Our Compensation Philosophy
Our executive compensation program closely aligns compensation paid to the NEOs with the Corporation's performance. The program is designed to exemplify the following tenets of our overall compensation philosophy:
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Key Philosophy Tenets
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Stockholder Alignment
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NEOs should be compensated through pay components (base salaries, annual- and long-term incentives) designed to create long-term value for our stockholders, as well as foster a culture of ownership.
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Pay for Performance
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A large portion of a NEO’s total compensation should be variable (“at risk”) and tied to the achievement of the organization’s financial performance, as well as team and individual contributions.
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Competitiveness
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Provide a structure that is internally fair and equitable for the skills and knowledge required to perform each individual role; and provide an externally competitive compensation structure for positions of similar skill, responsibilities, and geographic location.
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Attraction and Retention
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The executive compensation program should enable the organization to attract executives with a technical background, international experience and the broader skills necessary for the management of a global corporation.
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Compensation Components and Mix
Our executive compensation philosophy is supported by the following core components of our program:
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Compensation Component
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How It Is Paid
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Purpose
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Base salary
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Cash
(Fixed)
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Provide a base level of compensation that fairly accounts for the external market value, skills and responsibilities of a specific position and that provides our NEOs with a stable amount of compensation.
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KAIP
(annual incentive)
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Cash
(Variable)
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Reward NEOs based on the Corporation’s achievement of pre-determined annual financial goals, as well as team and individual contributions to annual performance results.
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LTIP
(long-term incentive)
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Cash and Equity
(Variable)
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Based in part on achievement of pre-determined financial goals over a two-year measurement period, provide NEOs with significant additional incentive to promote the long-term financial success of the Corporation, and create stockholder value, as well as support our leadership retention objectives.
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Pay Mix
The graphs below show the mix between base salary, target KAIP (annual incentive) opportunity and target
2019
/
2020
LTIP (long-term incentive) opportunity by our CEO, Mr. Lowe, and all other NEOs (except Mr. Loof) during our last fiscal year. We believe our compensation program strikes an appropriate balance of fixed pay versus at-risk pay that encourages executive performance and provides compensation commensurate with our Corporation’s results.
How Decisions Are Made
The Compensation Committee oversees the executive compensation program for our NEOs. The Committee is comprised of independent non-employee members of the Board. The Committee works closely with its independent consultant and management to examine the effectiveness of the Corporation's executive compensation program throughout the year. Details of the Committee's authority and responsibilities are specified in the Committee's charter; please see page 52 for ways to view the Committee charter.
The Role of the Compensation Committee
The Compensation Committee’s goal is to award compensation that is reasonable and consistent with the Corporation’s executive compensation philosophy and objectives. In making decisions with respect to any element of a NEO’s compensation, the Compensation Committee considers the total compensation (base salary, annual and long-term incentives) that may be awarded.
In reviewing each component of compensation, the Compensation Committee uses data provided by its outside advisors to review not only the level of compensation provided by the Corporation and its competition, but also the mix of compensation ("pay mix"). The pay mix refers to the percentage of compensation which is allocated to each component of compensation. This allows the Compensation Committee another means of assessing the competitiveness and structure of executive compensation and ensures that the philosophies and objectives of the Corporation are being achieved.
The Compensation Committee does not strive to set executive compensation opportunities and payments at a specific market position, or provide a mix of compensation as compared to market data. Rather, the Compensation Committee considers market data in making informed decisions regarding levels and the mix of total compensation.
Other factors considered when making compensation decisions include individual performance, objective performance criteria, responsibilities within the organization, skills required to meet position specifications and the Corporation’s need for a flexible and adaptable workforce. We believe that these factors allow us to attract and retain the executives with the skills needed to manage a multinational corporation. Incentive compensation rewards may be team or individual performance based. Award criteria are directly tied to the Corporation’s business and strategic plan. All compensation components reflect the Corporation’s international focus.
The Role of Management
In making its determinations with respect to executive compensation, the Compensation Committee is supported by the Corporation’s Senior Vice President and Chief Human Resources Officer.
The Compensation Committee frequently requests the CEO to be present at Compensation Committee meetings where executive compensation and corporate performance are discussed and evaluated. The CEO is free to provide insight, suggestions or recommendations regarding executive compensation if present during these meetings or at other times. However, only independent Compensation Committee members are allowed to vote on decisions made regarding executive compensation.
The Compensation Committee meets with the CEO to discuss his own compensation package, but ultimately, decisions regarding the CEO’s compensation are made by the Compensation Committee, meeting in executive session, without the CEO or any other executive officer present, solely based upon the Compensation Committee’s deliberations. Decisions regarding other executives who report directly to the CEO are made by the Compensation Committee after considering recommendations from the CEO and Senior Vice President and Chief Human Resources Officer.
