UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☑
Filed by a Party other than the Registrant ☐
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
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P. H. GLATFELTER COMPANY |
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(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Date Filed:
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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Time and Date: |
Thursday, May 3, 2018 9:00 a.m. Eastern Time |
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Place: |
York County History Center Historical Society Museum 250 E. Market Street York, PA 17403 |
The 2018 Annual Meeting of Shareholders (“Annual Meeting”) of P. H. Glatfelter Company (“Glatfelter” or the “Company”), a Pennsylvania corporation, will be held on Thursday, May 3, 2018 at 9:00 a.m., to consider and act on:
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the election of nine members of the Board of Directors of the Company (the “Board”) to serve until our 2019 Annual Meeting and until their successors are elected and qualified; |
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a 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, 2018; |
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advisory approval of the Company’s named executive officer compensation; and |
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such other business as may properly come before the Annual Meeting. |
Only holders of record of the Company’s common stock at the close of business on March 9, 2018 (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 shares 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 29, 2018
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2018 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 3, 2018: P. H. Glatfelter Company’s proxy statement for the 2018 Annual Meeting of Shareholders and 2017 Annual Report are available via the Internet at www.glatfelter.com/about_us/investor_relations/sec_filings.aspx
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PROPOSAL 2: RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP |
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PROPOSAL 3: ADVISORY APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION (“SAY-ON-PAY”) |
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2018 PROXY STATEMENT ›i |
This Proxy Summary highlights information explained more fully elsewhere in this proxy statement and we ask that you read the entire proxy statement before voting.
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Time and Date: |
Thursday, May 3, 2018, at 9:00 a.m. Eastern Time |
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Place: |
York County History Center Historical Society Museum 250 E. Market Street York, PA 17403 |
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Record Date: |
March 9, 2018 |
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Voting: |
Shareholders of Glatfelter as of the Record Date are entitled to vote. Each share of Glatfelter common stock is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted upon at the Annual Meeting. |
Proposals Requiring Your Vote
You vote is very important to us and our business. Please cast your vote immediately on all proposals to ensure your shares are represented.
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Board Recommendation |
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1 |
PROPOSAL 1 — Election of Directors |
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The nine director nominees possess the necessary qualifications and range of experience and expertise to provide effective oversight and advice to Management. |
FOR |
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PROPOSAL 2 — Ratification of Appointment of Deloitte & Touche LLP |
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The Board, at the recommendation of the Audit Committee, approved the retention of Deloitte & Touche LLP as the Company’s independent auditor for fiscal year 2018. Shareholders are being asked to ratify the Committee’s selection of the independent auditor. |
FOR |
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PROPOSAL 3 — Advisory Approval of Named Executive Officer Compensation |
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The Company’s executive compensation program is designed to create a direct linkage between shareholder interests and Management, with incentives specifically tailored to the achievement of financial, operational and stock performance goals. 2017 incentive payouts and 2018 compensation decisions reflect feedback received from our shareholders through comprehensive engagement efforts. |
FOR |
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Core Values: Who We Are and What We Stand For
Our Core Values guide and capture the essence of the Company’s identity, establishing pillars upon which to build the business for the long-term. Our Core Values are:
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Integrity |
We are ethical and responsible in all our business endeavors. |
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Financial Discipline |
We are responsible for the prudent management of the resources entrusted to us and for the generation of financial value for our constituents. |
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Mutual Respect |
We treat each other with honesty and respect. We recognize that what we have and what we will achieve is through the efforts of our employees. We will strive to provide them with rewarding challenges and opportunities for advancement. |
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Customer Focus |
We are dedicated to understanding and anticipating the needs of our customers and helping them to achieve their business objectives. |
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Environmental Responsibility |
We recognize our business impacts the environment. We are committed to continue environmental improvement and the prevention of pollution. We are in compliance with environmental laws and regulations. |
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Social Responsibility |
We recognize our responsibility to contribute to the betterment of the communities in which we operate and the world in which we live |
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2018 PROXY STATEMENT › 1 |
PROXY SUMMARY
Our directors have a diversity of experience that spans a broad range of industries in the public and not-for-profit sectors. They bring a wide variety of skills, qualifications and viewpoints that strengthen the Board’s ability to carry out its oversight role on behalf of our shareholders. Glatfelter—and our shareholders—clearly benefit from their individual and collective business acumen, sound judgment, thoughtful decision-making and careful guidance.
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Skills Possessed by All Directors |
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Leadership Experience (Chairman, CEO, President, Senior Managing Director and/or CFO) |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
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High Integrity and Ethical Behavior |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
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Corporate Strategy / M&A |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
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Financial Literacy |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
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Corporate Governance, Compliance and Risk Management Experience |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
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Other Relevant Skills Our Directors Bring to the Board |
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Environment / Sustainability |
6 of 9 |
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Government / Regulatory |
7 of 9 |
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Human Resources / Executive Compensation |
7 of 9 |
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Information Technology |
4 of 9 |
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International Experience |
8 of 9 |
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Relevant Industry Experience |
5 of 9 |
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SEC Audit Committee Financial Expert |
7 of 9 |
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Corporate Responsibility
Glatfelter’s commitment to sustainability is one of our most important missions because the three interdependent aspects of sustainability—environmental, economic and social—work together to define our organization and ensure a long-standing and successful future. We take seriously our role as a corporate citizen and we are proud to share our 2017 sustainability program and objectives.
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2 › |
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P. H. GLATFELTER COMPANY
PROXY SUMMARY
Glatfelter is a global manufacturer of engineered materials and specialty papers. We operate under three distinct business units: Composite Fibers (“CFBU”), Advanced Airlaid Materials (“AMBU”), and Specialty Papers (“SPBU”). Our growth strategy is centered on continually expanding our engineered materials business, which includes CFBU and AMBU. These two businesses serve key, growing global markets such as single-serve coffee and tea, wallcover, hygiene and wipes products. Our engineered materials businesses have grown meaningfully over the last ten years and now represent half of our net sales and three-quarters of adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”). Conversely, our Specialty Papers business operates in a more challenging market environment with sizeable exposure to uncoated free sheet products that are in secular decline.
Our strategy focuses on:
We are committed to growing in our key markets and maintaining our leadership positions, while making appropriate investments to support our customers’ needs. For example, we invested approximately $85 million to build a new advanced airlaid facility in Fort Smith, Arkansas, to provide needed capacity to serve the growing North American market for wipes products. Production at the new facility began in early 2018 and will provide approximately 22,000 tons of additional capacity. This investment increases our total global airlaid materials capacity to approximately 129,000 tons.
Our investment in a global business system transformation will unify our processes and systems to improve our cost structure, facilitate global growth, empower employees, enable compliance and improve the customer experience. AMBU successfully completed implementation of new manufacturing and business systems in North America during the fourth quarter of 2017 with implementation at its European site to follow in 2018.
We are also dedicated to maintaining our leading market positions, expanding product margins and generating strong free cash flows. In 2017, we continued to deliver superior customer service, improve product quality, generate new business and develop new products. We implemented significant cost optimization initiatives in both CFBU and SPBU and sharpened our focus on strategic investments and continuous improvement initiatives.
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2018 PROXY STATEMENT › 3 |
PROXY SUMMARY
2017 Financial Performance Highlights
We entered 2017 expecting CFBU to return to growth after more difficult conditions impacted its results in 2015 and 2016. In addition, we expected AMBU to continue its steady growth. Notwithstanding our overall expectations for the engineered materials business, we expected all of our business units to face headwinds from increased competition in key markets, pressures on selling prices, and increased input costs. The Specialty Papers business unit, in particular, was expected to experience a challenging environment due to the secular decline in its markets, supply/demand imbalance and low industry operating rates.
CFBU and AMBU reported 15% and 14% growth in operating profits, respectively. The performance of these businesses was driven by higher shipping volumes, strong operating performance, and cost optimization and continuous improvement initiatives. However, Specialty Papers’ profitability declined much more than we expected with selling prices reaching eleven year lows due to declining industry operating rates. The weakness of Specialty Papers more than offset meaningful growth in the engineered materials businesses. On a consolidated basis adjusted earnings were $51.5 million in 2017 compared with $60.7 million in 2016.
Cash flow from operations for 2017 and 2016 totaled $104.3 million and $116.1 million, respectively. The decline was primarily due to expenses associated with strategic initiatives. During 2017, we substantially completed our investment to expand our airlaid capacity which will support growth in 2018 and beyond. The following charts present financial highlights for the periods indicated. EBITDA by business unit represents operating profit as presented in our 2017 Annual Report on Form 10-K before depreciation and amortization. A reconciliation of adjusted earnings per share to the nearest GAAP measure is incorporated by reference to Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2016 and 2017 Annual Reports on Form 10-K.
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4 › |
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PROXY SUMMARY
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). The objectives of the Company’s executive compensation programs are to attract, retain, motivate, and reward executives crucial to achieving the Company’s strategic plan and creating long-term shareholder value. Our compensation programs are organized around three principles:
Total compensation for our executives consists of:
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Long-Term Incentive |
•Performance Share Awards •Restricted Stock Units |
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Short-Term Incentive |
•Annual Cash Bonus |
Benefits |
•Pension and 401(k) •Health & Welfare Benefits •Severance •Minimal Perquisites Note: Program eligibility varies by individual and represents both current design and legacy retirement programs. |
Governance and Best Practices
The Compensation Committee, comprised entirely of independent directors, regularly monitors and implements best practices in executive compensation and governance. The following practices demonstrate our commitment to strong governance within our executive compensation programs:
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What We Do |
What We Don’t Do |
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Retain an independent compensation consultant accountable to the Compensation Committee. |
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Provide for excise tax-gross ups in the event of a change in control, starting with newly eligible executives in 2011. |
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Maintain a pay mix that is heavily performance-based. |
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X |
Backdate or reprice stock options or stock appreciation rights. |
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Establish compensation levels after consideration of peer group market data, generally targeted at the size-adjusted 50th percentile for total direct compensation (base, short- and long-term incentive), with the ability to pay higher or lower based on breadth of leadership experience. |
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Pay dividend equivalents on unearned performance awards. |
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✓ |
Assess and design compensation programs to mitigate compensation-related risks. |
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Permit hedging transactions or short sales. |
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✓ |
Maintain stock ownership guidelines for executives. |
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Permit pledging or holding Company stock in a margin account. |
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✓ |
Use multiple performance metrics in the short- and long-term incentive plans to avoid heavy reliance on one definition of success. |
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Provide excessive perquisites. |
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✓ |
Maintain a clawback policy to recoup compensation. |
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Require double-trigger vesting of LTI at change in control. |
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Maintain holding requirements on equity grants. |
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2018 PROXY STATEMENT › 5
PROXY SUMMARY
Shareholder Engagement Highlights
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We value shareholder input and recognize that our 2017 Say-on-Pay vote (63.5%) was lower than our historical average approval ratings in excess of 90% and lower than the approval rating we expect to receive from our shareholders. To ensure we understand shareholder perspectives regarding the Company’s executive compensation program, we embarked on an extensive shareholder outreach program throughout 2017, detailed in the Compensation Discussion and Analysis section. In response to 2017 shareholder feedback, our Compensation Committee approved certain compensation changes for 2018.
