BORGWARNER INC
For the period ended Apr 24, 2024. Filed Mar 15, 2024.
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What shareholders are asked to vote on at a company's meeting. It is where to find what directors and top executives are paid, and who owns the most shares.
Apr 24, 2024 · Filed Mar 15, 2024
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BorgWarner’s 2023 Year in Review
BorgWarner Inc. (“BorgWarner” or the “Company”) has continued to deliver strong financial results and value to our stockholders even in a challenging economic environment. Despite ongoing global inflation and downward pressures on the electric vehicle (“EV”) market, BorgWarner grew its revenue by 12%, delivered adjusted operating margin and free cash flow near or above the top end of the guidance communicated at its Investor Day in June 2023, and completed the transformative spin-off of its former Fuel Systems and Aftermarket segments into a separate, publicly traded company. As a result, BorgWarner achieved:
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| $14.2Bin sales | | 8.17%operating margin | | $1,397Min operating cash flow |
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| 12.4%year-over-yearincrease in sales fromcontinuing operations | | 9.63%*adjusted operating margin (“Adjusted Operating Margin”or “AOM”) | | $581M*in free cash flow(“Free Cash Flow” or “FCF”) |
*Adjusted Operating Margin and Free Cash Flow are Non-GAAP measures.
AOM and FCF exclude the impact of the PHINIA Inc. spin-off and acquisition of Hubei Surpass Sun Electric’s (“SSE”) Electric Vehicle Solution, Smart Grid, and Smart Energy businesses.
Reconciliations to comparable GAAP measures for AOM and FCF can be found in the Appendix.
to 2027
Our vision is a clean, energy-efficient world.Charging Forward, our accelerated electrification strategy, is a product of that vision and a plan for the next decade-plus of profitable and sustainable growth. As part of this strategy, in 2021, we announced our initialCharging Forwardgoals for 2025, which included: (1) profitably scaling organic growth in EVs; (2) executing mergers and acquisitions (“M&A”) that expand our EV products; and (3) optimizing our combustion portfolio through planned dispositions of $3 billion to $4 billion in annual revenue. Since 2021, we have been working toward executing on these 2025 goals. In July 2023, we successfully completed the tax-free spin-off of our former Fuel Systems and Aftermarket segments into a separate, publicly traded company, PHINIA Inc. (“PHINIA”).
Building on our initialCharging Forward goals, in June 2023, we announcedCharging Forward 2027, which focuses on advancing our position as a leader in eProducts,1 while maximizing the value of our combustion portfolio products (“Foundational Products”). We believe our product portfolio is resilient under a wide range of EV and hybrid scenarios. Like our initialCharging Forward initiative,Charging Forward 2027 has three key targets: (1) achieve over $10 billion in eProduct sales by 2027; (2) deliver AOM of approximately 7% and positive free cash flow in our eProduct portfolio by 2027; and (3) maximize the value of our Foundational Products portfolio by maintaining double-digit adjusted operating margins and strong free cash flow conversion.
1 eProducts is defined as all products utilized on EVs plus those products and components that are included in hybrid powertrains whose underlying technologies are adaptable or applicable to those used in EVs.
Our Electrification Strategy is Accelerating
Charging Forward 2027 is the latest step in BorgWarner’s journey to electrification. Since our acquisition of Delphi Technologies PLC in 2020, BorgWarner’s commitment to electrification has accelerated.
We take a disciplined approach to our M&A activity and pursue opportunities that fit from a strategic and financial perspective. In 2023, we increased our global charging footprint with our acquisition of SSE’s Electric Vehicle Solution, Smart Grid, and Smart Energy businesses, optimized our combustion portfolio with the spin-off of PHINIA, and added to our existing power electronics portfolio with our acquisition of Eldor Corporation S.p.A.’s Electric Hybrid Systems business segment (“Eldor”). The SSE acquisition supports our continued expansion into the direct current fast-charging market and complements our existing European and North American EV charging footprint by adding a significant presence in China. The Eldor acquisition enhances our capabilities in engineering compact and efficient 400V and 800V on-board chargers that are compatible with a variety of regional grid configurations.
In addition to M&A, our organic eProduct activity has intensified. Since 2021, we have invested approximately $2.2 billion on eProduct research and development and have announced 39 eProduct awards. For 2023, we achieved more than $2 billion in eProduct sales.
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Dear Fellow Stockholder:
On behalf of the Board of Directors (“Board”) and the management of BorgWarner, we invite you to attend the 2024 Annual Meeting of Stockholders (the “Annual Meeting”) at our world headquarters located at 3850 Hamlin Road, Auburn Hills, Michigan 48326 on Wednesday, April 24, 2024, at 9:00 a.m., local time, for the following purposes:
| Proposals to be Voted: · Board Recommendation · Page | ||||
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| PROPOSAL 1 | Elect eight directors to serve for the next year | vote FOR the Board’s nominees | 11 | |
| PROPOSAL 2 | Approve, on an advisory basis, the compensation of our named executive officers | vote FOR | 27 | |
| PROPOSAL 3 | Ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for 2024 | vote FOR | 64 | |
| | | Transact such other business as may properly come before the meeting or any adjournment or postponement thereof. | ||
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| Only stockholders of record at the close of business on March 1, 2024, are entitled to vote at the Annual Meeting or any adjournment or postponement thereof. | | Your Vote is Important!You can submit your vote by: | ||
| Please read the attached proxy statement carefully as it describes in greater detail the matters to be acted upon and your voting rights with respect to those matters. The enclosed proxy card is solicited by the Board.Along with the attached proxy statement, we are providing you with a copy of our Annual Report on Form 10-K for our fiscal year ended December 31, 2023.Stockholders should not regard our Annual Report on Form 10-K, which includes our audited financial statements, as proxy solicitation material.By Order of the Board,Tonit M. CalawayExecutive Vice President, Chief Administrative Officer,General Counsel and SecretaryAuburn Hills, Michigan March 15, 2024 | | | | |
| | | TelephoneCall us free of charge at 1-800-690-6903 and follow the instructions. | ||
| | | InternetAccess the internet, go to www.proxyvote.com and follow the instructions. | ||
| | | MailYou can vote by mail by requesting a paper copy of the materials, which will include a proxy card. See page 67 for instructions on how to receive a paper copy of our proxy materials. | ||
| | | In PersonIf you attend the meeting, you may vote in person if you wish to do so, even if you have previously submitted your proxy. | ||
Proxy Summary
This summary of ballot items provides information that you should consider before voting on the proposals presented at this year’s Annual Meeting. This summary does not contain all the information that you should consider, and you should read the entire Proxy Statement carefully before voting.
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| Proposal 1To Elect Eight Directors to the Board of Directors | | Our Board recommends that you vote “FOR” the Board’s nominees. | |
| Officer, Axel Johnson Inc.Age: 48Director since: 2021Committees: CC, CGC | | Age: 67Director since: 2018Other current directorships:Franklin Templeton ETF Trust, S&P Global Inc.Committees: AC, CC* | ||||
| Sara A. GreensteinPresident and Chief Executive Officer, Axel Johnson Inc.Independent Age: 49Director since: 2021Other current public company directorships: NoneCommittees: CC, CGC* | Deborah D. McWhinneyRetired Chief Executive Officer of Global Enterprise Payments, Citigroup Inc.Independent Age: 68Director since: 2018Other current public company directorships:Franklin Templeton ETF Trust,S&P Global Inc.Committees: AC, CC* | |||||
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| Michael S. HanleyRetired Global Automotive Leader,Ernst & Young LLPIndependent Age: 68Director since: 2016Other current public company directorships: NoneCommittees: AC*, EC | Alexis P. MichasNon-Executive Chair of the Board, BorgWarner Inc.; Managing Partner, Juniper Investment Company, LLCIndependent Age: 66Director since: 1993Other current public company directorships:AstroNova, Inc., Revvity, Inc.Committees: EC* | |||||
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| Frédéric B. LissaldePresident and Chief Executive Officer, BorgWarner Inc.Non-Independent Age: 56Director since: 2018Other current public company directorships:Autoliv, Inc.Committees: EC | Sailaja K. ShankarSenior Vice President, Engineering of the Security Business Group, Cisco Systems, Inc.Independent Age: 57Director since: 2022Other current public company directorships: NoneCommittees: AC, CC | |||||
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| Shaun E. McAlmontPresident and Chief Executive Officer, Ninjio, LLCIndependent Age: 58Director since: 2020Other current public company directorships:Lee Enterprises, Inc.Committees: CC, CGC | Hau N. Thai-TangRetired Chief Industrial Platform Officer, Ford Motor CompanyIndependent Age: 57Director since: 2023Other current public company directorships: NoneCommittees: AC, CGC | |||||
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| Light Background: Independent | AC: Audit Committee CC: Compensation Committee |
| Dark Background: Non-Independent | CGC: Corporate Governance Committee EC: Executive Committee |
| | *Committee Chair |
2024 Proxy Statement | 1
Director Demographics
Corporate Governance Highlights
| Independent Board Chair | Share ownership policies | |
| Annual election of directors | | Prohibition of speculative and hedging transactions by all employees and directors |
| Majority voting standard for election of directors | | Corporate Sustainability Report |
| Robust stockholder engagement | | Stockholder right to call a special meeting (20%) |
| Use of a skills matrix to align Board selection with business strategy | | Stockholder right to act by written consent (10%) |
| Limit on number of public company directorships Board members may hold (4) | | No supermajority voting provisions for common stockholders |
| Director retirement policy (age 72) | | Proxy access stockholder right |
| Clawback and recoupment policies | | No stockholder rights plan |
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Proxy Stockholder Engagement
At BorgWarner, we recognize the significance of stockholders’ voices, which is why we have a longstanding practice of not only listening to our stockholders, but also incorporating their feedback into our governance practices. As part of BorgWarner’s annual engagement program and in preparation for the 2024 proxy season, both management and our Board conducted extensive outreach with our stockholders during the fourth quarter of 2023.
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| 37 | 67% | 12 | 25% |
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| We contacted our top 37stockholders | Representing approximately 67% of our outstanding shares* | We held virtual meetings or calls with 12 stockholders | Representing holders of approximately 25% of our outstanding shares* |
Our proxy-related stockholder engagement consists of three activities: off-season direct stockholder engagement prior to the filing of the proxy statement; engagement leading up to the Annual Meeting; and post-Annual Meeting assessment.
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| Off-Season Engagement | Engagement Leading upto the Annual Meeting of Stockholders | Post-Annual Meeting Assessment | |||||
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| ■We reached out to our top 37 stockholders to discuss corporate governance, corporate responsibility, and executive compensation matters, as well as to solicit feedback.■Our Board is provided with our stockholders’ feedback for consideration.■The Board and management discussed feedback and whether action should be taken.■Disclosure enhancements are considered. | | ■Leading up to the Annual Meeting, we conduct engagement meetings with stockholders who have questions or concerns regarding ballot items.■At the Annual Meeting, our stockholders vote on the election of directors, executive compensation, ratification of our auditors, and other management and stockholder proposals. | | ■Our Board and management review the vote results from our Annual Meeting.■The Board and management discuss vote results and whether action should be taken.■Preparation begins for off-season engagement meetings. | |||
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We shared and discussed with the full Board the stockholder feedback we received in 2023. Topics that we discussed with stockholders included, among other things, ourCharging Forward 2027 strategy; environmental, social, and governance (“ESG”) initiatives; human capital management; executive compensation; and Board composition and refreshment. Engagement with our stockholders is a valuable source of input for our Board and management team and has helped to inform decisions on topics we have discussed.
*As of September 15, 2023
2024 Proxy Statement | 3
| Proposal 2Approve, on an Advisory Basis, the Compensation of Our Named Executive Officers | Our Board recommends that you vote “FOR” this proposal. |
Why Should You Vote in Favor of Our 2024 Say-on-Pay Proposal?
A strong link between pay and performance
Despite the significant market volatility and inflationary headwinds we faced in 2023, the Company performed well. As a result of strong sales and margin performance, we delivered results near or above the top end of the guidance for Adjusted Operating Margin and Free Cash Flow that we communicated at our Investor Day in June 2023, which contemplated the successful completion of our spin-off of PHINIA. We delivered AOM of 9.63% and FCF at $581 million for purposes of the Management Incentive Plan (“MIP”), which is our cash-based, annual incentive plan for executives. As a result of this performance, the AOM portion of the MIP award resulted in a payout of 126%, and the FCF portion of the MIP award resulted in a 200% payout. With a 50% weighting for each metric, the result was a combined payout of 163% under the 2023 MIP.
In addition to the strong performance highlighted above, the Company also performed well on the Long-Term Incentive Plan metrics underlying the 2021-2023 performance period, as follows:
| ■ | Relative Total Stockholder Return (“TSR”) for 2021-2023: The Company’s Relative TSR was at the 80th percentile of the performance peer group, which resulted in a maximum 200% payout of TSR performance shares. |
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| ■ | eProduct Revenue Mix for 2021-2023: The Company’s eProduct Revenue Mix in 2023 was 14.6%, compared to a target of 12% and a maximum of 16%. The outperformance resulted in a 2021–2023 eProduct Revenue Mix performance share payout at 165% of target. |
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| ■ | Cumulative FCF for 2021-2023: The Company’s Cumulative FCF was $2.016 billion, which was between the target level of $2 billion and the maximum of $2.3 billion and resulted in a 2021–2023 Cumulative FCF performance share payout at 105% of target. |
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Executive Compensation Objectives
The objectives of our executive compensation program are to:
| ■ | Attract and retain the best global talent |
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| ■ | Motivate our executives to perform in support of the Company’s business strategies and goals (including growth and the creation of long-term stockholder value) by taking calculated risks |
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| ■ | Link executives’ and stockholders’ interests through equity-based incentive plans |
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| ■ | Provide an equitable compensation package that rewards individual performance in line with overall business results |
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2023 CEO Target Direct Compensation
| | ■Base Salary■Comprised 10% of total compensation ■Remaining 90% of compensation was at-risk■Annual Incentive■Drives achievement of key business results ■Incentivizes delivery of key short-term business objectives■Based on achievement of AOM% and FCF, demonstrating strength of business■Includes a performance modifier that allows the Compensation Committee to modify the annual payout upwards or downwards up to 10% of MIP Target awards. Annual payout remains capped at 200% of targetoFor 2023, the Compensation Committee did not apply the performance modifier | ■Long-Term Incentive■Aligns management interests with our stockholders’ ■Supports talent retention■Significant portion was performance based■Two Thirds of Total Value of Target Long-Term Incentive OpportunityPerformance shares divided among eProducts Revenue Mix (25%), eProducts Revenue (25%), Cumulative Free Cash Flow (25%), and Relative Total Stockholder Return (25%), vesting at the end of a three-year performance period■One Third of Total Value of Target Long-Term Incentive Opportunity Restricted shares vest 50% after two years and the remainder vest after three years | |
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The compensation of our named executive officers (“NEOs”) is largely performance-based, with approximately 83%-90% of their target direct compensation (salary and target annual and long-term incentives) at risk and based on Company performance.
We continue to refine our executive compensation program to ensure it is consistent with our short- and long-term strategies and provides a strong link between pay and performance. Consistent with ourCharging Forward 2027 strategy, which focuses on accelerating our path toward electrification, there are two “E” metrics in our Long-Term Incentive (“LTI”) Plan. In 2021, we introduced the eProducts revenue mix metric (the “eProducts Revenue Mix Metric”) in our 2021–2023 LTI Plan. In 2022, we included the eProducts revenue metric (the “eProducts Revenue Metric”) in our 2022-2024 LTI Plan and have maintained the same metrics for the 2023-2025 LTI plan, as follows:
| 25% | 25% | 25% | 25% |
| eProducts Revenue Mix Metric | eProducts Revenue Metric | Cumulative Free Cash Flow(FCF) Metric | Relative Total Stockholder Return (TSR) Metric |
We regularly meet with our investors to discuss our compensation practices, seek their feedback, and respond to any feedback shared with us. The Company’s 2022 executive compensation program received substantial stockholder support and was approved, on an advisory basis, by 92.1% of stockholders voting on the proposal at the 2023 Annual Meeting of Stockholders.
2024 Proxy Statement | 5
| | Proposal 3Ratification of Selection of Independent Registered Public Accounting Firm | Our Board recommends that you vote “FOR” this proposal. | |
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We will also act upon any other business that may properly come before the Annual Meeting and any adjournments or postponements of thatmeeting.
Our Board or proxy holders will use their discretion on other matters that may arise at the Annual Meeting.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR OUR ANNUAL MEETING TO BE HELD ON WEDNESDAY, APRIL 24, 2024We have elected to furnish materials for the Annual Meeting via the internet. Beginning on or about March 15, 2024, we will mail a notice of internet availability to most of our stockholders containing instructions on how to access the proxy materials and vote online. All other stockholders will be sent a copy of our proxy materials by mail or e-mail on or about March 15, 2024. See your proxy card or page 67 for more information on how you can elect to receive your proxy materials over the internet or by e-mail if you received them by mail this year.
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Our Approach and Commitments
Our Company understands that sustainability is fundamental to our continued long-term success. To us, sustainability means driving ESG initiatives to deliver value to all stakeholders for today and tomorrow. We are guided by our BorgWarner Beliefs and our vision of a clean, energy-efficient world.
We use our materiality assessment process and ongoing stakeholder engagement to determine which sustainability topics are most important to our stakeholders and our business. This information is then translated into our ongoing sustainability strategy, reporting, and commitments.
Our sustainability objectives align withCharging Forward 2027 and our strategy to generate financial results. Central to those objectives is our commitment to our people practices, which foster and cultivate creativity, agility, long-term planning, and operational excellence.
Sustainability Goals
Our goals span across our three sustainability pillars: environmental stewardship; social responsibility; and governance.
1 Based on U.S. Bureau of Labor Statistics, Survey of Occupational Injuries and Illnesses Data, motor vehicle parts manufacturing (NAICS 336300).
2 The scope of these performance indicators is for manufacturing locations that supply directly to original equipment manufacturers, excluding locations during their first 18 months of production and newly acquired sites during their first 18 months with the Company.
3 Training offerings for hourly employees vary based on location and business. Training for salaried workforce may occur in the following cycles: at onboarding; at least biennially throughout employment; and periodic targeted training.
2024 Proxy Statement | 7
Sustainability
Sustainability Governance
Our Board oversees our sustainability strategy, with each Board committee having clearly defined responsibilities for specific ESG activities, risks, and opportunities as follows:
| | | Board of DirectorsOur Board’s oversight responsibilities, among other things, require ongoing, in-depth consideration of environmental, social, and governance risks and opportunities. | | | ||||||||
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| Audit | | Compensation | | CorporateGovernance | ||||||||
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| ■The Audit Committee provides oversight of the quality and integrity of the accounting, auditing, financial reporting, and risk management practices of the Company, including assessing the Company’s compliance with ESG-related disclosure requirements. | | ■The Compensation Committee oversees human capital management, including diversity, equity, and inclusion (“DE&I”), and assesses whether efforts to promote and advance ESG initiatives, practices, and objectives are appropriate and effectively reflected in executive compensation. | | ■The Corporate Governance Committee reviews sustainability strategy, policies, and procedures, including corporate responsibility matters, and receives, reviews, and considers stakeholder feedback on ESG topics.■The Corporate Governance Committee also ensures that there is appropriate ESG expertise on the Board and awareness of ESG risks and opportunities by the Board and executive management team. | ||||||||
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| Empowering Our Diverse TeamsWe believe our strength is in our differences. We strive to nurture an environment where diversity of background, experience, and skill are welcomed and embraced. We know an inclusive environment supports a sense of belonging, which enables our team members to be authentic and innovative. The shift to electric vehicles creates new opportunities for our stakeholders, including our workforce and the communities in which we operate. Understanding we are only able to achieve results because of our people, we support our employees in evolving their skills as we implement Charging Forward 2027, while simultaneously building the talent pipeline we need to succeed. We also provide individual and team career growth opportunities that inspire our employees and set up the Company to thrive. To promote a positive work environment, we consistently review our policies, programs, and processes to align them with our DE&I strategy.As illustrated in the composition of our Strategy Board, BorgWarner’s commitment to attracting and developing talent with diverse backgrounds, perspectives, and skills starts at the highest levels of our organization. | | As of March 1, 2024: |
| Board of Directors | | |
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| 5 of 8 members are women and/or racial/ethnic minorities | ||
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| Strategy Board4 | | |
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| 4 of 10 members are women and/or racial/ethnic minorities | ||
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4 The Strategy Board is comprised of our executive management team.
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Sustainability
To attract and retain the highest caliber of talent, we aim to cultivate a culture where employees are treated with dignity and their differences are celebrated. As of December 31, 2023, we had a salaried and hourly workforce of approximately 39,900 people.5 Our employee demographic breakdown was as follows:6
5 Workforce includes full-time, part-time and temporary employees, and contract workers.
6 Contract workers and employees acquired through the Eldor acquisition are excluded from demographic data.
7 Leadership is defined as employees who participate in MIP.
8 New Hires is defined as an employee who started employment with BorgWarner in 2023, except those who joined through the acquisitions of SSE and Eldor.
Additional Sustainability and Other InformationTo ensure transparency for all stakeholders, our reporting regarding sustainability matters is aligned with SASB, TCFD, and GRI frameworks. For more information, please refer to the Company’s Sustainability Report available on the Company’s website at www.borgwarner.com/company/sustainability. We anticipate the Company’s 2024 Sustainability Report will be filed in the second quarter of 2024. In this Proxy Statement, we refer to additional materials or information available on or through our website. We do that for informational purposes only. In each case, we are not incorporating the content of our website in this Proxy Statement.
2024 Proxy Statement | 9
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.