DEF 14A
CSW Industrials, Inc.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
 
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Filed by the Registrant
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Filed by a party other than the Registrant  
 
 
Check the appropriate box:
   
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Preliminary Proxy Statement
   
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(e)(2))
   
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Definitive Proxy Statement
   
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Definitive Additional Materials
   
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Soliciting Material under
§240.14a-12
CSW INDUSTRIALS, INC.
 
 
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(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 
 
Payment of Filing Fee (Check the appropriate
box
):
   
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No fee required.
   
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Fee paid previously with preliminary materials.
   
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Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules
14a-6(i)(1)
and
0-11.


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Dear Fellow Shareholder:

On behalf of your Board of Directors, I am pleased to invite you to attend CSW Industrials’ 2024 Annual Meeting of Shareholders. This year’s Proxy Statement highlights our impressive accomplishments in fiscal 2024 and presents the matters for which we are seeking your approval at the 2024 Annual Meeting.

From our inception, we have worked to create a distinctive, employee-focused culture, driven by the conviction that a strong culture forms the foundation upon which enduring success can be built. As we continued to demonstrate in fiscal 2024, we remain committed to a culture of diversity, inclusion, and respect, characterized by recruiting and retaining great talent, offering rewarding careers with the opportunity for a secure and dignified retirement, and recognizing team members who excel. Our team members drive our success daily because they understand that how we succeed matters.

In fiscal 2024, we delivered record results across the board, highlighted by organic and inorganic growth, expanded margins, and robust cash flow. While certain key end markets were challenged throughout the year, we continued to outperform the markets we serve and delivered our seventh consecutive year of increases in revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”). Moreover, we again executed on all elements of our capital allocation strategy, efficiently allocating capital on a risk-adjusted returns basis. This ultimately resulted in record growth in shareholder value.

We believe this year’s Proxy Statement continues to demonstrate our consistent commitment to sound governance practices and enhanced disclosure and transparency. We are pleased to share this important information with you.

Your vote is very important to us and to our business, so I encourage you to vote before the meeting. You may vote online, by telephone, or by signing and returning your proxy card by mail, so that your shares will be represented and voted at the meeting. You can find instructions on how to vote on page 4.

I hope that you participate in the meeting. Thank you in advance for voting and for your continued support of CSW Industrials.

Very truly yours,

 

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Joseph B. Armes

Chairman, CEO and President


 

Table of Contents

 

Our Company

     1  

Proxy Summary

     4  

Proposal 1: Election of Directors

     9  

Required Vote and Recommendation

     9  

Nominees for Election

     10  

Corporate Governance

     18  

Governance Highlights

     18  

Board and Committee Structure

     18  

Director Engagement

     20  

Board Oversight of Risk Management

     22  

Corporate Sustainability, Culture & Compliance

     23  

Other Governance Policies and Practices

     25  

Director Compensation

     27  

Executive Officers

     29  

Proposal 2: Advisory Vote on Executive Compensation

     31  

Required Vote and Recommendation

     32  

Executive Compensation

     33  

Compensation & Talent Development Committee Report

     33  

Compensation Discussion and Analysis

     34  

Summary Compensation Table

     61  

2024 Grants of Plan-Based Awards

     62  

Outstanding Equity Awards at Year-End 2024

     63  

2024 Option Exercises and Stock Vested

     64  

2024 Pension Benefits

     64  

Potential Payments upon Termination or Change-In-Control

     65  

CEO Pay Ratio

     68  

Pay Versus Performance Disclosure

     69  

Proposal 3: Approval of the 2024 Equity and Incentive Compensation Plan

     71  

Equity Compensation Plan Information

     78  

Section 16(a) Beneficial Ownership Reporting Compliance

     78  

Proposal 4: Ratification of Grant Thornton LLP’s Appointment to Serve as our Independent Registered Public Accounting Firm for Fiscal 2025

