Quanex Building Products CORP

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Competitive Positioning

Fiscal 2024

The Compensation Committee annually reviews the level of competitiveness and continued appropriateness of our executive compensation program. For fiscal 2024, Quanex used comparative compensation data from a group of sixteen direct industry companies, referred to in this CD&A as the “Peer Group,” as a point of reference in designing and setting its compensation levels. The Peer Group consists of companies selected on criteria including size, complexity, revenue, market capitalization, risk profile, asset intensity, margins, and industrial application of the primary business. The Compensation Committee reviewed and approved the following companies to be included in the Company’s fiscal 2024 peer group:

Frederic W. Cook & Co., Inc. (“FW Cook”), an independent compensation consultant to the Compensation Committee, used the Peer Group pay information, along with general industry survey data, to develop the appropriate range of compensation for each executive position. FW Cook also prepared an independent analysis of our key performance indicators such as profitability, growth, capital efficiency, balance sheet strength, and total return to stockholders compared to our sixteen industry peers. These results were then reported to the Compensation Committee in order to provide a thorough picture of the competitiveness of pay in the context of our performance as compared with that of our peers. While the Compensation Committee uses this analysis to help frame its decisions on compensation, it uses its collective judgment in determining executive pay. The Compensation Committee exercises discretion in making compensation decisions based on the following inputs: its understanding of market conditions, its understanding of competitive pay analysis, recommendations from the CEO regarding his direct reports, the Committee’s overall evaluation of the executive’s performance, and our overall compensation strategy.

Changes for Fiscal 2025

For fiscal 2025, taking into account the various changes in criteria after the Tyman Acquisition, the Company adjusted the peer group to position the Company around the median on revenue which lead to the removal of three companies (CIRCOR International, PGT, Inc., and Tredegar Corporation) from the comparator group and added six companies (Fortune Brands, Hillenbrand, JELD-WEN Holding, Kennametal, MasterBrand, and Resideo Technologies). The nineteen companies below comprise the fiscal 2025 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 2024 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 2024 Review: The table below provides base salaries for fiscal years 2023 and 2024. 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.

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 2024: 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 2024. In line with the Company’s commitment to align incentives with strategic imperatives, the fiscal 2024 scorecard was based on 20% Revenue, 35% Adjusted EBITDA, 35% 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 officer’s base salary at the threshold, target, and maximum levels of performance for fiscal 2024.

Potential AIA Payout

Expressed as a % of Salary

Fiscal 2024 Results: The Company’s targets on the primary metrics under the fiscal 2024 AIA scorecard considered by the Compensation Committee were a Revenue goal in a range of $1,130.6 million to $1,147.80 million, an Adjusted EBITDA goal in a range of $157.8 million to $159.6 million, an Adjusted EBITDA Margin goal of 13.8% to 14.1%, and a Working Capital as a Percentage of Sales goal equal to 12.3%. For fiscal 2024, 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. With consideration for maintaining the motivational value and line-of-sight for the executive team since the Tyman acquisition was not considered at the time goals were set, the Committee elected to exclude the impact from the Tyman acquisition from all results, following the original plan guidelines. This election to exclude the impact of the acquisition from 2024 AIA achievements resulted in a decrease of executive bonuses from above-target to below-target payouts.

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

Solely for purposes of measuring performance under the AIA, the Company achieved Fiscal 2024 Revenue of $1.1 billion, Adjusted EBITDA of $145.2 million, Adjusted EBITDA Margin of 13.5%, and Working Capital as a Percentage of Sales of 11.50%. Working Capital as a Percentage of Sales is calculated as the average quarterly balance of accounts receivable and inventory less accounts payable as a percentage of net sales. As noted above, these results wholly excluded the impact of the Tyman acquisition because it was completed late in the year and was not considered at the time initial goals were set. Together, these results produced an AIA achievement equal to 90% of target for executive officers.

The AIA achievement resulted in payments to participants as follows:

Fiscal 2025 Changes: In line with the Company’s ongoing strategic imperatives following the transformative acquisition of Tyman plc, the fiscal 2025 AIA design is as follows — 25% Revenue, 25% EBITDA, 25% Adjusted EBITDA Margin, and 25% Achievement of Run Rate Synergy Targets related to the Tyman Acquisition.

Long-Term Incentive Compensation

Purpose: We have a long-term incentive program designed to help align the interests of executive management with shareholders and reward executives for the achievement of long-term goals. Long-term incentives are also critical to the retention of key employees and provide executives an opportunity for personal capital accumulation. For these reasons we have placed more value on the long-term incentive element of compensation than on other elements. The result is that this element of compensation generally represents at least half of the named executive officers’ total direct compensation.

Competitive Positioning: Our long-term incentive philosophy targets the 50th percentile of the market. The individual performance of each named executive officer is not considered in the value of the long-term incentive awards granted. Since the goals are set prospectively, the Company’s financial performance determines the ultimate value of the award.

Participation: Participation in the program includes the named executive officers and certain key contributors to the business and is determined based on competitive practices as well as our assessment of which positions contribute to long-term value creation.

Target Award Levels: Fiscal 2024 target long-term incentive awards were determined based on a target dollar value for our executives, which has been the practice for the executive officers since fiscal 2018. The executives had the following LTI targets for fiscal 2024: