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. )
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March 30, 2023
To the Stockholders of Albany International Corp.:
You are cordially invited to attend the 2023 Annual Meeting of Stockholders of Albany International Corp., which will be held virtually at 9:00 a.m. on Friday, May 12, 2023. You will be able to attend the Annual Meeting by visiting https://www.meetnow.global/MW4GHLL.
Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted. Therefore, you are urged to vote and submit your proxy promptly by phone, online, or by signing, dating, and returning a proxy card. If you decide to attend the Annual Meeting, you will be able to vote online, even if you have previously submitted your proxy. (An addressed, postage-prepaid envelope is enclosed for your return of the proxy.)
Information about the meeting, including a description of the various matters on which the stockholders will act, can be found in the accompanying Notice of Annual Meeting and Proxy Statement. The Annual Report for the fiscal year ended December 31, 2022, also accompanies these materials.
Sincerely yours,
 |  | ||||
ERLAND E. KAILBOURNE | A. WILLIAM HIGGINS | ||||
Chairman of the Board | President and Chief Executive Officer | ||||
ALBANY INTERNATIONAL CORP.
216 Airport Drive, Rochester, New Hampshire 03867
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 2023
The Annual Meeting of Stockholders of Albany International Corp. will be held on Friday, May 12, 2023, at 9:00 a.m. Eastern Time, for the following purposes:
1.To elect nine Directors to serve until the next Annual Meeting of Stockholders and until their successors have been elected and qualified;
2.to ratify the appointment of KPMG as our independent auditor;
3.to approve, by nonbinding advisory vote, executive compensation;
4.to recommend, by non-binding advisory vote, the frequency of stockholder voting on executive compensation;
5.to approve the Company's 2023 Long Term Incentive Plan;
6.to approve the adoption of the Amended and Restated Certificate of Incorporation; and
7.to transact such other business as may properly come before the meeting or any adjournment or adjournments thereof.
You will be able to attend and participate in the Annual Meeting online, vote your shares electronically and submit your questions prior to and during the Annual Meeting. To be admitted to the Annual Meeting please visit https://www.meetnow.global/MW4GHLL. No password is needed. There is no physical location for the Annual Meeting.
If you are a registered holder of Company shares (i.e., you hold your shares through our transfer agent, Computershare), please follow the instructions on your proxy card or Notice Regarding the Availability of Proxy Materials. If you hold your shares through an intermediary (i.e., a broker, bank or other financial institution), you must register in advance to attend, vote, and submit questions or comments at the Annual Meeting online. (See “Instructions/Q&A Section” beginning on page 2.)
Only stockholders of record at the close of business on March 17, 2023, will be entitled to vote at the Annual Meeting of Stockholders or any adjournment or adjournments thereof.
Whether or not you expect to attend the Annual Meeting, we urge you to vote your shares at your earliest convenience by telephone, online, or by signing, dating, and returning a proxy card. Submitting your proxy now will not prevent you from voting your shares at the meeting if you desire to do so, as your proxy is revocable at your option.
| JOSEPH M. GAUG | |||||
| Secretary | |||||
March 30, 2023
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by the Board of Directors (the "Board of Directors" or the "Board") of Albany International Corp. (“the Company”), 216 Airport Drive, Rochester, New Hampshire 03867, of proxies in the accompanying form for use at the Annual Meeting of Stockholders to be held on May 12, 2023, and at any adjournment or adjournments thereof.
GENERAL INFORMATION
Annual Meeting
We have again decided to hold the Annual Meeting virtually this year.
Voting Procedures
Each properly executed proxy in the accompanying form received prior to the Annual Meeting will be voted with respect to all shares represented thereby and will be voted in accordance with the specifications, if any, made thereon. If no specification is made, the shares will be voted in accordance with the recommendation of the Board of Directors. In addition, the shares will be voted in the discretion of the proxies with respect to (1) any matter of which we did not have notice prior to February 22, 2023, (2) the election of a person as a director in substitution for a nominee named in this proxy statement who, at the time of the meeting, is unable, or for good cause is unwilling, to serve, (3) any stockholder proposal properly excluded from this proxy statement, and (4) matters incident to the conduct of the meeting, or any other matters as may properly come before the meeting. A proxy may be revoked at any time prior to the voting thereof.
If a stockholder is a participant in our Dividend Reinvestment Plan (sponsored by our transfer agent, Computershare) or the Albany International Corp. ProsperityPlus 401(k) Savings Plan, a properly executed proxy will also serve as voting instructions with respect to shares in the stockholder’s accounts in such plans. In order for the plan trustee to vote 401(k) plan account shares, instructions must be received no later than 11:59 p.m. Eastern Time on May 8, 2023.
This proxy statement and the accompanying form of proxy are first being made available to our stockholders on or about March 30, 2023.
The only persons entitled to vote at the Annual Meeting (including any adjournment or adjournments) are holders of record at the close of business on March 17, 2023, of the Company’s Class A and Class B Common Stock outstanding on such date. As of March 17, 2023, there were 31,167,481 shares of the Company’s Class A Common Stock outstanding but NO shares of our Class B Common Stock outstanding. Each share of Class A Common Stock is entitled to one vote.
Any shareholder attending this year's virtual Annual Meeting will be considered “present” and “in person”. Under our By Laws, a copy of which is available at the Corporate Governance section of our website (www.albint.com), the presence, in person or by proxy, of shares having a majority of the total number of votes entitled to be cast at the meeting is necessary to constitute a quorum. Under Delaware law, if a quorum is present, a plurality of the votes cast at the meeting by the shares present in person or by proxy and entitled to vote is required for the election of directors. A majority of the voting power of our Class A Common Stock and Class B Common Stock present in person or by proxy, voting together as a single class, is required for any other action. Shares present at the meeting in person or by proxy and entitled to vote that abstain or fail to vote on any matter will be counted as present and entitled to vote but such abstention or failure to vote will not be counted as an affirmative or negative vote and thus will have the same effect as a vote “Against” each of the matters scheduled to be voted on at the Annual Meeting (other than the election of directors).
Under New York Stock Exchange (“NYSE”) rules, brokerage firms are permitted to vote in their discretion on certain routine matters on behalf of clients who have been requested to provide voting instructions, and have failed to do so by a date specified in a statement from the brokerage firm accompanying proxy materials distributed to its clients. Brokerage firms generally do not have such discretion as to any contested action, any authorization for a merger or consolidation, any equity-compensation plan or other matter related to executive compensation, any election of directors, or any matter that may affect substantially the rights or privileges of
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stockholders. In such a case, broker “nonvotes” are treated as shares that are present at the meeting but are not eligible to vote. The Company anticipates that brokerage firms will be able to vote in their discretion only on the proposal to ratify the selection of KPMG LLP as independent auditor. Broker “nonvotes” will not affect the outcome of any matter being voted on at the Annual Meeting, assuming that a quorum is present.
| Instruction/Q&A Section | |||||
| Q: | How can I attend the Annual Meeting? | ||||
| A: | The Annual Meeting will be a virtual meeting of stockholders, which will be conducted exclusively online. You are entitled to participate in the Annual Meeting only if you were a stockholder of the Company as of the close of business on the Record Date, or if you hold a valid proxy for the Annual Meeting. No physical meeting will be held. | ||||
You will be able to attend the Annual Meeting virtually and submit your questions during the meeting by visiting https://www.meetnow.global/MW4GHLL. No password is needed. You also will be able to vote your shares online by attending the Annual Meeting virtually. | |||||
| To participate in the Annual Meeting, you will need your 15-digit control number. Please carefully review the information included on your proxy card and on your Notice Regarding the Availability of Proxy Materials. | |||||
| If you hold your shares through an intermediary, such as a bank or broker, you must register in advance using the instructions below. | |||||
| The Annual Meeting will begin promptly at 9:00 a.m. Eastern Time. We encourage you to access the Annual Meeting prior to the start time leaving ample time for the check in. Please follow the registration instructions outlined in this proxy statement. | |||||
| Q: | How do I register to virtually attend the Annual Meeting? | ||||
| A: | If you are a registered shareholder (i.e., you hold your shares through our transfer agent, Computershare), you do not need to register to attend the Annual Meeting virtually. Please follow the instructions on the proxy card or Notice Regarding the Availability of Proxy Materials that you received. | ||||
| If you hold your shares through an intermediary, such as a bank or broker, you must register in advance to attend, vote, and submit questions at the Annual Meeting online. | |||||
| To register to attend the Annual Meeting virtually, you must submit proof of your proxy power (legal proxy) reflecting your Company holdings along with your name and email address to Computershare. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m. Eastern Time, on May 5, 2023. | |||||
| You will receive a confirmation of your registration by email after we receive your registration materials. | |||||
| Requests for registration should be directed to Computershare at the following: | |||||
| By email | |||||
| Forward the email from your broker, or attach an image of your legal proxy, to legalproxy@computershare.com | |||||
| By mail | |||||
| Computershare | |||||
| ALBANY INTERNATIONAL Legal Proxy | |||||
| P.O. Box 43006 | |||||
| Providence, RI 02940-3001 | |||||
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| Q: | How can I submit questions if I attend the Annual Meeting virtually? | ||||
| A: | If you wish to submit a question, you may do so in a few ways. If you want to ask a question before the Annual Meeting, you may do so at https://www.meetnow.global/MW4GHLL. No password is needed, but you will need your 15-digit control number found on your proxy card or Notice Regarding the Availability of Proxy Materials. If you hold our shares through a broker, you must register in advance using the instructions above. | ||||
If you want to submit a question before or during the Annual Meeting, you may do so by logging into the virtual meeting platform at https://www.meetnow.global/MW4GHLL, entering your 15-digital control number, and clicking on the Q/A icon on the right side of the page. Enter your question in the box and click send. | |||||
Questions pertinent to meeting matters will be addressed during the Annual Meeting, subject to time constraints. Questions that relate to proposals that are not properly before the Annual Meeting, relate to matters that are not proper subject for action by stockholders, are irrelevant to the Company’s business, relate to material non-public information of the Company, relate to personal concerns or grievances, are derogatory to individuals or that are otherwise in bad taste, are in substance repetitious of a question or comment made by another stockholder, or are not otherwise suitable for the conduct of the Annual Meeting as determined in the sole discretion of the Company, will not be answered. Additional rules of conduct and procedures may apply during the Annual Meeting and will be available for you to review in advance of the meeting at https://www.meetnow.global/MW4GHLL. | |||||
Any questions pertinent to meeting matters that cannot be answered during the Annual Meeting due to time constraints will be posted online and answered at https://www.meetnow.global/MW4GHLL. The questions and answers will be available as soon as practical after the meeting and will remain available until one week after posting. | |||||
| Q: | What if I have trouble accessing the Annual Meeting virtually? | ||||
| A: | The virtual meeting platform is fully supported across browsers (Microsoft Edge, Firefox, Chrome and Safari) and devices (desktops, laptops, tablets and cell phones) running the most updated version of applicable software and plugins. Note: Internet Explorer is not a supported browser. Participants should ensure that they have a strong WiFi connection wherever they intend to participate in the Annual Meeting. We encourage you to access the virtual meeting platform prior to the start time. For further assistance should you need it, you may call local 1-888-724-2416 or international +1 781-575-2748. | ||||
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TABLE OF CONTENTS
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SUMMARY OF SHAREHOLDER VOTING MATTERS
| Voting Matters | Board Vote Recommendation | See Page | |||||||||
| Item 1 | Election of Directors | FOR EACH NOMINEE | 14 | ||||||||
| Item 2 | Ratification of Independent Auditors | FOR | 21 | ||||||||
| Item 3 | Advisory Vote on Executive Compensation | FOR | 49 | ||||||||
| Item 4 | Advisory Vote on Frequency of Say on Pay Vote | ANNUALLY | 50 | ||||||||
| Item 5 | Approval of 2023 Long Term Incentive Plan | FOR | 51 | ||||||||
| Item 6 | Approval of Amended and Restated Certificate of Incorporation | FOR | 58 | ||||||||
DIRECTOR NOMINEES
| Name | Age | Director Since | Experience | Committee Membership | Other Public Company Boards | ||||||||||||
| Erland E. Kailbourne | 81 | 1999 | Retired Chairman and Chief Executive Officer (New York Region) of Fleet National Bank, a banking subsidiary of Fleet Financial Group, Inc. | Compensation, Governance | Rand Capital Corporation | ||||||||||||
John R. Scannell | 59 | 2012 | Retired Chief Executive Officer of Moog Inc., current Chairman of the Board | Compensation | Moog, Inc., M&T Bank | ||||||||||||
| Katharine L. Plourde | 71 | 2013 | Former principal and analyst at the investment banking firm of Donaldson, Lufkin & Jenrette, Inc. | Governance (Chair), Audit | |||||||||||||
A. William Higgins | 64 | 2016 | President & Chief Executive officer of Albany International Corp.; Former Chairman, Chief Executive Officer and President of CIRCOR International, Inc. | Kaman Corporation | |||||||||||||
| Kenneth W. Krueger | 66 | 2016 | Former interim President and Chief Executive Officer of Manitowoc Company, Inc., former Chief Operating Officer of Bucyrus International, Inc., | Audit (Chair), Governance | Manitowoc Company, Inc., Douglas Dynamics, LLC | ||||||||||||
Mark J. Murphy | 55 | 2020 | Chief Financial Officer of Micron Technology, former CFO, Qorvo, Inc., former CFO, Delphi Automotive, PLC, and former President, Praxair Surface Technologies. | Governance, Audit | |||||||||||||
| J. Michael McQuade | 67 | 2020 | Strategic advisor to the President, Carnegie Mellon University, former Vice President for Research at Carnegie Mellon University, former Senior Vice President, Science & Technology at United Technologies Company | Compensation (Chair) | |||||||||||||
Christina M. Alvord | 55 | 2022 | Former President, Southern and Gulf Coast Division, Vulcan Materials Company, Former President, Middle River Aircraft Systems (GE Aviation) | Compensation | Apogee Enterprises, Piedmont Lithium | ||||||||||||
Russell E. Toney | 53 | 2022 | President, Nortek Air Solutions, former President, Specialty Products Group, Dover Corporation | Compensation | |||||||||||||
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EXECUTIVE SUMMARY
At Albany International Corp. we develop and produce world-class highly engineered components and custom process solutions that improve efficiency, quality, and cost for our customers in the aerospace, paper and process industries. We do this by leveraging innovation leadership, operational excellence and the expertise of our diverse, engaged and talented global team. We are committed to driving sustainably positive results for our Company and for all of our stakeholders through consistent investment in talent and technology. Our core values are:
Safety Before all else, be safe.
Accountability Own your actions, decisions and results.
Integrity Do what’s right every time.
Respect Treat others as they want to be treated.
Passion Be determined and persistent to attain excellence.
Innovation Challenge assumptions to deliver the best solutions
BUSINESS HIGHLIGHTS
Years Ended December 31st | 2022 | 2021 | 2020 | ||||||||
| US $Million, except per share data | |||||||||||
| Net Sales | $ | 1,034.9 | $ | 929.2 | $ | 900.6 | |||||
| Operating Income | $ | 181.0 | $ | 178.0 | $ | 166.1 | |||||
| Net Income Attributable to the Company | $ | 98.5 | $ | 118.5 | $ | 98.6 | |||||
| Earnings Per Share – Basic | $ | 3.06 | $ | 3.66 | $ | 3.05 | |||||
| Earnings Per Share - Diluted | $ | 3.04 | $ | 3.65 | $ | 3.05 | |||||
Executing on our vision and strategy, we were able to deliver solid results for our stockholders in 2022. Our employees continued to meet the challenges caused by the global COVID 19 pandemic, rising inflation, and supply chain disruption. We responded resiliently to the impacts to geopolitical uncertainties, our decision to exit the Russian market, the lockdowns in China, and other macroeconomic issues in the markets we serve. We achieved net sales of $1,035 million, operating income of $181 million, and net income of $98.5 million resulting in basic earnings per share of $3.06. As we enter 2023, we remain committed to a disciplined capital allocation strategy focused on investing in our businesses, maintaining a sustainable dividend, opportunistic share buybacks, and, if presented, the pursuit of strategic investments and acquisitions that will generate acceptable returns on our invested capital.
