Quanex Building Products CORP

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Fiscal Year 2024 Long-Term Incentive Program Design

At its December 2023 meeting, the Compensation Committee maintained its ongoing long-term incentive plan design, reflecting the Company’s continued emphasis on improving returns for its shareholders. For fiscal 2024, the performance share awards were measured by reference to one performance metric — Return on Net Assets (“RONA”) — and the PRSUs were based 100% on Absolute Total Shareholder Return (“TSR”), each as measured over a three-year performance period. The LTI mix was delivered 30% in restricted stock, 30% in PRSUs, and 40% in performance shares. The allocation among the long-term incentive vehicles is determined by the Compensation Committee based on market information provided by its compensation consultant, as well as input from senior management regarding the key business drivers that will continue to promote a results-oriented culture. The Omnibus Plan does not provide for any specific subjective individual performance component in determining the ultimate value of any award.

The following chart illustrates the fiscal 2024 allocation of long-term incentives, which is 70% performance-based.

Restricted Stock

Restricted stock represents 30% of each participant’s long-term incentive value. The Compensation Committee chose 30% of the total value because it provides meaningful retentive value to key executives, helps smooth out market volatility, and is cost efficient. The restricted stock awards vest three years after the award is granted, so long as the participant remains employed through the vesting date. We believe restricted stock awards are an effective long-term compensation vehicle through which key employees can be retained, especially through volatile periods in the market.

Performance Restricted Stock Units

PRSUs represent 30% of each participant’s long-term incentive value and are payable 100% in Company stock upon vesting. The PRSUs can be earned based on the Company’s Absolute TSR over the three-year performance period. In order for executives to receive a target payout, the Company must have Absolute TSR improvement of 20%. For fiscal 2024, Absolute TSR is calculated using the 10-day average stock price leading up to the start of the performance period (November 1, 2023) and the 10-day average stock price leading up to the end of the performance period (October 31, 2026) and includes the reinvestment of dividends. The table below illustrates the number of PRSUs that would vest based on the Company’s Absolute TSR under the PRSU awards at various levels of performance. Performance will be interpolated for any results in between threshold and target or target and maximum.

Performance Shares

Performance shares represent 40% of each participant’s long-term incentive value. Performance shares are payable 100% in cash upon vesting (with the amount of cash paid equal to the average value of a share of Quanex common stock for the last 10 trading days immediately before the end of the performance period) and are intended to motivate executives to achieve pre-set goals that are in line with critical business drivers.

For 2024, the performance shares will be earned based on the Company’s Return on Net Assets (“RONA”) measured over the three-year performance period. RONA is defined as operating income over total assets (measured as a five quarter trailing average), minus cash, minus current liabilities, plus current long-term debt. The Compensation Committee’s decision to utilize a single performance metric was made to help focus the executives on exceptional performance on returns. The number of performance shares earned is based on the level of achievement of the RONA performance goal.

Fiscal 2024 Long-Term Incentive Grants

The number of long-term incentive awards granted during fiscal 2024 was determined by: (1) taking 30% of the participant’s target award value and dividing it by the 10-day average closing stock price between October 18, 2023 and October 31, 2023 to determine the number of restricted stock awards, (2) taking 30% of the participant’s target value and dividing it by the calculated Monte Carlo value of the PRSUs based on the 10-day average closing stock price between October 18, 2023 and October 31, 2023 to determine the number of PRSUs, and (3) taking 40% of the participant’s target award value and dividing it by the 10-day average closing stock price between October 18, 2023 and October 31, 2023 to determine the number of performance shares. The equity grant calculations apply an average stock price based on the last ten trading days in October 2023. For more information related to long-term incentive awards granted during fiscal 2024, please see the table entitled “Grants of Plan-Based Awards” in this Proxy Statement.

Ongoing & Go-Forward Long-Term Incentive Grants

Inline with the Company’s ongoing strategic imperatives following the transformative acquisition of Tyman plc, the Compensation Committee adjusted the in-flight goals of the fiscal 2023 – 2025 and 2024 – 2026 performance shares to be aligned with the Company’s go-forward expectations with respect to the RONA performance goal. This adjustment is designed to maintain motivation and line-of-sight for the executive team. For the fiscal 2025 long-term incentive grants, the PSA design is as follows — 100% EPS with the ability to be modified 0.75x to 1.25x based on RONA results. All other aspects of the Company’s fiscal 2025 long-term incentive plan design including the vehicle mix and PRSU design were elected to be maintained the same as fiscal 2024. Fiscal 2025 goals have been set based on the expected performance of the combined company following the Tyman acquisition.

Long-Term Incentive Grant Timing

The Company typically makes annual grants of long-term incentive awards in early December, but may make grants at other times in connection with new hires, promotions, or other special situations. The Compensation Committee does not take material nonpublic information into account when determining the timing and terms of long-term incentive awards, and we have not timed the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation.

Most Recently Completed Performance Period

Fiscal 2022 Performance Shares

The performance shares awarded to our executives in December 2021 (the “Fiscal 2022 Performance Shares”) became payable to executives in December 2024, with a final value determined by the Company’s performance for fiscal 2022 through fiscal 2024. Performance measures for the Fiscal 2022 Performance Shares were based on RONA (as defined above). Our performance against the pre-established RONA goal determined the payout to executives within a range from threshold to maximum. The pre-established goal and the Company’s actual performance against the goal is set forth below. In line with the plan agreement, the Committee elected to exclude the impact of the LMI and Tyman acquisitions from the recently completed performance shares, as the acquisitions were not known or considered when the goals were set in December 2021 and all but one quarter of the three-year performance period had been completed at the time the acquisition closed.

For the Fiscal 2022 Performance Shares, the total actual payout was equal to 103% of target as a result of RONA performance. Actual payout amounts for each named executive officer were as follows:

Fiscal 2022 Performance Restricted Stock Units

The PRSUs awarded to our executives in December 2021 (the “Fiscal 2022 PRSUs”) became payable to executives in December 2024, with a final value determined by the Company’s performance period for fiscal 2022 through fiscal 2024. The performance measure for the Fiscal 2022 PRSUs was Absolute TSR (as defined above). Our performance against this goal determined the payout to executives within a range from threshold to maximum. The plan only permitted a payout of target if Absolute TSR increased by a minimum of 20%. During the performance period, the Company achieved Absolute TSR of 48.3%, which resulted in a payout equal to 147% of Target. The Compensation Committee did not adjust any of the goals under the Company’s fiscal 2022 PRSUs and determined the Company’s payouts based on actual results for the performance period.