with government and public policy, professional services, manufacturing, international operations, public-company finance and financial reporting, strategic planning, operations and risk management and corporate governance.  Mr. Naples has over 35 years of experience as a director of public companies.

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Dante C. Parrini

Mr. Parrini joined the Company’s Board in 2010.  He is currently the Chairman, President and Chief Executive Officer of P. H. Glatfelter Company.  He has been President and Chief Executive Officer since January 2011 and Chairman of the Board since May 2011.  Mr. Parrini previously served as Glatfelter’s Executive Vice President and Chief Operating Officer from 2005 until 2010.  From 2003 to 2005, he was Senior Vice President and General Manager of the Company. Mr. Parrini joined Glatfelter in 1997 and, prior to 2003, held various executive positions responsible for the Company's operations, sales and marketing.  He has served on the board of H. B. Fuller Company since 2012.

Specific qualifications and experience of particular relevance to the Company:

Mr. Parrini has significant experience leading worldwide operations, including international and domestic sales, marketing, research and development, global supply chain, information technology and corporate program management, overseeing legal and human resource functions and leading strategy development.  His more than 22 years of executive experience include six years as a director of public companies.

Lee C. Stewart

Mr. Stewart joined the Company’s Board in 2002.  He is a private financial consultant with over 25 years of experience as an investment banker. He was a Vice President at Union Carbide Corporation from 1996 to 2001, responsible for various treasury and finance functions, and from 2001 to 2002 was CFO of Foamex International, Inc. Mr. Stewart was a director of ITC Holdings Corp., a New York Stock Exchange-listed electricity transmission company, from 2005 through 2016 when ITC was acquired by Fortis. Mr. Stewart also served as a director of AEP Industries, Inc., a NASDAQ-listed chemical company from 1996 to 2017.  On January 20, 2017 AEP was sold to Berry Plastics and Mr. Stewart resigned along with the other AEP board members.  Mr. Stewart served as a director of Marsulex, Inc., a chemical company listed on the Toronto Stock Exchange, from 2000 until its sale in 2011, and Momentive Performance Materials Inc., a specialty chemical company in silicone and advanced materials, from May 2013 through its successful emergence from bankruptcy in October 2014.

Specific qualifications and experience of particular relevance to the Company:

Mr. Stewart has significant experience with professional services, financial services, finance and banking, public-company accounting and financial reporting, strategic planning, operations and risk management and corporate governance.  He has over 20 years of experience as a director, having first served on the board of a public company in 1996.

 

 

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PROPOSAL 2: RATIFICATION OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board has appointed Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for the fiscal year 2017, subject to ratification by the Company’s shareholders.  Deloitte audited the Company’s consolidated financial statements for the fiscal year ended December 31, 2016.

Although shareholder ratification is not required by our organization documents or applicable law, the Board believes that it is a sound corporate governance practice to seek shareholder ratification of the appointment of Deloitte.  In the event the shareholders fail to ratify the appointment, the Audit Committee will reconsider its selection.

A Deloitte representative is expected to attend the Annual Meeting and will be available to respond to appropriate shareholder questions.

What did the Company pay its independent registered public accounting firm in 2015 and 2016?

For the years ended December 31, 2015, and December 31, 2016, the aggregate fees paid to Deloitte by the Company were as follows:

 

 

All of Deloitte’s 2016 services for the Company were permissible under applicable laws and regulations and were pre-approved by the Audit Committee.  The Audit Committee’s Audit and Non-Audit Services Pre-Approval Policy (“Pre-Approval Policy”) provides for the pre‑approval of audit and non-audit services performed by Deloitte.  Under the Pre-Approval Policy, the Audit Committee must pre-approve specific services, including fee levels, to be performed by the independent registered public accounting firm in a designated category (audit, audit-related, tax services and all other services).  For fiscal year 2016, 100% of Audit-Related Fees, Tax Fees and All Other Fees were approved by the Audit Committee. The Audit Committee may delegate this authority in writing to one or more of its members, and in such case the member or members to whom such authority is delegated must report their decisions to the Audit Committee at its next scheduled meeting.

The Board recommends a vote “FOR” ratification of the appointment of Deloitte as the Company’s independent registered public accounting firm.

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PROPOSAL 3: APPROVE THE AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN, INCLUDING AN INCREASE IN THE NUMBER OF SHARES AVAILABLE TO BE AWARDED UNDER THE PLAN

 

 

The Company currently maintains the P. H. Glatfelter Amended and Restated Long-Term Incentive Plan (referred to as the “Plan”). On February 23, 2017, the Company’s Board approved, subject to shareholder approval, an amendment and restatement of the Plan (referred to as the “Amended Plan”). The Board recommends that the shareholders approve the Amended Plan at this Annual Meeting.

 

Shareholder approval of the Amended Plan is being sought in order to (i) authorize additional shares, (ii) meet the listing requirements of the New York Stock Exchange, (iii) extend the term of the Amended Plan until May 4, 2027, (iv) permit (but not require) certain awards under the under the Amended Plan to qualify for an exemption from the $1 million deduction limit under Section 162(m) of the Internal Revenue Code (referred to as the “Code”) as performance based compensation, as determined by the Compensation Committee (referred to in this Proposal 3 as the “Committee”), and (v) allow incentive stock options to meet the requirements of Section 422 of the Code. If the shareholders do not approve the Amended Plan, the existing Plan will continue in effect, and the proposed changes, including the 1,840,000 increase in the number of shares of common stock available for awards, will not be effective.

 

The Amended Plan is set forth in full at Appendix A to this Proxy Statement. A summary of the principal provisions of the Amended Plan is set forth below. This summary does not purport to be a complete description of all the provisions of the Amended Plan and is qualified in its entirety by reference to the complete text of the Amended Plan attached as Appendix A.

 

What principal changes have been made by the Amended Plan?

 

The principal changes made by the Amended Plan are to:

 

 

 

 

 

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The effective date of the Amended Plan will be the date on which the shareholders approve the Amended Plan, which is expected to be May 4, 2017 (referred to as the “effective date”).

 

The Amended Plan will become effective only if it is approved by the Company’s shareholders. With the exception of providing the Committee with discretion to provide for share withholding for taxes at rates in excess of the minimum statutory rate, the Amended Plan will apply only to awards granted on or after the effective date, and awards granted prior to the effective date shall continue to be governed by the applicable award agreements and the terms of the Plan without giving effect to changes made by the Amended Plan.

 

How was the increase in the number of shares available under the Amended Plan determined?

 

As of February 28, 2017, 404,260 shares remain available for grant under the Plan. The Board believes that attracting and retaining non-employee directors, officers, other employees and consultants of high quality has been and will continue to be essential to the Company’s growth and success. The Board believes that the Company’s interests and the interests of the Company’s shareholders will be advanced if the Company can continue to offer non-employee directors, officers, other employees and consultants the opportunity to acquire or increase their proprietary interests in the Company.

 

If this Proposal 3 is approved by the Company’s shareholders at the Annual Meeting, the  number of shares reserved for issuance under the Amended Plan for awards granted on or after May 4, 2017 will be 2,244,260, which is calculated as follows: (i) 1,840,000 shares, plus (ii) 404,260 shares, which is the number of shares available for the grant of awards under the Plan as of February 28, 2017, subject to adjustments as described under “How many shares may be issued under the Amended Plan?” and “How can the number of shares available for issuance under the Amended Plan be adjusted in the event of a change in Company stock?” The number of shares in clause (ii) above will be reduced by the number of shares subject to awards granted under the Plan after February 28, 2017 and prior to the effective date, if any. The Board believes an increase in the maximum number of shares that may be issued under the

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Amended Plan by 1,840,000 shares will ensure that the Company continues to have a sufficient number of shares with which to achieve the Company’s compensation strategy and to allow for growth.

 

When deciding on the number of shares to be available for awards under the Amended Plan, the Board considered a number of factors, including the number of shares currently available under the Plan, the Company’s past share usage (referred to as “burn rate”), the number of shares needed for future awards, a dilution analysis, competitive data from relevant peer companies, the current and future accounting expenses associated with the Company’s equity award practices, and input from the Company’s shareholders.

 

Dilution Analysis

 

As of February 28, 2017, the Company’s capital structure included 43,558,387 outstanding shares of common stock. As of February 28, 2017, 404,260 shares remain available for grant of awards under the Plan. The proposed share authorization is a request for 1,840,000 additional shares to be available for awards under the Amended Plan.

The table below shows the Company’s potential dilution (referred to as “overhang”) levels based on the Company’s diluted common shares and the Company’s request for 1,840,000 additional shares to be available for awards under the Amended Plan. The 1,840,000 additional shares represent approximately 3.7% of diluted shares of Company common stock, as described in the table below. The Board believes that this number of shares under the Amended Plan represents a reasonable amount of potential equity dilution and that equity awards are an important component of the Company’s equity compensation program. References in this Proposal 3 to “basic” shares are references to the number of outstanding shares held by shareholders, and references to “diluted” shares are references to the number of outstanding shares held by shareholders, plus the number of shares that have been authorized for issuance pursuant to convertible securities, such as Stock Only Stock Appreciation Rights (“SOSARs”), performance share awards and restricted stock units.

Potential Overhang with 1,840,000 New Shares

 

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The “Outstanding Restricted Stock Units and Performance Share Awards” in the foregoing table are measured at target for the outstanding performance share awards, which can be paid at, above or below target, and include dividend equivalents that are that are payable in shares of common stock. Certain performance share awards can be paid at 0% to 200% of target. The “Diluted Shares of Common Stock” in the foregoing table consists of the “Common Stock Outstanding as of February 28, 2017” plus the “Total Potential Overhang under the Amended Plan” described in the foregoing table.

 

Based on the Company’s current equity award practices, the Company estimates that the authorized shares under the Amended Plan may be sufficient to provide the Company with an opportunity to grant equity awards for approximately three to four years, in amounts determined appropriate by the Committee. This is only an estimate, and circumstances could cause the share reserve to be used more quickly or more slowly. These circumstances include, but are not limited to, the future price of the Company’s common stock, the mix of cash and equity awards provided as long-term incentive compensation, grant amounts provided by the Company’s competitors, payout of performance share awards in excess of target in the event of superior performance, hiring activity, and promotions during the next few years.

 

Burn Rate

 

The Board considered the Company’s burn rate over the past three calendar years when deciding on the number of shares to be available for awards under the Amended Plan.  The burn rate for each year was calculated as follows:

 

 

 

Dividend equivalents are included in the burn rate calculation because dividend equivalents under the outstanding awards granted to employees are paid in shares of common stock. Dividend equivalents under outstanding awards granted to non-employee directors are not included in the burn rate calculation because they are paid in cash.

 

The Company’s three-year average burn rate is approximately 1.6%, which means that the Company used an annual average of approximately 1.6% of the weighted average basic shares outstanding for awards granted over the past three years under the Plan.

 

How many shares may be issued under the Amended Plan?

 

The Amended Plan authorizes the issuance of an additional 1,840,000 shares of the Company’s common stock, subject to adjustment as described below. If the Company’s shareholders approve the Amended Plan, subject to the adjustments described below in this section and in “How can the number of shares available for issuance under the Amended Plan be adjusted in the event of a change in Company stock?,” the maximum aggregate number of shares of the Company’s common stock that may be issued under the Amended Plan for awards granted on or after the effective date is 2,244,260 shares, which is calculated as follows: (i) 1,840,000 shares, plus (ii) 404,260 shares, which represents the number of shares that remained available for awards under the Plan as of February 28, 2017. The number in (ii) above will be reduced by the number of shares subject to awards granted under the Plan after February 28, 2017 and before the effective date, if any.  The Amended Plan provides that 2,244,260 shares, subject to the adjustments as described below in this section and in “How can the number of shares available for

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issuance under the Amended Plan be adjusted in the event of a change in Company stock?” may be issued as incentive stock options under the Plan after the effective date.

 

The Amended Plan provides that any shares covered by an award that terminates, lapses or is forfeited or cancelled, or an award that is otherwise settled without the delivery of the full number of shares underlying the award, will, to the extent of any such forfeiture, termination, lapse, or cancellation, again be available for issuance under the Amended Plan. Shares withheld or surrendered for taxes payable on any award or for payment of the exercise price of an option may not be available for re-issuance under the Amended Plan. The full number of shares subject to a SAR settled in stock will be counted against the share limit under the Amended Plan. If shares are repurchased by the Company on the open market with the exercise price of options, the shares will not again be available for issuance under the Amended Plan.

 

Outstanding equity grants with respect to stock of an acquired company may be assumed or replaced by awards under the Amended Plan, and such substitute awards will not reduce the Amended Plan’s share reserve, consistent with applicable stock exchange requirements, and will not be limited by the Amended Plan’s individual limits described below.

 

Who administers the Amended Plan?

 

The Amended Plan is administered by the Committee, and all acts and authority of the Committee under the Plan are subject to the provisions of its charter and such other authority as may be delegated to the Committee by the Board. The Committee shall be comprised, unless otherwise determined by the Board, solely of not less than two members who shall be (i) “non-employee directors” within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (ii) “outside directors” within the meaning of the regulations under Section 162(m) of the Code, and (iii) “independent directors,” as determined in accordance with the independence standards established by the stock exchange on which the Company’s stock is at the time primarily traded. Awards to non-employee directors shall be administered by the Committee consistent with a Board-approved compensation program.

 

The Committee has the exclusive power to make awards, to determine when and to which eligible individual awards will be granted, to determine the types of awards and the number of shares covered by the awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such awards and, subject to the terms of the Plan and applicable law, to cancel, suspend or amend existing awards. Subject to the terms of the Amended Plan, the Committee has the authority and discretion to determine the extent to which awards under the Amended Plan will be structured to conform with the requirements applicable to “qualified performance-based compensation” as described in Section 162(m) of the Code, and to take such action, establish such procedures, and impose such restrictions as necessary to conform to such requirements.

 

Except to the extent prohibited by applicable law, the Committee may delegate all or any portion of its responsibilities to any person(s) selected by it, but the Committee cannot delegate such authority with respect to any participant who is subject to the reporting requirements of Section 16 of the Exchange Act.

 

Who is eligible for awards under the Amended Plan?

 

Employees, officers, non-employee directors and consultants of the Company or any subsidiary or affiliate of the Company are eligible to participate in the Amended Plan. Eligible participants also include any individuals to whom an offer of employment or service has been extended. Holders of equity-based awards issued by a company acquired by the Company or with which the Company

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combines are also eligible to receive awards under the Amended Plan, in substitution for awards granted by that company.

 

What are the limitations on awards that may be made to any individual participant under the Amended Plan?

 

Subject to adjustment as described below, the Amended Plan imposes the following individual limits:

 

 

What is the term of the Amended Plan?

 

No award will be granted under the Amended Plan after the tenth anniversary of the effective date. Unless otherwise expressly provided in the Amended Plan or in the applicable award agreement, any award granted prior to the termination date of the Amended Plan may extend beyond such termination date.  

 

What types of awards are available under the Amended Plan?

 

Options and SARs. The Committee is authorized to grant incentive stock options and non-qualified stock options (collectively, “options”) and SARs to participants under the Amended Plan. The terms and conditions of each option and SAR granted will be determined by the Committee and set forth in the applicable award agreement.

 

The term of an option or SAR may not exceed ten years from the date of grant. The exercise price of an option or SAR may not be less than the fair market value of the underlying shares on the date of grant, except for outstanding equity grants with respect to stock of an acquired company that are assumed or replaced by awards under the Amended Plan. As long as the Company’s shares are traded on an established stock exchange, the fair market value will be the closing price for the shares as quoted on such exchange. The terms of any incentive stock option granted under the Amended Plan must comply in all respects with the provisions of Section 422 of the Code.

 

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Subject to the terms of the Amended Plan and the related award agreement, any option or SAR may be exercised at any time during the period specified by the Committee. Unless the Committee determines otherwise, if a vested option or SAR would terminate at a time when trading in Company stock is prohibited by law or by the Company’s insider trading policy, the vested option or SAR may be exercised until the 30th day after expiration of such prohibition (but not beyond the end of the term of the option or SAR).

 

The Committee has the discretion to determine the method of exercise of options, which may include paying the exercise price (i) in cash, (ii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, (iii) by “net exercise,” which is the surrender of shares for which the option is exercisable to the Company in exchange for shares equal to the amount by which the then fair market value of the shares subject to the option exceeds the exercise, or (iv) by such other method as the Committee may approve.