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CORPORATE GOVERNANCE HIGHLIGHTS
At Albany International Corp. we believe good corporate governance creates long-term value for our stockholders and strengthens our relationships with other stakeholders. We are, therefore, committed to best corporate governance practices. In that regard, our corporate governance practices are dynamic and reflect the Board’s continual review of emerging best practices and their impact and effectiveness.
As part of this dynamic process, during 2022 the Board amended and updated its corporate governance guidelines to include (1) an enhanced Director overboarding policy, (2) a statement of factors taken into consideration when evaluating Director candidates, including experience, diversity and independence, and (3) the recognition of the Board’s role in reviewing management’s Environmental, Social and Governance (“ESG”) strategies and its oversight of cybersecurity risks. In line with those changes, we welcomed two new directors meeting those factors and qualifications, and revised the Charters of the Governance and Audit Committees of the Board of Directors to establish the former Committee’s role and responsibilities with regard to ESG, and the latter's relative to cybersecurity.
Independent Oversight | Accountability | ||||||||||
•8 of 9 Directors are independent •Non-executive Chairman •All independent committees •All members of the Audit Committee are financial experts •Private executive session for all independent Directors during each regularly scheduled Board meeting | •Annual Election of all Directors •Annual Board and Committee self-evaluations •Annual advisory vote on executive compensation •Stock ownership and retention guidelines •Prohibition on hedging, pledging and other transactions •Corporate Governance Guidelines with overboarding policy | ||||||||||
100% attendance at all Board and Committee meetings in 2022 | |||||||||||
CORPORATE RESPONSIBILITY HIGHLIGHTS
We are committed to sustainable practices in our business, our work environment, and in our communities. We are guided by our core values of safety, accountability, integrity, respect, passion and innovation. These values are embedded in the way we do business and how we treat one another, our customers, our suppliers and partners, and the communities in which we live and work.
By living our values, we strive to make a positive impact on the world and advance our three core sustainability pillars of
(1) Respect for our people and communities,
(2) Accountability for our role as environmental stewards, and
(3) Integrity in how we govern our business.
We believe that there is the right way to do business, which is essential for building long-term value for our stakeholders and ensuring Albany’s long-term success. Detailed information about our ESG initiatives and accomplishments can be found in our Sustainability reports and other disclosures in the corporate citizenship section of our website:
www.albint.com/en-us/company/Pages/CorporateCitizenship.aspx.
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Noteworthy initiatives and accomplishments include:
The continuing work of the Albany Sustainability Council, a group of cross functional leaders, with global representation across the company, focused on implementing the three pillars of sustainability;
The creation of our Environmental Policy and Standard, geared toward the measurement and management of greenhouse gas emissions;
The adoption of and disclosure of ESG metrics aligned with the SASB standard for the Industrial Machinery & Goods Industry, and supplemented with the SASB Aerospace & Defense Industry standard;
The continued growth of our mentoring, coaching and intern programs – in 2022, 14% of our interns joined the Company as full time employees following their graduation
World class results from an unwavering focus on safety - a worldwide Total Recordable Incident Rate of 0.48 in 2022;
A global voluntary turnover rate of only 6.3% in 2022;
The efforts of our Diversity, Equity & Inclusion (DE&I) Council, which have resulted in, among other things, an internal social network focus on DE&I, local DE&I champions, and community activities. In 2022 26.3% of our global workforce were woman and 25.8% of our U.S. workforce was racially/ethnic diverse;
The rollout of a revised and updated Business Ethics Policy, with 100% participation in related training.
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CORPORATE GOVERNANCE AT ALBANY INTERNATIONAL
BOARD LEADERSHIP STRUCTURE
Since becoming a public company in 1984, the Company has at times operated under a board leadership structure with the roles of Chief Executive Officer and Board Chairman combined, while at other times the positions of the Chairman and the top executive officer have been separated. At certain times during which the Chief Executive Officer also served as Chairman, a non-management Board member has served as Lead Director. A non-management independent Board member has served as Board Chairman since 2008.
The Board of Directors expects the Chairman of the Board to:
•function as a liaison and independent conduit between the members of the Board and the Company’s Chief Executive Officer between meetings of the Board;
•preside over meetings of, and provide leadership to, the non-management members of the Board; and
•set Board meeting agendas, in cooperation with the Chief Executive Officer and Secretary.
Other responsibilities of the Chairman are described in the Company’s Corporate Governance Guidelines. The Chairman is also empowered to delegate some of these duties, in his or her discretion, to a Vice Chairman. (Currently there is no Vice Chairman of the Board.) The Board has found that having a non-management director function in this role, whether as a “lead director” or as Chairman, facilitates communication, helps ensure that issues of concern to non-management directors are given an opportunity for discussion at meetings, and contributes generally to a more effective use of management and Board time. The Board also believes the current board leadership structure has served the Company well, allowing the Chief Executive Officer to devote his attention to the management of the Company during what has been a challenging and dynamic period. The Board engages in an annual self-evaluation process to determine whether the Board is discharging its responsibilities and operating effectively, and to consider changes in membership, structure, or process that could improve performance. While we believe that the current Board leadership structure is appropriate, it is possible that alternative Board leadership structures, including those that combine the offices of Chairman and Chief Executive Officer, could be appropriate for the Company under different circumstances.
RISK OVERSIGHT
The Board of Directors oversees the Company’s risk management processes. The Company’s Chief Executive Officer and Chief Financial Officer review with the Board, at each regularly scheduled quarterly meeting, the most significant top-level enterprise risks facing the Company, and the processes by which the Company mitigates such risks. This review is supported by periodic (but no less than quarterly) formal reviews by senior management of all significant enterprise risks, facilitated by the Chief Financial Officer. The Board requests that management, from time to time, supplement these quarterly reviews with a more detailed analysis of one or more specific risks, selected by the Board, including related mitigation actions. The Board also reviews management’s annual operating plan and strategic plan to ensure that they are consistent with, and appropriately address, the Company’s risks and risk management processes. The Audit Committee is responsible for assisting the Board in its oversight of the Company’s risk management processes. The Audit Committee periodically reviews the adequacy of the processes by which the Company handles risk assessment and risk management, and discusses such processes with management, the Company’s internal audit function and the independent auditor. The Committee receives periodic reports from the Company’s finance department regarding liquidity and other financial risks; from the finance and internal audit function regarding internal control risks; and from the finance, legal, and internal audit departments regarding processes for addressing fraud, legal and compliance risks, and the adequacy of the Company’s disclosure controls and procedures. Each year, the Committee also reviews the results of management’s annual fraud risk assessment. It also regularly reviews and discusses cyber-security risks to the Company with the Company’s Chief Information Officer and the internal audit function, and reviews and discusses with senior management the risk factors disclosed by the Company in its periodic filings with the Securities and Exchange Commission (“SEC”) before such filings are made. Each year, the Compensation Committee assesses compensation-related risks to the Company.
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Although the Board oversees the Company’s risk management, day-to-day management of risk remains the responsibility of management.
DIRECTOR INDEPENDENCE
The corporate governance standards of the NYSE (“NYSE Standards”) require that a majority of our Board consist of independent directors. In general, the NYSE Standards require that an independent director must have no material relationship with the Company, except as a director. Our Board reviews any business transactions and charitable relationships between the Company and each director to determine whether any such material relationship exists, and to evaluate whether there are any other facts or circumstances that might impact a determination of the independence of such director. Based on its review, our Board has determined that all Board members, other than President and CEO A. William Higgins, are independent under the NYSE Standards. Our Board has appointed only independent directors to our Audit Committee, Compensation Committee and Governance Committee in accordance with the independence requirements set forth in NYSE Standards.
The Board of Directors has also determined that all of the members of the Audit Committee are independent under the separate independence standards set forth in SEC Rule 10A-3. The Board is not required to make this determination with respect to any other director, and it has not done so.
MEETING ATTENDANCE
The Board of Directors met five times in 2022. Each incumbent director attended (in person or by video) 100% of the aggregate number of meetings of the Board and of the committees of the Board on which he or she served. It is the policy of the Company that all persons who are candidates for election to the Board of Directors at an Annual Meeting of Stockholders should attend that meeting. All of the candidates for election to the Board of Directors who were also candidates in 2022 attended the 2022 Annual Meeting of Stockholders.
NON-MANAGEMENT DIRECTORS
Meetings of the “non-management” directors, as defined by the NYSE Standards, are regularly held at the conclusion of each regularly scheduled meeting of the Board. The current non-management directors are all of the directors other than Mr. Higgins. Meetings of the non-management directors during 2022 were chaired by the Chairman. The Chairman also acts as a liaison between the directors and the Chief Executive Officer and facilitates communication among the directors. Interested persons may communicate with the Chairman and the non-management directors by writing to: Chairman, Albany International Corp., 216 Airport Drive, Rochester, New Hampshire 03867.
BOARD COMMITTEES
The Board assigns responsibilities and delegates authority to its committees, which regularly report on their activities and actions to the Board. The Board has determined that each current member of each committee is “independent” within the meaning of the NYSE Standards and the Guidelines and meets any applicable additional committee-specific independence requirements. The standing committees of the Board of Directors are the Governance Committee, the Audit Committee, and the Compensation Committee. The purpose and principal responsibilities of each committee are summarized below and set forth in more detail in each committee’s written charter, which can be found in the Corporate Governance section of our website (www.albint.com).
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| Governance Committee | Purpose: to provide leadership to the Board in the development and maintenance of an effective corporate governance structure and process | ||||
Members: Katharine L. Plourde, Chair Kenneth W. Krueger Mark J. Murphy | Principal Responsibilities: •reviews and recommends changes to the Company’s Corporate Governance Guidelines and governance and management structure; •evaluates the effectiveness of the Board of Directors, its committees, and the directors; •recommends to the Board of Directors the persons to be nominated for election as directors; and •reviews management succession planning; and •reviews with management the Company's ESG strategy, initiatives and policies. | ||||
| Meetings in 2022: 4 | |||||
| Attendance: 100% | |||||
Directors Plourde, Krueger and Murphy each served on the Governance Committee during all of 2022.
The Governance Committee considers, on an ongoing basis, the skills, background, and experience that should be represented on the Board of Directors and its committees, the performance of incumbent directors, the appropriate size of the Board of Directors, potential vacancies on the Board, and other factors relating to the efficacy of the Board. The Committee and the Board seek to maintain a group of Board members that, in the aggregate, possesses the skills, background, and experience necessary and desirable to address effectively the issues and challenges the Company will confront. The Board does not expect that any single member will possess all of these attributes, and therefore seeks to accomplish this by selecting candidates with diverse skills and backgrounds taking into consideration such factors as experience, diversity, and, for non-management directors, independence. The Committee discusses with the Board, at least annually, the various qualifications and skills that should be represented on the Board and its committees, taking into account the nature of the business and the objectives of the Company as they may evolve over time. The Committee also reviews, on an annual basis, the performance of the sitting members of the Board, and makes recommendations to the Board regarding those directors to be nominated for reelection by the stockholders.
The Governance Committee employs professional consultants for this purpose, and members of the Committee also communicate with knowledgeable persons on a continuing basis to identify potential candidates for Board membership. Any qualified potential candidates so identified are then discussed by the Committee and the Board, and if the potential candidate appears likely to be a substantial addition to the Board, he or she is then interviewed by members of the Committee and the Board. The Governance Committee then considers the reports of the interviews and other information that has been gathered and determines whether to recommend to the Board of Directors that the person be elected as a director. The Committee has retained the director search firm of G. Fleck/Board Services since 2011 to assist in identifying and evaluating potential Board members, and at times Korn Ferry has supplemented the work of G. Fleck/Board Services as needed.
Stockholders may send recommendations of persons to be considered by the Governance Committee for nomination for election as directors to: Chair, Governance Committee, Albany International Corp., 216 Airport Drive, Rochester, New Hampshire 03867. Our Corporate Governance Guidelines, a copy of which is available at the Corporate Governance section of our website (www.albint.com), set forth criteria to be employed by the Governance Committee and the Board of Directors in determining whether a person is qualified to serve as a director of the Company. Recommendations by stockholders should include information relevant to these criteria. The Governance Committee will give consideration to persons recommended by stockholders in the same manner that it employs when considering recommendations from other sources.
All of the nominees for election as directors at the 2023 Annual Meeting are current Board members standing for election or reelection by the stockholders.
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Audit Committee | Purpose: to assist the Board of Directors in fulfilling its oversight responsibilities in a number of key areas, including: • the integrity of our financial statements, financial reporting process, and internal controls; • the performance of our internal audit function; • our compliance with legal and regulatory requirements, including our disclosure controls and procedures; and • the annual independent audit of our financial statements, including the engagement of the independent auditor, and the evaluation of the independent auditor’s qualifications, independence and performance. | ||||
Members: Kenneth W. Krueger, Chair Katharine L. Plourde Mark J. Murphy | Principal Responsibilities: •reviewing and discussing with management each quarterly earnings release, as well as other financial communications, and all quarterly reports on Form 10-Q or annual reports on Form 10-K; •after the completion of each annual audit, and before the filing of the Form 10-K, reviewing and discussing with the independent auditors, the head of internal audit, and senior management, among other things: (1) any significant audit findings, and management’s responses to such findings, (2) any significant changes in audit scope, and (3) any difficulties encountered during the course of the audit; •periodically reviewing and discussing with the independent auditor, management, and the head of the internal audit function, the acceptability and quality of our accounting policies, the clarity of our financial disclosures, and any weaknesses in our system of internal controls; •periodically reviewing, evaluating and discussing with management the qualifications, performance and depth of the Company’s financial personnel; and • review with management the Company's strategy, initiatives and policies relating to cyber security. | ||||
| Meetings in 2022: 8 | |||||
| Attendance: 100% | |||||
Directors Krueger, Plourde and Murphy each served on the Audit Committee during all of 2022.
The Board of Directors has determined that none of the members of the Audit Committee has any relationship with the Company that impairs his or her independence, or that would preclude a determination of independence, and, on that basis, has determined that each of them is independent under the NYSE Standards as well as the additional requirements of SEC Rule 10A-3. In making this determination, the Board considered, after due inquiry, the lack of any transactions, relationships, or arrangements between the Company and each member of the Committee. The Board of Directors has also determined that each member of the Audit Committee is a “financial expert” as that term is defined in Item 401 of Regulation SK of the Securities and Exchange Commission.
The Board of Directors believes that each of the current members of the Audit Committee is well qualified to perform the functions for which the Committee is responsible.
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Compensation Committee | Purpose: generally responsible for determining the compensation of the Company’s Directors, Chief Executive Officer and other senior executive officers of the Company | ||||
Members: J. Michael McQuade, Chair John R. Scannell Erland E. Kailbourne Christina M. Alvord Russell E.Toney | Principal Responsibilities: •assists the Board of Directors in the creation and implementation of employee compensation, incentive, and benefit policies and plans; •administer (or oversees the administration by management of) pension and other employee benefit plans; •approve grants and awards under our incentive plans; •oversee the compliance of such programs and policies with applicable legal requirements | ||||
| Meetings in 2022: 4 | |||||
| Attendance: 100% | |||||
Compensation Committee Interlocks and Insider Participation
Directors Kailbourne, Scannell and McQuade all served on the Compensation Committee during all of 2022, with Dr. McQuade succeeding Director Kailbourne as Chair in May 2022. Director Alvord became a member of the Committee when she was elected to the Board of Directors in February 2022. Director Toney became a member of the Committee when he was elected to the Board of Directors in March 2022. No member of the Committee was an employee during 2022.
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ITEM 1
ELECTION OF DIRECTORS
All of the members of the Board of Directors are elected annually to serve until the next Annual Meeting of Stockholders and until their successors are elected and qualified. Pursuant to our By Laws, the Board of Directors may increase or decrease the number of directors from time to time, but not to fewer than three. The Board of Directors has determined that, until further action by the Board, the number of directors of the Company, from and after the time of the 2023 Annual Meeting of Stockholders, shall be nine. Accordingly, the number of directors to be elected at the 2023 Annual Meeting of Stockholders is nine. The Board of Directors has nominated for election the nine persons listed below. All of the nominees are currently serving as directors. Unless otherwise specified on the proxy, the shares represented by a proxy in the accompanying form will be voted for the election of the nine persons listed below. If, at the time of the meeting, any nominee is unable, or for good cause unwilling, to serve, which event is not anticipated, the shares will be voted for a substitute nominee proposed by the Board of Directors, unless the Board reduces the number of directors. The biographical sketches of each nominee below highlight some of the specific experience, qualifications, attributes or skills that contributed to his or her selection by the Board.
