Quanex Building Products CORP

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Changes for Fiscal 2024

For fiscal 2024, the Company removed two companies (Armstrong Flooring Inc. and Patrick Industries Inc.) from the comparator group and added two companies (Armstrong World Industries and CIRCOR International). The sixteen companies below comprise the fiscal 2024 peer group:

Program Description

Our executive compensation program is a traditional design structure that has been customized to suit the business and organizational objectives of the Company. It includes base salary, annual cash incentive compensation, long-term incentives and executive benefits. Our fiscal 2023 long-term incentive program consisted of restricted stock grants, PRSUs, and performance share awards. The amount of pay that is performance-based for an executive is directly related to the level of responsibility held by the position; accordingly, our highest ranked executive has the most performance-based pay as a percentage of total compensation. We set realistic but challenging goals in our annual incentive and long-term performance plans. In each case, if we fail to meet the pre-determined standards, no plan-based compensation is earned by executives.

We evaluate the various components of compensation annually relative to the competitive market for prevalence and value. By setting each of the elements against the competitive market within the parameters of our compensation strategy, the relative weighting of each element of our total pay mix varies by individual. We do not set fixed percentages for each element of compensation. The mix may also change over time as the competitive market moves or other market conditions which affect us change. We do not have and do not anticipate establishing any policies for allocating between long-term and currently paid compensation, or between cash and non-cash compensation. We have a process of assessing the appropriate allocation among these elements of compensation on a periodic basis and adjusting our position based on market conditions and our business strategy.

Base Salary

Purpose: This pay element is intended to compensate executives for their qualifications and the value of their job in the competitive market.

Competitive Positioning: The Company’s goal is to target the market median as our strategic target for base salary. We review each executive’s salary and performance every year to determine whether base salary should be adjusted. Along with individual performance, we also consider movement of salary in the market, as well as our financial results from the prior year to determine appropriate salary adjustments.

While the Compensation Committee applies general compensation concepts when determining the competitiveness of our executives’ salaries, the Compensation Committee generally considers base salaries as being competitive when they are within a reasonable range of the stated market target (in this case, the market 50th percentile).

Fiscal 2023 Review: The table below provides base salaries for fiscal years 2022 and 2023. The increases to base salaries reflect the Committee’s continued work to bring the executives’ compensation in line with market median over time, and recognize their individual development and contribution to the performance of the Company.

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(1)

Mr. Livingston resigned from his position effective May 15, 2023.

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Annual Incentive Awards (AIA)

Purpose: This element of compensation is intended to reward executives for the achievement of annual goals related to key business drivers. It is also intended to emphasize to executives the key business goals of the Company from year to year.

Competitive Positioning: The Company’s strategy is to target the market median for annual incentives for performance that meets expected levels. We have established the range of possible payouts under the plan so that our competitive position could be above or below our stated strategy based on performance outcomes.

Plan Mechanics: The Company’s 2020 Omnibus Incentive Plan (the “Omnibus Plan”) serves as the governing plan document for our AIA. The AIA plan design is geared toward goal attainment, which pays target award levels for expected performance results.

Fiscal 2023: The AIA emphasizes earnings and informed decision making with regard to the Company’s operational and strategic goals. To integrate the goals of the AIA throughout the Company, the annual incentive program participation includes the top leaders of our domestic business divisions. We believe this is necessary in order to align managers throughout the organization with this incentive structure.

Rigorous Goals: The Compensation Committee took careful consideration of the Company’s performance in order to develop the plan design and goals for fiscal 2023. In line with the Company’s commitment to align incentives with strategic imperatives, the fiscal 2023 scorecard was based on 40% Revenue, 25% Adjusted EBITDA, 25% Adjusted EBITDA Margin and 10% Working Capital as a Percentage of Sales. The Compensation Committee believes the use of metrics based on Revenue, Adjusted EBITDA, and Adjusted EBITDA Margin, combined with attention to Working Capital as a Percentage of Sales, balances the management team’s focus and positions the Company strategically for healthy growth and profitability. The Company set rigorous performance expectations based on the forecasted results of the operating divisions and the projected markets for building products.

Target Award Levels: Based on market practices for annual incentives and our compensation strategy, we set a target award opportunity for each of our executives. This is the amount of incentive compensation the executive can earn when performance meets expected results, or “target.” The table below reflects the payout percentage of each named executive’s base salary at the threshold, target, and maximum levels of performance for fiscal 2023.

Potential AIA Payout

Expressed as a % of Salary

Fiscal 2023 Results: The Compensation Committee did not adjust any of the goals under the Company’s fiscal 2023 AIA and determined the Company’s incentive payouts based on actual fiscal 2023 results. The Company’s targets on the primary metrics under the fiscal 2023 AIA scorecard considered by the Compensation Committee were a Revenue goal of $1,239.9 million, an Adjusted EBITDA goal of $154.9 million, an Adjusted EBITDA Margin goal of 12.49-12.74%, and a Working Capital as a Percentage of Sales goal equal to 11.34%. The Revenue goal for fiscal 2023 was set at $1,239.9 million compared to the fiscal 2022 actual result of $1,221.5 million. The Adjusted EBITDA goal for fiscal 2023 was set at $154.9 million compared to the fiscal 2022 actual result of $152.5 million. Due to uncertainty in our industry and to enhance the rigor of our program, it was determined that a flat spot would be implemented at target for the Adjusted EBITDA margin goal (flat spot range starts at 12.49% which is above fiscal 2022 actual result of 12.48%). The Working Capital as a Percentage of Sales goal for fiscal 2023 was set at 11.34% compared to fiscal 2022 actual result of 12.34%. For fiscal 2023, Working Capital as a Percentage of Sales was calculated as the quarterly average of the sum of receivables and inventories less payables, divided by net sales. In calculating performance of both Adjusted EBITDA and Adjusted EBITDA Margin, the Committee excluded purchase price accounting inventory step-ups, transaction and advisory fees, gain/loss on the sale of certain fixed assets, asset impairment charges, and restructuring charges. In addition, the Revenue and Adjusted EBITDA goal metrics were adjusted as necessary to exclude the impact of foreign currency exchange rates.

A summary of the final threshold, target, and maximum goals after adjusting for foreign currency exchange rates is as follows:

For fiscal 2023, the Company achieved Revenue of $1.13 billion, Adjusted EBITDA of $161.2 million, Adjusted EBITDA Margin of 14.26%, and Working Capital as a Percentage of Sales of 11.93%. Together, these results produced an AIA achievement equal to 84% of target for executive officers. The AIA achievement resulted in payments to participants as follows:

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(1)

In connection with his resignation, Mr. Livingston forfeited all Annual Incentive Awards.

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