 

Restricted Stock and Restricted Stock Unit Awards. The Committee may grant restricted stock or RSUs to participants under the Amended Plan. The terms and conditions of each such award will be established by the Committee and set forth in an associated award agreement. The Committee has the discretion to impose restrictions, including limitations on the right to vote shares underlying restricted stock awards or the right to receive any dividends, which restrictions may lapse separately or in combination at such times as the Committee may deem appropriate.

 

Stock Awards and Other Stock-Based Awards. The Committee is authorized to grant stock awards to participants under the Amended Plan. Stock awards may be granted by the Committee in in lieu of any cash compensation or fees for services to the Company as the Committee, in its discretion, determines or authorizes. Stock awards will be evidenced by an agreement or in such other manner as the Committee may determine appropriate, including book-entry registration or issuance of stock certificates.

 

Subject to the terms of the Amended Plan, the Committee may grant to participants such other awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of the Company’s common stock as are deemed by the Committee to be consistent with the purposes of the Amended Plan. The Committee will determine the terms and conditions of such awards and set forth such terms and conditions in an award agreement.

 

Performance Awards. The Committee may grant performance awards to participants under the Amended Plan. Performance awards may be restricted stock, RSUs, stock awards, or other stock-based awards, and may be denominated in cash or shares. The terms and conditions of each such award will be fixed by the Committee and may include performance criteria determined by the Committee.

 

For performance awards intended to qualify as performance-based compensation under Section 162(m) of the Code, the performance awards shall be conditioned upon the achievement of pre-established goals relating to one or more of the following performance measures, which shall be established within 90 days after the beginning of the performance period (and before 25% of the performance period has been completed), as determined in writing by the Committee and subject to such modifications as specified by the Committee: cash flow; cash flow from operations; earnings (including earnings before interest, taxes, depreciation, and amortization or some variation thereof, or earnings targets that are adjusted to eliminate specified earnings, such as earnings from non-core sources, gains from pension assets and timberland sales or unusual and non-recurring charges such as asset impairment charges or acquisition and integration related costs, capacity expansion costs, environmental compliance costs, and pension settlements); earnings per share, diluted or basic; earnings per share from continuing operations; net asset turnover; inventory turnover; capital expenditures; debt, net debt, debt reduction; working capital; return on investment; return on sales; net or gross sales; market share; economic value added; cost of capital;

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change in assets; expense reduction levels; productivity; delivery performance; safety record; stock price; return on equity; total shareholder return; return on capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating profit; gross margin, operating margin or profit margin; and completion of acquisitions, divestitures, business expansion, product diversification and other non-financial operating and management performance objectives. Performance goals may be applied to either the Company as a whole or to a business unit or subsidiary entity, either individually, alternatively or in any combination, and may be measured over a period of time, including any portion of a year, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee.

 

To the extent consistent with Section 162(m) of the Code, the Committee may determine that adjustments will apply with respect to the determination of achievement of the performance goals,  to exclude the effect of any events that occur during a performance period, including: the impairment of tangible or intangible assets; litigation or claim judgments or settlements; the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; accruals for reorganization and restructuring programs, including reductions in force and early retirement incentives; currency fluctuations; and any unusual, infrequent or non-recurring items described in management’s discussion and analysis of financial condition and results of operations or the financial statements and notes to the financial statements appearing in the Company’s annual report to shareholders for the applicable year.

  

The Committee may, in its discretion, establish such additional restrictions or conditions that must be satisfied as a condition precedent to the payment of all or a portion of any performance award. The Committee may also reduce the amount of any performance award if it concludes that such reduction is necessary or appropriate based on: (i) an evaluation of such participant’s performance, (ii) comparisons with compensation received by other similarly situated individuals working within the Company’s industry, (iii) the Company’s financial results and conditions, or (iv) such other factors or conditions that the Committee deems relevant. In addition to establishing minimum performance goals below which no compensation will be payable pursuant to a performance award, the Committee may create a performance schedule under which an amount less than or more than the target award may be paid so long as the performance goals have been achieved. The Committee will not have the discretion to increase any award that is intended to be performance-based compensation under Section 162(m) of the Code.

 

The Committee must certify achievement of the performance goals in writing prior to payment of performance awards. Performance awards shall be transferred or paid to the participant as determined by the Committee in the applicable award agreement. The Committee may provide in the award agreement that performance awards may be payable, in whole or in part, in the event of the participant’s death or disability, a change in control or under other circumstances consistent with Section 162(m) of the Code.

 

Dividend Rights and Dividend Equivalents. The Committee may grant dividend rights and dividend equivalents in connection with awards (other than options or SARs) under such terms and conditions as the Committee deems appropriate. Dividends and dividend equivalents shall vest and be paid only if and to the extent the underlying awards vest and are paid, as determined by the Committee. Dividend rights and dividend equivalents may be paid to participants currently or may be deferred, consistent with Section 409A of the Code, as determined by the Committee. Dividend rights and dividend equivalents may be accrued as a cash obligation, or may be converted to RSUs for the participant, as determined by the Committee. Unless otherwise specified in the award agreement, deferred dividend rights and dividend equivalents will not accrue interest. Dividend rights and dividend equivalents may be payable in cash or shares or in a combination of the two, as determined by the Committee in the award agreement.

 

 

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How can the number of shares available for issuance under the Amended Plan be adjusted in the event of a change in Company stock?

 

In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of stock or other securities of the Company, issuance of warrants or other rights to purchase stock or other securities of the Company, or other similar corporate transaction or event constitutes an equity restructuring transaction for applicable financial accounting purposes, or otherwise affects the stock of the Company, then the Committee will adjust the following in a manner that is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Amended Plan:

 

Are awards transferable?

 

Except as the Committee may otherwise determine, no award and no right under any award shall be assignable, alienable, saleable or transferable by a participant otherwise than by will or by the laws of descent and distribution; provided, however, that, a participant may designate a beneficiary to exercise the rights of the participant, and to receive any property distributable, with respect to any award upon the death of the participant.

 

Are awards subject to clawback or other Board policies?

 

All awards made under the Amended Plan shall be subject to any applicable clawback or recoupment policies, insider trading policies, policies prohibiting pledging or hedging of shares, and other policies that may be implemented by the Board from time to time.

 

What is a change in control?

 

A “change in control” of the Company means:

 

 

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What are the consequences of a change in control?

 

Unless otherwise set forth in an award agreement, if a change in control occurs and participants’ awards remain outstanding after the change in control (or are assumed by, or converted to similar awards with equivalent value as of the date of the change in control of, the surviving corporation (or a parent or subsidiary of the surviving corporation)), and the participant incurs an involuntary separation from service by the Company or its affiliates or successors other than for cause (as defined in the award agreement) during a period specified by the Committee,  (i) all outstanding options and SARs shall automatically accelerate and become fully exercisable, (ii) any restrictions and conditions on outstanding stock awards and restricted stock shall immediately lapse, and (iii) awards of restricted stock units, other stock-based awards, or performance awards shall become payable. In that event, awards that are based on performance goals shall vest and be payable as determined by the Committee in the award agreement.

 

Unless otherwise set forth in an award agreement, if a change in control occurs and participants’ awards are not assumed by, or converted to similar awards with equivalent value as of the date of the change in control of, the surviving corporation (or a parent or subsidiary of the surviving corporation), (i) all outstanding options and SARs shall immediately vest and become exercisable, (ii) any restrictions on stock awards and restricted stock shall immediately lapse, and (iii) restricted stock units, other stock-based awards, or performance awards shall become payable as of the date of the change in control. In that event, awards that are based on performance goals shall vest and be payable as determined by the Committee in the award agreement.