Age: 81 Director Since: 1999 Chairman Since: 2020 | ERLAND E. KAILBOURNE Erland E. Kailbourne previously served as Chairman from May 2008 until February 2019. He resumed the position in January 2020. Mr. Kailbourne retired as Chairman and Chief Executive Officer (New York Region) of Fleet National Bank, a banking subsidiary of Fleet Financial Group, Inc., in 1998. He was Chairman and Chief Executive Officer of Fleet Bank, also a banking subsidiary of Fleet Financial Group, Inc., from 1993 until its merger into Fleet National Bank in 1997, and also served as Vice Chairman of the State University of New York from 1995 until 1999. He is a director of Rand Capital Corporation, where he is chair of the Audit Committee and member of the Governance Committee. He is also a director of the two insurance companies that comprise the Allegany Insurance Group, and a director of REV LNG Holdings, LLC and REV LNG, LLC.. Mr. Kailbourne’s broad experience as a director on numerous boards of public and private companies and foundations, his 38 years of experience in banking and finance, and his operational experience as chief executive officer of large organizations make him a valuable addition to the board of any public or private company, especially in oversight of risk management, liquidity, and finance matters. | ||||
Age: 59 Director Since: 2012 | JOHN R. SCANNELL John R. Scannell serves as Chairman of Moog Inc., a worldwide designer, manufacturer, and integrator of high-performance precision motion and fluid control systems for a broad range of applications. He has held this position since January 2014. He served as CEO of Moog, Inc. from January 2011 to his retirement as of February 1, 2023. Mr. Scannell joined Moog in 1990 as an Engineering Manager of Moog Ireland and later became Operations Manager of Moog GmbH in Germany. In 1999, he became the General Manager of Moog Ireland, and in 2003 moved to the Aircraft Group in East Aurora, New York, as the Boeing 787 Program Manager. He was named Moog's Director of Contracts and Pricing in 2005. Mr. Scannell was elected Vice President of Moog in 2005 and Chief Financial Officer in 2007, a position he held until December 2010, at which time he was appointed President and Chief Operating Officer. In December 2011, he was named Moog's Chief Executive Officer. Mr. Scannell also serves on the Board of M&T Bank. Mr. Scannell's range of management experience in engineering, operations management, contracts, and finance, along with his in-depth knowledge of aerospace markets, products, and technologies, make him highly qualified to serve as a Director. In addition to an M.B.A. from Harvard Business School, Mr. Scannell holds B.S. and M.S. degrees in Electrical Engineering from University College Cork, Ireland. | ||||
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Age: 71 Director Since: 2013 | KATHARINE L. PLOURDE Katharine L. Plourde was a principal and analyst at the investment banking firm of Donaldson, Lufkin & Jenrette, Inc. (“DLJ”) until November 1997. Since that time, she has engaged in private investing. She previously served as a director of Pall Corporation, a global provider of filtration, separation and purification products and systems, from 1995 until its acquisition by Danaher Corporation in 2015, and of OM Group Inc. (OMG), a provider of specialty chemicals, advanced materials and technologies, from 2002 until OMG was acquired by Apollo Global Management in 2015. She also previously served as lead independent director of OMG and on the audit committees of OMG and Pall. She has also served on the board of directors of Evercore Equity Fund, a mutual fund, since November 2014. Ms. Plourde brings significant analytical and financial expertise to the Board in a number of critical areas, including investor relations, financial reporting, accounting, corporate finance, and capital markets. Ms. Plourde's years of service on the nominating/governance committees at Pall and OM Group have also given her significant Board governance experience, and contributed to her expertise on governance issues generally. | ||||
Age: 64 Director Since: 2016 | A. WILLIAM HIGGINS A. William Higgins has been President and CEO of the Company since January 20, 2020. He previously served as Chairman of the Board from February 2019 until January 20, 2020. Mr. Higgins currently serves as a director of Kaman Corporation, a diversified aerospace, defense, industrial and medical company, where he is a member of the finance, compensation and corporate governance committees. He previously served on the board of Bristow Group Inc., a global industrial aviation services provider, from 2016 until October 2019. (Bristow filed a pre-negotiated Chapter 11 plan of reorganization in May, 2019, from which it successfully emerged in October, 2019.) He served as Chairman, Chief Executive Officer and President of CIRCOR International, Inc. from 2008 to 2012. Prior to March 2008, Higgins held the offices of President and Chief Operating Officer and Executive Vice President and Chief Operating Officer of CIRCOR. Prior to joining CIRCOR in 2005, he spent thirteen years in a variety of senior management positions with Honeywell International and AlliedSignal. Mr. Higgins's professional background as a chief operating officer, president, chief executive officer and chairman of a public company, as well as his prior experience at Honeywell and Allied Signal, provides the Board with additional valuable perspective on talent development, international operations and global strategic development, lean manufacturing and continuous improvement processes, and the aerospace and defense industries. | ||||
Age: 66 Director Since: 2016 | KENNETH W. KRUEGER Kenneth W. Krueger currently serves as the Chairman of the Board of Manitowoc Company, Inc. He has been a member of the Manitowoc Board of Directors since 2004. From October 2015 until March 2016, he also served as Manitowoc's interim President and CEO. Mr. Krueger served as Chief Operating Officer of Bucyrus International, Inc., a global manufacturer of mining equipment, from 2006 to 2009, having previously served as Executive Vice President from 2005 to 2006. Mr. Krueger also served as Senior Vice President and Chief Financial Officer of A.O. Smith Corp., a global manufacturer of water heating and treatment systems, from 2000 to 2005, and as Vice President, Finance and Planning for the Hydraulics, Semiconductor and Specialty Controls business segment of Eaton Corporation in 1999 and 2000. Mr. Krueger has served as a director of Douglas Dynamics, Inc. since 2012, where he is currently chair of the audit committee and also serves on the compensation and nominating and governance committees. Mr. Krueger's contributions to the Company's Board include his experience as a chief operating officer, chief executive officer and chairman of a public company, his board experience at other public companies, and his prior treasury and financial reporting experience. | ||||
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Age: 55 Director Since: 2020 | MARK J. MURPHY Mark J. Murphy is the Chief Financial Officer of Micron Technology, Inc. (NASDAQ:MU), a world leader in innovative memory and storage solutions. Mr. Murphy joined Micron as CFO in April 2022 and is responsible for all financial functions including tax, treasury, internal audit and investor relations. From June 2016 until joining Micron, Mr. Murphy was the Chief Financial Officer of Qorvo, Inc., a leading provider of wireless and wired connectivity solutions, where he was responsible for all financial functions, information technology and corporate strategy. He was previously executive vice president and CFO of Delphi Automotive, PLC, a supplier of advanced technologies to the automotive industry. Mr. Murphy joined Delphi from Praxair, Inc., a global industrial gas supplier, where he was president of the U.S. Industrial Gases business, and before that, president of Praxair's Surface Technologies and Electronic Materials division. He previously served as senior vice president and CFO of MEMC Electronic Materials, Inc., corporate controller of Praxair, president of Praxair's Electronics division and vice president of finance for Praxair Asia based in Shanghai. Earlier in his career, he served as an infantry officer in the United States Marine Corps. Mr. Murphy's experience as a CFO and general manager in high technology industrial businesses, including those serving aerospace and advanced materials markets, and his extensive experience working in Asia and Europe make him qualified to serve as a director. | ||||
Age: 67 Director Since: 2020 | J. MICHAEL McQUADE J. Michael McQuade is a Strategic Advisor to the President at Carnegie Mellon University a private, global research university in Pittsburgh, Pennsylvania. Until July 2021 he was the Vice President for Research at the University. He served on the Defense Innovation Board of the Unites States Department of Defense from 2016 to 2021, the President's Council of Advisors on Science and Technology from 2013 to 2018, and the Secretary of Energy Advisory Board from 2008 to 2016. From 2006 to 2018, he served as Senior Vice President, Science & Technology at United Technologies Company which, prior to its merger with Raytheon Technologies Company, was a diversified company with extensive aerospace operations. From 2002 to 2006, Dr. McQuade was Vice President of 3M Medical Business Unit and from 2000 to 2001 President, Kodak Health Imaging Business Unit and Senior Vice President, Eastman Kodak. Dr. McQuade holds B.S., M.S., and Ph.D. degrees from Carnegie Mellon University. His extensive background in research and development, program management, and innovation are valuable attributes for oversight of the Company’s research and development operations as well as its Albany Engineered Composites segment, which seeks to grow as a key supplier to customers in the aerospace industry. | ||||
Age: 56 Director Since: 2022 | CHRISTINA M. ALVORD Christina M. Alvord has been a director of the Company since February 2022. From 2016 to 2021 she served in various roles at Vulcan Materials Company, including President, Southern and Gulf Coast Division, President, Central Division, and Vice President, Performance Improvement. Prior to 2016 Ms. Alvord held various technical and executive leadership positions at the GE Aviation unit of General Electric Company, including General Manager, Turbine Airfoils Center of Excellence, President, Unison Industries, and President, Middle River Aircraft Systems. Ms. Alvord holds a B.S. degree in Political Science, and a B.S. and M.S. degree in Mechanical Engineering, all from Massachusetts Institute of Technology, and an M.B.A. from Harvard Graduate School of Business Administration. She currently serves on the board of directors of Apogee Enterprises and Piedmont Lithium, Inc. Her significant experience in leadership positions in a manufacturing environment and her knowledge of the aerospace industry make her highly qualified to serve as a director and will be valuable attributes contributing to the growth of the Company’s Albany Engineered Composites business segment. | ||||
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Age: 53 Director Since: 2022 | RUSSELL E. TONEY Russell E. Toney has been a director of the Company since March 2022. Since March 2023 he has been President of Nortek Air Solutions, a leading manufacturer of custom air handling solutions for commercial, industrial and educational facilities. From 2018 to March 2023 he was been President, Specialty Products Group at Dover Corporation, a diversified global manufacturing company. From 2015 to 2018 he served as Dover’s Senior Vice President, Global Sourcing, where he also had responsibility for its Global Innovation center in India. Before joining Dover, Mr. Toney spent 13 years at General Electric Company where he held various sales and leadership positions in its plastics business, as well as supply chain and leadership roles at its energy business. Prior to that, he was a strategy consultant with Boston Consulting Group and worked in engineered and manufacturing roles at Procter & Gamble Company. Mr. Toney holds a B.S. degree in Chemical Engineering from the University of Dayton and an M.B.A. from the Darden Graduate School of Business Administration at the University of Virginia. His experience in sales, operations, supply chain, and strategic consulting, as well as his engineering background, will provide significant insight, making him highly qualified to serve as a director. | ||||
The table below summarizes the key experience, qualifications and attributes for each director nominee and highlights the balanced mix of experience, qualifications and attributes of the board as a whole. This high-level summary is not intended to be an exhausted list of each director nominee’s skills or contributions to the board.
| Industry Experience | Public Company Board Experience | Senior Leadership Experience | Finance / Capital Allocation | International Experience | Government and Public Policy | Gender, Ethnic or National Diversity | |||||||||||||||||
| Erland E. Kailbourne | • | • | • | • | • | ||||||||||||||||||
| John R. Scannell | • | • | • | • | • | • | |||||||||||||||||
| Katharine L. Plourde | • | • | • | ||||||||||||||||||||
| A. William Higgins | • | • | • | • | • | ||||||||||||||||||
| Kenneth W. Krueger | • | • | • | • | |||||||||||||||||||
| Mark. J Murphy | • | • | • | • | • | • | |||||||||||||||||
| J. Michael McQuade | • | • | • | • | |||||||||||||||||||
| Christina M. Alvord | • | • | • | • | • | • | |||||||||||||||||
| Russell E. Toney | • | • | • | • | • | ||||||||||||||||||
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE “FOR”
ALL OF THE NOMINEES FOR ELECTION
17
DIRECTOR COMPENSATION
It is the goal of the Company to set directors' fees at a competitive level that will enable the Company to attract and retain talented, well-qualified directors. Effective August 2021, the Board, upon the recommendation of the Compensation Committee (and with the subsequent approval of the Company's stockholders for that portion which is paid in shares of Company Common Stock) and based on benchmark data provided by compensation consultant Pearl Meyer & Partners, approved the following compensation for directors:
| Annual Cash Retainer | $75,000 | ||||
| Additional Annual Cash Retainer for Chairman of the Board | $75,000 | ||||
| Additional Annual Cash Retainer for Vice Chairman of the Board | $35,000 | ||||
| Additional Annual Cash Retainer for Audit Committee Chair | $22,000 | ||||
| Additional Annual Cash Retainer for Compensation Committee Chair | $15,000 | ||||
| Additional Annual Cash Retainer for Governance Committee Chair | $12,000 | ||||
| Additional Annual Cash Retainer for Audit Committee Member | $12,000 | ||||
| Additional Annual Cash Retainer for Compensation Committee Member | $7,500 | ||||
| Additional Annual Cash Retainer for Governance Committee Member | $7,000 | ||||
| Annual Equity Grant in the form of Class A Common Stock | $120,000 | ||||
Directors serving for only a portion of the year receive a pro-rated portion of their applicable compensation. Cash retainer fees are paid in four equal quarterly installments; the annual equity grant is paid shortly after the date of the Annual Meeting of Stockholders to each member who served on the Board during the year in which the meeting was held. A director whose final term ends at the Annual Meeting, or any director first elected at the Annual Meeting, receives one-half of the share retainer; directors elected otherwise than at an Annual Meeting receive a pro-rated portion of the equity grant at the time of appointment.
All directors are reimbursed for expenses incurred in connection with such services. In addition, the Company provides travel and liability insurance to all directors.
Director Pension. Each person who was a member of the Board of Directors on January 12, 2005, who was elected as a director prior to August 9, 2000, and who is not eligible to receive a pension under any other Company retirement program is, following (i) the termination of his or her service as a director and (ii) the attainment by such director of the age of 65, entitled to receive an annual pension in the amount of $20,000, payable in quarterly installments until the earlier of (a) the expiration of a period equal to the number of full years that such person served as a director prior to May 31, 2001, or (b) the death of such person. Director Erland Kailbourne is the only current director so eligible.
Share Ownership Guidelines. The Board has adopted share ownership guidelines for its members. Under these guidelines, directors are generally expected to retain ownership of shares of Common Stock awarded or acquired until an ownership equal to three (3) times the annual cash and stock retainer is attained.
Meeting and Other Fees. Since May 2018, other than with regard to Special Committees, Directors have not received any additional fees for attendance at meetings or for any other service.
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Director 2022 Compensation Earned
| Name | Earned or Paid in Cash ($) | Stock Awards (1) ($) | Option Awards ($) | Nonequity Incentive Plan Compensation ($) | Deferred Compensation Earnings ($) | All Other Compensation | Total ($) | |||||||||||||||||||
| Erland E. Kailbourne | 138,284 | 149,966 | — | — | 1,097 | (2) | — | 288,250 | ||||||||||||||||||
| John R. Scannell | 82,543 | 119,957 | — | — | — | — | 202,500 | |||||||||||||||||||
| Katherine L. Plourde | 99,043 | 119,957 | — | — | — | — | 219,000 | |||||||||||||||||||
| Kenneth W. Krueger | 104,043 | 119,957 | — | — | — | — | 224,000 | |||||||||||||||||||
| Mark J. Murphy | 44,000 | 170,000 | — | — | — | — | 214,000 | |||||||||||||||||||
| J. Michael McQuade | 11,310 | 194,940 | — | — | — | — | 206,250 | |||||||||||||||||||
| Christina M. Alvord | 82,543 | 119,957 | — | — | — | — | 202,500 | |||||||||||||||||||
| Russell E. Toney | 61,928 | 89,947 | — | — | — | — | 151,875 | |||||||||||||||||||
(1)As these are payments of shares, and not stock “awards,” there are no amounts deemed “outstanding” at the end of 2022.
(2)Increase/(decrease) during 2022 in the actuarial present value of the director's accumulated benefit under the director pension plan described in the narrative preceding this table.