The Role of the Independent Compensation Consultant
The Compensation Committee has historically engaged the services of an independent compensation consultant. For the fiscal year ending March 31,
2019
, the Compensation Committee retained the services of Pearl Meyer & Partners (“Pearl Meyer”) to assist with its review of the compensation package of the CEO and other executives. In addition, Pearl Meyer was retained to assist the Compensation Committee with several special projects, including monitoring trends in executive compensation.
The Compensation Committee retains Pearl Meyer directly, although in carrying out assignments Pearl Meyer also interacts with Corporation management when necessary and appropriate. Specifically, the Senior Vice President and Chief Human Resources Officer interacts with the consultant to provide compensation data. In addition, Pearl Meyer may, in its
discretion, seek input and feedback from the executives regarding its consulting work product prior to presentation to the Compensation Committee to confirm its alignment with the Corporation’s business strategy, determine what additional data may need to be gathered, or identify other issues, if any, prior to presentation to the Compensation Committee. Pearl Meyer does not provide any services to the Corporation other than its consulting services to the Compensation Committee related to executive and director compensation.
The Role of Peer Groups
Every two years, or on an as needed basis, the Compensation Committee reviews external market data compiled by Pearl Meyer to examine the total cash and incentive compensation components of the compensation package that the Corporation provides to its NEOs and non-employee directors to determine if such compensation is competitive. The information provided by Pearl Meyer is analyzed by the Compensation Committee while reviewing the competitive nature of compensation provided to the NEOs and non-employee directors.
In making compensation decisions with respect to employee salaries, including the NEOs, the Compensation Committee maintains a standard pay range structure based on an external market analysis provided by Pearl Meyer. Pay ranges are reviewed periodically and adjustments made, as needed and within the financial capabilities of the Corporation and based on market conditions. No adjustments were made in fiscal year 2019.
Historically, the Compensation Committee has reviewed data provided by Pearl Meyer from a variety of peer organizations. Based on a review by Pearl Meyer, in July 2016 the Committee approved changes to the Corporation’s peer group list to better align the peer group companies with the Corporation’s revenues and business/product mix. Peer group companies generally report annual sales .5X to 2X the Corporation's annual sales, with median annual revenues of $1.2 billion. The companies in our peer group are considered peer companies of the Corporation because they either manufacture capacitors or other electronic components, compete in the same market segments or actively recruit each other’s employees due to similar skill requirements. The table below lists the Company's current peer group.
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Company
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Ticker
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Business Description
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TTM Technologies Inc.
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TTM
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TTM Technologies, Inc., together with its subsidiaries, manufactures printed circuit boards (PCBs) worldwide.
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Vishay Intertechnology Inc.
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VSH
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Vishay Intertechnology, Inc. manufactures and supplies discrete semiconductors and passive components in the Americas, Europe, and Asia.
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Teradyne Inc.
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TER
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Teradyne, Inc. designs, develops, manufactures, and sells automatic test equipment worldwide.
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National Instruments Corporation
|
NATI
|
National Instruments Corporation designs, manufactures, and sells systems to engineers and scientists worldwide.
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AVX Corp.
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AVX
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AVX Corporation, together with its subsidiaries, manufactures and supplies various passive electronic components, interconnect devices, and related products worldwide.
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Integer Holdings Corporation
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ITGR
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Integer Holdings Corporation operates as a medical device outsource manufacturer worldwide.
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Littelfuse Inc.
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LFUS
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Littelfuse, Inc. designs, manufactures, and sells circuit protection devices for use in the automotive, electronics, and industrial markets worldwide.
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Viavi Solutions Inc.
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VIAV
|
Viavi Solutions Inc. provides network test, monitoring, and assurance solutions to communications service providers, and enterprises and their ecosystems worldwide.
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Diodes Incorporated
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DIOD
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Diodes Incorporated, together with its subsidiaries, designs, manufactures, and supplies application-specific standard products in the discrete, logic, and analog and mixed semiconductor markets primarily in Asia, North America, and Europe.
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Methode Electronics, Inc.
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MEI
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Methode Electronics, Inc. designs, manufactures, and markets component and subsystem devices in the United States and internationally.
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Rogers Corporation
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ROG
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Rogers Corporation designs, develops, manufactures, and sells engineered materials and components worldwide.
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Intersil Corporation
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ISIL
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Intersil Corporation designs and develops power management and precision analog integrated circuits (ICs) for applications in the infrastructure, industrial, automotive, military, aerospace, computing, and consumer markets.
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CTS Corporation
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CTS
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CTS Corporation designs, manufactures, and sells a range of sensors, electronic components, and actuators primarily to original equipment manufacturers for the transportation, communications, defense and aerospace, medical, industrial, and information technology markets.
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KEMET Corp.
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KEM
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KEMET Corporation, together with its subsidiaries, manufactures and sells passive electronic components under the KEMET brand worldwide.
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Compensation Decisions for Fiscal Year Ending March 31,
2019
Base Salary
Base salary represents annual fixed compensation and is a standard element of compensation necessary to attract and retain talent. Base salary levels are reviewed annually. When making adjustments, the Compensation Committee considers the Corporation’s overall performance; the NEO’s individual performance, experience, career potential, compensation data and competitive market practices. The Compensation Committee determines base salary adjustments (if any) for our NEOs during
the third quarter (ending December 31) of the fiscal year, and the base salary adjustments for fiscal year 2019 were effective October 1, 2018. For fiscal
2019
, the Compensation Committee made the following adjustments to the NEOs’ base salaries:
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Executive
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Calendar Year 2018 Base Salary $
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Calendar Year 2019 Base Salary $
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Adjustment $
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Adjustment %
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William M. Lowe, Jr.
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Chief Executive Officer
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573,523
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725,000
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151,477
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26.4
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%
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Per-Olof Loof
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Former Chief Executive Officer
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920,000
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920,000
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n/a
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n/a
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Gregory C. Thompson
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Executive Vice President and Chief Financial Officer
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—
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575,000
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575,000
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hired 12/1/2018
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Claudio Lollini
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Senior Vice President, Global Sales & Marketing
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324,450
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345,000
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20,550
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6.3
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%
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Charles C. Meeks, Jr.
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Executive Vice President, Solid Capacitors - Tantalum
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437,091
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450,000
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12,909
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3.0
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%
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Stefano Vetralla
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Senior Vice President, Chief Human Resources Officer
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284,630
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300,000
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15,370
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5.4
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%
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Based on its review, the Compensation Committee determined that the modest base salary increases of between 3.0% and 6.3% were appropriate for all of our NEOs, and helped to ensure their fixed compensation remained market competitive. Mr. Lowe received a 26.4% increase to his base salary, reflecting his appointment as Chief Executive Officer of the Corporation and his resulting new responsibilities.
KEMET Annual Incentive Program (
“
KAIP
”
)
The KAIP is intended to reward executives based on a combination of the Corporation’s annual financial performance, individual performance and in the case of Mr. Meeks, segment performance. The Compensation Committee has established targets, thresholds and maximum opportunities generally consistent with market data. Our NEOs had the following cash opportunities (and opportunity as a percentage of base salary as of
March 31, 2019
, which salaries were approved in October of
2018
) under the KAIP.
The table below shows the incentive opportunities at threshold, target and maximum for each NEO (as a percentage of base salary) for fiscal year 2019. In general, the Compensation Committee believes that our CEO’s KAIP potential performance payouts should be larger than that of our other NEOs to reflect his responsibility for the Corporation’s overall performance.
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Threshold Performance
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Target Performance
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Maximum Performance
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NEO
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($)
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(%)
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($)
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(%)
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($)
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(%)
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William M. Lowe, Jr.
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362,500
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50
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725,000
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100
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1,450,000
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200
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Per-Olof Loof
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460,000
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50
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920,000
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100
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1,840,000
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200
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Gregory C. Thompson
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201,250
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35
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402,500
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70
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805,000
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140
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Claudio Lollini
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103,500
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30
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207,000
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60
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414,000
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120
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Charles C. Meeks, Jr.
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157,500
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35
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315,000
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70
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630,000
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140
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Stefano Vetralla
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90,000
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30
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180,000
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60
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360,000
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120
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Performance Objectives and Weightings
In general, the KAIP is weighted 70% based on company financial performance metrics (or in the case of Mr. Meeks, 30% company and 40% segment) to reflect the importance of achieving measurable and meaningful goals that are key drivers and indicators of our Corporation’s performance.
For all NEOs, 30% of their
2019
KAIP was determined by their individual performance as evaluated by the CEO (for all NEOs other than the CEO, who is evaluated by the Compensation Committee) and approved by the Compensation Committee. The Compensation Committee believes linking a portion of a NEO’s annual bonus to the achievement of individual performance goals provides an appropriate balance between financial goals and such individual’s performance in determining total annual variable compensation. Individual performance is evaluated holistically following the end of the performance period and the Compensation Committee considers the achievement of individual performance goals in the context of the Corporation's performance and determines an appropriate level of payout.
As noted above, 40% of the annual bonus opportunity for Mr. Meeks, who is a segment leader, is based on the achievement of performance goals specifically tailored to his business group. The Compensation Committee believes this mix of company-wide and business group specific performance measures appropriately reflects Mr. Meeks' impact on the segment he manages and the Corporation’s overall performance.