 

Notwithstanding the foregoing, the Committee may establish such other terms and conditions relating to the effect of a change in control on awards as the Committee deems appropriate. In addition to other actions, in the event of a change in control, the Committee may take any one or more of the following actions with respect to any or all outstanding awards, without participant consent:  (i) determine that outstanding awards shall be assumed by, or replaced with awards that have comparable terms by, the surviving corporation (or a parent or subsidiary of the surviving corporation); (ii) determine that outstanding options and SARs shall automatically accelerate and become fully exercisable, and the restrictions and conditions on outstanding stock awards and restricted stock shall immediately lapse; (iii) determine that participants shall receive a payment in settlement of outstanding awards of RSUs, other

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stock-based awards, or performance awards, in an amount and form determined by the Committee; (iv) require that participants surrender their outstanding options and SARs in exchange for a payment by the Company, in cash or shares as determined by the Committee, in an amount equal to the amount, if any, by which the then fair market value of the shares subject to the participant’s unexercised options and SARs exceeds the exercise price, and (v) after giving participants an opportunity to exercise all of their outstanding options and SARs, terminate any or all unexercised options and SARs at such time as the Committee deems appropriate. Such surrender, termination or payment shall take place as of the date of the change in control or such other date as the Committee may specify. Without limiting the foregoing, if the per share fair market value of the shares does not exceed the per share exercise price, the Company shall not be required to make any payment to the participant upon surrender of the option or SAR. Any acceleration, surrender, termination, settlement or conversion shall take place as of the date of the change in control or such other date as the Committee may specify.

 

How can the Amended Plan be amended, modified or terminated?

 

Except to the extent prohibited by applicable law and unless otherwise expressly provided in an award agreement or in the Amended Plan, the Board may amend, suspend, discontinue or terminate the Plan or any portion thereof at any time, provided that no such amendment, alteration, suspension, discontinuation or termination will be made without: (i) shareholder approval if such approval is necessary to comply with tax, legal, securities exchange or other regulatory requirements or (ii) the consent of the affected participant, if such action would adversely affect any material rights of such participant under any outstanding award.

 

Except in connection with a corporate transaction involving the Company, the Company may not, without shareholder approval (i) amend the terms of outstanding options or SARs to reduce the exercise price of such outstanding options or SARs, (ii) cancel outstanding options or SARs in exchange for options or SARs with an exercise price that is less than the exercise price of the original options or SARs, or (iii) cancel outstanding options or SARs with an exercise price above the current stock price in exchange for cash or other securities.

 

The Committee may at any time modify, amend, or terminate any or all of the provisions of the Amended Plan to the extent necessary: (i) to conform the provisions of the Amended Plan with Section 409A of the Code and (ii) to enable the Amended Plan to achieve its stated purposes in any jurisdiction outside the United States in a tax-efficient manner and in compliance with local rules and regulations.

 

The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue or terminate, any award, prospectively or retroactively, without the consent of the participant, consistent with the terms of the Plan; provided, that no such action will impair any material rights of a participant granted an award under the Amended Plan. The Committee is also authorized to make adjustments in terms and conditions of, and the criteria included in, awards in recognition of unusual or nonrecurring events whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the intended benefits, subject, with respect to awards intended to meet the requirements of Section 162(m) of the Code, to comply with the provisions of Section 162(m), as applicable.

 

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What are the federal income tax consequences of awards granted under the Amended Plan?

 

The following brief description, which is based on existing law, summarizes the federal income tax consequences of the grant of awards under the Amended Plan. This description may differ from the actual tax consequences incurred by any individual recipient of an award. Moreover, existing law is subject to change, which may affect the federal income tax consequences described below. The following summary of the federal income tax consequences in respect of the Amended Plan is for general information only. Interested parties should consult their own tax advisors as to specific tax consequences, including the application and effect of foreign, state and local laws.

 

Non-Qualified Stock Options. A non-qualified stock option results in no taxable income to the optionee or deduction to the Company at the time it is granted. An optionee exercising such an option will generally realize taxable compensation at the date of exercise in the amount of the difference between the option price and the then market value of the shares, and income tax withholding requirements apply upon exercise. A deduction for federal income tax purposes will generally be allowable to the Company in the year of exercise in an amount equal to the taxable compensation realized by the optionee. The optionee’s tax basis in the option shares is equal to the option price paid for such shares plus the amount includable in income upon exercise. At sale, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term capital gain (or loss) depending upon how long the shares have been held.

 

Incentive Stock Options. An optionee is not taxed at the time an incentive stock option is granted. The tax consequences upon exercise and later disposition of the underlying stock generally depend upon whether the optionee was an employee of the Company or a subsidiary at all times from the date of grant until three months preceding exercise (one year in the case of disability) and on whether the optionee holds the shares for more than one year after exercise and two years after the date of grant of the stock option.

 

If the optionee satisfies both the employment rule and the holding rule for income tax purposes, the optionee will not recognize income upon exercise of the stock option and the Company will not be allowed an income tax deduction at any time. The difference between the option exercise price and the amount realized upon disposition of the shares by the optionee will constitute a long-term capital gain or a long-term capital loss, as the case may be.

 

If the optionee meets the employment rule but fails to observe the holding rule (a “disqualifying disposition”), the optionee generally recognizes as ordinary income, in the year of the disqualifying disposition, the excess of the fair market value of the shares at the date of exercise over the option exercise price. Any excess of the sale price over the fair market value at the date of exercise will be recognized by the optionee as capital gain (long-term or short-term depending on the length of time the stock was held after the stock option was exercised). If the sale price is less than the fair market value on the date of exercise, then the ordinary income recognized by the optionee is generally limited to the excess of the sale price over the option exercise price. In both situations, the tax deduction allowable to the Company is limited to the ordinary income recognized by the optionee. Under current Internal Revenue Service (“IRS”) guidelines, the Company is not required to withhold any federal income tax in the event of a disqualifying disposition. Different consequences may apply for an optionee subject to the alternative minimum tax.

 

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Restricted Stock. Upon the grant of restricted stock, a participant will not recognize taxable income and the Company will not be allowed a tax deduction. Rather, on the date when the restrictions lapse, the participant will recognize ordinary income equal to the fair market value of the shares on that date (less the price paid, if any, for such shares). Alternatively, a participant may file with the IRS a “section 83(b) election” no later than 30 days after the date of grant of restricted stock, as a result of which he will recognize taxable ordinary income at the time of the grant, generally in an amount equal to the fair market value of the shares on the date of grant, less any amount paid for the shares. The amount recognized by the participant is subject to income tax withholding requirements. At the time the participant recognizes income with respect to the restricted stock, the Company is generally entitled to a deduction in an equal amount. Upon the sale of any shares that are delivered to the participant pursuant to an award, the participant will realize capital gain (or loss) measured by the difference between the amount realized and the fair market value of the shares on the date the shares were taxable to the participant pursuant to the award.

 

Performance Awards, Restricted Stock Unit Awards, Stock Awards, Other Stock Based Awards, and Stock Appreciation Rights. A participant who receives a performance award, restricted stock unit award, other stock based award, or stock appreciation right will not be required to recognize any income for federal income tax purposes at the time of the grant of such award, nor is the Company entitled to any deduction at such time. The rules described above with respect to restricted stock apply to any award that is made in restricted shares. A participant who receives a stock award that is not subject to vesting restrictions will generally recognize ordinary income equal to the fair market value of the shares on the date of grant (less the price paid, if any, for the shares).

 

Except for awards made as restricted stock, when performance awards, restricted stock, other stock based awards or SARs are paid or shares are delivered to the participant, the participant will realize compensation taxable as ordinary income in an amount equal to the cash paid or the fair market value of shares delivered.

 

Income tax withholding requirements generally apply to amounts that are recognized as ordinary income and the Company will generally be entitled to a deduction in the same amount and at the same time that the participant recognizes ordinary income. Upon the sale of any shares that are delivered to the participant pursuant to an award, the participant will realize either long-term or short-term capital gain (or loss), depending on how long the shares were held, equal to the difference between the amount realized and the fair market value of the shares on the date the shares were vested or delivered to the participant pursuant to the award.

 

Tax Withholding. The Company has the right to withhold from any payment of cash or stock to a participant or other person under the Plan an amount sufficient to cover any required withholding taxes, including the participant’s social security and Medicare taxes (FICA) and federal, state, local income tax or such other applicable taxes (“taxes”) with respect to the award. The Company may require the payment of any taxes before issuing any stock pursuant to the award. The Committee may provide for withholding of such taxes through a reduction of the number of shares delivered to such participant, or allow the participant to elect to cover all or any part of such withholding for taxes, through a reduction of the number of shares delivered to the participant or a subsequent return to the Company of shares held by the participant, in each case valued in the same manner as used in computing the withholding taxes under the applicable laws.

 

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Impact of Section 409A. Section 409A of the Code applies to deferred compensation, which is generally defined as compensation earned currently, the payment of which is deferred to a later taxable year. Awards under the Amended Plan are intended to be exempt from the requirements of Section 409A or to satisfy its requirements. An award that is subject to Section 409A and fails to satisfy its requirements will subject the holder of the award to immediate taxation, interest and an additional 20% tax on the vested amount underlying the award.

 

Limitations on Company’s Deduction. With certain exceptions, Section 162(m) of the Code limits the Company’s deduction for compensation in excess of $1,000,000 paid to the Company’s CEO and its three highest-paid executive officers other than the chief executive officer and chief financial officer. Compensation paid to covered employees is not subject to the deduction limitation if it is considered “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. Compensation is considered to be performance-based if it is paid pursuant to a shareholder-approved plan and satisfies certain other requirements.

 

By approving the Amended Plan, shareholders will be approving the eligibility of executive officers and others to participate in the Amended Plan, the per-employee limitations, and the general business criteria on which performance objectives for performance-based awards under the Amended Plan may be based, which are intended to allow certain awards under the Amended Plan comply with the Section 162(m) requirements. The Committee has discretion under the Amended Plan to grant stock options, SARs and performance awards that qualify as qualified performance-based compensation under Section 162(m) and, therefore, entitle the Company to a deduction for such awards. The Committee also has discretion to grant awards that do not qualify as qualified performance based compensation under Section 162(m). There can be no assurance that compensation resulting from awards intended to qualify under Section 162(m) will in fact be fully deductible under all circumstances.

 

Consequences of Change in Control. If a change in control in the Company causes vesting of awards under the Amended Plan to accelerate, or is deemed to result in the attainment of performance goals, the participants could, in some cases, be considered to have received “excess parachute payments,” which could subject the participants to a 20% excise tax on the excess parachute payments and could result in a disallowance of the Company’s tax deduction for the compensation.

 

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New Plan Benefits under the Amended Plan

 

Future benefits under the Amended Plan generally will be granted at the discretion of the Committee and are therefore not currently determinable. The table below shows, as to each of the Company’s executive officers named in the Summary Compensation Table of this Proxy Statement and the various indicated individuals and groups, the awards granted between January 1, 2016 and December 31, 2016 under the Plan.

 

 

Market Price of Shares

The closing price of the Company’s stock, as reported on the New York Stock Exchange on March 10, 2017 was $20.94.

 

The Board believes that the approval of the Amended and Restated Long-Term Incentive Plan is in the best interest of the Company and its shareholders and recommends a vote “FOR” the proposal.

 

 

 

 

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PROPOSAL 4: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION (“Say-on-Pay” Vote)

Executive compensation is an important topic for our shareholders.  At the core of our executive compensation philosophy is the belief that compensation should reflect performance; be fair, competitive and reasonable; and be determined in a manner consistent with the Company’s long-term strategy, competitive industry practice, sound corporate governance principles and shareholder interests.  We believe our compensation program is strongly aligned with the long-term interests of our shareholders.   We urge our shareholders to read the Compensation Discussion and Analysis (“CD&A”) section of this proxy statement for additional details on the Company’s compensation philosophy and objectives and the 2016 compensation of the NEOs.

Pursuant to Section 14A of the Exchange Act, we are asking shareholders to vote on the following resolution:

RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.

As an advisory vote, the results on this proposal are non-binding.  Nevertheless, the Board and the Compensation Committee value the opinions of our shareholders and will consider the outcome of the vote when making future compensation decisions for our NEOs.

The Board has adopted a policy providing for annual say-on-pay advisory votes.  Last year, 97.85% of votes cast by the Company’s shareholders approved of the Company’s compensation practices and executive pay.  Unless the Board modifies this policy, the next say-on-pay advisory vote will be held at our 2018 Annual Meeting.

The Board recommends a vote “FOR” the non-binding resolution approving the compensation paid to the NEOs, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.

 

 

 

 

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PROPOSAL 5: SHAREHOLDER VOTE ON THE FREQUENCY OF ADVISORY VOTES ON EXECUTIVE COMPENSATION

 

The Dodd–Frank Wall Street Reform and Consumer Protection Act requires that at least once every six years, companies ask their shareholders how often they would like to be presented with the “Say-on-Pay” advisory vote on executive compensation: every year, every two years, or once every three years. Accordingly, shareholders are being asked to approve the following resolution:

RESOLVED, that the shareholders of the Company approve that the frequency of the non-binding say-on-pay vote be held:

 

Because your vote is advisory, it will not be binding on the Board and may not be construed as overruling any decision by the Board of the Directors.  However, the Compensation Committee values the opinions expressed by shareholders and expects to take into account the outcome of the vote when considering the frequency with which future votes will be held regarding the Company’s executive compensation.

The Board believes an annual frequency (i.e., every year) is the optimal frequency for the Say-on-Pay vote. A vote every year provides shareholders the opportunity to evaluate the Company’s compensation policies and procedures on a regular and more frequent basis.  Specifically, because the Company makes its compensation decisions on an annual basis we believe our shareholders should have an annual opportunity to approve these decisions.  We also believe that an annual frequency vote provides the highest level of accountability and direct communication with our shareholders.  

The Board recommends a vote “FOR” approval of an annual advisory vote to approve the compensation paid to the executives named in the Summary Compensation Table.

 

 

 

 

 

OWNERSHIP OF COMPANY STOCK

To the best of the Company’s knowledge, the following table sets forth information regarding ownership of the Company’s outstanding common stock as of March 10, 2017, (except as otherwise noted) by:  (1) each person who is known by the Company to own beneficially more than 5% of the common stock of the Company; (2) each director, director nominee and NEO; and (3) all directors, director nominees and executive officers as a group.  Except as otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment powers for the securities listed.  The number of shares beneficially owned by each person is determined under the rules of the Securities and Exchange Commission (“SEC”), and the information is not necessarily indicative of beneficial ownership for any other purpose.  Under the rules of the SEC, all shares to which a person has the right to acquire beneficial ownership within 60 days are considered beneficially owned by that person.

 

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Security Ownership of Certain Beneficial Owners and Management

 

 

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Equity Compensation Plan Information

The following table provides certain information as of December 31, 2016, regarding the Company’s equity compensation plans.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who own more than ten percent (10%) of a registered class of the Company’s equity securities (“10% Holders”) to file reports of holdings and transactions in the Company’s common stock with the SEC and the New York Stock Exchange (the “NYSE”).  Based on the Company’s review of such reports (and amendments thereto), the Company believes that, in 2016, its directors, executive officers and 10% Holders filed all required reports of holdings and transactions in the Company’s common stock with the SEC and the NYSE on a timely basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CORPORATE GOVERNANCE AND BOARD OF DIRECTORS

Corporate Governance Principles

The Board and Management are dedicated to effective corporate governance.  The Board has adopted Corporate Governance Principles that provide a framework for the Company’s governance.  The Board has also adopted a Code of Business Conduct and a Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter.  The Corporate Governance Principles are set forth in full on the Company’s website at www.glatfelter.com/about_us/corporate_governance/principles.aspx.  The Company’s corporate website (www.glatfelter.com) includes a Corporate Governance page containing, among other information, the Code of Business Conduct, a list of the directors and executive officers of the Company, the charters of each of the Committees of the Board, the Company’s Code of Business Ethics for the CEO and Senior Financial Officers and other related information.  Copies of these materials are available, in print at no charge, upon request to the Secretary of the Company at 96 South George Street, Suite 520, York, PA 17401-1434.

The Company intends to satisfy the disclosure requirement for any future amendments to, or waivers from, its Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers by posting such information on its website.

Board Composition and Leadership

The Board currently consists of nine members.  Each year, the Board elects one of its members to serve as Chair.  Under the Board’s governance structure, the Chair:

When considering the election of a Chair, the Board reviews its governance structure and the qualifications of each director and determines who is best qualified to chair the Board.  The Board believes the Company and its shareholders are best served by having a Chair with wide-ranging, in-depth knowledge of the Company’s business operations and the Company’s industry and who can best execute the Company’s strategic plan.  Based on his extensive experience and knowledge of the Company’s operations, industry, competitive challenges and opportunities, the Board has determined that Dante C. Parrini is the director best qualified to serve in the role of Chairman. The Board therefore nominated Mr. Parrini in February 2017 as Chairman, subject to his re-election as a director at the Annual Meeting.