19
AUDIT COMMITTEE REPORT
The Audit Committee has provided the following report:
The Audit Committee has reviewed and discussed with management and the independent auditors, KPMG LLP (“KPMG”), the financial statements for 2022, including management’s report with respect to internal control over financial reporting. The Audit Committee has discussed with KPMG the matters required to be discussed under the rules adopted by the Public Company Accounting Oversight Board (“PCAOB”) and has received from KPMG the written disclosures and the communications relating to KPMG’s independence required by PCAOB rules. The Audit Committee has discussed with KPMG its independence, and has considered whether the provision by KPMG of the services referred to below under “RATIFICATION OF INDEPENDENT AUDITORS” is compatible with maintaining the independence of KPMG.
Based on the foregoing discussions and review, the Audit Committee recommended to the Board of Directors that the audited statements for 2022 be included in the Company’s Annual Report on Form 10-K for 2022 filed with the Securities and Exchange Commission.
The financial reporting process of the Company, including the system of internal controls and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, is the responsibility of the Company’s management. The Company’s independent auditors (KPMG) are responsible for auditing the Company’s financial statements and internal controls over financial reporting. The Audit Committee monitors and reviews these processes. As required by the NYSE Standards, the Board of Directors has determined that, in their judgment, all of the members of the Audit Committee are “financial experts” as such term is defined in Item 407 of Regulation S-K of the Securities and Exchange Commission and are “financially literate” and have “accounting or related financial management expertise.” The members of the Audit Committee are not employees of the Company and do not represent themselves as experts in the field of accounting or auditing.
The Charter of the Audit Committee provides that the members of the Committee are entitled to rely, and they do rely, on advice, information, and representations that they receive from the independent auditors, management, and the head of the Company’s Internal Audit function. Accordingly, the review, discussions, and communications conducted by the Audit Committee do not assure that the financial statements of the Company are presented in accordance with accounting principles generally accepted in the United States of America, that the audit of the Company’s financial statements has been carried out in accordance with auditing standards generally accepted in the United States of America, or that the Company’s independent auditors are, in fact, “independent.”
The Audit Committee: | |||||
Kenneth W. Krueger, Chair | |||||
Katharine L. Plourde | |||||
Mark J. Murphy | |||||
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ITEM 2
RATIFICATION OF INDEPENDENT AUDITORS
The Audit Committee appointed KPMG LLP (“KPMG”) as auditors of the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, and to perform the reviews of the financial statements to be included in our quarterly reports on Form 10-Q during that period.
As stated in the Audit Committee Report above, the Audit Committee has received the communications related to KPMG’s independence required by applicable PCAOB rules, has discussed with KPMG its independence, and has considered whether the provision of the services referred to below under “All Other Fees” is compatible with maintaining the independence of KPMG. In accordance with its charter, the Committee has also reviewed KPMG’s report describing (1) its internal quality-control procedures, (2) any material issues raised in any recent internal review, peer review, or review by any government or professional authorities (such as the PCAOB) of one or more independent audits conducted by KPMG, and (3) any steps taken by KPMG to deal with any issues raised in such reviews.
Although current law, rules, and regulations, as well as the charter of the Audit Committee, require the Audit Committee to appoint, terminate, oversee and evaluate the performance of the Company’s independent auditor, the Board considers the selection of the independent auditor to be an important matter of stockholder concern and is submitting the selection of KPMG for ratification by stockholders as a matter of good corporate practice. The affirmative vote of holders of a majority of the votes entitled to be cast at the meeting by the shares present in person or by proxy is required to approve the ratification of the selection of KPMG as the Company’s independent auditor. A representative from KPMG is expected to be available to respond to appropriate questions from stockholders.
The Audit Committee has taken action to appoint KPMG as auditors to audit the financial statements to be included in our Annual Report on Form 10-K for the year ending December 31, 2023. The Audit Committee also reserves the right to appoint, reappoint, retain, or replace our auditors at any time, even after an appointment has been ratified by the stockholders. The stockholder vote on this proposal is advisory and nonbinding and serves only as a recommendation to the Board of Directors. If the shareholders do not ratify the appointment of our auditors, the Audit Committee will consider such voting results with respect to any appointment.
Audit Fees
The aggregate fees billed by or agreed to with KPMG for the audit of the Company’s annual financial statements, reviews of the financial statements included in the Company’s Forms 10-Q, and services in connection with statutory and regulatory filings or engagements were $3,290,000 in 2022 and $3,200,000 in 2021.
Audit-related Fees
The aggregate fees billed by KPMG for assurance or related services reasonably related to the performance of the audit or review of the Company’s annual financial statements, including benefit plans and a comfort letter related to a secondary offering in 2021, were $128,000 in 2022 and $275,000 in 2021.
Tax Fees
The aggregate fees billed by KPMG for tax compliance, tax advice, and tax planning were $100,000 in 2022 and $98,150 in 2021. Billings were were related solely to global mobility services (i.e., expatriates).
All Other Fees
KPMG did not bill for any other products or services not described above in 2022 or 2021.
Preapproval Policy
It is the responsibility of the Company’s Audit Committee to approve all audit and nonaudit services to be performed by the independent auditors, such approval to take place in advance of such services when required by law, regulation, or rule.
The Chairman of the Audit Committee is permitted to preapprove any engagement of the independent auditor for services that could be properly preapproved by the Committee, provided that the anticipated fees with respect to the services so preapproved do not exceed $100,000. The Chairman is required to report such preapprovals at the next regular meeting of the Committee.
The Audit Committee is required to preapprove each engagement of the independent auditor not preapproved by the Chairman of the Committee. Each such preapproval must describe the particular service to be rendered. No preapproval may be given for any service that would cause the independent auditor to be considered not independent under applicable laws and regulations, and the independent auditor is requested to confirm that such service will not compromise its independence as part of the preapproval process.
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With respect to the engagement of the independent auditor to provide routine and recurring audit-related tax and other nonaudit services, preapproval of the Audit Committee may take the form of approval of a schedule describing such services in reasonable detail and specifying an annual monetary limit. Each audit or nonaudit service shall be reflected in a written engagement letter or other writing. In connection with the provision of permitted tax services, the independent auditor is required to, among other things, provide a written description of the services and discuss their impact on the auditor’s independence.
None of the 2020 or 2021 services described above was approved by the Audit Committee or its Chairman pursuant to 17 CFR 210.2-01(c)(7)(i)(C), which permits the waiver of preapproval requirements in connection with the provision of certain nonaudit services.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE “FOR”
THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP
22
Other Audit Committee Matters
As part of its oversight of our internal audit function, the Audit Committee reviews and approves the annual internal audit plan, and reviews, at least quarterly, the reports and findings of plan activities with the head of the department, senior management and the independent auditor. The Committee also evaluates the performance of the department at least annually, with input from management and the independent auditor.
The Audit Committee has established procedures for the receipt, retention and treatment of communications (including anonymous communications) relating to questionable accounting, auditing or internal control matters, violations of laws or regulations to which the Company is subject, or violations of the Company’s Business Ethics Policy or Code of Ethics for the Company’s Chief Executive Officer, Chief Financial Officer or Controller. Our Business Ethics Policy describes various means by which such communications may be reported (see “Available Information” on page 62.) The Committee has direct access to any complaints made to the Company’s whistleblower hotline that relate to accounting, auditing, internal controls, or alleged violations of the Business Ethics Policy, and oversees the investigation and resolution of all such complaints by the Company’s legal department and compliance function. The Committee also serves as the Company’s “Qualified Legal Compliance Committee” pursuant to the rules of the Securities and Exchange Commission with respect to Section 307 of the Sarbanes-Oxley Act, and is responsible for the review and resolution of all reports of “material violations” subject to Section 307. The Committee is also charged with reviewing any complaints or concerns relating to accounting, auditing, or internal controls matters that are communicated to the Chair of the Committee pursuant to the Company’s “up-the-ladder” reporting process for responding to such communications. The Committee is also responsible for evaluating all related-party transactions, and for recommending to the Board whether any such transaction should be ratified or approved.
The Audit Committee is solely responsible, in accordance with the NYSE Standards, for the appointment of our independent auditors. The Committee is also responsible for the evaluation of the independence, performance and qualifications of our independent auditors, and reviewing and approving their compensation. (See “RATIFICATION OF INDEPENDENT AUDITORS” on page 21.)
Certain Business Relationships and Related Person Transactions
The Company has adopted a written policy requiring review of relationships and transactions in which directors or executive officers, or members of their immediate families, are participants, in order to determine whether such persons have a direct or indirect material interest. The Company’s Legal Department is responsible for developing and implementing processes and controls designed to obtain information relating to any such relationship or transaction, and for determining whether disclosure of such relationships or transactions is required. The Audit Committee of the Board of Directors is responsible for reviewing such information and making recommendations to the disinterested members of the Board regarding the ratification or approval of such relationships or transactions. As set forth in the policy, the Audit Committee considers each transaction in light of relevant factors, including any benefits to the Company, whether the terms are arm’s-length and in the ordinary course, the direct or indirect nature of the related person’s interest in the transaction, the size and expected term of the transaction, and such other facts and circumstances as may bear on the materiality of the transaction or relationship. No director may participate in the review, ratification, or approval of any transaction in which such director has an interest.
Since January 1, 2022, there have been no transactions involving related persons required to be reported in this proxy statement where the above policy did not require review, approval, or ratification, or where such policy was not followed.
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COMPENSATION COMMITTEE REPORT
The Compensation Committee has provided the following report:
The Compensation Committee of the Board of Directors has reviewed with management of the Company the Compensation Discussion and Analysis set forth in this proxy statement. Based on such review, the Committee has approved it, and has recommended to the Board of Directors that it be included in the Company’s Annual Report on Form 10-K and this proxy statement.
J. Michael McQuade, Chair | |||||
John R. Scannell | |||||
Erland E. Kailbourne | |||||
| Christina M. Alvord | |||||
| Russell E. Toney | |||||
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
This portion of our Proxy Statement describes the 2022 executive compensation program and reports on the compensation earned by and paid to the Company's “named executive officers” in 2022. For 2022 our named executive officers (or, “NEOs”), as that term is defined in applicable SEC regulations, were:
•President and CEO A. William Higgins,
•Chief Financial Officer Stephen M. Nolan;
•President — Machine Clothing Daniel A. Halftermeyer;
•President – Albany Engineered Composites Gregory N. Harwell; and
•Vice President, General Counsel & Secretary Joseph M. Gaug.
Following the same format of prior years, the discussion is presented in three parts. The first part sets forth the compensation philosophy and objectives of the Compensation Committee (the “Committee”), identifies the different elements of compensation, describes the structure of the 2022 compensation program, and explains the various matters taken into consideration by the Committee when adopting compensation policies or making compensation decisions. The second part reports the compensation earned by our NEOs based on the Company's 2022 performance. The final part sets out the 2022 compensation actually earned by, awarded to, or available to the NEOs in the tables prescribed by SEC rules. The tables and related disclosures responding to the SEC's recently mandated "Pay versus Performance" disclosure rule are set forth later in the this proxy statement.
PART I - Overview
Compensation Philosophy and Objectives
The Compensation Committee strongly believes in pay for performance.
The principal objectives of our executive compensation program are to:
•Enable the Company to attract and retain talented, well-qualified, experienced, and highly motivated executives whose performance will substantially enhance the Company’s performance;
•Reinforce the Company’s strategic objectives and core values;
•Align executive pay results with the Company’s performance results both in terms of short-term financial performance and long-term shareholder value creation, while not encouraging excessive risk taking; and
•Reflect sound governance principles and best practices
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To further these objectives, we
•Total direct compensation opportunities are targeted near the market median, with other relevant factors also being considered when making pay determinations (e.g., experience, growth potential, internal equity, succession planning, etc.);
•Provide a higher portion of target total compensation in the form of variable incentives than fixed base salary, such that actual compensation earned by our executives increases or decreases based on company performance and shareholder value;
•Utilize both short-term and long-term incentives to appropriately balance the achievement of annual operating plans, multi-year financial objectives, and long-term shareholder value creation;
•Evaluate performance measures, weights, and goals annually to ensure alignment with the Company’s business strategy and performance expectations, which evolve as the operating environment and business mix change; and
•Denominate and settle long-term incentive awards in Company stock and require executives to achieve and maintain a minimum level of stock ownership and prohibit the selling of shares (net of taxes) until the minimum ownership level is attained.
Elements of Compensation
The Company's executive compensation program incorporates several components of compensation. Not every component need be granted, or made available, to all executives. Flexibility in the use of each discrete component provides the Committee the ability to adjust to changes in market conditions and for performance. This flexibility is evidenced in the Committee's practice of adjusting the allocation between long- and short-term compensation, and in its varying use of cash and non-cash elements. In 2022, the principal components of the executive compensation program are summarized in the following chart and described in more detail below.
| Key Elements of Compensation | |||||
| Base Salary | Core cash portion of compensation | ||||
| Annual Incentive Plan | Annual cash incentive bonuses | ||||
| Performance Awards | Cash and share-based awards to reward performance for senior executives | ||||
| Performance Phantom Awards | Retention and performance award for top managers other than the senior executives | ||||
| Restricted Stock Units (RSUs) | Special grants made from time-to-time to senior executives | ||||
Base Salary
Annual base salary constitutes the core cash portion of the compensation for every member of management, including the NEOs. In determining the appropriate amount to be established as base salary, the Committee considers benchmarking data, the executive's past performance, his or her individual importance to the Company and internal equity.
Annual Incentive Plan
The Company provides certain managers an opportunity to earn an annual cash incentive bonus. These bonus opportunities are established pursuant to the Company's 2017 Incentive Plan. Although the amount of the bonus actually paid to a manager is determined by the Committee in its sole discretion, it is generally based on Company, business unit, and/or individual performance against established targets during the previous year. Target bonus opportunities are established as a percentage of base salary. The Committee generally excludes the senior management team (consisting of the CEO and approximately three to five top executives working most closely to him) from the annual cash incentive bonus and did so again in 2022. Instead, the senior management
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team is granted Performance Awards, as described below. Participation in the annual cash incentive bonus program is limited to approximately 350-400 managers worldwide.
Under the annual incentive plan, a bonus at the targeted level is paid only if the Committee determines that the performance levels that it considers appropriate for the particular year have been achieved. Lesser cash incentives may be paid if such performance levels are not achieved, and larger incentives will be paid if performance exceeds such levels. Threshold performance levels are also established and performance below the threshold levels would generally result in no bonus being earned. Maximum performance levels are also established. The threshold, target and maximum performance levels are established by reference to the annual operating plan approved by the Board of Directors.
Performance Awards
Performance Awards are granted pursuant to the Company's 2017 Incentive Plan to the senior executive team only. They are designed to reward performance. In granting Performance Awards, the Committee considers:
(1) the alignment between the performance goals and the Company's business objectives,
(2) advice from its executive compensation consultant regarding the total value of the awards as a percentage of total direct compensation, as well as the ideal frequency of various award outcomes, and
(3) the amounts of Performance Awards actually earned in prior years.
The performance period for the short-term performance incentive awards granted in 2022 was the 2022 fiscal year. This annual performance period award (the “APP Performance Award”) entitled the recipient to receive between 0% and 200% of the target award, denominated as a dollar amount, based on the extent to which certain performance goals were attained during 2022. Once determined, the awards were paid out in full in cash in March 2023. The performance period for the long-term performance incentive awards granted in 2022 runs from January 1, 2022 through December 31, 2024. Beginning in 2021, recipients are granted two multi-year performance period awards. The first of these long-term incentives, referred to as the “MPP Performance Award”, entitles the recipient to receive between 0% and 200% of the target award, denominated in shares, based on the extent to which certain cumulative performance goals were attained at the end of the three-year performance period. Once determined, the awards will be paid out in full in stock in early 2025. For the second of the long-term incentives, the grants are share-settled restricted stock units under the Company’s 2017 Incentive Plan. Under this award, each recipient is awarded a fixed number of number of shares which vests ratably over the three-year period and is paid in Class A common stock upon vesting.
When establishing performance goals for all performance-based incentive compensation, the Committee intends that there be a rather high probability that threshold levels would be met, and a rather low probability that maximum levels would be met. The performance measurement metrics and goals for the 2022 performance-based incentive compensation program were drawn from the annual operating plan approved by the Board of Directors for 2022.
Performance Phantom Stock
Performance Phantom Stock is granted pursuant to the Company's Performance Phantom Stock Plan (the “Performance Phantom Stock Plan”). These grants function as a retention incentive, but with a performance component. The size of any grant is determined primarily on the basis of salary and grade level, internal equity, consideration of the employee's value to the Company, and the retentive effect of previously awarded incentives that remain outstanding. The number of units ultimately earned depends on Company performance measured against corporate-wide goals established at the beginning of the one-year performance period. Members of the senior management team have not participated in, and are not expected to participate in, this plan. These grants are targeted to approximately 125-150 managers below the senior management team, who also participate in the annual cash incentive bonus program.
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Restricted Stock Units
Restricted Stock Units (“RSUs”) can also be granted pursuant to the Company's Restricted Stock Unit Plan (“RSU Plan”) to function primarily as retention incentives. These RSUs are separate and distinct from the RSUs awarded under the Company's 2017 Incentive Plan, and have been used only rarely since 2010. From time to time, however, both before and after 2011, the RSU Plan has been be utilized to make special grants to members of the senior management team as part of special executive retention incentives. In those times, grants have been made to individual members of the senior management team, under unique situations, and not to the group as a whole.
Other Plans and Programs
In addition to the foregoing, the Company maintains a tax-qualified 401(k) defined contribution plan in which all U.S. employees are generally eligible to participate. Under the 401(k) plan, a participant is entitled to contribute up to 100% of his or her income (subject to IRS-imposed limitations). The Company will match contributions made by the employee under the Plan, up to a maximum of 5% of the employee's pre-tax income. The Company also maintains a profit-sharing plan for all eligible U.S. employees. Under the profit-sharing plan, the Company makes an additional, discretionary profit-sharing contribution to the accounts of eligible participants in the 401(k) plan. The amount of the contribution is generally determined using a formula similar to one used to determine the Company CEO's performance under his annual APP Performance Award. The actual amount is determined by the Committee in its sole discretion, and typically amounts to between 1% and 3% of each participant's annual salary. The contributions are made in cash and allocated to investments chosen by plan participants.
The Company no longer maintains the tax-qualified defined benefit plan (i.e., a pension plan) for U.S. employees. That plan was terminated effective September 30, 2021 and subsequently wound down. All remaining pension benefits were either paid out as lump sums or transferred to group annuity contracts. None of our current NEOs were participants in that plan.
Employees located outside of the United States may enjoy benefits under local government-mandated retirement or pension plans, as well as supplementary pension or retirement plans sponsored by local Company affiliates. Mr. Halftermeyer is the only NEO employed outside of the United States. As a French citizen serving as an employee of a Swiss subsidiary of the Company while on an international assignment, he accrues benefits under both a private pension plan maintained by the Swiss subsidiary as required by Swiss law, and as an expatriate under a French government-sponsored pension program. The Company pays both the employer and employee contributions for these programs in order to maintain Mr. Halftermeyer's participation during his expatriation. The amounts paid by the Company toward both pension plans during 2022 are reported in the “Summary Compensation Table” on page 36, and the present value of the benefits accumulated under the Swiss private pension plan are reported in the “Pension Benefits” table on page 39.
Shareholder “Say on Pay”
For 2022, the Committee once again implemented the same compensation program structure it has used since 2010. Although the results of the 2022 “say on pay” vote were not available when the Committee was adopting the 2022 compensation program in February 2022, voting results from prior years had a significant impact on that decision. When the vote was eventually held in 2022, the votes for approval represented 99.64% of the votes cast.
Roles in Structuring Compensation
The Role of Compensation Committee
The Committee is responsible for reviewing and approving compensation for all of our executive officers. The Committee considers, adopts, reviews, and revises the various compensation plans, programs and guidelines, and reviews and determines all components of each executive officer’s compensation. The Committee also reports to, and receives feedback from, the full Board of Directors each quarter. With respect to CEO compensation, the determination of the Committee reflects advice and input from the full Board of Directors and takes into account the full Board’s assessment of CEO performance.
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The Role of Consultants and Advisors
The Committee’s charter charges the Committee with the responsibility to obtain advice and assistance from outside legal or other advisers or consultants as the Committee may from time to time deem appropriate, and to determine the compensation and other terms of service of such advisers and consultants. The Committee has exclusive power to select, retain, and terminate the services of any such advisers or consultants to assist in evaluating the compensation of the Chief Executive Officer or senior executives, and sole power to determine the compensation and other terms of service of such consultants. The charter provides that the Company shall provide for the payment of fees and compensation to any advisers or consultants so employed by the Committee.
The Role of the Compensation Consultant
The Committee retains Pearl Meyer & Partners (“Pearl Meyer”) as an executive compensation consultant to provide benchmarking and comparative compensation analysis. Pearl Meyer's findings and recommendations form part of the basis used in the ongoing review and design of the Company's compensation programs. Their analysis is now performed bi-annually in the case of the Company's CEO, CFO and business unit Presidents, and periodically with respect to other members of the senior management team. Analyses completed by Pearl Meyer in late 2021 were considered by the Committee when establishing 2022 total direct compensation targets and base salary increases.
The Role of Executive Officers
The Committee's Charter provides that input from management is expected, and in some instances required, in connection with the Committee's exercise of its responsibilities. Company management does make recommendations to the Committee from time to time regarding the elimination or modification of existing benefit plans, or the adoption of new plans. In addition, although the Committee has traditionally been responsible for reviewing and approving salary ranges for senior management, such ranges and changes are typically proposed to the Committee by the Company’s CEO after consultation with personnel from the Company’s human resources function.
Other Compensation Polices and Considerations
Timing of Awards and Grants
Base salary increases are determined by the Committee at its first meeting after completion of the fiscal year when all relevant data is available. This meeting typically occurs in February, with increases becoming effective in April. The Committee also typically approves Performance Award grants, annual cash incentive bonuses and Performance Phantom Stock grants at this meeting.
The Effect of Prior or Accumulated Compensation
When considering each element of compensation, the Committee reviews historic compensation summaries for each executive officer and other members of the senior management team. These summaries show all material elements of annual and long-term compensation actually earned by each executive in the immediate prior year and, depending on the executive's length of service, several years prior thereto. They also show the outstanding balances of RSU or Phantom Stock grants and any equity-based awards, and the unrealized gains on those balances. The Committee considers this information before approving new Performance Awards, base salary increases, or final annual cash incentive bonuses for the prior year. These summaries are used to determine how effectively past compensation practices satisfy the Committee's objectives.
Although these summaries provide insight into an executive's accumulated compensation, it is the Committee's view that neither the historical data nor any perceived wealth accumulation justifies a change in either the Committee's current compensation philosophy or the elements of compensation employed. It is the Committee's belief that an executive's accumulated compensation is the result of his or her achievement of a series of objectives over time. Furthermore, it is the Company's view that the effect of such accumulated compensation is not sufficient to call into question the Committee's objective of compensating individuals based on their individual importance to the Company in achieving strategic objectives. The Committee views “realizable” future compensation as having been earned by the employee based on past employment and performance. As a result, such “realizable” future compensation has generally had little, if any, bearing on the amount or timing of
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new compensation approved or awarded. The Committee does not believe that the compensation paid to its executives, including the NEOs, or any individual element of that compensation, is lavish or extraordinary.
Independence of Compensation Consultant and Identity of Benchmarking Group
For its 2022 benchmarking and comparative compensation analysis, the Committee again retained the services of Pearl Meyer. The Committee has used the services of Pearl Meyer since 2010. The Company paid Pearl Meyer $19,140 for services during 2022 including such benchmarking and comparative compensation analysis. The Committee routinely assesses the independence of Pearl Meyer using criteria established by the New York Stock Exchange and has consistently determined them to be independent.
For 2022, Pearl Meyer benchmarked individual compensation against a peer group of companies approved by the Committee in May 2021. The peer group consisted of 19 publicly-traded U.S. companies (identified below) in the same or related industries with comparable revenues, employees, and international operations. The benchmarking data used was derived from proxy statements filed by these companies prior to 2022, which explains why the list may, from time to time, contain companies that are no longer publicly traded.
The peer group of comparable publicly traded U.S. companies consisted of the following:
| Teledyne Technologies | ESCO Technologies Inc. | Curtiss-Wright Corporation | ||||||
| Incorporated | Mercury Systems, Inc. | Hexcel Corporation | ||||||
| Woodward, Inc. | TriMas Corporation | Nordson Corporation | ||||||
| Franklin Electric Co., Inc. | Kaman Corporation | BWX Technologies, Inc. | ||||||
| EnPro Industries, Inc. | HEICO Corporation | Triumph Group, Inc. | ||||||
| Barnes Group, Inc. | Kadant, Inc. | Graco, Inc. | ||||||
| SPX Corporation | SPX Flow, Inc. | |||||||
Representatives from Pearl Meyer communicate directly with members of management as needed, including the Company's CEO and personnel from the Human Resources function, with the acknowledgement and encouragement of the Committee. However, the consultant is retained by, instructed by, serves for, and reports to the Committee, and its main point of contact remains the Chairman of the Committee. Notwithstanding the use of a compensation consultant, the Committee is ultimately responsible for all compensation matters.
The Impact of Accounting or Tax Considerations
When confronted with a choice between two comparable forms of compensation, the Committee has in the past favored the form with the lower tax cost (to the employee and/or the Company), more favorable accounting treatment, or more favorable impact on the Company's borrowing cost pursuant to its primary revolving credit facility.
Equity Ownership Requirements or Guidelines
The Company's Board of Directors has adopted stock ownership guidelines for the Company's CEO, and all other NEOs. Those guidelines provide that the CEO is expected to own and hold shares of the Company's Common Stock (Class A or Class B) equal in value to five times current base salary. The other NEOs are expected to own and hold shares equal in value to two times their base salary. There is no deadline by which these such targets should be attained, but at any time that the value of one's holdings is less than his or her target, he or she will be expected to retain, in addition to all shares already owned, (1) all shares acquired upon the exercise of any stock options, and (2) all shares received upon a distribution of shares pursuant to the terms of any Performance Award (in each case, net of shares used, if any, to satisfy the exercise price, taxes, or commissions). Messrs. Higgins, Nolan, Harwell and Gaug had not reached the applicable guideline by the end of 2022, but Mr. Halftermeyer did own shares of value equal to at least two times his base salary. The Committee does not believe that adoption of share ownership guidelines for other officers is warranted at this time.
Compensation Clawback Policy
The “clawback” provisions under the annual and long-term incentive awards granted to our NEOs provide that repayment of the awards may be required under certain circumstances. For instance, under these award agreements, an NEO must repay the entire incentive, or forfeit it if not already paid, whether vested or unvested,
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to the extent a material financial restatement is caused or substantially caused by the fraud or intentional misconduct of the NEO. In the event a material restatement occurs but is not caused or substantially caused by the fraud or intentional misconduct of the NEO, the NEO must repay, or forfeit if not already paid, so much of the incentive that was or would have been earned and awarded based on the achievement of financial results that were subsequently the subject of a restatement. Moreover, any unpaid incentive would be forfeited in its entirety should an NEO engage in any business or activity, either on his own or as an employee, which is deemed to be in competition with the Company.
Anti-hedging Policy
No officer, director or employee of the Company is permitted to purchase or use, directly, or indirectly, through family members or other persons or entities, financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds) that are designed to offset or hedge any decrease in market value of Company securities.
Risk Assessment of Compensation Plans and Programs
During 2022, the Committee, after reviewing its compensation plans and programs, particularly those components which are employed as part of the incentive compensation plans for the NEOs and other executives, re-affirmed its prior determinations that such plans and programs are not reasonably likely to have a material adverse effect on the Company. In reaching this conclusion, the Committee compiled an inventory of all executive compensation plans and programs globally and evaluated those plans and programs as potential contributors to Company risks. The conclusion is based on the finding that the Company's executive compensation structure consists of a balanced mix of components that utilize both equity and cash elements, impose caps on incentives, apply multiple performance measures, establish staggered performance and payout periods, and rely on the Committee's use of discretion in approving final awards. The Committee also noted the Company's policies related to severance, perquisites, and change-in-control provisions, as well as its adoption of clawback/recoupment mechanisms. During its discussion, the Committee recognized its own oversight responsibilities and noted that it requires all senior management incentive compensation calculations to be reviewed by its external auditor. It then determined that its practices, coupled with the structure of the executive compensation plans and programs, appropriately mitigate any risks associated with compensation programs.
Employment Contracts — Named Executive Officers
The Company entered into an Employment Agreement with Mr. Higgins dated January 20, 2020. The Agreement provides that employment could be terminated by either party at any time. It provided for an initial base salary of $850,000 and provided for an Annual Performance Award and Multi-year Performance Award. The Agreement entitled Mr. Higgins to four weeks of vacation with pay, or such greater amount as the Company’s vacation policy applicable to executive officers provides and entitled him to participate in the Company’s employee benefit plans, policies, and arrangements applicable to executive officers generally (including, for example, 401(k), health care, vision, life insurance, and disability); in each case, as the same may exist from time to time, as well as such perquisites as may from time to time be made generally available to senior executives of the Company. The Agreement includes a severance provision that is more fully described below. As of December 31, 2022, the Company had not entered into employment contracts with any other NEO.
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Structuring the 2022 Compensation Program — Pay for Performance
The first step to determining 2022 compensation for NEOs was to establish a total direct compensation target for each executive. The Committee considers benchmarking data as well as the executive's past performance and his or her individual importance to the Company when establishing such targets. The Committee considers the total direct compensation target and base salary paid to similarly-situated executives at companies included in its benchmarking group (see page 29). It also notes the mean and median compensation paid to executives in the benchmarking group and compares those amounts to the amounts awarded to the Company's own executives in prior years.
Once total direct compensation targets are established, the Committee selects the compensation elements to be used, and allocates the targeted compensation among the selected components. In making these determinations, the Committee reviews the mix of the compensation paid to executives in the benchmarking group, focusing on long-term and short-term compensation, fixed and variable components, and the ratio of earned compensation paid as equity or cash. The Committee determined that the 2022 total direct compensation target opportunities for NEOs would be paid as base salary, and through short-term and long-term incentive compensation awards. The Committee then allocated how much of the total direct compensation target would be allocated to each component based on benchmarking data, internal equity and other considerations.
After the total direct compensation target was allocated among these components, the Committee established the performance measurement metrics and goals against which each NEO's performance would be judged to determine how much of the incentive compensation, if any, would be earned by that NEO at the end of 2022. Lastly, the Committee determined the form in which each component should be paid, if earned. Base salary and the short–term incentive award were both established as cash compensation, while long-term performance incentive awards was determined to be payable in equity.
2022 NEO Compensation Opportunities
Following the structure described above, the Committee established a total direct compensation target for each of the Company's NEOs for 2022 as follows:
| 2022 Total Direct | 2021 Total Direct | |||||||||||||||||||
| NEO | Compensation Target | Compensation Target | % Change | |||||||||||||||||
| A. William Higgins | $ | 4,100,000 | $ | 3,800,000 | 7.89% | |||||||||||||||
| Stephen Nolan | $ | 1,744,000 | $ | 1,716,750 | 1.59% | |||||||||||||||
| Daniel Halftermeyer | $ | 1,574,400 | $ | 1,404,660 | 12.08% | |||||||||||||||
| Greg Harwell | $ | 1,470,000 | $ | 1,421,000 | 3.45% | |||||||||||||||
| Joseph Gaug | $ | 1,012,922 | $ | 905,625 | 11.85% | |||||||||||||||
The Committee then determined the amount of the total direct compensation target that should be paid as base salary.
| 2022 | % of Total | 2022 to 2021 | ||||||||||||||||||
| NEO | Base Salary | Direct Target | % Change | |||||||||||||||||
| A. William Higgins | $ | 950,000 | 23.17 | % | 9 | % | ||||||||||||||
| Stephen Nolan | $ | 545,000 | 31.25 | % | 0 | % | ||||||||||||||
| Daniel Halftermeyer | $ | 492,000 | 31.25 | % | 0 | % | ||||||||||||||
| Greg Harwell | $ | 490,000 | 33.33 | % | 0 | % | ||||||||||||||
| Joseph Gaug | $ | 413,438 | 40.82 | % | 5 | % | ||||||||||||||
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Lastly, the Committee determined the proper allocation between stock and cash for the performance awards and RSU grants. For 2022, the MPP Performance Award allocation was 100% stock, and a distinct target share opportunity was identified. Similarly, since the RSUs are settled in shares, a distinct share amount was also established. Moreover, since the MPP Performance Award and the RSU grant were each intended to represent fifty percent (50%) of each senior executive’s long-term incentive, the share grant amounts were equal. The grant date share price was used to determine the actual number of shares granted in the RSU award and the actual number of shares for the MPP Performance Award stock target. For the APP Performance Award, the allocation was 100% cash, and a target dollar amount was identified in the award agreement. The following table sets forth the target opportunities established for each of the NEOs for the MPP Performance Award and the APP Performance Award, and the number of shares granted in the RSU Award.
| APP | MPP | |||||||||||||||||||
| NEO | Opportunity Cash | Opportunity Shares | RSU Shares granted | |||||||||||||||||
| A. William Higgins | $ | 950,000 | 12,791 | 12,791 | ||||||||||||||||
| Stephen Nolan | $ | 381,500 | 4,753 | 4,753 | ||||||||||||||||
| Daniel Halftermeyer | $ | 344,440 | 4,291 | 4,291 | ||||||||||||||||
| Greg Harwell | $ | 343,000 | 3,703 | 3,703 | ||||||||||||||||
| Joseph Gaug | $ | 268,734 | 1,923 | 1,923 | ||||||||||||||||
PART II - 2022 EXECUTIVE COMPENSATION EARNED
Performance Award Metrics and Goals
The 2022 APP Performance Awards granted to NEOs contained performance measurement metrics and goals appropriate to that executive. In some cases, where appropriate, executives may share a metric and its related goal. The following tables set forth the metrics chosen for each NEO’s APP Performance Award, and the percentage that each metric counted toward the NEO’s overall performance. (The definitions of the listed metrics are contained in Exhibit A to this Proxy Statement.)