Each component of the KAIP operates independently of each other; therefore, a NEO may become entitled to receive a bonus solely based on the Corporation’s performance, individual performance, or in the case of Mr. Meeks, segment performance. Moreover, a portion of the corporate performance component of the KAIP may be attained by achievement of the Adjusted EBITDA, free cash flow or revenue performance goals described below.
The table below summarizes the relative weighting of each performance component applicable to the
2019
KAIP for each of our NEOs.
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Executive
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Corporate Performance
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Business Segment Performance
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Individual Performance
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William M. Lowe, Jr.
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70%
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N/A
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30%
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Per-Olof Loof
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70%
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N/A
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30%
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Gregory C. Thompson
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70%
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N/A
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30%
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Claudio Lollini
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70%
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N/A
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30%
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Charles C. Meeks, Jr.
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30%
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40% Solid Capacitors - Tantalum Business Segment
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30%
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Stefano Vetralla
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70%
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N/A
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30%
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The Compensation Committee has the right to exercise discretion to adjust the KAIP payout relating to the achievement of personal performance goals to ensure that payouts produce their desired result. Individual performance is evaluated holistically following the end of the performance period and the Compensation Committee considers these personal performance goals in the context of the Corporation’s performance and determines an appropriate level of payout.
Financial Performance Measures
The Compensation Committee established the following performance measures under the KAIP for measuring the Corporation’s performance in fiscal year
2019
(amounts are in millions, except percentages). As shown below, the Corporation’s strong
2019
performance exceeded each of the various target Corporate financial performance metrics.
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Weighting
(% of Business Opportunity)
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Corporate
Performance Measure
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Threshold ($)
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Target ($)
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Maximum ($)
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Actual Results ($)
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40%
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Adjusted EBITDA
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158.6
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198.3
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238.0
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289.5
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15%
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Free Cash Flow
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68.6
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85.8
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103.0
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128.0
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15%
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Revenue
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1,127.1
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1,252.3
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1,377.5
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1,382.8
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For Mr. Meeks, the Compensation Committee established the following performance measures under the KAIP for measuring the Corporate and Solid Capacitors - Tantalum Performance in fiscal year
2019
(amounts are in millions, except percentages):
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Weighting
(% of Bonus Opportunity)
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Corporate and Business Segment Performance Measure
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Threshold ($)
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Target ($)
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Maximum ($)
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Actual Results ($)
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25%
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TA Adjusted EBITDA
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126.9
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158.6
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190.3
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211.6
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15%
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TA Revenue
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459.0
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510.0
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561.0
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563.3
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15%
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Corporate Adjusted EBITDA
|
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158.6
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198.3
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238.0
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289.5
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10%
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Corporate Free Cash Flow
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68.6
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85.8
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103.0
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128.0
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5%
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Corporate Revenue
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1,127.1
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1,252.3
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1,377.5
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1,382.8
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As illustrated above, Mr. Meeks exceeded each of his target performance metrics and surpassed his stretch maximum performance goals, demonstrating the solid performance of the business segment for which he is primarily responsible.
For the fiscal year
2019
KAIP, the Compensation Committee selected the corporate and segment performance measures described above because they reflect the corresponding financial and operating targets in the Corporation’s annual business budget for the fiscal year. In order for a minimum bonus payout to occur, the threshold is set at 90% of target for the revenue performance targets and 80% of target for all other performance targets. At the time the measures were established, the Compensation Committee believed that it would require a high degree of difficulty to reach the maximum bonus payout which is set at 110% of target for the revenue performance targets and 120% of target for all other performance targets.
For purposes of the KAIP, we define the various performance metrics as follows:
“
Adjusted EBITDA
” is defined as net income/loss before income tax expense; interest expense, net; and depreciation and amortization; adjusted to exclude the following: write down of long-lived assets; restructuring charges; plant start-up costs; plant shut-down costs; net foreign exchange gain/loss; stock-based compensation expense; net loss on sales and disposals of assets; ERP integration costs/IT transition costs; TOKIN investment related expenses; equity income (loss) from TOKIN; change in value of TOKIN options; pension plan adjustment; and legal expenses related to antitrust class actions.
“
Free Cash Flows
” is defined as Adjusted EBITDA (defined above) adjusted for the change in working capital (change in inventories, net; accounts receivable, net; and accounts payable), and less cash capital expenditures.
“
Revenue
” is defined as net sales in accordance with U.S. GAAP.
