| • | In 2024, we improved our operating profit and operating margin and continued to execute our capital deployment strategy. Despite softer sales volume, our reported operating profit for the year increased 1% to $1,363 million from $1,348 million. Our reported operating margin increased 50 basis points to 17.4% from 16.9% through our focus on cost savings initiatives and continued improvement in operational efficiencies. We also continued to return value to our shareholders by repurchasing approximately 10 million shares of our common stock for $751 million and increasing our quarterly dividend by approximately 2%. |
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| • | Our compensation program is designed to emphasize pay-for-performance. For 2024, our executive compensation program was significantly dependent on our performance. Components of our program include an annual cash incentive, an annual restricted stock unit (“RSU”) award based on delivered performance, a long-term performance-based award if three-year performance criteria is met and stock options. The RSUs and stock options vest ratably over 3 years. |
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| • | We achieved 88% of our annual performance program’s performance target. For 2024, our annual incentives were based on the financial metrics of operating profit and net sales. As a result of our performance in 2024, which was impacted by our softer sales volume, our executive officers earned 88% of target under our annual performance program, and received a cash bonus and an award of RSUs consistent with this performance. |
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| • | Our performance did not result in a payout under our 2022-2024 Long-Term Incentive Program (“LTIP”). For the three-year period of 2022-2024, our LTIP was based on the financial metrics of cumulative earnings per share (“EPS”) and a three-year average return on invested capital (“ROIC”). We did not achieve our threshold level of achievement for either metric, and as a result, our executive officers did not receive a stock award under the program. |
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| • | We continue to engage with shareholders and adjust our compensation program. At last year’s Annual Meeting, our executive compensation program received 91% shareholder support, consistent with levels we have received in recent years. We continue to seek feedback from shareholders and, as appropriate, make adjustments to our program to ensure it remains aligned with market practice and long-term value creation. |
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OUR NAMED EXECUTIVE OFFICERS
This Compensation Discussion and Analysis (“CD&A”) covers the elements of compensation awarded to, earned by or paid to our named executive officers (who we generally refer to as our “executive officers”) during 2024 and describes the principles underlying our company’s executive compensation policies and decisions. This CD&A explains the compensation for the following individuals:
| Name | Position |
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| Keith J. Allman | President and Chief Executive Officer |
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| Richard J. Westenberg | Vice President, Chief Financial Officer and Treasurer |
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| Imran Ahmad | Group President |
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| Jai Shah | Group President |
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| Kenneth G. Cole | Vice President, General Counsel and Secretary |
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OUR 2024 PERFORMANCE COMPENSATION PROGRAMS
Based on our performance in 2024, our eligible executive officers earned incentive compensation under our annual performance program, under which we paid cash bonuses and granted RSUs to our executive officers for achievement of our annual performance goals. Based our performance over the 2022-2024 three-year period, our executive officers did not earn a stock award under our LTIP.
OUR EXECUTIVE OFFICERS’ PERFORMANCE-BASED TARGET COMPENSATION
The target compensation mix for our CEO and our other executive officers reflects our emphasis on long-term, performance-based compensation that incentivizes our executive officers to make strategic decisions that will strengthen our business and create long-term value for our shareholders. In 2024, approximately 88% of our CEO’s target compensation, and approximately 75% of the target compensation of our other executive officers, was performance-based.
PERFORMANCE COMPENSATION EARNED UNDER OUR PROGRAMS
| 2024 Annual Performance Program | 2022-2024 LTIP |
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| Financial Performance Metric | MetricWeight | Target | ActualPerformance (as adjusted) | PerformancePercentage | Financial Performance Metric | MetricWeight | Target | ActualPerformance (as adjusted) | PerformancePercentage |
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| Operating Profit (in millions) | 75% | $1,379 | $1,372 | 73% | Cumulative EPS | 60% | $13.75 | $11.50 | 0% |
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| Net Sales (in millions) | 25% | $7,972 | $7,828 | 15% | Three-Year Average ROIC | 40% | 52.0% | 42.9% | 0% |
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| Total Performance Percentage | 88% | | Total Performance Percentage | 0% | |
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| • | See “Our 2024 Annual Performance Program” and “Our Long-Term Incentive Program” below for a discussion of the establishment of our performance metrics and goals and a description of our calculation of operating profit, net sales, cumulative EPS and ROIC performance. |
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Based on this performance, our eligible executive officers earned a cash bonus and RSU award under our 2024 annual performance program. The performance restricted stock units (“PRSUs”) granted to our executive officers in 2022 under our 2022-2024 LTIP did not vest, and therefore our executive officers did not receive a stock award under our 2022-2024 LTIP.
| Name | CashBonus($) | RestrictedStockUnitAward ($) | 2022-2024LTIP-StockAward ($) | TotalPerformanceCompensation ($) |
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| Keith J. Allman | 1,682,100 | 2,274,266 | — | 3,956,366 |
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| Richard J. Westenberg | 525,700 | 525,487 | — | 1,051,187 |
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| Imran Ahmad | 349,800 | 350,066 | — | 699,866 |
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| Jai Shah | 422,500 | 422,253 | — | 844,753 |
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| Kenneth G. Cole | 376,900 | 377,233 | — | 754,133 |
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| • | Restricted stock units vest in equal installments over three years following the grant date, so our executive officers do not realize the value of these awards until they vest. |
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| • | Richard J. Westenberg and Imran Ahmad did not participate in our 2022-2024 LTIP. |
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OTHER PERFORMANCE COMPENSATION WE AWARDED IN 2024
We grant stock options annually to our executive officers to align their long-term interests with those of our shareholders by reinforcing the goal of long-term share price appreciation. These stock options will provide value to our executive officers only if the price of our common stock increases above the option exercise price. On February 16, 2024, our Compensation Committee awarded the following stock options to our executive officers; these stock options will vest ratably over three years.
| Name | StockOptionsAwarded(#) | StockOptionExercisePrice ($ pershare) | Value of StockOptionsAwarded atGrant ($) |
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| Keith J. Allman | 103,050 | 73.16 | 2,442,903 |
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| Richard J. Westenberg | 24,470 | 73.16 | 580,086 |
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| Imran Ahmad | 15,820 | 73.16 | 375,029 |
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| Jai Shah | 19,470 | 73.16 | 461,556 |
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| Kenneth G. Cole | 17,210 | 73.16 | 407,980 |
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| • | The stock options reflected in this table were priced based on our closing stock price on February 16, 2024, the date of grant. The column “Value of Stock Options Awarded at Grant” shows the aggregate grant date fair value of the stock options awarded, calculated in accordance with accounting guidance. |
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OUR COMPENSATION PRACTICES INCLUDE:
| ü | An Emphasis on Long-Term Performance—Our compensation programs are weighted toward long-term incentives. In 2024, we gave approximately equal weight to RSUs, stock options and our three-year incentive program, under which we grant performance-based restricted stock units (“PRSUs”). |
| ü | Annual Restricted Stock Units Granted on Performance Delivered—For the 2024 performance period, our annual grant of RSUs was based on our executive officers’ target opportunities, which are established at the beginning of the year, and the achievement of our performance goals under our annual performance program. |
| ü | Long-Term Performance Program—A meaningful portion of our executive officers’ compensation opportunity is based on the achievement of three-year performance goals. |
| ü | Clawback Policy—If we restate our financial statements, other than as a result of changes to accounting rules or regulations, our clawback policy requires us to recover incentive compensation paid to our executives in the three-year period prior to the applicable recoupment trigger date, regardless of whether misconduct caused the restatement. |
| ü | Stock Ownership Requirements—We have minimum stock ownership requirements for our executive officers, including requiring our CEO to own stock valued at six times his base salary. |
| ü | Double-Trigger Vesting—We have double-trigger vesting of equity upon a change in control. |
| ü | Tally Sheets and Risk Assessment—Our Compensation Committee uses tally sheets and oversees an annual risk assessment to evaluate whether our compensation programs present undue risk to us. |
| ü | Competitive Analysis—On an annual basis, our Compensation Committee reviews a market analysis of CEO and CFO compensation paid by our peer companies and published survey data for comparably-sized companies. |
| ü | Limited Perquisites—We provide limited perquisites to our executive officers. |
OUR COMPENSATION PRACTICES DO NOT INCLUDE:
| × | Excise Tax Gross-Ups—Our equity grants do not provide for excise tax gross-ups. |
| × | Hedging or Pledging—Our policy prohibits executive officers and directors from hedging our stock and from making pledges of our stock. |
| × | Employment Agreements and Change in Control Agreements—We have no employment agreements or change in control agreements with our executive officers. |
| × | Option Repricing—Our Equity Plan prohibits the repricing of options without shareholder approval. |