Higgins, Nolan & Gaug | ||||||||
Performance Metrics | Weight | |||||||
1. 2022 AIN Adjusted EBITDA | 80% | |||||||
2. AIN TRIR | 10% | |||||||
3. AIN Compliance/Control Failures | 5% | |||||||
4. AIN Compliance/Controls Testing | 5% | |||||||
Halftermeyer | ||||||||
Performance Metrics | Weight | |||||||
1. 2022 MC Adjusted EBITDA | 80% | |||||||
2. AIN TRIR | 10% | |||||||
3. MC Compliance/Control Failures | 5% | |||||||
4. MC Compliance/Controls Testing | 5% | |||||||
Harwell | ||||||||
Performance Metrics | Weight | |||||||
1. 2022 AEC Adjusted EBITDA | 80% | |||||||
2. AIN TRIR | 10% | |||||||
3. AEC Compliance/Control Failures | 5% | |||||||
4. AEC Compliance/Controls Testing | 5% | |||||||
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The threshold, target and maximum goals for these metrics were as follows:
Performance Metric | Performance Metric Percentage Goals | ||||||||||
Threshold | Target | Maximum | |||||||||
2022 AIN Adjusted EBITDA | = $171.7M | = $221.6M | = $271.5M | ||||||||
AIN TRIR | = 1.5 TRIRs | = 1.0 TRIRs | = 0.75 TRIRs | ||||||||
2022 MC Adjusted EBITDA | = $165.1M | = $206.4M | = $247.7M | ||||||||
2022 AEC Adjusted EBITDA | = $49.0M | = $70.0M | = $91.0M | ||||||||
AIN Compliance/Control Failures | To Be Calculated as Described in Exhibit A | ||||||||||
AIN Compliance/Controls Testing | To Be Calculated as Described in Exhibit A | ||||||||||
MC Compliance/Control Failures | To Be Calculated as Described in Exhibit A | ||||||||||
MC Compliance/Controls Testing | To Be Calculated as Described in Exhibit A | ||||||||||
AEC Compliance/Control Failures | To Be Calculated as Described in Exhibit A | ||||||||||
AEC Compliance/Control Testing | To Be Calculated as Described in Exhibit A | ||||||||||
The following table sets forth the metrics chosen for each NEO’s 2022 MPP Performance Award, and the percentage that each metric counted toward overall performance. In each case, these metrics are aggregated to reflect the three-year performance period, and the goals established as the cumulative projected results for each metric in 2022, 2023, and 2024. The Committee has determined that disclosing actual goals would result in competitive harm to the Company.
Higgins, Nolan & Gaug | |||||
Performance Metric | Weight | ||||
Aggregate AIN Adjusted EBITDA | 100% | ||||
Halftermeyer | |||||
Performance Metric | Weight | ||||
1. Aggregate AIN Adjusted EBITDA | 40% | ||||
2. Aggregate MC Adjusted EBITDA | 60% | ||||
Harwell | |||||
Performance Metric | Weight | ||||
1. Aggregate AIN Adjusted EBITDA | 40% | ||||
2. Aggregate AEC Adjusted EBITDA | 60% | ||||
According to the applicable incentive plan and award agreements, the foregoing goals (including the threshold and maximum goals) are subject to subsequent adjustment in the event of unanticipated business developments during the applicable performance periods, such as acquisition or divestiture of business operations.
The Committee purposefully chose to utilize Adjusted EBITDA metrics in both the short-term and long-term performance incentive grants. It was the Committee’s determination that creating an incentive for the senior executive team based on adjusted EBITDA was consistent with the Company’s goals and strategies, and that a three-year performance period created sufficient balance against a one-year performance period.
33
Achievement of Goals and Awards Earned
The Committee is responsible for reviewing performance against goals and establishing final incentive compensation payouts at the end of each performance period. It is at that point when the total direct compensation actually earned by the NEO can be determined. In early 2023, and based on the Company’s audited 2022 financial statements, and other corporate records, the Committee determined one-year performance versus threshold, target and maximum goals for each performance metric. The Committee determined:
•2022 AIN Adjusted EBITDA was $260.0 million, representing an achievement of 176.0% of goal;
•The total recordable incident rate at the company-wide level was .48, resulting in an achievement of 200% of goal;
•2022 MC Adjusted EBITDA was $226.8 million, representing an achievement of 149.4% of goal; and
•2022 AEC Adjusted EBITDA was $80.1 million, representing an achievement of 148.3% of goal;
Regarding the Compliance metrics identified above, the Committee found that there were no material weaknesses with regard to the Company’s financial controls and only one significant deficiency, which occurred within the financial controls of the AEC business segment. And, regarding the identification and remediation of any Medium or High findings within the Company’s internal audit reports, the Committee found that there were no Medium or High findings overdue at the end of the year, and that there were no High findings, at all, during the year (see, Exhibit A).
Based upon the level of achievement of the foregoing performance measurement metrics, the Committee determined each NEO’s overall performance percentage achieved, and calculated the amount of APP Performance Award targets actually earned, as follows:
| Overall Performance Achievement | Higgins 159.5% | Nolan 159.5% | Halftermeyer 159.5% | Harwell 153.6% | Gaug 159.5% | ||||||||||||
| Cash Earned | $1,515,250 | $608,493 | $549,318 | $526,894 | $428,632 | ||||||||||||
It should be noted, that the 2022 APP Performance Awards for Messrs. Higgins, Nolan and Gaug provided that their final performance achievement percentage could not be higher than the greater of the Performance Percentages achieved by either the President – Global MC or the AEC Group President under their Annual Performance Bonus Agreements for 2022. Thus, Messrs. Higgins, Nolan and Gaug's achievement level were capped at 159.5%
Additionally, in accordance with the terms of the award agreement, a portion of the RSUs granted to each of the NEOs as part of their 2022 long-term incentive vested and became payable in February 2023. One-third of each NEO’s target vested and was paid in shares. The number of shares paid to each NEO is set forth in the following table:
| Higgins | Nolan | Halftermeyer | Harwell | Gaug | |||||||||||||
| Shares Earned | 4,264 | 1,584 | 1,430 | 1,234 | 641 | ||||||||||||
These shares were in addition to any shares that vested under RSU grants made in prior years.
The performance period for MPP Performance Awards granted in 2022 runs through December 31, 2024. The Company considers compensation earned under an MPP Performance Award to have been earned over the entirety of the performance period. However, 2022 was also the final year of the three-year performance period for MPP Performance Awards granted in 2020.
34
The performance measurement metrics for each of the NEOs in the 2020 MPP Performance Awards and the percentage that each metric counted toward overall performance were as follows: The threshold, target and maximum goals for the metrics are presented in the subsequent table.
Performance Metric | Performance Metric Percentage Goals | ||||||||||
Threshold | Target | Maximum | |||||||||
Aggregate AIN Adjusted EBITDA | = $512.8M | = $692.9M | = $873.1M | ||||||||
Aggregate MC Adjusted Reported EBITDA | = $461.71M | = $577.1M | = $692.56M | ||||||||
| Aggregate AEC Adjusted Reported EBITDA | = $177.2M | = $295.3M | = $413.4M | ||||||||
In early 2023, based on the Company’s audited financial statements for 2020 through 2022 (which include each year in the performance period), the Committee determined performance versus threshold, target and maximum goals for the foregoing performance metric. The Committee determined that:
•Aggregate AIN Adjusted EBITDA over the three-year period was $758.8 million, representing an achievement of 142.1% of target;
•Aggregate MC Adjusted Reported EBITDA was $679.9 million, representing an achievement of 189.0% of target.
•Aggregate AEC Adjusted Reported EBITDA was $235.2, representing an achievement of 74.6% of target
Based on the level of achievement of that performance measurement metrics, the Committee determined the overall performance percentage achieved by each NEO and calculated the amount of their MPP Performance Award targets actually earned, as follows:
| Higgins | Nolan | Halftermeyer | Harwell | Gaug | |||||||||||||
Overall Performance Achievement | 142.1% | 142.1% | 170.2% | 101.6% | 142.1% | ||||||||||||
| Shares Earned | 32,369 | 11,415 | 9,761 | 7,004 | 3,570 | ||||||||||||
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PART III
REQUIRED COMPENSATION TABLES
Summary Compensation Table
The following table sets forth information concerning the compensation of the Named Executive Officers for 2020, 2021 and 2022.
| Name and Principal Position | Year | Salary ($) | Bonus(1) ($) | Stock Awards(2) ($) | Option Awards(3) ($) | Nonequity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(4) ($) | All Other Compensation ($) | Total | |||||||||||||||||||||||||||||
A. William Higgins, President and CEO | 2022 | 931,250 | — | 2,200,000 | — | 1,486,111 | (5) | — | 43,121 | (6) | 4,660,482 | |||||||||||||||||||||||||||
| 2021 | 868,750 | — | 2,000,000 | — | 1,838,475 | (7) | — | 18,486 | (8) | 4,725,711 | ||||||||||||||||||||||||||||
| 2020 | 808,589 | — | 1,700,000 | — | 1,186,118 | (9) | — | 19,854 | (10) | 3,714,561 | ||||||||||||||||||||||||||||
| Stephen Nolan, Chief Financial Officer | 2022 | 545,000 | — | 817,500 | — | 619,232 | (11) | — | 11,704 | (12) | 1,993,436 | |||||||||||||||||||||||||||
| 2021 | 545,000 | — | 790,250 | — | 765,063 | (13) | — | 14,647 | (14) | 2,114,960 | ||||||||||||||||||||||||||||
| 2020 | 545,000 | — | 599,500 | — | 1,320,317 | (17) | — | 16,920 | (16) | 2,481,737 | ||||||||||||||||||||||||||||
| Daniel Halftermeyer, President, Machine Clothing | 2022 | 672,071 | (17) | — | 738,000 | — | 549,318 | (18) | 11,310 | 200,240 | (17,19) | 2,170,939 | ||||||||||||||||||||||||||
| 2021 | 701,486 | (20) | — | 526,440 | — | 524,275 | (21) | 38,429 | 198,191 | (20,22) | 1,988,821 | |||||||||||||||||||||||||||
| 2020 | 683,675 | (23) | — | 428,040 | — | 415,324 | (24) | 115,008 | 208,555 | (23,25) | 1,850,602 | |||||||||||||||||||||||||||
| Greg Harwell, President, Albany Engineered Composites | 2022 | 490,000 | — | 637,000 | — | 546,159 | (26) | — | 19,397 | (27) | 1,692,556 | |||||||||||||||||||||||||||
| 2021 | 490,000 | — | 588,000 | — | 596,415 | (28) | — | 15,476 | (29) | 1,689,891 | ||||||||||||||||||||||||||||
| 2020 | 499,423 | — | 514,500 | — | 358,609 | (30) | — | 18,742 | (31) | 1,391,274 | ||||||||||||||||||||||||||||
| Joseph Gaug, VP - General Counsel & Secretary | 2022 | 408,516 | — | 330,750 | — | 439,368 | (32) | — | 19,209 | (33) | 1,197,843 | |||||||||||||||||||||||||||
| 2021 | 398,062 | — | 275,625 | — | 478,194 | (34) | — | 15,284 | (35) | 1,167,165 | ||||||||||||||||||||||||||||
| 2020 | 340,710 | — | 299,967 | — | 306,251 | (36) | — | 15,052 | (37) | 961,980 | ||||||||||||||||||||||||||||
| (1) | The figure provided represents the Annual Incentive Plan bonus earned, or any additional discretionary bonus awarded, during that year, if any, for performance during that year, but which was actually paid in the subsequent year. | ||||
| (2) | The figure provided for each year represents the grant date fair value, in dollars, of (a) the target share amounts contained in any Performance Awards granted during that year under the 2017 Incentive Plan, (b) all Restricted Stock Units granted in that year under the Company’s Restricted Stock Unit Plan, and (c) all Performance Phantom Stock granted in that year under the Company’s Performance Stock Plan. In all cases, the total presented is the aggregate grant date fair value computed in accordance with FASB ASC Item 718. | ||||
| (3) | No options have been granted since 2002. | ||||
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| (4) | The figure provided for each year, if any, represents the aggregate change in the actuarial present value of each NEO’s (except Mr. Halftermeyer’s) accumulated benefit under all defined benefit and actuarial pension plans (including supplemental plans) from the prior year. The change is calculated between the pension plan measurement dates used by the Company for financial statement reporting purposes in each year. The figure also reflects any changes in actuarial assumptions. Reference is made to Note 4 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a discussion of these assumptions. The figure provided for Mr. Halftermeyer represents the change in present value of the private pension purchased for Mr. Halftermeyer through a Swiss insurance company in accordance with Swiss law (see footnote 4 to the “Pension Benefits” table on pp. 40). There were no above-market or preferential earnings during 2020, 2021 or 2022 for any of the NEOs under any deferred compensation plans. | ||||
| (5) | Includes (a) profit-sharing of $10,736 under the Company’s U.S. profit-sharing plan and (b) $1,475,375, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2022 and paid during 2023. | ||||
| (6) | Includes (a) Company-matching contributions of $13,937 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; (b) a premium of $11,484 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer; and (c) relocation expenses of $17,700. | ||||
| (7) | Includes (a) profit-sharing of $11,600 under the Company’s U.S. profit-sharing plan and (b) $1,826,875, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2021 and paid during 2022. | ||||
| (8) | Includes (a) Company-matching contributions of $14,250 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; (b) a premium of $1,494 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer; (c) relocation expenses of $1,685 and (d) a taxable award of $1,057. | ||||
| (9) | Includes (a) profit-sharing of $2,187 under the Company’s U.S. profit-sharing plan and (b) $1,183,931, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2020 and paid during 2021. | ||||
| (10) | Includes (a) Company-matching contributions of $9,237 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $10,527 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
| (11) | Includes (a) profit-sharing of $10,736 under the Company’s U.S. profit-sharing plan and (b) $608,496 the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2022 and paid during 2023. | ||||
| (12) | Includes (a) Company-matching contributions of $11,417 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $287 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
| (13) | Includes (a) profit-sharing of $11,600 under the Company’s U.S. profit-sharing plan and (b) $753,463 the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2021 and paid during 2022. | ||||
| (14) | Includes (a) Company-matching contributions of $13,562 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $1,085 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
| (15) | Includes (a) profit-sharing of $8,749 under the Company’s U.S. profit-sharing plan; (b) $561,568, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2020 and paid during 2021; and (c) $750,000, the target cash payment of a retention bonus awarded to the officer in 2020. | ||||
| (16) | Includes (a) Company-matching contributions of $14,050 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan and (b) a premium of $2,870 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
| (17) | Represents either the amount paid in euros, translated into U.S. dollars at the rate of 1.05380 dollars per euro, or the amount paid in Swiss francs, translated into U.S. dollars at the rate of 1.04827 dollars per Swiss franc, which are the rates used by the Company in its 2022 Consolidated Statements of Income and Retained Earnings. | ||||
| (18) | Represents the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan earned during 2022 and paid during 2023. | ||||
37
| (19) | Includes (a) a premium of $12,164 paid by the Company with respect to maintenance of private Swiss health insurance coverage; (b) contributions of $97,574 to maintain the NEO in French social programs, including state pension schemes, during his expatriation (of which approximately $27,457 was the officer’s employee contribution paid by the Company); (c) expenses of $88,499 related to the NEO’s international assignment, consisting of housing ($61,261) and tax adjustments ($27,238); and (d) perquisites of $2,003, valued on the basis of the taxable benefit for the private use of a Company car. | ||||
| (20) | Represents either the amount paid in euros, translated into U.S. dollars at the rate of 1.18306 dollars per euro, or the amount paid in Swiss francs, translated into U.S. dollars at the rate of 1.09415 dollars per Swiss franc, which are the rates used by the Company in its 2021 Consolidated Statements of Income and Retained Earnings. | ||||
| (21) | Represents the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan earned during 2021 and paid during 2022. | ||||
| (22) | Includes (a) a premium of $11,641 paid by the Company with respect to maintenance of private Swiss health insurance coverage; (b) contributions of $92,476 to maintain the NEO in French social programs, including state pension schemes, during his expatriation (of which approximately $28,985 was the officer’s employee contribution paid by the Company); (c) expenses of $91,983 related to the NEO’s international assignment, consisting of housing ($63,942) and tax adjustments ($28,041); and (d) perquisites of $2,090, valued on the basis of the taxable benefit for the private use of a Company car. | ||||
| (23) | Represents either the amount paid in euros, translated into U.S. dollars at the rate of 1.14157 dollars per euro, or the amount paid in Swiss francs, translated into U.S. dollars at the rate of 1.06637 dollars per Swiss franc, which are the rates used by the Company in its 2020 Consolidated Statements of Income and Retained Earnings. | ||||
| (24) | Represents the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan earned during 2020 and paid during 2021. | ||||
| (25) | Includes (a) a premium of $11,272 paid by the Company with respect to maintenance of private Swiss health insurance coverage; (b) contributions of $105,673 to maintain the NEO in French social programs, including state pension schemes, during his expatriation (of which approximately $29,726 was the officer’s employee contribution paid by the Company); (c) expenses of $89,573 related to the NEO’s international assignment, consisting of housing ($62,318) and tax adjustments ($27,255); and (d) perquisites of $2,037, valued on the basis of the taxable benefit for the private use of a Company car. | ||||
| (26) | Includes (a) profit-sharing of $10,736 under the Company’s U.S. profit-sharing plan and (b) $535,423, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2022 and paid during 2023. | ||||
| (27) | Includes (a) Company-matching contributions of $15,009 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $4,388 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
| (28) | Includes (a) profit-sharing of $11,600 under the Company’s U.S. profit-sharing plan and (b) $584,415, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2021 and paid during 2022. | ||||
| (29) | Includes (a) Company-matching contributions of $14,500 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $976 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
| (30) | Includes (a) profit-sharing of $8,749 under the Company’s U.S. profit-sharing plan; and (b) $349,860, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2020 and paid during 2021. | ||||
| (31) | Includes (a) Company-matching contributions of $14,250 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $4,492 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
| (32) | Includes (a) profit-sharing of $10,736 under the Company’s U.S. profit-sharing plan and (b) $428,632, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2022 and paid during 2023. | ||||
| (33) | Includes (a) Company-matching contributions of $15,250 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $3,959 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
38
| (34) | Includes (a) profit-sharing of $11,600 under the Company’s U.S. profit-sharing plan and (b) $466,594, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2021 and paid during 2022. | ||||
| (35) | Includes (a) Company-matching contributions of $14,500 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $784 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
| (36) | Includes (a) profit-sharing of $8,750 under the Company’s U.S. profit-sharing plan; (b) $172,501, the actual cash award received relative to his APP Performance Award granted under the 2017 Incentive Plan, in each case earned during 2020 and paid during 2021; and (c) $125,000, the target cash payment of a retention bonus awarded to the officer in 2020. | ||||
| (37) | Includes (a) Company-matching contributions of $14,250 to the officer’s account under the Company’s ProsperityPlus 401(k) defined contribution plan; and (b) a premium of $802 paid by the Company with respect to life or other insurance for the benefit of the officer or beneficiaries designated by the officer. | ||||
CEO Pay Ratio
We are required to disclose:
• the median annual total compensation of all of our employees, excluding our CEO;
• the annual total compensation of our CEO; and
• the ratio between those two amounts
Mr. Higgins’ total compensation for 2022 as reported in the Summary Compensation Table above was $4,660,482. Using the same format, the following table presents the annual total compensation of our median employee in 2022 (excluding Mr. Higgins):
| Year | Salary ($) | Bonus | Stock Awards ($) | Option Awards ($) | Nonequity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Median Employee | 2022 | 75,168 | 1,711 | — | — | 2,669 | (1) | — | 3,537 | (2) | 83,085 | ||||||||||||||||||||||||
(1) Profit-sharing under the Company’s U.S. profit-sharing plan.
(2) Includes (a) Company matching contributions of $3,413 to the employee's account under the Company's ProsperityPlus 401(k) defined contribution plan, (b) a premium of $53 paid by the Company with respect to life or other insurance for the benefit of the employee or beneficiaries designated by the employee, and (c) a taxable employee recognition award of $71.
The ratio of the two amounts is 56:1.
To perform the foregoing calculation, we started with the total number of employees working for the Company and its subsidiaries worldwide as of December 1, 2020; we used our entire worldwide employee population and did not use statistical sampling. We then determined total compensation paid to each employee for all of 2020, excluding only changes in value of any vested pension benefits, as we concluded that it would have been extremely burdensome to determine such changes for all employees. Each employee’s total compensation was then translated into U.S. dollars using the exchange rate applicable to each employee’s country of employment, as used by the Company in its 2020 Consolidated Statements of Income and Retained Earnings. On this basis, we determined that our median employee, for the purposes of this disclosure, was an hourly employee working at the Borne, Texas facility of our Albany Engineered Composites subsidiary. As is permitted by the applicable regulations, we used this same employee as the comparator for the purposes of our 2021 disclosure, and was prepared to use her again this year. However, the originally identified employee resigned in mid-2022. Therefore, as permitted by the applicable regulation, we have chosen to substitute an employee whose compensation is substantially similar to the original median employee based on the compensation and methodology used in 2020. This substitute employee is a hourly employee at working at a facility in Rochester, New Hampshire, who does not have a defined pension benefit.
39
Grants of Plan-Based Awards
| Name | Estimated Future Payouts Under Nonequity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | |||||||||||||||||||||||||||||||||
| Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (3) (#) | All Other Option Awards: Number of Securities or Underlying Options (#) | Exercise or Base Price of Option Awards ($/sh) | Value of Stock and Option Awards (4) ($) | |||||||||||||||||||||||||
| A. William Higgins | 2/25/22 | 475,000 | 925,000 | 1,900,000 | 6,395 | 12,791 | 25,581 | 12,791 | — | — | 2,200,000 | ||||||||||||||||||||||||
| Stephen Nolan | 2/25/22 | 190,750 | 381,500 | 763,000 | 2,376 | 4,753 | 9,506 | 4,753 | — | — | 817,500 | ||||||||||||||||||||||||
| Daniel Halfterymeyer | 2/25/22 | 172,200 | 344,400 | 688,800 | 2,145 | 4,291 | 8,581 | 4,291 | — | — | 738,000 | ||||||||||||||||||||||||
| Greg Harwell | 2/25/22 | 171,500 | 343,000 | 686,000 | 1,852 | 3,703 | 7,407 | 3,703 | — | — | 637,000 | ||||||||||||||||||||||||
| Joseph Gaug | 2/25/22 | 134,367 | 268,734 | 537,468 | 961 | 1,923 | 3,846 | 1,923 | — | — | 330,750 | ||||||||||||||||||||||||
| (1) | Awards represent the target cash amount established for each officer in early 2022 in the APP Performance Awards granted to that officer under the 2017 Incentive Plan. | ||||
| (2) | Awards represent the target share amount established for each officer in the MPP Performance Awards granted to the officer under the 2017 Incentive Plan consisting of a target number of shares of Class A Common Stock. | ||||
| Each Performance Award entitled the NEO to receive from 50% (for attaining performance at the threshold level) to as much as 200% (for attaining performance at the maximum level) of such target, based on the extent to which he or she attained certain performance goals during the performance periods. The performance conditions at each of the threshold, target, and maximum levels in the Performance Awards granted to each of the NEOs are described above (see pp. 33). | |||||
| (3) | Awards represent the number of restricted stock units granted for the officer in the restricted stock award granted under the 2017 Incentive Plan as part of his 2022 multiyear performance incentive award. Under this award, each recipient is awarded a fixed number of number of shares which vests ratably over the three-year period and is paid in Class A common stock upon vesting. | ||||
| (4) | The grant date fair value of the MPP Performance Award plus the grant date fair value of the restricted stock unit award. In accordance with FASB ASC Topic 718, the grant date fair value of the MPP Performance Award targets was determined to be the product of the target number of shares awarded multiplied by $86.00, the closing market price on February 25, 2022, the grant date of the Performance Awards, as it was expected that the probable outcome of the performance conditions would lead to the achievement of the target number of shares. | ||||
40
Outstanding Equity Awards at Fiscal Year-End
| Option Awards | |||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Options Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value (1) of Shares or Units of Stock That Have Not Vested (#) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market (1) or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||||
| A. William Higgins | — | — | — | — | — | — | — | 32,693 | (2) | 3,191,260 | |||||||||||||||||||||||||
| — | — | — | — | — | — | — | 12,531 | (3) | 1,235,431 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 8,354 | (4) | 823,621 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 12,791 | (5) | 1,261,065 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 12,791 | (6) | 1,264,065 | ||||||||||||||||||||||||||
| Stephen Nolan | — | — | — | — | — | — | — | 11,415 | (2) | 1,125,405 | |||||||||||||||||||||||||
| — | — | — | — | — | — | — | 4,951 | (3) | 488,119 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 3,301 | (4) | 325,413 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 4,753 | (5) | 468,598 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 4,753 | (6) | 468,598 | ||||||||||||||||||||||||||
| Daniel Halftermeyer | — | — | — | — | — | — | — | 9,761 | (2) | 962,337 | |||||||||||||||||||||||||
| — | — | — | — | — | — | — | 3,298 | (3) | 325,150 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 2,199 | (4) | 216,767 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 4,291 | (5) | 423,050 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 4,291 | (6) | 423,050 | ||||||||||||||||||||||||||
| Greg Harwell | — | — | — | — | — | — | — | 7,004 | (2) | 690,524 | |||||||||||||||||||||||||
| — | — | — | — | — | — | — | 3,684 | (3) | 363,206 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 2,456 | (4) | 242,137 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 3,703 | (5) | 365,079 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 3,703 | (6) | 365,079 | ||||||||||||||||||||||||||
| Joseph Gaug | — | — | — | — | — | — | — | 3,570 | (2) | 222,186 | |||||||||||||||||||||||||
| — | — | — | — | — | — | — | 1,727 | (3) | 152,753 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 1,151 | (4) | 152,753 | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 1,923 | (5) | — | ||||||||||||||||||||||||||
| — | — | — | — | — | — | — | 1,923 | (6) | — | ||||||||||||||||||||||||||
| — | — | — | — | — | 439 | (7) | 43,281 | — | — | ||||||||||||||||||||||||||
| — | — | — | — | — | 922 | (8) | 90,900 | — | — | ||||||||||||||||||||||||||
| — | — | — | — | — | 1,389 | (9) | 136,942 | — | — | ||||||||||||||||||||||||||
| (1) | Based on closing market price on December 30, 2022, of $98.59. | ||||
| (2) | Represents the shares actually earned by the NEO with respect to the MPP Performance Award granted to the NEO in 2020 under the 2017 Incentive Plan. The shares were earned based on performance during 2020, 2021 and 2022, and paid in 2023. None of the balance reported was earned as of December 31, 2022. As of January 1, 2023, 100% of the balance reported became vested, and these balances were distributed, in stock, on or about March 1, 2023. | ||||
| (3) | Represents the share target opportunity established in the MPP Performance Award granted to the NEO in 2021 under the 2017 Incentive Plan. This share target is earned based on performance during 2021, 2022, and 2023, and paid in 2024. None of the balance reported was earned as of December 31, 2021. | ||||
| (4) | Restricted Stock shares granted under the 2017 Incentive Plan. One-half of the balance will vest and be payable on February 19, in each 2023 and 2024. | ||||
| (5) | Represents the share target opportunity established in the MPP Performance Award granted to the NEO in 2022 under the 2017 Incentive Plan. This share target is earned based on performance during 2022, 2023, and 2024, and paid in 2025. None of the balance reported was earned as of December 31, 202. These awards are a part of those included in the “Grants of Plan-Based Awards” table on page 40. | ||||
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| (6) | Restricted Stock shares granted under the 2017 Incentive Plan. One-third of the balance will vest and be payable on March 1, in each 2023, 2024 and 2025. These awards are a part of those included in the “Grants of Plan-Based Awards” table on page 40. | ||||
| (7) | Performance Phantom Stock granted under the Performance Stock Plan. The balance reported will vest and be payable on March 15 in each 2023. | ||||
| (8) | Performance Phantom Stock granted under the Performance Stock Plan. One-half of the balance reported will vest and be payable on March 15 in each 2023 and 2024. | ||||
| (9) | Performance Phantom Stock granted under the Performance Stock Plan. One-third of the balance reported will vest and be payable on March 15 in each 2023, 2024 and 2025. | ||||
Description of Equity Awards
Equity awards referred to in the foregoing table include the following:
Restricted Stock Units. RSUs granted under the RSU Plan are, upon vesting, paid in full in cash, in an amount equal to the average closing price of one share of the Company’s Class A Common Stock during a specified period preceding the vesting/payment date. No shares of Class A Common Stock are issued or issuable under the RSU Plan. There is no exercise price. In lieu of cash dividends, a holder of RSUs is credited with additional RSUs equal to the number of shares of Class A Common Stock having the same value on the dividend payment date as the aggregate dividends that would be payable on shares of Class A Common Stock equal in number to the RSUs held by such holder. (The crediting of such dividends is reflected in the above table.) RSU awards generally vest as to 20% of the awarded units on each of the first five anniversaries of the date of grant, but only if the holder is then employed by the Company or a subsidiary. However, differing vesting schedules are permitted under the terms of the RSU Plan and have been used in special circumstances; such was the case with a special executive-retention or recruitment incentives implemented for certain key executives from time to time. In the event of termination of employment, all unvested RSUs terminate without payment, except that in the case of voluntary termination after age 62, death, disability, or involuntary termination, one-half of all unvested RSUs automatically vest and are paid at termination.
Performance Phantom Stock. Grants under the Performance Phantom Stock plan are denominated as share targets, but no shares of Class A Common Stock are actually issued or issuable under the Plan, nor is there an exercise price. Instead, upon vesting, the earned shares are paid in full in cash, in an amount equal to the average closing price of one share of the Company’s Class A Common Stock during a specified period preceding the vesting/payment date. Each award entitles the recipient to earn and be credited with between 0% and 200% of the target award, based on the extent to which certain company-wide performance goals are achieved during the annual performance period. Once the number of shares earned is determined, the awards generally vest as to 20% of the earned shares on the last day of February in each of the first five years following the performance period, but only if the holder is then employed by the Company or a subsidiary. Award recipients are not credited with additional shares based upon the payment of dividends. The performance period for the 2020 grants runs from January 1, 2020 through December 31, 2020, and payout on earned shares runs through February 2025.
Performance-based Incentive Awards. The performance-based incentive awards described in the foregoing table were granted under the Company’s 2017 Incentive Plan.
Beginning in 2010, the performance-based incentive awards were structured in the form of the APP and MPP Performance Awards described above. Through 2017, these awards each established both share and cash targets, which were paid out as denominated when earned. However, since 2018 the APP Performance Award is paid completely in cash and the MPP Performance Award is paid completely in equity. Beginning with the grants in 2021, the long-term incentives targets, while still settled in equity, have been divided evenly between the between the performance shares under the MPP Performance Award and restricted stock.