Adjusted EBITDA is a non-GAAP performance measure that we use in our quarterly and annual reports filed with the SEC. The Compensation Committee has historically used Adjusted EBITDA and Free Cash Flows in evaluating the Corporation and its segments' performance and believes such measures are appropriate as the committee seeks to measure the performance of the underlying business operations of the Corporation, and the items referenced above that are excluded in computing those measures are of the type that do not generally relate to the underlying business operations and make it difficult to compare results from period to period.
Within 90 days after completion of the fiscal year, the Compensation Committee reviews the Corporation’s performance and determines each participant’s bonus award. Payments of awards are paid in one or more cash installments, with the first payment occurring shortly after the Compensation Committee’s approval.
Individual Performance Measures
Following the end of the performance year, the Compensation Committee reviews each NEO’s performance and assesses his performance holistically in the context of our Corporation’s overall performance rather than based on predetermined individual performance goals. The Compensation Committee’s ultimate determination of each NEO’s personal performance for purposes of the KAIP is discretionary in nature.
KAIP - Fiscal Year
2019
Results
Based on the Corporation’s performance, the NEO’s individual performance and, where applicable, the NEO’s business group performance, the NEOs earned the awards below under the KAIP. Achievement was at 200% of the Corporate financial measures, and 200% for Solid Capacitors - Tantalum. The Compensation Committee also approved the discretionary individual performance component of the KAIP in amounts ranging from 100% to 200% of target. The amounts below show the total payout of KAIP as a percentage of target, including corporate, segment where applicable, and individual performance.
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Executive
|
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Target KAIP ($)
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Actual KAIP ($)
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Actual KAIP as a % of Target (%)
|
William M. Lowe, Jr.
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725,000
|
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|
1,341,250
|
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|
185
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%
|
Per-Olof Loof
|
|
920,000
|
|
|
n/a (1)
|
|
n/a (1)
|
Gregory C. Thompson
|
|
402,500
|
|
|
762,738
|
|
|
190
|
%
|
Charles C. Meeks, Jr.
|
|
315,000
|
|
|
630,000
|
|
|
200
|
%
|
Claudio Lollini
|
|
207,000
|
|
|
392,265
|
|
|
190
|
%
|
Stefano Vetralla
|
|
180,000
|
|
|
341,100
|
|
|
190
|
%
|
(1) Mr. Loof was not eligible for payout due to his resignation on December 19, 2018.
The Long-Term Incentive Program (
“
LTIP
”
)
The Compensation Committee believes the LTIP provides NEOs with significant additional incentive to drive the long-term financial success of the Corporation and attract and retain talented leadership. The Compensation Committee further believes that by structuring a significant amount of the LTIP to provide our NEOs with equity-based incentives that are subject to our stock ownership guidelines, the plan appropriately aligns their interests with our stockholders.
LTIP Fiscal
2019
/
2020
Performance Period
In May
2018
, the
2019
/
2020
LTIP was established which consisted of a performance component and time-based component award structure. As described further below, the performance based portion (60%) of the
2019
/
2020
LTIP vests based on the Corporation’s achievement of a two-year cumulative Adjusted EBITDA target (the “
2019
/
2020
Performance LTIP”), 50% of which is paid in restricted stock units ("RSUs") and 50% of which is paid in cash, based on actual performance. The remaining time-based portion (40%) of the LTIP award consists of time-vesting RSUs which vest in three equal annual installments beginning May
2019
(the “
2019
/
2020
Time Based LTIP”).
In general, the total incentive opportunity under the
2019
/
2020
LTIP is measured as a percentage of a participant’s base salary and increases according to the individual’s seniority within the Corporation, such that a larger portion of senior executives’ compensation is contingent upon the Corporation’s success. This offers the NEOs the opportunity to earn above median total compensation upon the achievement of outstanding results (based on market data reviewed by the Compensation Committee).
The NEOs were granted the following
2019
/
2020
LTIP opportunities as a percentage of base salary:
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NEO
|
|
2019/2020 Performance LTIP
|
|
2019/2020 Time LTIP
|
|
|
% of Base Salary (at Target)
|
|
% of Base Salary (at Target)
|
|
|
Minimum
|
|
Target
|
|
Maximum
|
|
William M. Lowe, Jr.
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|
30%
|
|
60%
|
|
160
|
%
|
(1)
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|
40%
|
Per-Olof Loof
|
|
30%
|
|
60%
|
|
160%
|
|
40%
|
Gregory C. Thompson
|
|
30%
|
|
60%
|
|
90%
|
|
40%
|
Charles C. Meeks, Jr.
|
|
30%
|
|
60%
|
|
90%
|
|
40%
|
Claudio Lollini
|
|
22.5%
|
|
45%
|
|
67.5%
|
|
30%
|
Stefano Vetralla
|
|
22.5%
|
|
45%
|
|
68%
|
|
30%
|
(1) Mr. Lowe's 2019/2020 LTIP is based on a special target salary of $1M approved by the Board.