The Board has also determined that when the same person serves as both Chairman and CEO, the interests of the Company and the shareholders are best served by appointment of an independent Lead Director.  In February 2017, the Nominating and Corporate Governance Committee recommended, and the independent directors nominated, Kevin M. Fogarty to be the next independent Lead Director, effective on the date of the 2017 Annual Meeting, subject to his re-election as a director at the Annual Meeting.  The Lead Director presides over the executive sessions of the Board and coordinates and develops the agenda for those sessions.  The Lead Director communicates to the Chairman and CEO regarding the discussions at executive sessions as appropriate.  In the absence or disability of the Chairman, the Lead Director assumes the authority of and performs the duties of the Chairman, as provided in Section 2.18 of the Company’s by-laws, including presiding at any Board meeting at which the Chairman is not in attendance.

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Board Independence

The Corporate Governance Principles and the Company’s policies and procedures provide for an empowered, independent Board and the full involvement of the independent members of the Board in the Board’s operations and decision making.

In the Company’s Corporate Governance Principles, the Board has adopted the New York Stock Exchange (“NYSE”) standards for determining the independence of directors, which require that a director not have a material relationship with the Company.

Annually, each member of the Board is required to complete a questionnaire designed in part to provide information to assist the Board in determining if the director is independent under NYSE rules and our Corporate Governance Principles.  In addition, each director or nominee for director has an affirmative duty to disclose to the Nominating and Corporate Governance Committee relationships between and among that director (or an immediate family member), the Company, and/or Company Management.

The Board has determined the following directors are independent and have no material relationship with the Company: Ms. Dahlberg and Messrs. Brown, DeBenedictis, Fogarty, Hall, Ill, Naples and Stewart.  The Board has determined Mr. Parrini, as the Company’s CEO, is deemed not to be an independent director by NYSE standards and the Company’s Corporate Governance Principles.

Evaluation of Nominees for Board of Directors

The Nominating and Corporate Governance (“NCG”) Committee reviews all director nominations submitted to the Company, including individuals recommended by shareholders, directors or members of Management.  When evaluating whether to recommend an individual for nomination or re-nomination, the NCG Committee will consider, at a minimum and in accordance with the Company’s Corporate Governance Principles, the nominee’s independence, availability to serve on the Board and the candidate’s knowledge, experience, skills, expertise, wisdom, integrity, business acumen and understanding of the Company’s business environment.

In evaluating director candidates, the NCG Committee considers a wide variety of qualifications, attributes and other factors and recognizes that a diversity of viewpoints and practical experiences can enhance the effectiveness of the Board.  Accordingly, as part of its evaluation of each director candidate, the NCG Committee takes into account how that candidate’s background, experience, qualifications, attributes and skills may complement, supplement or duplicate those of other prospective candidates.

The NCG Committee specifically reviews the qualifications of each director candidate for election or re-election, including those of incumbent directors, the directors’ understanding of the Company’s businesses and the environment in which the Company operates, attendance and participation at meetings and independence, including any relationships with the Company.  Prior to nomination, each candidate for director must consent to stand for election, and each director nominee must agree in writing to abide by the Company’s majority voting policy.

After the NCG Committee has completed its evaluation of all director candidates, it presents a recommended slate of directors to the Board for consideration and approval.  The NCG Committee also discusses with the Board any candidates considered by the NCG Committee but not recommended for election or re-election as a director.

We will report any material change to this procedure in a quarterly or annual filing with the SEC.  In addition, we will make any changes to this procedure available promptly by posting that information on

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the Corporate Governance section of our website at http://www.glatfelter.com/about_us/ corporate_governance/default.aspx.

Based on the process described above, the NCG Committee recommended and the Board decided to nominate each of the incumbent directors for re-election at the Annual Meeting.  These decisions were based on the individual experience, qualifications, attributes and skills of each candidate.  The NCG Committee and the Board assessed these factors in light of the Company’s businesses, which provide a diverse line of specialty papers and fiber-based engineered materials.  In particular, the NCG Committee and the Board considered the following:

Majority Voting Policy

The Company’s by-laws and Corporate Governance Principles provide a majority-voting policy for the election of directors.  Each person nominated for election as a director must submit an irrevocable resignation in advance of the election.  In an uncontested election, for any nominee who is not an incumbent director and receives a plurality of the votes but does not receive a majority of votes cast, the resignation will be automatically accepted.  If a nominee is an incumbent director and receives a plurality of the votes but not a majority of votes cast, the NCG Committee will consider the resignation tendered by the affected director and make a recommendation to the Board whether to accept it.  The Board will act on the NCG Committee’s recommendation within 90 days following certification of the shareholder vote.  In making their determinations, the NCG Committee and the Board may consider other factors or information they consider appropriate or relevant.  Thereafter, the Board will promptly disclose its decision whether to accept the director’s resignation (and the reasons for rejecting the resignation, if applicable) in either a press release or a filing with the SEC.  Any director tendering his or her resignation pursuant to this provision may not participate in the NCG Committee’s recommendation or Board decision whether to accept his or her resignation.

A director whose resignation is not accepted by the Board shall continue to serve until the next annual meeting at which he or she is up for election and until his or her successor is duly elected, or until his or her earlier resignation or removal.  If a director’s resignation is accepted by the Board, or if a nominee for director who is not an incumbent director is deemed to have been elected and to have automatically resigned, then the Board, in its sole discretion, may fill any resulting vacancy pursuant to the Company’s by-laws, or may amend the Company’s by-laws to decrease the size of the Board.

Continuing Board Education

The NCG Committee periodically reviews and oversees orientation programs for newly elected directors and continuing education programs for incumbent directors.  The Company is a member of the NYSE Corporate Board Member Board Leadership Program, which provides continuing education programs, conferences and other resources for the Company’s directors and executives.

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Board Meetings

The Board held eight meetings during 2016.  The standing committees established by the Board held a total of 20 meetings in 2016.  Each incumbent director attended at least 78% of the total number of Board and Committee meetings on which he or she served in 2016.  Independent directors meet in regularly scheduled executive sessions (without Management), at which the Lead Director presides.

The Company does not have a policy regarding director attendance at the Annual Meeting, though directors traditionally attend the Annual Meeting.  All directors attended the 2016 Annual Meeting.

Committees of the Board of Directors

Audit Committee

The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Exchange Act, is a standing committee and currently consists of four directors: Mr. Ill (Chair), Ms. Dahlberg, and Messrs. Brown and Naples.  In the opinion of the Board, all four Audit Committee members meet the director independence requirements set forth in the NYSE listing standards and the SEC’s applicable rules and regulations in effect on the date of this proxy statement.  The Board has determined that, based on their experience, Messrs. Ill and Naples are audit committee financial experts, as that term is defined in the applicable SEC regulations, and that all members of the Audit Committee are financially literate within the meaning of the NYSE listing standards.

In accordance with its Charter, the Audit Committee reviews policies and guidelines with respect to risk assessment and risk management, including management reports on the Company’s processes to manage and report risks related to litigation, foreign exchange, taxes, contingent liabilities, and similar matters that may constitute significant financial exposure.  The Audit Committee assists the Board with oversight of (1) the quality and integrity of the accounting, auditing, and financial reporting practices of the Company; (2) the compliance by the Company, its directors and officers with applicable laws and regulations and its Code of Business Conduct; (3) the independent auditor’s qualifications and independence; and (4) the performance of the Company’s internal audit function and independent auditors.  The specific duties of the Audit Committee are described in its Charter, which is available at no charge from the Secretary or on the Company’s website at http://www.glatfelter.com/about_us/ corporate_governance/committees.aspx .

The Audit Committee has the authority to retain specialized legal, accounting, or other experts it deems necessary to carry out its duties.  The Audit Committee held seven meetings during 2016.

Compensation Committee

The Compensation Committee is a standing committee and currently consists of four directors: Mr. Stewart (Chair), Ms. Dahlberg, and Messrs. DeBenedictis and Hall. In the opinion of the Board, all four Compensation Committee members meet the director independence requirements set forth in the NYSE listing standards in effect on the date of this proxy statement.