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Executive Compensation Component |
Feedback from our Shareholders |
Responsiveness to Shareholders
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Total Compensation |
Need for stronger alignment between CEO pay and the Company’s three-year total shareholder return. |
In early 2017 the Compensation Committee (and the Board in the case of the CEO) decided to freeze targeted compensation due to the challenging business conditions expected for the year and to align with expected business results. As a result, we chose to: •Freeze base salaries for the CEO, the CFO, and other named executive officers in 2017, except for Mr. Hess who received a promotional increase for assuming responsibility as Senior Vice President & Business Unit President of SPBU. •Freeze individual short- and long-term target incentive opportunities in 2017 except for Mr. Hess whose target opportunities were adjusted as a result of his promotion. As additional context, the total compensation from the summary compensation table for Messrs. Parrini, Jacunski, and Hess includes legacy pension benefits with values that fluctuate year-over-year based in substantial part on actuarial assumptions. The legacy pension plans were closed to new entrants in 2007. See “Pension Benefits” in the Compensation Discussion for additional pension plan details. |
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Short-Term Incentive Plans |
Concern about increased 2016 bonus payments in a year when 2016 performance results were below prior year actual results.
Concern about rigor in setting incentive targets. |
Exercising discretion, the Compensation Committee (and the Board in the case of the CEO) reduced the corporate component of 2017 short-term incentive payments for the CEO, the CFO and other Named Executive Officers (“NEOs”) by -12% to reflect the Company’s lower year-over-year performance when compared to 2016 and to align executive pay with annual business results, thus reinforcing the Company’s commitment to pay for performance. Rigorous 2018 targets have been established based on expected growth and financial improvement from year to year. Targets are tied directly to achieving the operating plan while taking into account industry conditions, investor expectations for growth, expected gains in key markets for engineered materials, gains from the start-up of AMBU’s Fort Smith facility, and increasing cash flow due to the completion of multi-year projects, while focusing efforts in SPBU to successfully compete in and shift focus to specialized engineered products. |
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Long-Term Incentive (“LTI”) Plans |
Lack of a relative total shareholder return metric. |
For 2018 Performance Share Awards (“PSAs”), the Compensation Committee added a three-year Relative Total Shareholder Return (“TSR”) metric as a modifier to 2018 PSAs with positive and negative 25% adjustments if the Company’s TSR is in the first or fourth quartile, respectively. An overall maximum payment of 200% will be applied regardless of any TSR modifier. Increased the ratio of 2017 PSAs from 50% to 60% of the total annual equity award to expand the link to Company performance and alignment with shareholder expectations. |
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6 › |
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Proposal 1: Election of Directors
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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 2019 Annual Meeting of Shareholders and until their respective successors are elected and qualified.
The Board recommends that shareholders vote “For” 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 2018 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified. |
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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 (as defined in “Frequently Asked Questions”) 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. |
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Committee Memberships
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Age |
Director Since |
Occupation |
Audit |
Comp |
Fin |
Nom & Gov |
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Bruce Brown* |
59 |
2014 |
Retired Chief Technology Officer, Procter & Gamble |
2 |
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Kathleen A. Dahlberg* |
65 |
2001 |
CEO, G.G.I., Inc. |
-- |
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Nicholas DeBenedictis* |
72 |
1995 |
Retired Chairman & CEO, Aqua America |
3 |
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C |
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Kevin M. Fogarty* (L) |
52 |
2012 |
President, CEO, Kraton Corporation, Inc. |
1 |
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J. Robert Hall* |
65 |
2002 |
CEO, Ole Smoky Distillery |
-- |
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C |
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Richard C. Ill* |
74 |
2004 |
Retired Chairman & CEO, Triumph Group, Inc. |
1 |
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C |
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Ronald J. Naples* |
72 |
2000 |
Chairman Emeritus, Quaker Chemical Corp. |
1 |
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Dante C. Parrini |
53 |
2010 |
Chairman, CEO, P. H. Glatfelter Co. |
1 |
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Lee C. Stewart* |
69 |
2002 |
Private Financial Consultant |
-- |
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C |
● |
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● indicates Member |
* indicates director is independent |
C indicates Committee Chair |
(L) indicates Lead Director |
The Board recommends a vote “FOR” each of the director nominees.
2018 PROXY STATEMENT › 7
PROPOSAL 1: ELECTION OF DIRECTORS
Additional Information about Director Nominees
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Bruce Brown |
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Director Since: 2014 |
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. |
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Age at Annual Meeting: 59
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Board Committees: Audit Nominating and Corporate Governance |
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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 six years of experience as a director of public companies.
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Kathleen A. Dahlberg |
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Director Since: 2001 |
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, McDonald’s Corporation, Grand Metropolitan PLC and American Broadcasting. |
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Age at Annual Meeting: 65
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Board Committees: Audit Compensation |
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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.
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Nicholas DeBenedictis |
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Director Since: 1995 |
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 through 2017. In January 2018, he became Chairman Emeritus at Aqua. He has also served as a director of Exelon Corporation since 2003 and of Mistras Group, Inc. since 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. |
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Age at Annual Meeting: 72
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Board Committees: Finance (Chair) Compensation Audit (as of December 2017) |
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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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8 › |
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PROPOSAL 1: ELECTION OF DIRECTORS
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Director Since: 2012 Independent Lead Director |
Mr. Fogarty joined the Company’s Board in 2012. He has been the President and Chief Executive Officer of Kraton Corporation, 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. |
|
Age at Annual Meeting: 52
|
|
|
Board Committees: Finance Nominating and Corporate Governance |
|
|
|
|
|
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 eight years of experience as a director of public companies.
|
||
|
|
|
|
|
|
|
|
|
J. Robert Hall |
|
|
|
|
|
|
Director Since: 2002 |
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 June 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. |
|
Age at Annual Meeting: 65
|
|
|
Board Committees: Nominating and Corporate Governance (Chair) Compensation |
|
|
|
|
|
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 almost 20 years of experience as a director of public companies. |
||
|
|
|
|
|
|
|
|
|
Richard C. Ill |
|
|
|
|
|
|
|
|
|
Director Since: 2004 |
Mr. Ill joined the Company’s Board in 2004. He served as the Chairman and Chief Executive Officer of Triumph Group, Inc., 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. He retired from the Triumph Board in July 2017. 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. 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. |
|
Age at Annual Meeting: 74
|
|
|
Board Committees: Audit (Chair) Finance |
|
|
Specific qualifications and experience of particular relevance to the Company: Mr. Ill has significant experience with general management including public-company finance and financial reporting, 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. |
|
|
|
|
|
|
|
2018 PROXY STATEMENT › 9
PROPOSAL 1: ELECTION OF DIRECTORS
|
|
|
|
Director Since: 2000 |
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 reviewed, monitored and advised 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 served as its 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 its 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, and is a former Chairman of the Federal Reserve Bank of Philadelphia. Mr. Naples currently serves as a director of Glenmede Trust Company, the Philadelphia Contributionship and Penn National Gaming, Inc. |
|
Age at Annual Meeting: 72
|
|
|
Board Committees: Audit (through December 2017) Nominating and Corporate Governance |
|
|
|
|
|
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.
|
||
|
|
|
|
|
|
|
|
|
Dante C. Parrini |
|
|
|
|
|
|
Director Since: 2010 |
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. |
|
Age at Annual Meeting: 53
|
|
|
Board Committees: Finance |
|
|
|
|
|
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 23 years of executive experience include seven years as a director of public companies.
|
||
|
|
|
|
|
|
|
|
|
Lee C. Stewart |
|
|
|
|
|
|
Director Since: 2002 |
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 Chief Financial Officer 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 until it was sold in 2017. 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. Mr. Stewart also serves on the Board of Mood Media, Inc. |
|
Age at Annual Meeting: 69
|
|
|
Board Committees: Compensation (Chair) Finance |
|
|
|
|
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. Mr. Stewart has over 20 years of experience as a director of public companies.
|
|
|
10 › |
|
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 2018. Deloitte audited the Company’s consolidated financial statements for the fiscal year ended December 31, 2017.
Although shareholder ratification is not required by our organizational 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 2016 and 2017?