The performance portion of the
2019
/
2020
LTIP is earned based on the Corporation’s achievement of an Adjusted EBITDA performance goal (calculated in the same manner as under the KAIP) for the two-year period ending
March 31, 2020
. The Compensation Committee continues to believe Adjusted EBITDA is an appropriate and effective measure of the Corporation’s overall performance. The threshold level of performance was set at 75% of target and was, at the time it was established, believed to be an achievable goal. At the time the Compensation Committee determined the target level of performance, the goal was believed to be aggressive, but obtainable. The maximum level of performance was set based on 120% of target and was believed to be realizable, but only with exceptional performance. If any of these performance levels are reached, 50% of the 2019/2020 Performance LTIP is paid in RSUs, and 50% is paid in cash. One-half of the RSUs vest at the end of the performance period and the other half is settled one year later. Vested RSUs are settled in Restricted Shares. The cash portion of the Performance Award is paid at the end of the performance period.
LTIP - Results for
2018
/
2019
Period Ended
March 31, 2019
The threshold, target and maximum of the Adjusted EBITDA performance goals for the
2018
/
2019
LTIP are set forth below. As shown, the Corporation’s performance over the two-year performance period ending
March 31, 2019
exceeded our stretch maximum performance goals and paid at 150% of the Performance LTIP target. Adjusted EBITDA is calculated under the
2018
/
2019
LTIP in the same manner as under the KAIP.
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Performance Measure
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Threshold ($)
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Target ($)
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Maximum ($)
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Actual Results ($)
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Adjusted EBITDA (in millions)
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225.0
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300.0
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375.0
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481.3
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Based on the Corporation’s performance, the NEOs earned the Performance LTIP awards below:
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NEO
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Performance Cash Award ($)
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Performance Shares Granted (#)
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William M. Lowe, Jr.
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$506,049
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—
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Per-Olof Loof
|
$0
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Gregory C. Thompson
|
$0
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(1)
|
—
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Claudio Lollini
|
$208,575
|
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—
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Charles C. Meeks, Jr.
|
$381,924
|
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—
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Stefano Vetralla
|
$168,639
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—
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(1) Mr. Thompson was not eligible to participate in the 2018/2019 LTIP because he was not appointed as the Corporation's Executive Vice President and Chief Financial Officer until December 2018 which is outside of the eligibility period for the plan.
Other Policies, Practices and Guidelines
Stock Ownership Guidelines
To directly align the interests of the NEOs with the interests of the stockholders, the Compensation Committee established guidelines stipulating that each NEO should maintain a minimum ownership interest in the Corporation. The amount to be retained varies depending upon the NEO’s position:
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NEO
|
Stock Ownership Guideline
|
William M. Lowe, Jr.
|
Five (5) times base salary
|
Per-Olof Loof
|
Five (5) times base salary
|
Gregory C. Thompson
|
Three (3) times base salary
|
Claudio Lollini
|
Two (2) times base salary
|
Charles C. Meeks, Jr.
|
Three (3) times base salary
|
Stefano Vetralla
|
Two (2) times base salary
|
The time period during which such minimum number of shares is to be acquired and retained was initially targeted five years from the later of (i) April 1, 2006 or (ii) the year in which such executive officer was hired or promoted to executive officer status. All of our NEOs have achieved their targeted share ownership except for Mr. Thompson who recently joined the Corporation in December of 2018. Under these guidelines, our NEOs may not sell shares of our Common Stock acquired through grant from the Corporation that would result in them falling below the applicable ownership level. As persons with access to material non-public information regarding the Corporation, our NEOs, like all of our employees and directors, are restricted in their ability to trade our securities in accordance with applicable law, the guidelines contained in our Code of Conduct and our Trading Policy which, among other things, limits trading in KEMET stock to certain quarterly trading periods.
Stock Holding Requirements
Any profit shares, defined as net shares after paying taxes, must be held until the grantee’s targets under the Corporation’s stock ownership guidelines are met. The Compensation Committee determined that requiring NEOs to hold all Restricted Shares and other performance- based equity awards until their employment terminates does not provide individuals with an opportunity to benefit from performance-based equity grants and that the stock ownership guidelines were appropriate for ensuring NEO’s hold an appropriate level of shares of the Corporation’s common stock.