In accordance with its Charter, the Compensation Committee is responsible for an executive compensation policy designed to support overall business strategies and objectives; attract, retain, motivate and reward key executives; link compensation with organizational performance while appropriately balancing risk and reward; align executives’ interests with those of the Company’s shareholders; and provide competitive and reasonable compensation opportunities.  The Compensation Committee also oversees the Company’s executive compensation and incentive plans.  A complete

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description of the Compensation Committee’s functions is contained in its Charter, available at no charge from the Secretary or on the Company’s website at http://www.glatfelter.com/about_us/corporate_

governance/committees.aspx.

Additional information regarding the engagement of an independent compensation consultant and the processes and procedures for consideration and determination of executive and director compensation is discussed later in this proxy statement.  The Compensation Committee held six meetings in 2016.

Finance Committee

The Finance Committee currently consists of five directors: Mr. DeBenedictis (Chair) and Messrs. Fogarty, Ill, Parrini and Stewart.  The Finance Committee advises the Board on the financial policies of the Company and has oversight over matters of financial significance to the Company.  The specific functions of the Finance Committee are described in its Charter, available at no charge from the Secretary or on the Company’s website at http://www.glatfelter.com/about_us/corporate_governance/committees. aspx.  The Finance Committee held three meetings during 2016.

Nominating and Corporate Governance Committee

The NCG Committee is a standing committee and currently consists of four directors:  Mr. Hall (Chair) and Messrs. Brown, Fogarty and Naples.  In the opinion of the Board, all four members of the NCG Committee meet the director independence requirements as set forth in the NYSE listing standards in effect on the date of this proxy statement.  Pursuant to its Charter, in addition to reviewing candidates for election to the Board, the NCG Committee advises the Board on all corporate governance matters, monitors the Company’s compliance with corporate governance guidelines, and periodically reviews such guidelines to ensure that they are appropriate for the Company and comply with the requirements of the SEC and the NYSE.

The specific functions of the NCG Committee are outlined in its Charter, available at no charge from the Secretary or on the Company’s website at http://www.glatfelter.com/about_us/corporate_governance

/committees.aspx.

The NCG Committee has the authority to retain director search consultants and outside counsel or other experts as it deems necessary to carry out its duties. The Company makes funds available to the Committee for such retention.  The NCG Committee held four meetings during 2016.

Risk Oversight

The Board oversees the management of risks inherent in the operation of the Company’s businesses and the implementation of its strategic plan.  The Board performs this oversight role using several different levels of review.  For its reviews of the Company’s business unit operations and corporate functions, the Board reviews and considers the primary risks associated with those units and functions.  The Board also reviews risks associated with the Company’s strategic plan at an annual strategic planning session and periodically throughout the year as part of its consideration of the Company’s strategic direction.

Each of the Committees also oversees the management of Company risks falling within the Committee’s areas of responsibility.  In performing this oversight function, each Committee has full access to Management as well as the ability to engage advisors.  At each Board meeting, the Chair of each Committee reports to the Board on the Committee’s oversight activities.

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The Company continues to manage its enterprise risks through a variety of policies, programs and internal control functions and processes designed to identify the primary risks to the Company’s business.  This includes an enterprise risk management framework used to identify, assess and quantify significant organizational and business risks and to develop strategies and controls to protect the Company's operations and reputation while ensuring legal compliance.  These programs and policies are overseen, supervised and administered by Management, which periodically updates the Board and the Committees of the Board on material risks that have been identified or publicly disclosed.  The Company’s Vice President, Internal Audit, who functionally reports to the Audit Committee, assists the Company in identifying, evaluating and implementing risk management controls and methodologies to address identified risks.  As part of its risk management role, at each of its meetings the Audit Committee meets privately with both representatives from the Company’s independent registered public accounting firm and the Company’s Vice President, Internal Audit.  The Audit Committee provides periodic reports to the Board on these activities.

As part of its oversight of the Company’s executive compensation program, the Compensation Committee considers the impact of the Company’s executive compensation program, and the incentives created by the compensation awards that it administers, on the Company’s risk profile.  In addition, the Compensation Committee reviews all of its compensation policies and procedures, including the incentives that such policies create and factors that may reduce the likelihood of excessive risk taking, to determine whether such policies present a significant risk to the Company.  Based on its review throughout the year, the Compensation Committee has concluded the Company’s compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company. As part of its risk management role, the Compensation Committee Chair meets privately with the Company’s independent registered public accounting firm to discuss the Committee’s activities.

Director Compensation

Payments to Directors in 2016

 

 

 

 

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Base Compensation – Cash

In 2016, non-employee directors received an annual retainer fee of $60,000, paid in cash.  In addition to the annual retainer, non-employee directors were paid in cash $1,500 for each Committee meeting they attended.  The director serving as Chair of the Audit Committee was paid an additional $15,000 in cash for his service; the director serving as Chair of the Compensation Committee was paid an additional $12,500 in cash for his service; the director serving as Chair of the Finance Committee was paid an additional $7,500 in cash for his service; and the director serving as Chair of the NCG Committee received an additional $7,500 in cash for his service.  The Lead Director received an additional $20,000 for her service in that capacity.  All accrued, but unpaid, director cash compensation payments are made twice annually, on May 1 and November 1.

Base Compensation – Equity

In 2016, each non-employee director received an annual RSU award valued at $90,000 on the grant date.  Such awards vest over a three-year period, and all restrictions lapse and the shares are paid out on the third anniversary.  RSUs granted to directors will immediately vest upon a change in control.  In the event of the death or disability of the director, all unvested RSUs will become immediately vested, and the restrictions with respect to such RSUs will lapse.

Deferred Compensation

Pursuant to the Company’s Deferred Compensation Plan for Directors, every year each director may elect to defer 50%, 75% or 100% of his or her annual retainer for serving on the Board, but any fees paid to a director for attending meetings of any Committee or for serving as a Chair may not be deferred.  No such elections were made in 2016.

Other Benefits

Each non-employee director is covered by the Company’s director and officer liability insurance policy and the Company’s travel accident insurance policy.

Share Ownership Guidelines

The Company has established share ownership guidelines for its non-employee directors, to enhance their alignment with shareholders’ interests.  The share ownership guidelines preclude the sale of shares by a director until he or she holds shares with a value equal to 5X the annual Board retainer of $60,000.  Directly held shares and unvested RSUs count toward attainment of the guideline.

 

 

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EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis (“CD&A”) describes the Company’s executive compensation philosophy and programs, the compensation decisions made by the Compensation Committee for the programs and the factors considered in making those decisions.  The CD&A focuses on the compensation of the following 2016 NEOs:

*Mr. Jacunski served in the role of Business Unit President for Specialty Papers from April 6, 2016 to January 5, 2017 in addition to his responsibilities as Executive Vice President and CFO.  

**Mr. Hillard was hired by the Company on March 21, 2016.  

Executive Summary

Our Business

Glatfelter is a global leader in the manufacturing of specialty papers and fiber-based engineered materials.  We operate 12 production facilities and employ approximately 4,350 employees worldwide. Going beyond paper is our promise to our customers, based on over a century and a half of experience and technical expertise and supported by best-in-class processes.  Additional information about our business can be found in our Annual Report posted at

http://www.glatfelter.com/about_us/investor_relations/annual_reports.aspx.

2016 Business Overview

During 2016, we operated in a challenging business environment.  Through our strategic planning process, we entered the year prepared to face headwinds from declining demand, overcapacity, increased competition and foreign currency.  Our Specialty Papers business unit, which represented approximately 53% of consolidated revenue, is in a secular decline and Composite Fibers, which accounted for approximately 32% of consolidated revenue, was impacted by challenging market conditions and unfavorable currency rates.  Despite these factors, 2016 was a solid year for Glatfelter. Our continuous improvement initiatives drove outstanding operations performance in 2016 resulting in a substantial benefit to operating profit.  Net income for the year ended December 31, 2016 was $21.6 million, or $0.49 per diluted share compared with $64.6 million, or $1.47 per diluted share in 2015. The GAAP-based results reflect the impact of significant unusual and non-recurring items including, among others, a $40 million charge to earnings to increase our reserve in the Fox River environmental matter, a pension settlement charge, and costs related to our environmental compliance initiative for Specialty Papers and an airlaid capacity expansion project. Excluding these items from reported results, adjusted earnings, a

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non-GAAP measure, was $60.7 million, or $1.38 per diluted share for 2016, compared with $58.9 million, or $1.34 per diluted share, a year ago. The year-over-year comparison reflects the following:

 

During the year we also successfully completed the $110 million environmental compliance project in Specialty Papers and remain on schedule and on budget to complete the $80 million airlaid materials capacity expansion project in Fort Smith, Arkansas. At the same time our cash flow profile allowed us to increase our cash dividend for the fourth consecutive year with a 4% increase.