For the years ended December 31, 2016, and December 31, 2017, fees paid to Deloitte by the Company were as follows:
|
|
2016 |
|
2017 |
|
||
|
Audit Fees(1) |
$ |
2,766,209 |
|
$ |
3,002,418 |
|
|
Audit Related Fees(2) |
|
64,809 |
|
|
311,991 |
|
|
Tax Fees(3) |
|
595,413 |
|
|
238,000 |
|
|
All Other Fees(4) |
|
19,700 |
|
|
— |
|
|
Total Fees |
$ |
3,446,131 |
|
$ |
3,552,409 |
|
|
(1) |
Audit Fees - were for professional services rendered for the annual audits of the consolidated financial statements of the company including the audits of internal control over financial reporting, review of quarterly financial statements included in the company's quarterly reports on Form 10-Q, and statutory audits and regulatory filings in foreign jurisdictions. |
|
(2) |
Audit-Related Fees – were for assurance and related services reasonably related to the performance of the audit or review of the Company’s consolidated financial |
|
statements, including, in 2017, the audit of carve-out financial statements. |
|
(3) |
Tax Fees – were primarily for tax compliance, tax advice and tax planning services, including tax planning and consultations |
|
(4) |
All Other Fees – represents a subscription for a database providing Human Resource related research, benchmarking, and similar services. |
All of Deloitte’s 2017 services for the Company were permissible under applicable laws and regulations. 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 2017, 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.
|
2018 PROXY STATEMENT › 11 |
Proposal 3: Advisory Approval of Named Executive Officer 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 2017 compensation of the NEOs.
Pursuant to Section 14A of the Securities Exchange Act of 1934 (as amended, 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. The next say-on-pay advisory vote will be held at our 2019 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 in the Compensation Discussion and Analysis, compensation tables and narrative discussion.
|
12 › |
|
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 9, 2018, (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 SEC rules, all shares to which a person has the right to acquire beneficial ownership within 60 days are considered beneficially owned by that person.
Security Ownership of Certain Beneficial Owners and Management
|
Name of Beneficial Owner |
Shares Beneficially Owned(1) |
Total Number of Shares Owned(1) |
% of Class |
|||||
|
BlackRock, Inc. |
|
5,486,251 |
|
|
5,486,251(2) |
|
12.60% |
|
|
The Vanguard Group, Inc. |
|
4,230,261 |
|
|
4,230,261(3) |
|
9.70% |
|
|
Dimensional Fund Advisors LP |
|
3,673,451 |
|
|
3,673,451(4) |
|
8.43% |
|
|
Fuller & Thaler Asset Management, Inc. |
|
3,079,602 |
|
|
3,079,602(5) |
|
6.90% |
|
|
Victory Capital Management Inc. |
|
2,435,214 |
|
|
2,435,214(6) |
|
5.59% |
|
|
Name of Beneficial Owner |
Position |
Directly Owned |
Indirectly Owned |
Options to Acquire Stock(7) |
Total Number of Shares Owned |
% of Class |
|
||||||||||||
|
Dante C. Parrini |
Chairman of the Board & Chief Executive Officer |
|
146,652 |
|
|
7,083(8) |
|
|
|
227,872 |
|
|
|
381,607 |
|
|
* |
|
|
|
John P. Jacunski |
Executive V. P. & Chief Financial Officer |
|
60,994 |
|
|
3,514(9) |
|
|
|
117,246 |
|
|
|
181,754 |
|
|
* |
|
|
|
Martin Rapp |
Senior V.P. & Business Unit President, Composite Fibers |
|
53,408 |
|
|
|
— |
|
|
|
14,434 |
|
|
|
67,842 |
|
|
* |
|
|
Nicholas DeBenedictis |
Director |
|
57,935 |
|
|
|
— |
|
|
|
— |
|
|
|
57,935 |
|
|
* |
|
|
Kathleen A. Dahlberg |
Director |
|
45,283 |
|
|
|
— |
|
|
|
— |
|
|
|
45,283 |
|
|
* |
|
|
Ronald J. Naples |
Director |
|
12,385 |
|
|
30,864(10) |
|
|
|
— |
|
|
|
43,249 |
|
|
* |
|
|
|
J. Robert Hall |
Director |
|
42,033 |
|
|
|
— |
|
|
|
— |
|
|
|
42,033 |
|
|
* |
|
|
Richard C. Ill |
Director |
|
40,963 |
|
|
|
— |
|
|
|
— |
|
|
|
40,963 |
|
|
* |
|
|
Christopher W. Astley |
Senior V.P. & Business Unit President, Advanced Airlaid Materials |
|
10,374 |
|
|
1,009(11) |
|
|
|
29,365 |
|
|
|
40,748 |
|
|
* |
|
|
|
Lee C. Stewart |
Director |
|
40,283 |
|
|
|
— |
|
|
|
— |
|
|
|
40,283 |
|
|
* |
|
|
Timothy R. Hess |
Senior V.P. & Business Unit President, Specialty Papers |
|
9,365 |
|
|
386(12) |
|
|
|
21,173 |
|
|
|
30,924 |
|
|
* |
|
|
|
Kevin M. Fogarty |
Director |
|
12,585 |
|
|
|
— |
|
|
|
— |
|
|
|
12,585 |
|
|
* |
|
|
Bruce Brown |
Director |
|
2,429 |
|
|
|
— |
|
|
|
— |
|
|
|
2,429 |
|
|
* |
|
|
All directors and executive officers as a group (17 individuals) |
|
592,714 |
|
|
|
48,664 |
|
|
|
470,717 |
|
|
|
1,112,095 |
|
|
2.55% |
|
|
|
* |
indicates ownership of < 1% |
|
|
(1) |
For purposes of the table, shares of common stock are considered beneficially owned by a person if such person has, or shares, voting or investment power for such stock. As a result, more than one person may beneficially own the same security and, in some cases, the same shares are listed opposite more than one name in the table. The table includes, in some cases, shares beneficially held by spouses or minor children, as to which beneficial ownership is disclaimed. The address of each director, director nominee and NEO of the Company is c/o P. H. Glatfelter Company, 96 South George Street, Suite 520, York, PA 17401. |
2018 PROXY STATEMENT › 13
OWNERSHIP OF COMPANY STOCK
|
|
(3) |
Pursuant to a Schedule 13G filed on February 9, 2018, consists of shares beneficially owned, as of December 31, 2017, by The Vanguard Group, Inc., an investment advisor which has sole voting and investment authority over 49,409 shares and 4,177,226 shares, respectively, and shared voting and investment authority over 8,152 and 53,035 shares, respectively. Vanguard Fiduciary Trust Company is a subsidiary of the Vanguard Group, Inc and is the beneficial owner of 44,883 of the shares reported by The Vanguard Group, Inc. Vanguard Investments Australia, Ltd. is a wholly-owned subsidiary of the Vanguard Group, Inc and is the beneficial owner of 12,678 of the shares reported by The Vanguard Group, Inc. The address of The Vanguard Group, Inc., is 100 Vanguard Boulevard, Malvern, PA 19355. |
|
|
(4) |
Pursuant to a Schedule 13G filed on February 9, 2018, consists of shares beneficially owned, as of December 31, 2017, by Dimensional Fund Advisors LP, an investment advisor with sole voting power over 3,526,159 shares and investment authority over 3,673,451 shares. All 3,673,451 shares are owned by four investment companies registered under Section 203 of the Investment Advisors Act of 1940, to which Dimensional Fund Advisors LP furnishes investment advice. Dimensional Fund Advisors LP disclaims beneficial ownership of such shares. Dimensional Fund Advisors LP serves as investment manager for certain other commingled group trusts and separate accounts. The address of Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, TX 78746. |
|
|
(5) |
Pursuant to a Schedule 13G filed on February 13, 2018, consists of shares beneficially owned, as of December 31, 2017, by Fuller & Thaler Asset Management, Inc., an investment adviser deemed to be the beneficial owner of 3,079,602 shares pursuant to separate arrangements whereby it acts as investment adviser to certain persons. Fuller & Thaler Management, Inc., has sole voting power over 3,021,052 shares, and sole dispositive power over 3,079,602 shares. Each person for whom Fuller & Thaler Asset Management, Inc. acts as investment adviser has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the common stock of the Company. The Undiscovered Managers Behavioral Value Fund, an open-end management investment company, has an economic interest in more than 5% of the subject securities reported in this Schedule 13G. The address of Fuller & Thaler Asset Management, Inc. is 411 Borel Avenue, Suite 300, San Mateo, CA, 94402. |
|
|
(6) |
Pursuant to a Schedule 13G filed on February 9, 2018, consists of shares beneficially owned, as of December 31, 2017, by Victory Capital Management Inc., an investment advisor with sole voting power over 2,379,814 shares and investment authority over 2,435,214 shares. The address of Victory Capital Management Inc. is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio, 44144. |
|
|
(7) |
Represents the gross number of shares of common stock that would be issued upon exercise of vested stock-only stock appreciation rights (“SOSARs”) on the Record Date. As of the Record Date, Mr. Parrini had 841,499 vested SOSARs; Mr. Jacunski had 382,923 vested SOSARs; Mr. Astley had 143,840 vested SOSARs; Mr. Hess had 95,230 vested SOSARs; and Mr. Rapp had 100,249 vested SOSARs. |
|
|
(8) |
Consists of 7,083 shares held by Mr. Parrini through the Company’s 401(k) Plan. |
|
|
(9) |
Consists of 3,514 shares held by Mr. Jacunski through the Company’s 401(k) Plan. |
|
|
(10) |
Represents shares owned by Mr. Naples’ spouse. |
|
|
(11) |
Consists of 1,009 shares held by Mr. Astley through the Company’s 401(k) Plan. |
|
|
(12) |
Consists of 386 shares held by Mr. Hess through the Company’s 401(k) Plan. |
|
14 › |
|
OWNERSHIP OF COMPANY STOCK
Equity Compensation Plan Information
The following table provides certain information as of December 31, 2017, regarding the Company’s equity compensation plans.
|
|
(a) |
(b) |
(c) |
|||||||||
|
Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) |
Weighted-average exercise price of outstanding options, warrants and rights(2) |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(3)(4) |
|||||||||
|
Equity compensation plans approved by security holders |
|
3,491,232 |
|
|
$ |
17.87 |
|
|
|
2,188,572 |
|
|
|
Equity compensation plans not approved by security holders |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Total |
|
3,491,232 |
|
|
$ |
17.87 |
|
|
|
2,188,572 |
|
|
|
(1) |
Includes 483,069 restricted stock units (“RSUs”); 446,317 PSAs; and 2,561,846 stock-only stock appreciation rights (“SOSARs”). For purposes of this calculation, it is assumed that PSAs will be paid at 100% of target. |
|
(2) |
Weighted average exercise price is based on outstanding SOSAR prices only. |
|
(3) |
Represents the securities remaining available for issuance under the Amended and Restated Long-Term Incentive Plan. |
|
(4) |
For purposes of this calculation, it is assumed that PSAs will be paid at 100% of target. |
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 (“NYSE”). Based on the
Company’s review of such reports (and amendments thereto), the Company believes that in 2017 its directors, executive officers and 10% Holders filed all required reports of holdings and transactions in the Company’s common stock on a timely basis.
2018 PROXY STATEMENT › 15
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 our CEO and Senior Financial Officers. The Corporate Governance Principles are set forth in full on the Company’s website at www.glatfelter.com/about_us/corporate_governance/principles. The Company’s 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:
|
• |
presides at all meetings of the Board, other than executive sessions; |
|
• |
identifies strategic issues to be considered for the Board agenda; and |
|
• |
consults with directors on the development of the schedule, agenda and materials for all meetings of the Board. |
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 who has 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 Chair. The Board therefore nominated Mr. Parrini in February 2018 as Chair, 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 Chair and CEO, the interests of the Company and the shareholders are best served by appointment of an independent Lead Director. In February 2018, the Nominating and Corporate Governance (“NCG”) Committee recommended and the independent directors approved Kevin M. Fogarty to continue as the independent Lead Director, effective on the date of the 2018 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 Chair and CEO regarding the discussions at executive sessions as appropriate. In the absence or disability of the Chair, the Lead Director assumes the authority of and performs the duties of the Chair, as provided in Section 2.18 of the Company’s by-laws, including presiding at any Board meeting at which the Chair is not in attendance.
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 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 NCG Committee relationships between and among that director (or an immediate family member), the Company, and/or 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 not an independent director as defined under the NYSE listing standards and the Company’s Corporate Governance Principles.
|
16 › |
|
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS
The 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 candidate’s independence, availability to serve on the Board, 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 reviews the qualifications of each incumbent director, including the director’s 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 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 approved 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, including as described in the skills matrix on page 2. The NCG Committee and the Board assessed these factors in light of the Company’s businesses, which provide diverse lines of engineered materials and specialty papers.
Resignation and Majority Voting Policy
Director Nominee Irrevocable Resignation
Each person who is nominated to stand for election as director must, as a condition to such nomination, tender an irrevocable resignation in advance of the meeting for the election of directors. Such resignation will be effective if, pursuant to the Company’s by-laws, (a) the person does not receive a majority vote at the next meeting for the election of directors, or (b) in the case of a nominee who is an incumbent director, the Board accepts the resignation.
Majority Voting
Contested Election. In an election of directors, where the Board determines that the number of nominees exceeds the number of directors to be elected, the directors shall be elected by a plurality of the votes cast.
Uncontested Election. If in an election of directors in which the number of nominees does not exceed the number of directors to be elected, any nominee who is not an incumbent director and receives a plurality of the votes cast but does not receive a majority of the votes cast, the nominee’s resignation will be automatically accepted. If the nominee is an incumbent director
and receives a plurality but not majority of the votes cast, the NCG Committee will make a recommendation to the Board on whether to accept the director’s resignation or whether other action should be taken. The incumbent director not receiving a majority of the votes cast will not participate in the NCG Committee’s recommendation or the Board’s decision regarding the tendered resignation. The independent members of the Board will consider the NCG Committee’s recommendation and publicly disclose the Board’s decision and the basis for that decision within 90 days from the date of the certification of the final election results.
A director whose resignation is not accepted by the Board will 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.
2018 PROXY STATEMENT › 17
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS
The Board held nine meetings during 2017. The standing committees established by the Board held a total of 20 meetings in 2017. Each incumbent director attended at least 89% of the total number of Board and Committee meetings on which he or she served in 2017. Independent directors meet in regularly scheduled executive sessions (without Management), presided by the Lead Director.
Committees of the Board of Directors
Our Board has four standing committees: Audit, Compensation, Finance, and Nominating and Corporate Governance. The Board determined that effective in May 2018, the Finance Committee will be dissolved and its duties assumed by the Board and other Board Committees. Each committee has its own 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 Board determined that all members of each of the Audit, Compensation, and NCG Committees are independent as required under the current listing standards of the NYSE and the SEC’s applicable rules and regulations.
The following chart provides a summary of each committee’s duties and responsibilities.
|
Committee |
Responsibilities and Duties |
Members |
Meetings in 2017 |
|
Audit Committee |
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. |
Richard C. Ill w * ** Kathleen A. Dahlberg ** Bruce Brown ** Nicholas DeBenedictis * ** |
7 |
|
Compensation Committee |
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; provide competitive and reasonable compensation opportunities; and review and approve non-employee director compensation. The Compensation Committee also oversees the Company’s executive compensation and incentive plans. |
Lee C. Stewart w Kathleen A. Dahlberg Nicholas DeBenedictis J. Robert Hall |
6 |
|
Nominating & Corporate Governance Committee |
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. |
J. Robert Hall w Bruce Brown Kevin M. Fogarty Ronald J. Naples
|
4 |
|
Finance Committee |
The Finance Committee advises the Board on the financial policies of the Company and has oversight over matters of financial significance to the Company. |
Nicholas DeBenedictis w Kevin M. Fogarty Richard C. Ill Dante C. Parrini Lee C. Stewart |
3 |
|
w Committee Chair *Financial Expert, as defined in the applicable SEC regulations **Financially literate within the meaning of the NYSE listing standards |
|||
|
18 › |
|
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS
We believe that our shareholders are best served by a Board that is well versed in subject matter relevant to board service and thoroughly comprehends the role and responsibilities of an effective Board in the oversight and management of the Company. We feel it is appropriate for our directors to have access to educational programs on an ongoing basis to assist them in discharging their duties as directors. In 2017, the Company was a member of the NYSE Corporate Board Member
Board Leadership Program until November. Since November 2017, the Company has been a member of the National Association of Corporate Directors. This membership provides continuing education programs, research data, conferences and other resources for the Company’s directors and executives. The NCG Committee periodically reviews and oversees orientation programs for newly elected directors and continuing education programs for incumbent directors.
The Board performs its 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 strategy.
Each Committee 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.
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 and protect the Company’s operations and reputation while ensuring legal compliance.
|
Board of Directors |
|||
|
Oversees the management of risks inherent in the operation of the Company’s businesses and the implementation of its strategic plan. |
|||
|
Audit Committee |
Compensation Committee |
Management |
Internal Audit |
|
Reviews policies and guidelines with respect to risk assessment and management, including reporting on the Company's processes to manage and report risks related to litigation, foreign exchange rates, contingent liabilities and similar matters that may constitute significant financial exposure.
|
Reviews all 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.
|
Oversees, supervises and administers policies, programs and internal control functions and processes designed to identify, assess and quantify significant organizational and business risks and to develop strategies and controls to protect the Company.
|
Assists the Company in identifying, evaluating and implementing risk management controls and methodologies to address identified risks. The Company’s Vice President, Internal Audit functionally reports to the Audit Committee.
|
2018 PROXY STATEMENT › 19
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS
|
Payments to Directors in 2017 |
|
||||||||||||||
|
Name(1) |
Fees Earned or Paid in Cash ($)(2) |
Stock Awards ($)(3) |
All Other Compensation ($)(4) |
Total ($) |
|
||||||||||
|
Bruce Brown |
$ |
79,000 |
|
|
$ |
114,993 |
|
|
$ |
5,174 |
|
|
$ |
199,167 |
|
|
Kathleen A. Dahlberg |
|
80,500 |
|
|
|
114,993 |
|
|
|
5,115 |
|
|
|
200,608 |
|
|
Nicholas DeBenedictis |
|
89,000 |
|
|
|
114,993 |
|
|
|
5,115 |
|
|
|
209,108 |
|
|
Kevin M. Fogarty(5) |
|
97,500 |
|
|
|
114,993 |
|
|
|
5,115 |
|
|
|
217,608 |
|
|
J. Robert Hall |
|
87,500 |
|
|
|
114,993 |
|
|
|
5,115 |
|
|
|
207,608 |
|
|
Richard C. Ill |
|
100,500 |
|
|
|
114,993 |
|
|
|
5,115 |
|
|
|
220,608 |
|
|
Ronald J. Naples |
|
79,000 |
|
|
|
114,993 |
|
|
|
5,115 |
|
|
|
199,108 |
|
|
Lee C. Stewart |
|
94,000 |
|
|
|
114,993 |
|
|
|
5,115 |
|
|
|
214,108 |
|
|
(1) |
Only non-employee directors receive compensation for service on the Board. Our CEO does not receive compensation for his services as a director. |
|
(2) |
The amounts include annual retainer fees, meeting fees and chair fees paid in cash. |
|
(3) |
In accordance with FASB ASC 718 the amount shown for all directors is based on the fair market value of $18.39 per share for RSUs granted on May 4, 2017. As of December 31, 2017 each Director held 14,484 RSUs, 3,964 of which were vested. RSUs granted to directors prior to 2017 had 3-year ratable vesting. |
|
(4) |
Represents dividend equivalents paid in cash. The Company paid cash dividend equivalents on outstanding director RSUs granted through 2016. Mr. Brown joined the Board in September 2014 and received a pro-rated grant for his first year as a director. |
|
(5) |
Mr. Fogarty’s compensation includes a Lead Director fee paid in cash. |
Non-employee directors receive compensation for their service that is designed to compensate them fairly for the time, effort and accountability required of a Board member and align their interests with our stockholders. In making its recommendation to the Board on independent director compensation, the Compensation Committee considers peer and general industry data, including an analysis of director compensation provided by Meridian Compensation Partners LLC, independent compensation consultant.
Cash Compensation
In 2017 each non-employee director received an annual retainer fee of $70,000, paid in cash. In addition to the annual retainer, non-employee directors were paid in cash $1,500 for each Committee meeting they attended in excess of eight committee meetings per year. The director serving as Chair of the Audit Committee was paid an additional $20,000 in cash for his service; the director serving as Chair of the Compensation Committee was paid an additional $15,000 in cash for his service; the directors serving as Chair of the Finance Committee and the NCG Committee each received an additional $10,000 in cash for their service. The Lead Director received an additional $20,000 for his service in that capacity. All accrued, but unpaid, director cash compensation payments are made twice annually, on May 1 and November 1.
Equity Compensation
In 2017 each non-employee director received an annual RSU award valued at $115,000 on the grant date. Such awards vest 100%, all restrictions lapse and the shares are paid out on the first anniversary of the grant date. During the one-year vesting
period, quarterly dividends accrue in the form of additional RSUs (but are not paid unless the awards vest). 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 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 deferral elections were made in 2017.
Other Benefits and Coverage
Each non-employee director is covered by the Company’s director and officer liability insurance policy, has entered into an indemnification agreement with the Company, and is covered under the Company’s travel accident insurance policy.
Share Ownership Guidelines
The Company has established share ownership guidelines for 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 $70,000. Directly held shares and unvested RSUs count toward attainment of the guideline.
|
20 › |
|
Sustainability: The Glatfelter Way
Glatfelter enhances everyday life for millions of people around the world through the products we make, the manner in which we conduct our business and the value that we generate for all stakeholders. "Sustainability" means striking the appropriate balance between our environmental responsibilities, financial performance, and social commitments. Only through continually achieving this balance can we truly be sustainable.
Every day, Glatfelter PEOPLE bring this sustainability mindset to the workplace and the communities we call home. Most of our facilities are located in small communities where our actions make a lasting impact. As an employer, we understand the
integral role we play in these communities because of the taxes we pay, the jobs we create that sustain families, and the philanthropic endeavors we support. We actively encourage our 4,200 employees to be involved in their communities and the activities important to them.
For 153 years we have taken seriously our role as a responsible corporate citizen. The confidence and trust our customers, employees, and communities have placed in us must be consistently earned over time through our performance and commitment to building a better tomorrow.
Environmental Responsibility
Looking at our products’ lifecycles, incorporating recycled content and creating products that conserve resources and improve everyday life are some of the ways we protect the environment. Air emission methods, forestry management, water discharge practices and production processes are all thoughtfully examined. Reducing waste and increasing our use of environmentally-friendly raw materials and renewable fibers, as well as renewable biomass fuels, help reduce our environmental footprint.
In 2017 we celebrated the completion of our largest environmental protection endeavor to date: a $113 million upgrade to the boiler systems in Spring Grove, Pennsylvania and Chillicothe, Ohio from coal to natural gas. In the past, the Company used readily available, affordable coal to power manufacturing operations at these two locations.
Improvements were also made to air emission control systems. The improvements are expected to reduce sulfur dioxide emissions by 90% and greenhouse gasses by 50 – 60%.
Similarly, our airlaid facilities have committed to a zero-waste program, one that has reduced landfill waste by 67% since its inception by reducing, reusing and recycling. Reducing waste production and using waste beneficially allows us to continuously lessen our environmental impact.
Conservation and innovation are necessary to sustain the Earth’s natural resources, which is why we are working to create value and develop sustainable, global solutions.
Economic Sustainability
Since 1864 Glatfelter has been a secure and profitable investment for the communities in which we operate, our skilled and dedicated employees, the countless suppliers who rely on us to help keep their small businesses in operation, and our investors, who provide us the opportunity to grow stronger and return value.
We have built a business model around high-value niche markets using speed, flexibility, innovation, solid operational performance and customer intimacy. This model has enabled us to build strong customer relationships and enhance shareholder value. It has also positioned us to reinvest in our business to develop new world-class products.
In December 2017 Glatfelter’s new state-of-the-art manufacturing facility in Fort Smith, Arkansas, produced its first airlaid roll, marking a major milestone in becoming the world’s
largest producer of airlaid material and cementing our position as a leader in the personal care market.
Glatfelter Fort Smith is the Company’s fifth North American manufacturing operation and first U.S.-based operation for AMBU. Locating in Fort Smith puts us in closer proximity to key suppliers and customers, and positions the facility close to highly efficient transportation routes across the southern United States. The new location also allows the Company to tap into the area’s high-quality workforce, from which over 60 new Glatfelter PEOPLE were recruited during the year.
With a strong balance sheet and investments in new products, Glatfelter is strategically positioned for continual growth and to become the global supplier of choice in the markets we serve.
2018 PROXY STATEMENT › 21
CORPORATE RESPONSIBILITY
From a well-established safety management system to ongoing training efforts and charitable giving programs, Glatfelter encourages a work environment that is safe, promotes healthy living and gives back to the community.
Globally, Glatfelter completed 2017 with a total case incident rate (“TCIR”) of 1.27. Half of all our facilities have safety rankings among the industry’s top 25% or better. With every Injury Free day that passes we get closer to earning world-class safety performance.
Concern and caring for current and future generations is a critical part of sustainability. By investing in employee education through U.S.-based tuition reimbursement and European-based apprenticeship programs, Glatfelter is helping to strengthen communities in the regions in which we operate by living our Core Values and providing opportunities to others.
The ability to develop highly skilled workers is a key competitive advantage, and one that our leaders in Gernsbach, Germany leverage through a proven apprenticeship program. Apprentices alternate for three years between a vocational education classroom and the Gernsbach facility, receiving real-world experience to become proficient as paper technology engineers, industrial clerks (office workers), electrical technicians, and industrial mechanics, careers that depend on internship-trained workers. A similar apprenticeship program was implemented in 2017 for our United Kingdom manufacturing operations.
Nearly all apprentices complete their on-the-job training and 92% go on to become loyal employees. In fact, more than 40% of Gernsbach’s 650 employees are former apprentices. Gernsbach’s training and apprenticeship programs are just one example of Glatfelter’s dedication to developing a world-class workforce with the technical know-how and commitment to customer service that customers have come to rely on for more than 150 years.
Through philanthropy and volunteerism, we impact many communities—and many countries—in positive ways, helping to ensure the sustainability of our business, employees, customers, and fellow world residents. Volunteer services
embrace many areas of the community, including the arts, education, economic development and the environment.
In 2017, our Ohio Operations employees continued their successful partnership with the local Tiffin Elementary School. Teams of Glatfelter PEOPLE visited the school on Friday mornings to greet the children as they started their day, providing encouragement and helping with homework. They also helped 5th and 6th graders with their science fair projects, and promoted literacy by providing children’s books printed on Glatfelter paper. Volunteers also cheered on students during the school’s annual field day. For this partnership, we were awarded the Community Partner of the Year award by the Ohio School Board Administration.
Our facility in Gatineau, Quebec, Canada sponsored the building of a new maternity ward in the local hospital. In Ober-Schmitten, Germany, Glatfelter PEOPLE participated in an annual challenge run for charity, while the Falkenhagen, Germany facility cheered on special athletes with disabilities during a yearly sporting event.
Glatfelter PEOPLE from our Pennsylvania Operations taught financial literacy with Junior Achievement in local classrooms, raised money for the local United Way, and joined Corporate team members in providing time and talent to local nonprofit boards.
Partnering with the York, Pennsylvania-based water company and health system, we underwrote a Summer Reading Program for more than 10,000 local children. Glatfelter PEOPLE also participated in the annual Leukemia and Lymphoma Society’s “Light the Night” event and showcased their talents in a singing competition to benefit the arts.
In the Philippines, we facilitate an abaca sustainability initiative aimed at improving people’s lives. Since its inception, the program has offered agricultural education, training and certification coordination for hundreds of local farmers, and it has established and supported a women’s handicraft group, generating income for many families in the area.
Together, Glatfelter PEOPLE are contributing to the betterment of the communities in which we operate and live around the world.
|
22 › |
|
Compensation Discussion and Analysis
|
|
|
|
|
Highlights |
23 |
|
|
23 |
||
|
25 |
||
|
What We Pay and Why |
28 |
|
|
30 |
||
|
35 |
||
|
36 |
||
|
Policies and Practices |
37 |
|
|
Role of the Compensation Committee and Consultant Independence |
38 |
This Compensation Discussion and Analysis (“CD&A”) describes the Company’s executive compensation philosophy and programs, the 2017 compensation decisions made by the Compensation Committee and the factors influencing their decisions including feedback received from shareholders throughout 2017. The CD&A focuses on the compensation of the following 2017 named executive officers (“NEOs”):
|
• |
Dante C. Parrini, Chairman of the Board and Chief Executive Officer (“CEO”) |
|
• |
John P. Jacunski, Executive Vice President (“EVP”) and Chief Financial Officer (“CFO”)* |
|
• |
Christopher W. Astley, Senior Vice President (“SVP”) and Business Unit President, Advanced Airlaid Materials (“AMBU”) |
• Timothy R. Hess, SVP and Business Unit President, Specialty Papers (“SPBU”)
|
• |
Martin Rapp, SVP and Business Unit President, Composite Fibers (“CFBU”) |
|
* |
Mr. Jacunski served as the President for SPBU in addition to his responsibilities as Executive Vice President and CFO until January 5, 2017 when he returned to his role as EVP & CFO to focus on the company’s growth strategy. |
SAY-ON-PAY VOTE AND SHAREHOLDER ENGAGEMENT
An advisory shareholder vote on the Company’s executive compensation practices (“Say-on-Pay”) was held at the 2017 Annual Meeting of Shareholders, with 63.5% of the shares voting in favor of the Company’s NEO compensation, well below Glatfelter’s historical average outcomes in excess of 90%. In response, we engaged in extensive discussions with shareholders to solicit feedback on our executive compensation programs and discuss opportunities for improvement. The outreach was conducted by the Compensation Committee chair, the EVP & CFO and the Vice President (“VP”) of Human Resources. From April to November members of the team reached out to firms representing approximately 60% of our shareholder ownership to discuss specific governance and compensation matters to ensure our strategies were in alignment with shareholder expectations. Based on the resulting feedback from the investor meetings the following themes emerged:
|
• |
Perceived misalignment between CEO pay and the company’s 3-year total shareholder return; |
|
• |
Increased 2016 annual incentive payout opportunities compared to 2015 while 2016 financial results were below prior year actuals; and |
|
• |
A long-term equity plan that does not include a relative total shareholder return (“TSR”) metric. |
2018 PROXY STATEMENT › 23
EXECUTIVE COMPENSATION
In response to the expected challenging business conditions during 2017 and shareholder feedback at multiple checkpoints, our Compensation Committee approved certain changes for 2017 and 2018 compensation programs.
Action – Total Compensation
|
• |
Prior to receiving the 2017 Say-on-Pay outcome the Compensation Committee made decisions to freeze target compensation for executives due to the challenging business conditions expected during the fiscal year 2017. |
|
• |
Base salaries for the Named Executive Officers were not increased in 2017 except for Mr. Hess who received a promotional increase for his role as SVP & President of SPBU. |
|
• |
All short-term and long-term target incentive opportunities in 2017 were frozen and unchanged from 2016 levels except for Mr. Hess whose targets were increased based on his promotion. |
As additional context, the total compensation from the summary compensation table for Messrs. Parrini, Jacunski and Hess includes legacy pension values that fluctuate year-over-year based partly on actuarial assumptions.
Action - Short-term Incentives (Management Incentive Plan)
|
• |
The Compensation Committee and the Board exercised downward discretion and reduced the corporate component of the NEO’s 2017 payouts by -12% to reflect the Company’s lower year-over-year performance when compared to 2016 and to align executive pay with our 2017 business results, thus reinforcing the Company’s commitment to pay for performance. As a result of the discretionary adjustment, the change in pension value for Mr. Parrini was also negatively impacted, resulting in a reduction of $77,000 in pension value as reported in the summary compensation table. |
|
• |
For 2018, the Compensation Committee approved short-term incentive compensation targets based on Company growth and financial improvement from year to year, tied directly to the 2018 operating plan. The rigorous targets took into consideration the expected market conditions from each business unit, including gains in key markets, recently developed new products, the completion of major capital investments in AMBU and SPBU, and cost optimization initiatives in CFBU and SPBU, with an overall focus on adjusting to pressures in specialty paper markets and gains in engineered products. |
|
• |
|
payments directly tied to key financial metrics which include operating net income and cash flows. The Compensation Committee selected these metrics to focus on profitable growth, cost optimization, and cash generation, which are measures the Management team can directly influence, and to provide a solid foundation for our strategic plans. These metrics received favorable support from shareholders we spoke with in 2017. |
Action - Long-term Incentives (Equity Plans)
|
• |
For 2017 the Compensation Committee authorized a change to the mix of awards (at target) increasing the weight of performance share awards (“PSAs”) from 50% of total grant value to 60% of total grant value, and replacing stock-only stock appreciation rights (“SOSARs”) with restricted stock units (“RSUs”) using a 40% weighting. The Compensation Committee’s intent with these changes is to strengthen the performance element of the equity plan design by increasing the weighting of the PSAs, and to further align the plan design with market given the overall decline in the use of stock option vehicles against industry peers. |
|
• |
Key business metrics for the PSAs are Return on Capital Employed (“ROCE”) and earnings before interest, taxes, depreciation and amortization (“EBITDA”), which focus on efficient use of resources and longer-term profitability across business units to support shareholder return. These metrics received favorable support from shareholders we spoke with in 2017. In combination the short and long-term metrics were perceived to provide a balanced approach and alignment with the strategic objectives of the Company. |
|
• |
Based on feedback received from shareholders as well as the desire to be consistent with general market practice, the Compensation Committee approved the addition of a three-year relative TSR metric to the 2018 performance share plan. The metric will serve as a modifier to the PSAs, using the S&P SmallCap 600 Index for comparison. The modification to the PSAs would occur if the Company’s 3-year relative TSR is in the bottom or top quartile of the index, with a respective reduction or increase of the shares earned by 25%. An overall maximum payment of 200% of target will be applied regardless of any TSR modifier. |
These actions are intended to address shareholder concerns and further align the Company’s compensation philosophy and executive compensation practices, enhancing pay for performance, pay at risk, and shareholder alignment.
|
24 › |
|
EXECUTIVE COMPENSATION
Glatfelter is a global leader in the manufacturing of engineered materials and specialty papers. Headquartered in York, Pennsylvania, we own and operate manufacturing facilities in Arkansas, Pennsylvania, Ohio, Canada, Germany, the United Kingdom, France, and the Philippines as well as sales and distribution offices in Russia and China. Our 13 manufacturing facilities have a combined production capacity of approximately 1.0 million tons of specialty papers, composite fibers and airlaid products used in a wide array of applications. 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.
2017 Business Overview
During 2017 we focused on achieving growth in CFBU and AMBU at least commensurate with the market; cost reduction and continuous improvement efforts, including organization workforce efficiency initiatives in both CFBU and SPBU, expanding product margins, and maximizing free cash flows.
Significant attention was directed towards ensuring the investment in our new airlaid facility remained on schedule. In addition, we completed the first phase of a new global business and manufacturing system for AMBU.
Significant strategic accomplishments during 2017 include:
|
• |
Generating a 14.7% increase in operating profit in our engineered materials businesses through increased shipping volumes, stronger operations, continuous improvement and cost optimization initiatives, and through new product opportunities in dispersible wipes, electrical component materials and wallcoverings. |
|
• |
Implementing cost optimization programs in CFBU and SPBU consisting of workforce efficiencies, eliminating underutilized assets and reduced discretionary spending. Combined, the actions are delivering meaningful results and are expected to increase annual operating profit by approximately $20 million when fully implemented. |
|
• |
Completing major capital spending projects in SPBU to achieve environmental and regulatory compliance in the U.S. |
|
• |
Substantially completing the $85 million advanced airlaid capacity expansion project which will add 22,000 tons of capacity to serve the growing North American airlaid market. |
On a consolidated basis, key financial metrics include:
|
• |
Adjusted earnings totaled $51.5 million in 2017 compared with $60.7 million in 2016. The lower earnings reflect significant growth of our engineered materials businesses that was more than offset by substantially lower pricing and lower profitability of Specialty Papers; |
|
• |
Total revenue declined less than 1% as 5.3% and 4.8% growth in CFBU and AMBU, respectively, nearly offset the significant decline in SPBU; |
|
• |
Cash flow from operations was $104.3 million in 2017 compared with $116.1 million in 2016; and |
|
• |
A dividend increase for the fifth consecutive year or 44% cumulative over this period. |
The following provides a summary of 2017 for each of our business units.
During 2017 our engineered materials businesses, CFBU and AMBU, performed very well, led by higher shipping volumes and strong operating performance as well as cost optimization and continuous improvement initiatives.
COMPOSITE FIBERS
|
• |
Composite Fibers’ operating profit increased 15%; |
|
• |
This business unit returned to growth in 2017 with strong recovery and growth across key product lines; |
|
• |
Shipping volumes increased by 9.2% compared to 2016; |
|
• |
Strong operational improvement; |
|
• |
Cost optimization program in CFBU generating approximately $10 million in annual savings; and |
|
• |
Record EBITDA margins of 16.7% |
ADVANCED AIRLAID MATERIALS
|
• |
Advanced Airlaid operating profit increased 14%; |
|
• |
Delivered strong profit and margin growth; |
|
• |
Shipping volumes increased 3.1% compared with 2016; |
|
• |
Fort Smith initial start-up completed and on track for commercial shipments in early 2018; |
|
• |
Successful business system implementation in Gatineau, Canada; |
|
• |
Continuous improvement initiatives drove expanded margins; and |
|
• |
Record EBITDA margins of 15.5% |
2018 PROXY STATEMENT › 25
EXECUTIVE COMPENSATION
SPECIALTY PAPERS 
|
• |
EBITDA declined 31.6% compared to 2016 significantly underperforming expectations; |
|
• |
Shipments declined 3.8%; |
|
• |
Industry operating rates below 90% led to selling prices falling to an eleven-year low; |
|
• |
Lower selling prices adversely impacted earnings by approximately $20.3 million in comparison of results in 2017 versus 2016; and |
|
• |
Implemented cost optimization actions including the shutdown of a paper machine (10% reduction in capacity) and a 15% reduction of the unit’s salaried workforce. The actions are expected to generate $9 million annual benefit. |
On February 6, 2018, the Company announced its intention to explore a range of potential strategic alternatives for the Specialty Papers business, including a potential sale of the business unit.
The elements of our executive compensation programs for 2017 included base salary, short- and long-term incentives, minimal perquisites, and retirement and other benefits, as summarized in the following table:
|
Primary Elements of Compensation |
||
|
Element |
Form |
Relation to Performance |
|
Base Salary |
Fixed Cash |
Reflects each executive’s performance, responsibilities, skills and value to the Company |
|
Short-Term Incentive (“STI”) |
Annual Cash Bonus (“MIP”) |
Variable pay motivates and rewards executives for achieving annual financial results |
|
Long-Term Incentives (“LTI”) |
Performance Share Awards (“PSAs”) |
Variable pay motivates and rewards executives for achieving cumulative business results derived from the Company’s strategic plan; directly aligns Management’s interests with shareholders’ interests |
|
Restricted Stock Units (“RSUs”) |
Promotes retention of key executives that is aligned with company stock price and supports execution of the Company’s strategic plan |
|
|
Other Benefits |
Pension and 401(k) plan, supplemental retirement plans, health and welfare benefits, severance arrangements and minimal perquisites |
Not performance-based; market-competitive offerings to attract and retain high caliber executive talent |
|
26 › |
|
EXECUTIVE COMPENSATION
2017 NEO Compensation Overview and Highlights
The NEOs received the following compensation, with short- and long-term incentives linked to Company performance:
|
• |
Base salaries: |
|
|
o |
Salaries were frozen for 2017 for all NEOs with no merit increases received. The exception was for Mr. Hess who received a base salary increase as a result of the promotion for assuming responsibility as SVP & President for SPBU. |
|
• |
Short-term incentive (“STI”) awards payable under the Management Incentive Plan (“MIP”): |
|
|
o |
The NEOs’ annual incentives under the MIP were contingent on the achievement of Operating Net Income (“ONI”) and Free Cash Flow (each as defined under Elements of Compensation; Short-Term Incentives: The Management Incentive Plan section), to encourage the executives to focus on earnings and cash flow generation at the corporate level. The business unit leaders (Messrs. Astley and Rapp) were also incented on the operating profit aligned to the performance of their respective business unit. Mr. Hess was also incented on the EBITDA results for SPBU. |
|
|
o |
Individual STI target payout opportunities were frozen for 2017, except for Mr. Hess as previously noted. |
|
|
o |
The Compensation Committee, and the Board in the case of the CEO, exercised downward discretion to reduce the corporate component of the NEO’s MIP payments by -12% to recognize the decline in 2017 target goals compared to 2016 and ensure alignment with overall business results, thereby further aligning incentive pay with 2017 performance. |
|
|
o |
After the -12% adjustment to the corporate component of the MIP: |
|
|
- |
Messrs. Parrini and Jacunski earned 57.2% of their individual payout target amounts based on the achievement of ONI and Free Cash Flow results as compared to the financial targets established by the Compensation Committee at the start of the performance period. |
|
|
• |
Mr. Parrini’s target MIP at 100% was $973,865. The amount prior to the reduction would have been $633,012, therefore the -12% adjustment negatively impacted his payout by $75,961. |
|
|
- |
Mr. Astley earned 72.9% of his individual payout target amount based on his incentive from the achievement of ONI and Free Cash Flow (60% weight) and the AMBUs’ operating profit component (40% weight). |
|
|
- |
Mr. Hess earned 58.4% of his individual payout target amount based on his incentive from the achievement of ONI and Free Cash Flow (60% weight) and the SPBUs’ EBITDA (40% weight). |
|
|
- |
Mr. Rapp earned 70.8% of his individual payout target amount based on his incentive from the achievement of ONI and Free Cash Flow (60% weight) and the CFBUs’ operating profit component (40% weight). |
|
• |
Long-term incentives (“LTI”): |
|
|
o |
The Company provided to all NEOs, market-competitive annual equity awards tied to long-term performance measures derived from the Company’s strategic plan. |
|
|
o |
Individual LTI target payout opportunities were frozen for 2017. |
|
|
o |
The long-term incentive program (“LTIP”) is primarily performance-based with 60% of a NEOs equity value derived from PSAs tied directly to the achievement of ROCE and EBITDA, and the remaining value provided in RSUs. The Company discontinued the use of SOSARs in 2017 to strengthen the performance element of the equity plan and further align the plan design with market given the overall decline in the use of stock option vehicles. |
|
|
- |
PSAs comprise 60% of NEOs’ LTI granted in 2017, have a three-year vesting period and provide an opportunity to receive shares of Company common stock contingent upon the achievement of goals tied to ROCE and cumulative EBITDA and excluding unusual items. |
- RSUs comprise the remaining 40% of the total grant value (at target) to promote retention and provide increased incentives to increase the share value. RSUs have a three-year vesting period.
|
|
- |
In addition to his annual grant, Mr. Hess was provided a one-time grant in January 2017 of 26,716 RSUs in connection with his promotional responsibility as SVP & President for SPBU. Mr. Hess must remain employed for five years to vest in the award as he drives the overall long-term strategy for SPBU. |
|
|
o |
The PSAs granted in 2015, which vested at the end of the three-year period on December 31, 2017, resulted in a 54.7% payout based on cumulative EBITDA and average ROCE performance. |
|
|
o |
For the PSAs granted in 2016 a payout of 93.4% was earned based on cumulative EBITDA and average ROCE performance for the performance period ending December 31, 2017. Service through December 31, 2018 is required for vesting. |
Mr. Hess received payment of a one-time cash retention bonus of $112,750 which was established in 2015, during his tenure as Vice President of SPBU Sales and Marketing, for his critical leadership of SPBU through the anticipated challenging business environment.
In addition to total direct compensation (consisting of base salary, STI and LTI) the Company provides retirement benefits to NEOs which are important for long-term retention. Messrs. Parrini, Jacunski, and Hess participate in legacy pension plans which the Compensation Committee considers prior commitments based on their long service. The legacy pension plans (qualified and non-qualified) have been closed to new entrants since 2007. Changes in the pension value illustrated in the proxy Summary Compensation Table are legacy pension agreements and determined in substantial part by actuarial factors outside the Compensation Committee’s direct control (see footnote 5 of the summary compensation table for additional details regarding change in pension values).
Additional details regarding the compensation programs are included in the Compensation Programs and Elements of Compensation and Target Pay Mix sections of the CD&A.
2018 PROXY STATEMENT › 27
EXECUTIVE COMPENSATION
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:
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 described in the “Corporate Responsibility” section of this proxy statement.) 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 approved by the Compensation Committee and require the ratification and 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 executive 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 level of pay at risk, generally increases commensurate with the NEO’s level of responsibility.
The Compensation Committee reviews the incentive plans annually, as discussed in the Risk Oversight section of this proxy statement, to determine whether they present undue risk to the Company.
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 retains an independent compensation consultant (“Consultant”) to provide advice, information and analysis on executive compensation and benefits. |
|
The Compensation Committee confers with the Consultant, the CEO, and the CFO to design compensation programs and obtain background on the Company’s key financial objectives, metrics and performance, and design of the Company’s short- and long-term incentive compensation programs. |
|
Compensation decisions pertaining to the CEO are ratified by the independent members of the Board, based on recommendations by the Compensation Committee and guidance from the Consultant. |
|
Compensation decisions pertaining to the NEOs other than the CEO are made by the Compensation Committee with consideration of recommendations from the CEO and guidance from the Consultant. |
|
The Company’s legal counsel and Human Resources staff provide legal, governance and technical input to the Compensation Committee with oversight by the Consultant. |
|
28 › |
|
EXECUTIVE COMPENSATION
The Compensation Committee may invite NEOs to attend portions of its meetings; however, the Compensation Committee meets in executive session alone and with and without the Consultant to reach final decisions regarding NEO compensation.
To assist with reviewing NEO compensation, the Compensation Committee considers market benchmark data, 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 the Company’s succession planning when making compensation decisions for each NEO.
In 2017 the Compensation Committee retained the services of Meridian Compensation Partners, LLC (“Meridian”) as the Consultant. The role of the Consultant is to assist with:
|
• |
providing competitive compensation market data; |
|
• |
assessing the competitiveness of the executive compensation programs; |
|
• |
making recommendations regarding program design based on prevailing market practices and business conditions; and |
|
• |
advising the Compensation Committee on: |
|
|
o |
the level of each NEO’s compensation; |
|
|
o |
composition of the compensation peer group; |
|
|
o |
incentive plan performance metrics and design; |
|
|
o |
external trends and regulatory developments; |
|
|
o |
revisions or additions to the Company’s executive compensation policies; and |
|
|
o |
Say-on-Pay guidance and input. |
Compensation Peer Group and Benchmarking Process
To determine market levels, the Company targets the size-adjusted 50th percentile, and the Compensation Committee reviews target total compensation for similarly situated
executives from peer group companies (“Compensation Peer Group”) where data is available, as well as from multiple nationally recognized survey sources including:
|
• |
William H. Mercer’s Executive Compensation Database; |
|
• |
Willis Towers Watson’s Executive Compensation Database; and |
|
• |
Korn Ferry Hay Group’s Executive Compensation Database |
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 2017 compensation decisions, the market review included the total compensation of the CEO and CFO.
The Compensation Committee annually reviews the Company’s Compensation Peer Group to establish a relevant and appropriate peer group size. For 2017 Wausau Paper was removed due to their acquisition by SCA. The annual revenues of the companies in the 2017 peer group range from $545 million to $5.9 billion with median revenue of $3.6 billion (versus the Company’s 2017 annual revenue of $1.59 billion).
Although the median annual revenue of the Company’s Compensation Peer Group is greater than the Company’s 2017 annual revenue, the Company targets the size-adjusted revenue at the 50th percentile through regression analysis to determine appropriate market levels in setting competitive pay. Benchmarking pay to regressed peer compensation levels is a widely-accepted methodology.
The Compensation Committee believes the current peer group is appropriate as it consists of companies within a reasonable revenue range compared to Glatfelter in the paper, packaging and forest products industries. In selecting peer companies, the Compensation Committee believes that consistency in the Company’s Compensation Peer Group is appropriate to ensure that it continues to reflect 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 2017:
|
|
|
|
2017 Compensation Peer Group* |
|
|
AEP Industries, Inc. |
Neenah Inc. |
|
Aptar Group, Inc. |
Packaging Corp. of America |
|
Avery Dennison Corp. |
Potlatch Corp. |
|
Bemis Company Inc. |
Rayonier, Inc. |
|
Clearwater Paper Corp. |
Resolute Forest Products, Inc. |
|
Domtar Corp. |
Schweitzer-Mauduit International, Inc. |
|
Graphic Packaging Holding Co. |
Silgan Holdings, Inc. |
|
Greif, Inc. |
Sonoco Products Co. |
|
KapStone Paper & Packaging Corp. |
|
|
|
* |
The peer group for 2018 compensation decisions is expected to remain unchanged except for the removal of AEP due to its acquisition by Berry Global Inc. |
|
2018 PROXY STATEMENT › 29
EXECUTIVE COMPENSATION
Annually the Compensation Committee reviews the mix of base salary, STI and LTI (total target direct compensation) 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 to provide year-over-year consistency in analyzing the pay mix when compared to the peer group.
The mix of compensation varies for each NEO with an average of 65% of target pay considered at risk. This average does not include pension or other benefits. Mr. Parrini has the greatest level of STI and LTI, with 72% of his total target direct compensation considered at risk. The Compensation Committee believes this level is appropriate for Mr. Parrini given his responsibility as CEO to deliver and sustain shareholder value.
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 and, in the case of the CEO, the independent members of the Board. The Compensation Committee considers several factors, without any assigned relative weightings, when determining base salary increases for NEOs:
|
• |
salary recommendations from the CEO for the NEOs other than himself; |
|
• |
Company and individual NEO performance; |
|
• |
the accountability and complexity of the NEO’s role in attaining Company objectives; |
|
• |
the external competitiveness of the NEO’s compensation; |
|
• |
company executive succession planning; and |
|
• |
internal equity and retention considerations. |
There were no increases in NEO base salaries for 2017, with the exception of Mr. Hess, as previously noted. The Compensation Committee did not increase base salaries due to the expected market headwinds and to support alignment with expected business conditions.
|
NEO Base Salaries (Annualized) |
|
|||||||
|
NEO |
Prior Base Salary (effective February 1, 2016) |
|
New Base Salary (effective February 1, 2017) |
|
% change |
|
||
|
Parrini |
$ |
973,865 |
|
$ |
973,865 |
|
0% |
|
|
Jacunski |
$ |
529,024 |
|
$ |
529,024 |
|
0% |
|
|
Astley |
$ |
368,051 |
|
$ |
368,051 |
|
0% |
|
|
Hess(1) |
$ |
287,513 |
|
$ |
375,000 |
|
30% |
|
|
Rapp(2) |
€ |
346,495 |
|
€ |
346,495 |
|
0% |
|
|
(1) |
Mr. Hess assumed the role of SVP & Business Unit President, SPBU effective January 6, 2017. |
|
(2) |
Mr. Rapp’s salary is paid in Euros; average 2017 exchange rate was 1.1290$/Euro. |
|
30 › |
|
EXECUTIVE COMPENSATION
Short-Term Incentives: The Management Incentive Plan
The Company provides an annual STI 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 at the 50th percentile of the market. There were no changes to NEO target bonuses for 2017 with the exception of Mr. Hess, whose target was increased based on his promotion to SVP and Business Unit President.
2017 NEO target bonus opportunities were as follows:
|
NEO MIP Target Bonus |
|
|
|
NEO |
2017 Target Bonus (as a percentage of 2017Base Salary) |
|
|
Parrini |
100% |
|
|
Jacunski |
65% |
|
|
Astley |
55% |
|
|
Hess |
55% |
|
|
Rapp |
55% |
|
In February each year, the Compensation Committee, in consultation with the Audit Committee, determines the degree to which the pre-established MIP performance metrics have been met. The Compensation Committee then decides whether to award bonuses to the NEOs, and at what level. The amount ultimately earned by the NEOs and other eligible executives depends on the achievement of performance metrics. The Compensation Committee may in its discretion adjust downward any bonus earned by any NEO or other executive. Any downward adjustment to the CEO’s bonus requires ratification and approval by the independent members of the Board.
For 2017 the Compensation Committee adopted a MIP design generally consistent with the design used in 2016 where 80% achievement of target performance pays 50% of the target award and 140% achievement pays 200% of target (except
that SPBU EBITDA has a threshold at 75% performance paying 20%), incorporating the following two metrics for all NEOs:
|
• |
ONI – defined as net income determined in accordance with accounting principles generally accepted in the United States (“US GAAP”), adjusted to exclude after-tax pension expense, the cost of strategic initiatives, impact of the Tax Cuts and Jobs Act (2017 US tax reform), and certain other items as specified by the Compensation Committee. |
|
|
• |
Free Cash Flow – defined as cash flows from operations determined in accordance with US GAAP less capital expenditures (adjusted to exclude spending related to strategic initiatives), and certain other adjustments as specified by the Compensation Committee. |
|
The short-term incentives for the Company’s Business Unit leaders (Messrs. Astley, Hess and Rapp) were measured on operating profit or EBITDA for their respective business unit in addition to the Company’s ONI and Free Cash Flow. Operating profit is determined in accordance with US GAAP and excludes pension expense and certain non-recurring items as determined by the Compensation Committee. As noted above the SPBU EBITDA threshold payout was established at 20% for 75% achievement due to the challenging market factors in 2017. The maximum opportunity is consistent with the rest of the MIP metrics with 140% achievement paying 200%. Performance below the threshold levels will not earn a payout, as determined by each metric and associated weighting.
These metrics are intended to focus NEOs and other key executives on generating earnings and effectively managing cash flow. The Compensation Committee supported continuing to use these metrics in 2017 to reinforce the Company’s operational and strategic objectives.
In 2017 the performance metrics were weighted as follows for the NEOs:
|
|
|
|
Corporate Positions |
Business Unit Positions |
|
|
|
2018 PROXY STATEMENT › 31
EXECUTIVE COMPENSATION
The targeted performance levels of ONI, Free Cash Flow, and business unit operating profit or EBITDA were derived from the Company’s 2017 budgeted levels that were approved by the Board. The development of the budget takes into account a variety of factors and assumptions including the Company’s strategic planning process and an assessment of the expected business environment. The Compensation Committee incorporates a requirement that the Company achieve minimum performance for each metric separately before any bonus may be earned (“Threshold”) on the respective portions of the overall award.
In setting performance goals for 2017 the Compensation Committee considered, among other factors, expectations of projected growth in many markets with a focus on markets across engineered products. The Compensation Committee considered expected major capital projects to be completed by the end of 2017, with ongoing long-term investments in AMBU. The Compensation Committee considered the impact of key organizational changes, such as the promotion of Mr. Hess to lead SPBU. In addition, the Compensation Committee considered the increasingly challenging business environment due to secular declines in demand, increasing competition, and excess capacity in many key markets. Furthermore, the Compensation Committee set the MIP goals in consideration of the risk that adverse global economic conditions could impact our target markets resulting in decreased demand for our products.
Fiscal Year 2017 Annual Bonus - Use of Downward Discretion
Throughout 2017 the Compensation Committee considered the potential to exercise its judgment and use downward discretion to modify short-term incentive payments if appropriate based on Company results. The year concluded with growth in AMBU and in CFBU but lower than expected results in SPBU, with earnings below Management’s expectations due to severe pricing pressures and difficult operational conditions.
The Compensation Committee and the Board determined that it was appropriate to exercise downward discretion to reduce the corporate component of final MIP awards for NEOs from 65% to 57.2%, or -12%, to reflect the Company’s lower year-over-year performance when compared to 2016 and to align executive pay with annual business results, thus reinforcing the Company’s commitment to pay for performance. The approach applies a commensurate reduction to the payout based on the reduction in 2017 target performance compared to 2016 actual results as illustrated below:
|
MIP Metric |
2016 Actual |
2017 Target |
Variance |
|
ONI |
$65.3 |
$58.3 |
-$7 or -11% |
|
Cash Flow |
$70.3 |
$59.5 |
-$10.8 or -15% |
|
Weighted Average Adjustment: |
-12% |
||
The following table outlines the approved threshold, target and maximum payment opportunities and financial goals for the NEOs under the 2017 MIP, as well as the weighted payout results based on the performance metric weights and downward adjustments of 12% on the corporate components made by the Compensation Committee and the Board.
|
NEO MIP Performance Metrics and Payout Levels |
|
||||||||||||||||||||||
|
|
Plan Goals |
|
|
2017 Results |
|
||||||||||||||||||
|
|
Below Threshold (0% Payout) |
Threshold (50% Payout) (3) |
|
Target (100% Payout) |
|
Maximum (200% Payout) |
|
|
Actual |
|
Achievement Factor |
|
Weighted MIP Payout % |
|
Adjusted Payout % |
|
|||||||
|
Achievement against Financial Goals |
< 80% |
|
80% |
|
|
100% |
|
|
140% |
|
|
-- |
|
-- |
|
-- |
|
-- |
|
||||
|
Performance metric (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Net Income(1) |
< $ 46.6 |
$ |
46.6 |
|
$ |
58.3 |
|
$ |
81.6 |
|
|
$ |
50.4 |
|
|
66.0 |
% |
65.0
|
%
|
57.2
|
%
|
||
|
Free Cash Flow(1) |
< $ 47.6 |
$ |
47.6 |
|
$ |
59.5 |
|
$ |
83.3 |
|
|
$ |
50.3 |
|
|
61.3 |
% |
||||||
|
Advanced Airlaid Materials Business Unit Operating Profit(2) |
< $ 23.7 |
$ |
23.7 |
|
$ |
29.6 |
|
$ |
41.4 |
|
|
$ |
29.2 |
|
|
96.5 |
% |
|
77.6 |
% |
|
72.9 |
% |
|
Specialty Papers Business Unit EBITDA(2) |
< $ 41.3 |
$ |
41.3 |
|
$ |
55.0 |
|
$ |
77.0 |
|
|
$ |
46.3 |
|
|
60.2 |
% |
|
63.1 |
% |
|
58.4 |
% |
|
Composite Fibers Business Unit Operating Profit(2) |
< $ 49.2 |
$ |
49.2 |
|
$ |
61.5 |
|
$ |
86.1 |
|
|
$ |
59.3 |
|
|
91.2 |
% |
|
75.5 |
% |
|
70.8 |
% |
|
(1) |
Corporate NEO metric weighting: 80% ONI and 20% Free Cash Flow |
|
(2) |
Business unit NEO metric weighting: 48% ONI, 12% Free Cash Flow, 40% Business Unit Operating Profit or EBITDA |
|
(3) |
SPBU threshold is at 20% for 75% achievement due to the challenging market factors in 2017. |
|
32 › |
|
EXECUTIVE COMPENSATION
The resulting MIP payments for our NEOs based on the financial results above and downward adjustments made by the Compensation Committee (and the Board in the case of the CEO) were as follows:
|
NEO MIP Payments |
|
|||||||||||||||||||||
|
NEO |
2017 Target Bonus (as a percentage of 2017 Base Salary) |
|
Eligible Salary |
|
2017 MIP Target Bonus |
|
2017 MIP Payout Percent - without reduction |
|
2017 MIP Payout - without reduction |
|
Reduced 2017 MIP Payout Percent |
|
Reduced 2017 MIP Payment |
|||||||||