Anti-Hedging and Anti-Pledging Polices
We have adopted anti-hedging and anti-pledging policies that prohibit covered persons, including our NEOs, from holding the Corporation's securities in a margin account, pledging the Corporation's securities as collateral for a loan or entering into hedging or monetization transactions with respect to the Corporation's securities. The policy prohibiting pledging relates to all shares acquired in any manner after the date of the adoption of the policy and all shares acquired pursuant to any equity compensation arrangement regardless of when acquired. The anti-hedging policy applies to any shares held by covered persons regardless of when or how they are acquired.
Retirement, Health and Welfare Benefits
Our NEOs participate in the same retirement, health and welfare benefits as other employees, based on their country regulations. Other than the supplemental retirement savings plans described below, no supplemental programs are provided.
Deferred Compensation Plan for Key Managers
The NEOs, in addition to certain other U.S.-based eligible executives, are entitled to participate in the Deferred Compensation Plan for Key Managers (the “DCP”). The DCP offers its NEOs an opportunity to save on a tax-advantaged basis for their retirement. Participants in the DCP can defer up to 75% of their total compensation on a pre-tax basis during any fiscal year. If a participant elects to defer a portion of their compensation, the Corporation will match an amount equal to 100% of the first six percent of compensation that a participant elects to defer. Benefits under the DCP are paid no earlier than at the beginning of the year following the executive’s retirement or termination of employment. NEOs can participate in either the DCP or the Corporation’s 401(k) retirement savings plan or both; however, the aggregate match provided by the Corporation under both plans and the Secured Benefit Plan (described below) cannot exceed six percent of compensation in any given calendar year.
Executive Secured Benefit Plan
The KEMET Executive Secured Benefit Plan (the “Secured Benefit Plan”) is an after-tax non-qualified retirement plan available to certain U.S.-based eligible executives, including the NEOs. The Secured Benefit Plan supplements the Corporation’s two existing pre-tax deferred compensation plans—the DCP and the 401(k) retirement savings plan.
The Secured Benefit Plan allows participants to make after-tax contributions that are placed in an institutional life insurance policy that is owned by the participant with investment options in a variety of mutual funds. Each participant may elect to make contributions to the Secured Benefit Plan in an amount not to exceed 50% of his or her base salary plus 50% of his or her KAIP incentive compensation; provided, however, the participant’s initial contribution must equal at least $5,000. There are no minimum contributions in subsequent years. The Corporation will match an amount equal to 100% of the first six percent of compensation that a participant elects to contribute to the Secured Benefit Plan, though this amount is reduced to account for any contributions made to the DCP or 401(k) retirement savings plan. The participant’s contributions to the Secured Benefit Plan are made on an after-tax basis and any Corporation matching contributions are taxable income to the participant for the year in which such contributions are made on behalf of the participant. Each participant is responsible for all federal, state and local taxes on such contributions. In addition, all policy premiums and fees are paid by the participant.
Unlike the DCP or 401(k) retirement savings plan, the Secured Benefit Plan allows participants to withdraw up to 100% of their contributions in the life insurance policy, subject to minor fees, while actively employed or following termination of employment. Upon death, the estate of the participant will receive a death benefit equal to the amount of the original life insurance policy, minus any distributions.
Perquisites
The Corporation believes that setting appropriate levels of base and variable pay are of greater importance to motivating key talent and increasing stockholder return than any package of non-cash perquisites. In fiscal year
2019
, Mr. Loof
received reimbursement for spousal travel and home office phone expenses. Mr. Vetralla received reimbursements for his expatriate assignment. There were no other significant recurring perquisites granted to any of our NEOs.
Executive Agreements
With the exception of Mr. Lowe, our current CEO, and Mr. Loof, whom Mr. Lowe succeeded as CEO, none of our NEOs were employed pursuant to employment agreements during fiscal year
2019
.
On December 19, 2018, Mr. Loof resigned as the Corporation's CEO. Prior to his resignation, Mr. Loof was employed by the Corporation pursuant to the terms and conditions of the April 18, 2018 Amended and Restated Employment Agreement (the "Loof Agreement").
On December 19, 2018, Mr. Lowe was appointed CEO by the Corporations' Board of Directors. Mr. Lowe's compensation as CEO, effective January 1, 2019, is set forth in the March 20, 2019 Employment Agreement between Mr. Lowe and the Corporation (the ""Lowe Agreement")". The initial term of the Lowe Agreement is January 1, 2019 through March 31, 2021, which can be extended by mutual agreement. The Lowe Agreement provides that Mr. Lowe may receive severance benefits upon his termination without cause or resignation for good reason, as described in the section titled “Potential Payments Upon Termination or Change-in-Control.” Such severance benefits are subject to Mr. Lowe's continuing compliance with non-competition and non-solicitation restrictive covenants (with respect to both employees and customers) for a period of 24 months following the termination of his employment. The Lowe Agreement superseded the December 1, 2014 Incentive Award, Severance and Non-Competition Agreement between Mr. Lowe and the Corporation, pursuant to which Mr. Lowe was granted 250,000 RSUs on December 1, 2014, the final 200,000 of which vested on December 1, 2018. In connection with his appointment to CEO, the Corporation granted Mr. Lowe 50,000 RSUs on January 1, 2019, 25,000 of which will vest 15 months after the date of grant and 25,000 of which will vest 27 months after the date of grant (the “Special RSU Grant”), in each case subject to Mr. Lowe’s employment with the Corporation on the applicable vesting date and the other terms and conditions of the Corporation’s Omnibus Incentive Plan.