2016 NEO Compensation Overview

The NEOs received the following compensation linked to Company performance:

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Compensation Programs

Compensation Program Objectives

The objectives of the Company’s executive compensation programs are to attract, retain, motivate, and reward those executives crucial to the success of the Company and to create long-term shareholder value.  Our programs are organized around three principles:

 

Overview

The Compensation Committee believes compensation should reflect the Company’s financial performance and be competitive based on a person’s responsibilities, individual performance and ability to exemplify the Company’s Core Values (Integrity, Financial Discipline, Mutual Respect, Customer Focus, and Environmental and Social Responsibility as defined at http://www.glatfelter.com/ about_us/vision.aspx).  The Compensation Committee recommends approval of the Company’s compensation philosophy to the Board of Directors and oversees the compensation programs for the NEOs and other executive officers of the Company.  All compensation decisions impacting the Chief Executive Officer are recommended by the Compensation Committee and require the approval of the Board.

Total compensation for the NEOs and other Company executive officers consists of base salary, short-term and long-term incentives, retirement and other benefits, and minimal perquisites.  The Company’s compensation programs generally target total compensation at the size-adjusted 50th percentile of the market and provide flexibility to deviate from the target to support Company growth strategies and evolving talent needs.  A significant portion of each NEO’s compensation is tied to the Company’s financial performance.  The opportunity to earn incentive compensation, and the risk, generally increases commensurate with the NEO’s level of responsibility.

The Compensation Committee evaluates NEO incentive compensation under the Company’s MIP and LTIP.  MIP compensation is dependent on the Company achieving certain ONI and Free Cash Flow goals.  LTIP compensation is dependent on longer-term performance metrics, including the achievement of cumulative two-year adjusted EBITDA and ROCE goals.  The Compensation Committee reviews these incentive plans annually, as discussed in the “Risk Oversight” section of this proxy statement, to determine whether they present undue risk to the Company.

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Executive Compensation and Governance Best Practices

The Compensation Committee, comprised entirely of independent directors, regularly monitors and implements best practices in executive compensation and governance, including the following:

 

Determination of Compensation Levels

The Compensation Committee seeks input from certain NEOs, external advisors and other Company executives when determining compensation decisions. Specifically:

The Compensation Committee may invite NEOs to attend portions of its meetings; however, the Compensation Committee usually meets in executive session alone and with the Consultant to reach final decisions regarding NEO compensation.

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To assist with reviewing NEO compensation, the Compensation Committee considers pay history, tally sheets, vested and unvested equity holdings and required share ownership. The Compensation Committee uses this information, in addition to market compensation data, individual and Company performance and talent, and succession planning when making compensation decisions for each NEO.

Pay decisions for each NEO (other than the CEO) as well as all other executive officers are approved by the Compensation Committee.  In the case of the CEO, the Compensation Committee, with assistance from the Consultant, develops recommendations in executive session without the CEO or any other member of Management, and then provides its recommendation to the independent members of the Board for ratification and approval.

In 2016, the Compensation Committee continued to retain the services of Meridian Compensation Partners, LLC (“Meridian”) as the Consultant.  The role of the Consultant is to assist with:

Compensation Peer Group and Benchmarking Process

To determine market levels, the Company targets the size-adjusted 50th percentile (as determined through regression analysis), and the Compensation Committee reviews target total compensation for similarly situated executives from peer group companies (“Compensation Peer Group”), where data available, as well as from multiple nationally recognized survey sources including:

A market analysis is performed annually for the CEO and CFO and biennially for the remaining NEOs, unless market conditions warrant a market study for additional executive roles for the year.  For 2016 compensation decisions, the review included the total compensation of all executives.

The Compensation Committee annually reviews the Company’s Compensation Peer Group to establish a relevant and appropriate peer group size.  The Compensation Committee approved an adjustment to the peer group to be used in setting 2016 pay levels to more appropriately reflect companies that fit industry and size parameters, and to account for acquisitions of existing peer companies.  Specifically, MeadWestvaco Corporation (merged with RockTenn) and Cenveo Incorporated were replaced by Domtar Corporation and Resolute Forest Products Incorporated. The annual revenues of the companies in the 2016 peer group range from $352 million to $6.3 billion with median revenue of $3.3 billion (versus the Company’s 2016 annual revenue of $1.6 billion).

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Although the median annual revenue of the Company’s Compensation Peer Group is slightly greater than two times the Company’s 2016 annual revenue, the Company targets the size-adjusted revenue at the 50th percentile, as determined through regression analysis, to determine appropriate market levels in setting competitive pay.  Benchmarking pay to regressed pay levels is a widely-accepted methodology for setting company’s executive compensation through comparisons to pay levels of its peer companies on a size-adjusted basis.

Regression analysis is used to develop a mathematical equation showing how certain variables are related. In regression terminology, the variable which is being predicted by the mathematical equation is called the “dependent” variable.  The variable or variables being used to predict the value of the dependent variable are called the “independent” variables.  In the Company’s market benchmarking analysis, the dependent variable was compensation; either base salary, total cash compensation (base plus short-term incentives), or total direct compensation (total cash plus long-term incentives).  For the corporate level positions, the independent variable was fiscal 2016 projected revenue to predict the levels of compensation.

Additionally, in selecting peer companies, the Compensation Committee believes that consistency in the Company’s Compensation Peer Group is necessary to ensure that it reflects companies within its industry for which the Company competes for talent.

The following is a list of companies included in the Compensation Peer Group for 2016:

 

The peer group for 2017 compensation decisions will remain unchanged except for the removal of Wausau Paper due to their acquisition by SCA.

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Elements of Compensation

The elements of our executive compensation programs for 2016 included base salary, short- and long-term incentives, minimal perquisites, and retirement and other benefits, as summarized in the following table:

 

Target Pay Mix

Annually the Compensation Committee reviews the mix of base salary, STI and LTI for each NEO to ensure an appropriate level of the executives’ recurring target compensation is tied to Company performance.  The Compensation Committee believes this approach is appropriate in order to provide year-over-year consistency in analyzing the pay mix when compared to the peer group.

The mix of compensation varies among each NEO with an average of 66% of target pay considered at risk.  Mr. Parrini has the greatest level of at-risk compensation, with 72% of his compensation tied to Company performance.  The Compensation Committee believes this level is appropriate for Mr. Parrini given his role as CEO to deliver and sustain shareholder value.

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Base Salary

The Compensation Committee believes base salary, which contributes to the Company’s compensation objectives of attracting and retaining talented executives, is an important element of compensation.  The base salaries of the NEOs are approved annually by the Compensation Committee typically during the first quarter of the calendar year.  The Compensation Committee considers several factors, without any assigned relative weightings, when determining base salary increases for NEOs:

For 2016, the following NEO base salary increases were approved:

 

 

 

With the exception of Mr. Jacunski discussed above, the base salary increases noted above are consistent with the broader merit adjustments received by other Glatfelter salaried employees.  

Short-Term Incentives:  The Management Incentive Plan

The Company provides an annual, short-term incentive bonus opportunity to the NEOs under the Company’s MIP.  The Compensation Committee approves a target bonus for each NEO expressed as a percentage of the NEO’s base salary.  The Compensation Committee establishes target bonuses for the NEOs generally at the 50th percentile of the market and retains flexibility to deviate from the target.

 

 

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For 2016 target bonuses as a percent of base salary for Messrs. Jacunski, Astley and Matsumoto were increased by 5 percentage points each for closer alignment to market competitive levels; Mr. Parrini’s target percent was unchanged from 2015.  The following table sets forth targeted bonus levels for each NEO: