Knowles Corp
For the period ended Mar 15, 2024. Filed Mar 15, 2024.
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Mar 15, 2024 · Filed Mar 15, 2024
Contents
Executive Compensation Program Overview
Philosophy and Objectives
Knowles' executive compensation program is designed to achieve the following key objectives:
| Long-Term Focus | Our compensation structure emphasizes long-term stock-based components, reinforcing a commitment to strategic, long-term goals and shareholder value creation. Short-term incentives are designed within the context of multi-year business plans, driving a sustained focus on growth. |
|---|---|
| Pay for Performance | Variable compensation for senior leaders closely links to both individual and company performance metrics, including operational and financial outcomes. Payout is rooted in pre-defined objectives that reflect our overarching business strategies and priorities. |
| Attract and Retain Key Talent | We provide competitive compensation programs that attract and retain talented executives with a strong track record of success, assuring a high performing and stable leadership team. We continue to monitor market trends and align compensation programs with market where relevant. |
| Risk Mitigation | Use incentive compensation to promote desired behavior without encouraging unnecessary or excessive risk-taking. |
Executive Compensation Program Structure
Our executive total direct compensation ("TDC") is composed of base salary, annual cash incentives and long-term incentives. The table below describes the structure of our 2023 compensation program and key element features:
| Pay Element | Purpose | Characteristics |
|---|---|---|
| Base Salary(See page 34) | Rewards day-to-day performance and standard job duties. | Cash•Determined based on executive's responsibilities, performance, skills and experience relative to market data |
| Annual Incentive ("AIP")(See page 35) | Designed to motivate and reward executives for achieving specific, pre-established financial and individual strategic goals. | Cash•Comprised of a company financial performance component, and an individual strategic objective component |
| Long-Term Incentives ("LTIP" or "LTI")(See page 39) | Designed to motivate and reward executives' contributions to enhancing long-term shareholder value and the achievement of long-term business objectives. | Performance Stock Units (PSUs)•3-year relative total shareholder return ("r-TSR") against component companies in Russell 2000 Index•A holding period of one year following settlement of the PSUsRestricted Stock Units (RSUs)•Value realized depends on long-term stock price performance•Delivered in shares over three-year vesting period subject to continued employment |
Pay-for-Performance Emphasis
Pay-for-Performance is a core tenet of Knowles' executive compensation program. Knowles' focus on pay-for-performance is best demonstrated through the structure of our executive compensation program, where the majority of executive pay is at risk and variable, based on a combination of annual and long-term performance factors and Knowles' stock price performance.
As shown below for 2023, 86% of Mr. Niew's TDC and, on average, 72% of the TDC for the other NEOs was at risk and variable. In addition, 70% of Mr. Niew's TDC and, on average, 53% of the TDC for the other NEOs was equity-based and, therefore, aligned with interests of shareholders.
The LTIP is delivered through a mixture of performance share units ("PSUs") and restricted stock units ("RSUs") as shown below.
Our Compensation programs are designed so that compensation outcomes for strong performance should pay above target, while outcomes where performance is below expectations should pay below target taking into consideration short-term financial targets and long-term shareholder value creation.
The chart below demonstrates the strong linkage of our compensation design and pay-for-performance, by comparing the CEO's target and realizable TDC for the last three fiscal years. As a significant portion of the TDC is tied to LTIP award values, the difference between target and realizable TDC closely mirrors the stock price change between the grant date and the year-end. In addition, in years where financial performance was above expectations, as it was in 2021, cash incentive payout was above target, whereas in years financial performance was below expectation, cash incentive payout was reduced, as it was in 2022 and 2023.
(1)Target base salary and AIP values are the target amounts for each year. Target LTI value for each year is based on the grant date value (calculated based on the grant date closing stock price) of equity granted in that year, where the value for PSUs assumes payout at 100%. The grant date closing stock price was $20.60 in 2021, $21.14 in 2022 and $19.09 in 2023.
(2)Realizable base salary and AIP values are the actual amounts paid for each year. Note that the realized LTI values shown above do not align to what is reported in the Summary Compensation Table because realizable LTI value for each year is based on Knowles December 31, 2023 closing stock price of $17.91. The realizable value for PSUs granted in 2021 was adjusted to reflect the recent payout at 86.7% of target. The realizable value shown for PSUs granted in 2022 and 2023 (for which the performance period has not ended) assumes payout at 100%.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.