An APP Performance Award is cancelled if the recipient’s employment is terminated for any reason during the performance period. If the employment is terminated after the performance period, but prior to distribution of the award, the recipient is entitled to receive 100% of the earned award on the distribution date provided his or her employment is not terminated for “cause.” A recipient whose employment is terminated for “cause” forfeits any payments not yet paid, unless the Committee or, if required, a Performance Committee of the Board determines otherwise in its absolute discretion. An MPP Performance Award is cancelled only in the event the recipient’s employment is terminated for “cause,” in which case he or she would not be entitled to any payments unless the Committee or a Performance Committee of the Board determines otherwise in its absolute discretion. In the event a recipient’s employment is terminated for any other reason, the MPP Performance Award is not cancelled but the vesting ceases as of the date of termination. The recipient would then be entitled to a pro-rata payment for the amount that vested. Such payment would be based on achievement of the performance goals at the end of the performance period and would be made on the distribution date established in the award.
Restricted Stock Shares. Restricted stock granted under the 2017 Incentive Plan are, upon vesting, are paid in equity. Each restricted stock vesting entitles the recipient to one share of the Company’s Class A Common Stock. There is no exercise price and no dividends are paid until the shares vest and are distributed to the recipient. The awards vest as to one-third of the awarded units on each of the first three anniversaries of the date of grant, but only if the holder is then employed by the Company or a subsidiary. In the event of termination of employment, all unvested restricted shares terminate without payment, except that in the case of voluntary termination after age 62, death, disability, or involuntary termination, one-half of all unvested RSUs automatically vest and are paid at termination.
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Option Exercises and Stock Vested
| Stock Awards | Stock Awards | |||||||||||||||||||
| Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||||||
| A. William Higgins | 4,177 | (1) | 357,255 | — | — | |||||||||||||||
| Stephen Nolan | 3,089 | (1) | 264,432 | — | — | |||||||||||||||
| Daniel Halftermeyer | 1,099 | (1) | 93,997 | 6,580 | (2) | 548,443 | ||||||||||||||
| Greg Harwell | 4,269 | (1) | 363,576 | — | — | |||||||||||||||
| Joseph Gaug | 576 | (1) | 49,265 | 1,685 | (3) | 144,380 | ||||||||||||||
 | |||||
| (1) | Vesting of Restricted Stock Units granted pursuant to either the Company’s Restricted Stock Unit Plan or the 2017 Incentive Plan. Amounts reported as “Value Realized on Vesting” were distributed in stock to the NEO during 2022. | ||||
| (2) | Vesting of share target under the MPP Performance Award granted to the NEO in 2019 pursuant to the 2017 Incentive Plan Amounts reported as “Value Realized on Vesting” were distributed in stock to the NEO during 2022. | ||||
| (3) | Vesting of Performance Phantom Stock granted pursuant to the Company’s Performance Phantom Stock Plan. Amounts reported as “Value Realized on Vesting” were distributed in cash to the NEO during 2022. | ||||
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Pension Benefits
Name (1) | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year ($) | |||||||||||||
Daniel A. Halftermeyer (2) | — | — | 316,333 | — | |||||||||||||
| (1) | The Company’s PensionPlus Plan and Supplemental Executive Retirement Plan were closed to new employees, effective October 1, 1998. Messrs. Higgins, Nolan, Harwell, and Gaug all joined the Company after the plans were closed and have no reportable pension benefits. They are therefore omitted from the table. | ||||||||||||||||
| (2) | As a non-U.S. employee, Mr. Halftermeyer does not participate in the U.S. PensionPlus Plan, the Supplemental Executive Retirement Plan or the Qualified Supplemental Retirement Plan. Instead, as Mr. Halftermeyer is a French citizen working for a company affiliate in Switzerland, the Company is required by Swiss law to maintain a private pension for his benefit. The private pension is purchased through an insurance company. The Company’s Swiss subsidiary is required to make defined premium contributions. The premium paid by the Company in 2022 was CHF 7,586 or $7,952 using the conversion rate of 1.04827 U.S. dollars per Swiss franc, which is the rate used by the Company in its 2022 Consolidated Statements of Income and Retained Earnings. The policy was first purchased in 2007. The present value of the accumulated benefit is set forth in the table above (and has been translated into U.S. dollars at the rate of 1.08155 U.S. dollars per Swiss Franc, which was the applicable conversion rate as of December 30, 2022). In addition, Mr. Halftermeyer continues to participate in a French state-mandated social scheme as an expatriate. The Company contributes both the employer’s and employee’s share of the legally required contribution under this scheme. In early 2022, the Company paid €92,593, or $97,574 using the conversion rate of 1.05380 U.S. dollars per euro, which is the rate used by the Company in its 2022 Consolidated Statements of Income and Retained Earnings. This contribution covered the period from October 2021 through September 2022. Of this amount, approximately $27,457 was the employee’s required contribution, which the Company assumed as part of the international assignment. | ||||||||||||||||
PensionPlus Plan. The Company’s U.S. PensionPlus Plan, applicable to all salaried and most hourly employees in the United States who began employment on or before October 1, 1998, provides generally that an employee who retires at his or her normal retirement age (age 65) will receive a maximum annual pension equal to the sum of (a) 1% of his or her average annual base compensation for the three most highly compensated consecutive calendar years in his or her last ten years of employment (the “High Three Average”) times his or her years of service (up to 30) before April 1, 1994; plus (b) 0.5% of the amount by which his or her High Three Average exceeds a Social Security offset ($41,623 in 2009) times his or her years of service (up to 30) before March 31, 1994; plus (c) 1% of his or her High Three Average times years of service (up to 30) between March 31, 1994, and January 1, 1999; plus (d) 0.75% of such High Three average times years of service (up to 30) after December 31, 1998; plus (e) 0.25% of such High Three Average times years of service in excess of 30. The Plan was amended effective February 28, 2009, to freeze the accrual of any new benefits. As a result, no participant has accrued any additional pension creditable service after that date, and the High Three Average is now determined in reference to the last ten years of employment prior to February 28, 2009.
Annual base compensation in any year used to determine a participant’s High Three Average is the rate of base earnings of such participant as of January 1 of such year. It does not include other cash compensation (such as annual cash bonuses) or noncash compensation.
Section 415 of the Internal Revenue Code places certain limitations on pensions that may be paid under federal income tax qualified plans. Section 401 of the Code also limits the amount of annual compensation that may be used to calculate annual benefits under such plans. The effect of such limits is reflected in the amounts reported as the present value of benefits accumulated under the PensionPlus Plan.
The PensionPlus Plan permits early retirement at or after age 55 with at least ten years of service. In general, provided that payment of benefits does not commence until the normal retirement age of 65, the pension of a participant retiring early will be calculated in the same manner as described above, taking into account years of service up to February 28, 2009, and such participant’s High Three Average prior to that date. A participant eligible for early retirement may also elect to commence benefits on or after his or her early retirement date and prior to age 65 in an amount that is the actuarial equivalent of his or her normal retirement benefit.
Supplemental Executive Retirement Plan. The Company’s unfunded Supplemental Executive Retirement Plan is intended to replace any PensionPlus benefits that a participant is prevented from receiving due to the Section 415 limits on pensions or the Section 401 limits on annual compensation used to calculate PensionPlus benefits. All plan participants affected by such limitations are eligible to receive benefits under the unfunded Supplemental Executive Retirement Plan. In other words, the pension formula described above is used to determine aggregate benefits under both plans — the portion that is not payable under the PensionPlus Plan due to the foregoing limits is payable under the Supplemental Executive Retirement Plan. The allocation is made on the basis of IRS regulations in effect on the valuation date. The Executive Retirement Plan was also amended effective February 28, 2009 to freeze the accrual of any new benefits.
Qualified Supplemental Retirement Benefits. Certain employees of the Company who were active on June 30, 2002, are entitled to receive additional qualified supplemental retirement (“QSR”) benefits under the PensionPlus Plan. On June 30, 2002, each covered employee was credited with an initial account balance in a specified amount. Each such participant had
44
participated in deferred compensation plans maintained by the Company on or before such time, pursuant to which he or she could defer the receipt of earned cash compensation until retirement or other events. Amounts deferred earned interest at rates approved from time to time by the Compensation Committee. In each case, the amount initially credited to such employee’s QSR account was equal to an amount of deferred compensation (including interest) to which he or she was entitled but which he or she agreed to renounce. Each QSR account is credited with interest at 8.5% annually until retirement, at which time the QSR account value is payable in the form of an actuarially equivalent single life annuity or, at the election of the participant, in a single lump sum.
Nonqualified Deferred Compensation
There were no executive or Company contributions, or interest or other earnings, during 2022 under any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified, nor did any NEO receive any withdrawals or distributions during, or have any account as of the end of, 2022.
Plan-based Compensation
Stock Options. There were no unexercisable options as of December 31, 2022 that would become exercisable upon the involuntary termination or retirement of any NEO.
Restricted Stock, Phantom Stock and Performance-based Awards. The following chart indicates what the effect on RSUs, Phantom Stock and earned performance-based incentive awards in the accounts of each NEO would have been upon the occurrence of (a) termination of employment involuntarily on December 31, 2022, without cause, or (b) in the case of any NEO who had attained age 62 at the time, a voluntary or involuntary termination of employment on such date, without cause. (All of these awards are reported in the table entitled “Outstanding Equity Awards at Fiscal Year-End” on page 41.)
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| Name | Number of Shares or Units of Stock That Have Not Vested (#) | Number of Shares or Units of Stock That Would Vest Upon Such Termination (#) | Value of Shares or Units of Stock That Would Vest Upon Such Termination (1) ($) | |||||||||||||||||
| A. William Higgins | 32,369 | (2) | 32,369 | 3,191,265 | ||||||||||||||||
| 12,531 | (3) | 8,354 | (4) | 823,625 | ||||||||||||||||
| 8,354 | (5) | 4,177 | 411,810 | |||||||||||||||||
| 12,791 | (6) | 4,264 | (7) | 420,354 | ||||||||||||||||
| 12,791 | (8) | 6,396 | 630,532 | |||||||||||||||||
| Stephen Nolan | 11,415 | (2) | 11,415 | 1,125,394 | ||||||||||||||||
| 4,951 | (3) | 3,301 | (4) | 325,414 | ||||||||||||||||
| 3,301 | (5) | 1,651 | 162,723 | |||||||||||||||||
| 4,753 | (6) | 1,584 | (7) | 156,199 | ||||||||||||||||
| 4,753 | (8) | 2,377 | 234,299 | |||||||||||||||||
| Daniel Halftermeyer | 9,761 | (2) | 9,761 | 962,334 | ||||||||||||||||
| 3,298 | (3) | 2,199 | (4) | 216,768 | ||||||||||||||||
| 2,199 | (5) | 1,100 | 108,400 | |||||||||||||||||
| 4,291 | (6) | 1,430 | (7) | 141,016 | ||||||||||||||||
| 4,291 | (8) | 2,146 | 211,525 | |||||||||||||||||
| Greg Harwell | 7,004 | (2) | 7,004 | 690,554 | ||||||||||||||||
| 3,684 | (3) | 2,456 | (4) | 242,138 | ||||||||||||||||
| 2,456 | (5) | 1,228 | 121,069 | |||||||||||||||||
| 3,703 | (6) | 1,234 | (7) | 121,693 | ||||||||||||||||
| 3,703 | (8) | 1,852 | 182,539 | |||||||||||||||||
| Joseph Gaug | 3,570 | (2) | 3,570 | 351,922 | ||||||||||||||||
| 1,727 | (3) | 1,151 | (4) | 113,511 | ||||||||||||||||
| 1,151 | (5) | 576 | 56,739 | |||||||||||||||||
| 1,923 | (6) | 641 | (7) | 63,196 | ||||||||||||||||
| 1,923 | (8) | 962 | 94,794 | |||||||||||||||||
| 2,750 | (8) | 1,375 | 135,561 | |||||||||||||||||
| (1) | Based on the closing market price on December 30, 2022 of $98.59. | |||||||||||||||||||
| (2) | Represents the number of shares established as the target share opportunity in the NEO’s MPP Performance Award granted in 2020 under the 2017 Incentive Plan. This target share award is earned based on performance during 2020, 2021 and 2022, and paid in 2023. The award vested pro rata on a daily basis during the three-year performance period. Thus, in the event the NEO had been terminated for any reason other than for cause on December 31, 2022, the NEO would nevertheless have been entitled to a payout in 2023 of the shares set forth.. | |||||||||||||||||||
| (3) | Represents the number of shares established as the target share opportunity in the NEO’s MPP Performance Award granted in 2021 under the 2017 Incentive Plan. This target share award is earned based on performance during 2021, 2022 and 2023, and paid in 2024. None of the balance reported was earned as of December 31, 2022. | |||||||||||||||||||
| (4) | Represents two-thirds of the target share award in the NEO’s MPP Performance Award granted in 2021 under the 2017 Incentive Plan. Although not earned as of December 31, 2022, the award vests pro rata on a daily basis during the three-year performance period. Thus, in the event of termination for any reason other than for cause, this award would not be canceled. Instead, the NEO would be entitled to a payout in 2024 of the shares vested through the date of termination, adjusted to reflect the level of achievement of the performance goals. For the purpose of this disclosure, the Company has assumed 100% achievement of the three-year performance goal and termination as of December 31, 2022. | |||||||||||||||||||
| (5) | Restricted Stock shares granted to the NEO in 2021 under the 2017 Incentive Plan. For these grants, the number of shares shown as vesting upon termination would be payable at such time. | |||||||||||||||||||
| (6) | Represents the number of shares established as the target share opportunity in the NEO’s MPP Performance Award granted in 2022 under the 2017 Incentive Plan. This target share award is earned based on performance during 2022, 2023 and 2024, and paid in 2025. None of the balance reported was earned as of December 31, 2022. | |||||||||||||||||||
| (7) | Represents one-third of the target share award in the NEO’s MPP Performance Award granted in 2022 under the 2017 Incentive Plan. Although not earned as of December 31, 2022, the award vests pro rata on a daily basis during the three-year performance period. Thus, in the event of termination for any reason other than for cause, this award would not be canceled. Instead, the NEO would be entitled to a payout in 2025 of the shares vested through the date of termination, adjusted to reflect the level of achievement of the performance goals. For the purpose of this disclosure, the Company has assumed 100% achievement of the three-year performance goal and termination as of December 31, 2022. | |||||||||||||||||||
| (8) | Restricted Stock shares granted to the NEO in 2022 under the 2017 Incentive Plan. For these grants, the number of shares shown as vesting upon termination would be payable at such time. | |||||||||||||||||||
| (9) | Performance Phantom Stock granted under the Performance Phantom Stock Plan prior to 2021. For these grants, amounts shown as vesting upon termination are payable at such time, in cash. | |||||||||||||||||||
46
Potential Payments upon Termination or Change in Control
Termination/Severance
Mr. Higgins
The Committee believes that under certain circumstances, severance agreements are appropriate for the attraction and retention of executive talent, consistent with the practices of peer companies. This was particularly true in the case of Mr. Higgins. The Committee felt a severance provision was warranted in order to induce Mr. Higgins to leave his position as Chairman of the Board of Directors to become the Company’s CEO. His employment agreement (see page 30) provides that in the event his employment is terminated for any reason, he would be entitled to: (a) any unpaid base salary accrued to the effective date of termination; (b) any unpaid but earned and accrued annual cash bonus for the portion of the year in which the termination of employment occurred, and for any completed prior year for which the annual cash bonus has not been paid; (c) benefits or compensation required to be provided after termination pursuant to, and in accordance with the terms of, any employee benefit plans, policies, or arrangements applicable to him; (d) any unreimbursed business expenses incurred prior to termination and required to be reimbursed pursuant to the Company’s policy; and (e) any rights to indemnification to which he may be entitled under the Company’s Articles of Incorporation or By Laws. In addition, in the case of termination by the Company without Cause, or if the Mr. Higgins’ employment is terminated by himself for Good Cause, he would be entitled to receive an amount equal to twice his annual base salary at the time of termination plus twice his APP Performance Award target amount, payable in 24 equal monthly installments. His right to receive these additional severance payments wou