The material terms of the Loof Agreement and the Lowe Agreement are described below in the narrative description to the Summary Compensation Table and the Grants of Plan-Based Awards Table.
Change in Control Severance Agreements
In fiscal year 2018, the Compensation Committee approved and the Corporation entered into Change in Control Severance Compensation Agreements (the “Change in Control Severance Agreements”) with each of its NEOs that are currently scheduled to expire on July 27, 2020. The Corporation has historically provided these double-trigger change in control protections for its named executive officers and the Compensation Committee continues to believe that the Change in Control Severance Agreements are in the Corporation’s best interests in order to ensure that in the event of a possible change in control of the Corporation, the stability and continuity of management would continue unimpaired, free of the distractions incident to any such change in control. The material terms of the Change in Control Severance Agreements are set forth in the section titled “Potential Payments Upon Termination or Change-in-Control.”
Agreement with Mr. Meeks
On December 1, 2014, the Compensation Committee approved and the Corporation entered into an Incentive Award, Severance and Non-Competition Agreement with Mr. Meeks (the “Meeks Agreement”).
Pursuant to the Meeks Agreement, we granted Mr. Meeks 160,000 RSUs on December 1, 2014. On each of the first, second and third anniversaries of the grant date, 20,000 RSUs vested and the remaining 100,000 RSUs vested on the fourth anniversary of the grant date, in all cases, contingent on Mr. Meeks remaining employed through the applicable vesting date. As discussed in greater detail in the section titled “Potential Payments Upon Termination or Change-in-Control,” all of the RSUs awarded to Mr. Meeks under the Meeks Agreement vest upon his death, disability, termination without cause, resignation for good reason or termination by the Corporation within 24 months following a change in control. Mr. Meeks’ agreement also requires he abide by non-competition and non-solicitation restrictive covenants (with respect to both employees and customers) for one year after his termination of employment with the Corporation, whether by the Corporation or by Mr. Meeks. The Meeks Agreement does not provide Mr. Meeks with any additional severance protections.
As noted above, the Compensation Committee believes it was important to enter into this agreements to incentivize Mr. Meeks to retain his employment with the Corporation for the four-year period ending in 2018 and to provide a powerful incentive for Mr. Meeks to work to create additional stockholder value that he may realize upon settlement. In addition, the Corporation secured important non-competition and non-solicitation restrictive covenants that are designed to protect the Corporation’s interests in the event that Mr. Meeks’ employment terminates.
Management of Executive Compensation-Related Risk
The executive compensation program is designed to create incentives for our NEOs to achieve the Corporation’s annual and longer-term business objectives. The Compensation Committee considers how the individual elements of executive compensation and the executive compensation program as a whole could potentially encourage our NEOs, either individually or as a group, to make excessively risky business decisions at the expense of long-term stockholder value. In order to address this potential risk, the Compensation Committee annually reviews the risk characteristics of the Corporation’s executive compensation programs and considers methods for mitigating such risk. For fiscal 2019, the Compensation Committee concluded that the executive compensation program and its policies do not encourage excessive risk-taking and that any risks arising from the Corporation’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Corporation.
Tax and Accounting Implications
The Tax Cuts and Jobs Act of 2017 (the "Tax Reform Act"), which was enacted on December 22, 2017, significantly alters the Corporation's ability to deduct for federal income tax purposes compensation paid to certain of its executives. Prior to its passage, Section 162(m) of the Code limited the Corporation's ability to deduct compensation paid to its named executive officers (other than the chief financial officer) in excess of $1 million per year, unless the compensation was "performance based," as described in the regulations under Code Section 162(m). In general, the Tax Reform Act eliminated the exception from Code Section 162(m)'s deduction limits for performance-based compensation, clarified that chief financial officers are covered by the deduction limitation, and made certain other changes, including providing for transition relief for written binding contracts in effect on November 2, 2017.
As in the past, the Compensation Committee expects to continue to take into consideration the tax deductibility of compensation, but reserves the right to authorize payments that may not be deductible if it believes that the payments are appropriate and consistent with our compensation philosophy.