     79  

Required Vote and Recommendation

     79  

Report of The Audit Committee

     80  

Other Audit Information

     81  

Relationship with Independent Registered Public Accounting Firm

     81  

Audit and Non-Audit Fees and Services

     81  

Audit Committee Approval Policy

     81  

Security Ownership of Directors and Certain Executive Officers

     82  

Security Ownership of Certain Beneficial Owners

     83  

General Voting and Meeting Information

     84  

Solicitation

     84  

Voting

     84  

Other Information About this Solicitation

     87  

Cost of Proxy Solicitation

     87  

Shareholders Sharing an Address

     87  

Shareholder Proposals and Nominations

     87  

Exhibit A

     A-1  

CSW Industrials, Inc. 2024 Equity and Incentive Compensation Plan

     A-1  

Exhibit B

     B-1  

GAAP to Non-GAAP Reconciliations

     B-1  
 


 

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Notice of 2024 Annual Meeting of Shareholders

August 15, 2024

10:00 a.m., Central Time

Virtual Meeting

www.virtualshareholdermeeting.com/CSWI2024

 

This Notice, the accompanying Proxy Statement, our Annual Report on Form 10-K for the year ended March 31, 2024, and the form of proxy card or the Notice of Internet Availability of Proxy Materials, are first being mailed to shareholders on or about July 1, 2024 to shareholders of record of the Company’s common stock as of the close of business on June 24, 2024.

 

At the Annual Meeting, shareholders will vote on the following matters:

 

  the election of nine director nominees to serve a one-year term expiring at the 2025 annual meeting of shareholders;

 

  the approval, on an advisory basis, of the Company’s executive compensation, or the “Say on Pay” vote;

 

  the approval of the Company’s 2024 Equity and Incentive Compensation Plan;

 

  the ratification of Grant Thornton LLP’s appointment to serve as our independent registered public accounting firm for fiscal year 2025; and

 

  the transaction of any other business properly presented at the Annual Meeting.

 

The accompanying Proxy Statement contains other important information that you should read and consider before you vote. For additional related information, please refer to the “Important Notice Regarding the Availability of Materials for the Shareholder Meeting to be held on August 15, 2024” in the accompanying Proxy Statement.

 

Your vote is important. Even if you plan to attend the Annual Meeting, your prompt cooperation in voting in advance is greatly appreciated. Thank you in advance for voting and for your support of the Company.

 

By Order of the Board of Directors,

 

 

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Luke E. Alverson

Senior Vice President,

General Counsel and Secretary

 

July 1, 2024

 

VOTE IN ONE OF FOUR WAYS:

  
 

 

Internet

Visit the website shown on the Notice of Internet Availability of Proxy Materials or proxy card

  

 

 

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By Telephone

Call the telephone number shown on your proxy card

  

 

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By Mail

Complete, sign, date and return your proxy card in the envelope provided

  

 

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At The Meeting

Visit www.virtualshareholdermeeting.com/CSWI2024 and follow the instructions.

  

 

 

 

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If your shares are held by a bank, broker or other holder of record, please refer to their instructions to see which voting methods are available to you.

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD AUGUST 15, 2024: This Proxy Statement and the Annual Report to Shareholders are available at www.proxyvote.com.

 

 



 



 

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| 2024 Proxy Statement

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Our Company

 

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Investment Thesis

 

 

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Sustained
multi-year
revenue growth

  

 

Consistently demonstrating growth in excess of end markets served

 

   Total revenue CAGR of 17.8% from FY19 through FY24

   Organic revenue CAGR of 10.1% from FY19 through FY24

 

 

   LOGO

  

 

Robust

margin

profile

  

 

Robust margin profile provided by niche products, applications, and solutions

 

   43.6% adjusted gross profit margin annual average FY19 - FY24

   22.7% adjusted EBITDA margin annual average FY19 - FY24

 

 

   LOGO

  

 

Strong balance sheet and financial results

  

 

 

Strong financial position supports incremental organic and inorganic growth

 

   ~0.7x leverage (Debt/EBITDA), ~$356MM liquidity at 3/31/24

   $200.0MM adjusted EBITDA, and 25.2% adjusted EBITDA margin in FY24

 

   LOGO

  

 

Experienced leadership team

  

 

Demonstrated track record of leading public companies

 

   Dedicated to enhancing shareholder value

   Committed to exemplifying CSWI’s culture and values

 

 

   LOGO

  

 

Driving

long-term shareholder

value

  

 

Disciplined and strategic capital allocation policy enhances shareholder value

 

   ~$610MM cumulative investment in acquisitions completed FY16 through FY24

   ~$190MM cash returned to shareholders since 3Q18, in the form of dividends and share repurchases

   ~770% total shareholder return since inception

 

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| 2024 Proxy Statement

   1


Our Company

Fiscal 2024 Financial Highlights

 

Fiscal 2024 Financial Highlights

 

Our stated approach to driving sustainable growth and long-term shareholder value once again enabled us to deliver record results in fiscal 2024. These results were achieved against a backdrop of challenging key end markets and ultimately surpassed the impressive results of the prior year. Throughout fiscal 2024, we efficiently allocated capital on a risk-adjusted returns basis, grew our operating results to record levels, drove cash flow conversion, and delivered record growth

in shareholder value. Importantly, we achieved all of this while remaining committed to our distinctive employee-centric culture, where we are committed to diversity, inclusion, and respect and focus on recruiting and retaining great talent, offering rewarding careers, and recognizing team members who excel while providing the opportunity for a safe, secure, and dignified retirement.

 

 

Financial and Operational Performance

 

 

 

We achieved the following financial results in fiscal 2024 (comparisons to fiscal 2023):

 

 
 

 

 

Revenues

$792.8m

+4.6%

 

  

 

Adjusted

EBITDA*

$200.0m

+14.9%

 

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Adjusted

EPS*

$7.01

+13.1%

 

  

 

 

Operating Cash Flow

$164.3m

+35.2%

 

    
 

*  EBITDA is comprised of earnings (net income) before interest, taxes, depreciation and amortization. Please see GAAP and Non-GAAP Reconciliations in Exhibit B.

 

 

 

 

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 | 2024 Proxy Statement

      


Our Company

Governance Highlights

 

Governance Highlights

Our Board of Directors is committed to sound governance practices, including the following:

 

   

 

Board Independence

 

 

  Eight of our nine director nominees are independent

 

  Our CEO is our only management director

Board Composition  

  All board members are elected annually

 

  The Board annually assesses and evaluates its performance and the performance of its committees

 

  The Nominating & Corporate Governance Committee leads the full Board in considering board member competencies in light of Company strategy

 

  Our Corporate Governance Guidelines maintain an age-based retirement limit for directors at age 73

 

  Our directors have a diverse mix of backgrounds, qualifications, skills and experiences that we believe contribute to a well-rounded Board that is positioned to effectively oversee our strategy

 

  33% of our director nominees are female and/or diverse following recent director appointments for succession planning purposes, and we have a plan to increase our diversity

Board Committees  

  We have three committees — Audit; Compensation & Talent Development; and Nominating & Corporate Governance

 

  All committees are composed entirely of independent directors

Leadership Structure  

  Our Board has a lead independent director that works closely with our Chairman, CEO and President in fulfilling responsibilities and duties

 

  Our lead independent director chairs executive sessions of the independent directors, among other duties

Environmental, Social
 & Governance Oversight
 

  Our Nominating & Corporate Governance Committee oversees our Environmental, Social & Governance (ESG) Program

Risk Oversight  

  Our Board is responsible for enterprise risk oversight and has committees designated to oversee specific key risks

 

  Our Audit Committee oversees administration of the Company’s Enterprise Risk Management (ERM) Program for the assessment and mitigation of key risks

Open Communication  

  We encourage open communication and strong working relationships among the lead independent director, Chairman and other directors

 

  Our directors have direct and unrestricted access to management and other employees

Stock Ownership  

  Our directors and executive officers are subject to robust stock ownership requirements

 

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| 2024 Proxy Statement

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Proxy Summary

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all the information that you should consider, and you should read the entire Proxy Statement carefully before voting.

Information About the Annual Meeting (page 84)

Time and Place

 

 

 

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Time and Date

10:00 a.m., Central Time

Thursday, August 15, 2024

 

Location

Via live webcast at
www.virtualshareholdermeeting.com/CSWI2024

 

 

Record Date

June 24, 2024

 

How to Vote

 

 

 

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Via the Internet

Visit the website

shown on the Notice of
Internet Availability of Proxy
Materials or proxy card

 

 

By Telephone

Call the telephone number
shown on your proxy card

 

 

By Mail

Complete, sign, date and
return your proxy card in
the envelope provided

 

At the Meeting

Visit www.virtualshareholdermeeting.com/ CSWI2024

 

Voting Matters

 

Proposal

   Board’s Recommendation    Page Reference  

1. Election of Directors

      FOR each Director Nominee      9     

2. Advisory Vote on Executive Compensation

      FOR      31     

3. Approval of 2024 Equity and Incentive Compensation Plan

      FOR      71     

4. Ratification of Auditors

      FOR      79     

We may also transact any other business that may properly come before the Annual Meeting. As of the date of this Proxy Statement, we are not aware of any other business to be presented for consideration other than the matters described in this Proxy Statement.

 

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 | 2024 Proxy Statement

      


Proxy Summary

Shareholder Engagement

 

Shareholder Engagement

We are actively engaged with our investors. Our senior leaders participate in numerous industry and analyst conferences throughout the year, and we have dedicated resources to engage with all shareholders through a variety of mediums. This focus on engagement was again demonstrated in the context of executive compensation matters, which is discussed further within the “Compensation Discussion and Analysis” section of this Proxy Statement. The table below summarizes our engagement efforts in fiscal 2024.

 

 

 

 

In fiscal 2024, we met with

investors representing

 

 

 

How we engage

with investors

 

 

 

Topics regularly discussed

with investors

 

 

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57%

of our outstanding shares

 

 

 

We engage with analysts and shareholders through investor and analyst conferences, quarterly earnings calls, our investor relations website, and individual visits, meetings, and calls

 

We regularly report our investors’ views, comments, and concerns to our Board of Directors, and all of our Board committees consider these perspectives in conducting committee business

 

 

   Capital allocation

 

   Strategy and risk management

 

   Macro trends and long-term outlook

 

   Financial performance

 

   Segment performance

 

   Corporate governance

 

   Senior leadership team

 

   Margin leverage

 

   Executive compensation

 

   ESG and sustainability matters

 

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79%

of our actively held shares

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80%

of our top 20 active investors

 

Board of Directors Highlights (page 10)

All nine of our current board members are nominated for re-election at the Annual Meeting. As shown below, our nine director nominees strengthen our Board with their varied professional backgrounds and experiences.

 

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| 2024 Proxy Statement

   5


Proxy Summary

Board of Directors Highlights

 

Director Nominees

 

                        Committee Memberships
  

 

  Name   Age  

Director

Since

  Occupation   Independent   Audit   Comp &
Talent Dev
  Nom &
Gov

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  Joseph B. Armes   62   2015   Chairman, CEO and President, CSW Industrials, Inc.        

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  Darron K. Ash   59   2024   CEO, Sammons Enterprises, Inc.        

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  Michael R. Gambrell   70   2015   Former EVP, The Dow Chemical Company         LOGO

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  Bobby Griffin   57   2021   Chief Diversity, Equity & Inclusion Officer, Rockwell Automation        

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  Terry L. Johnston   66   2017   Former EVP and COO, Commercial Segment, Lennox International        

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  Linda A. Livingstone, Ph.D.   64   2015   President, Baylor University        

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  Anne B. Motsenbocker   62   2022   Former Managing Director, J.P. Morgan Chase     LOGO    

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Robert M. Swartz

(Lead Independent

Director)

  72   2015   Former EVP and COO, Glazer’s Inc.        

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  J. Kent Sweezey   71   2016   Founding Partner, Turnbridge Capital, LLC       LOGO    

LOGO Denotes Chair

 

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 | 2024 Proxy Statement

      


Proxy Summary

Executive Compensation Highlights

 

Executive Compensation Highlights (page 34)

Executive Compensation Program Objectives and Elements

Our executive compensation program is designed for one purpose: to support and enable execution of CSWI’s growth strategy. To accomplish this purpose, we have adopted the following key executive compensation objectives:

 

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Align Long-Term
Executive and
Shareholder
Interests

 

    Reward Current
Performance
    Drive Future
Performance
     Attract and Retain
Key Leaders

Our executive compensation program is composed of the following foundational elements to accomplish our objectives:

 

Pay Element

  Form      

 

   Compensation Objective Addressed

Base Salary

  Cash      

 

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Reward Current Performance

             

 

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Attract and Retain

Annual Incentive

  Performance Cash Opportunity   

 

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Shareholder Alignment

       

 

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Reward Current Performance

             

 

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Attract and Retain

Long-Term

Equity Incentive

  Performance Shares   

 

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Shareholder Alignment

 

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NEO average

target grant value

  

 

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Drive Future Performance

     

 

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Attract and Retain

     
  Restricted Stock   

 

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Shareholder Alignment

 

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NEO average

target grant value

 

  

 

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Drive Future Performance

     

 

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Attract and Retain

      

 

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| 2024 Proxy Statement

   7


Proxy Summary

Executive Compensation Highlights

 

Fiscal 2024 Executive Target Compensation Mix

 

 

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The Compensation Committee maintains a thoughtful approach to our executive compensation program design and governance practices in furtherance of our objectives. The following table summarizes these practices.

 

What We Do

   

 

 

What We Don’t Do

       

 

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Promote a strong pay for performance plan design

   

 

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No hedging, pledging, or short sales of stock permitted

       
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Regularly benchmark executive compensation against peers of comparable size, complexity, and industry

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No change in control excise tax gross ups

       
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Maintain meaningful stock ownership guidelines for our directors and executive officers

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No option repricing without shareholder approval

       
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Have double trigger requirements on cash payments following a change in control

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No perquisites offered, other than those generally provided to all employees

       
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Conduct an annual compensation risk review

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No dividends paid and no voting rights on unvested performance-based equity awards

       
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Provide reasonable and standardized benefits upon severance or change in control

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No duplication of metrics in annual and long-term incentive plans

       

 

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Engage an independent compensation consultant

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No supplemental executive retirement plans

   

 

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Maintain an incentive compensation “clawback” policy

      

 

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 | 2024 Proxy Statement

      


 

Proposal 1:

Election of Directors

The Company’s Board currently consists of nine directors. The Board has nominated Joseph Armes, Darron Ash, Michael Gambrell, Bobby Griffin, Terry Johnston, Linda Livingstone, Anne Motsenbocker, Robert Swartz, and Kent Sweezey, whose terms of office are expiring at this 2024 Annual Meeting, to serve a one-year term that will expire at the 2025 annual meeting of shareholders.

All nominees were elected by shareholders at the 2023 annual meeting, except for Mr. Ash, who was appointed as a director in June 2024. Biographical information regarding the nominees is provided on the following pages.

Required Vote and Recommendation

Our Bylaws provide that, in an uncontested election, each director nominee be elected by a majority of the votes cast in person or represented by proxy. This means that the number of shares cast “for” a nominee’s election must exceed the number of votes “withheld” from that nominee. If this were a contested election, the directors would be elected by a plurality of the votes cast, meaning the nominees receiving the largest number of “for” votes would be elected. For more information, see “General Voting and Meeting Information—Voting—Counting of Votes.”

Our Corporate Governance Guidelines provide that in an uncontested election, any incumbent director who does not receive the affirmative vote of a majority of the votes cast must tender his or her resignation promptly after such election. The remaining independent directors of the Board, giving due consideration to the best interests of CSWI and our shareholders, will then evaluate the relevant facts and circumstances and make a decision, within 30 days after election results are certified, on whether to accept the tendered resignation. The Board will promptly disclose publicly its decision and, if applicable, the reasons for rejecting the tendered resignation. The Board may fill any vacancy resulting from a director’s accepted resignation.

The individuals named as proxies on the enclosed proxy card will vote your proxy “FOR” the election of these nominees unless you instruct otherwise or you withhold authority to vote for any one or more of the nominees. If any director is unable to stand for re-election, the Board may reduce the number of directors or choose a substitute nominee. The nominees have indicated their willingness to serve as directors, and we have no reason to believe the nominees will not be able to stand for re-election.

 

 

LOGO

  

 

 

THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF ALL NOMINEES TO SERVE AS DIRECTORS.

 

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| 2024 Proxy Statement

   9


Proposal One: Election of Directors

Nominees for Election

 

Nominees for Election

 

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89%

Independence

 

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33%

Diversity

 

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6.1

Tenure

 

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64.8

Age

 

 
  8/9    

 3/9 gender or racially

 diverse

 

 6/9 Five or more years

 

2/9 59 and under

3/9 60-64

1/9 65-69

3/9 70-73

 

 

What We Look for in Director Candidates

Before considering director nominee candidates, the Nominating & Corporate Governance Committee (“N&CG Committee”) assesses whether the Board’s current size and composition are appropriate and whether any vacancies on the Board are expected due to retirement, age limits or other factors. If additional directors are needed or vacancies are anticipated or otherwise arise, the N&CG Committee utilizes a variety of methods for identifying and evaluating possible nominees.

The Company’s Corporate Governance Guidelines establish the criteria for board membership. As a starting point, the N&CG Committee assesses a director candidate’s judgment, skill, diversity, integrity, experience with business and other organizations of comparable size, and the interplay of the candidate’s experience with the experience of current board members. In evaluating these characteristics, and including diversity, the Board considers individual qualities and attributes, such as educational background, professional skills, business experience, and cultural viewpoint, as well as more categorical diversity metrics, such as race and ethnicity, gender, and age. The Board considers whether this evaluation process is effective in promoting diversity during its annual self-assessment process.

How We Identify Director Candidates

The Board considers various potential director candidates who come to the Board’s attention through professional search firms, current Board members, shareholders or other sources. A shareholder who wants to recommend a candidate for election to the Board should submit a written notice, as required by the Company’s Bylaws, including the candidate’s name and qualifications to our Corporate Secretary, who will refer the recommendation to the N&CG Committee. The N&CG Committee facilitates the director candidate evaluation process and may require any shareholder-recommended candidate to furnish such other information as may reasonably be required to determine the candidate’s eligibility or to assist in evaluating the candidate. The N&CG Committee also may require the submission of a fully completed and signed questionnaire for directors and executive officers on the Company’s standard form and a written consent by the shareholder-recommended candidate to serve as a director, if so elected.

All identified candidates, including shareholder-recommended candidates, are evaluated by the N&CG Committee and the full Board using generally the same methods and criteria, although those methods and criteria may vary from time to time depending on the N&CG Committee’s and the full Board’s assessment of the Company’s needs and current situation.

 

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Proposal One: Election of Directors

Nominees for Election

 

Nominee Skill Sets

 

       

 

 

 

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Finance/Accounting

 

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Corporate Development & Strategy

 

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Risk Management

 

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Cybersecurity and Information

 

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Global Business

 

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Sales & Marketing

 

   

 

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Corporate Governance

 

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Human Capital Management

 

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= Experience 

 

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= Expertise

 

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| 2024 Proxy Statement

   11


Proposal One: Election of Directors

Nominees for Election

 

Board Diversity

Nasdaq listing rules require the Company to present the Board’s diversity statistics. The Board Diversity Matrix below presents the Board’s current diversity statistics in the format prescribed by Nasdaq rules. As reflected in the matrix, Dr. Livingstone and Ms. Motsenbocker are female, and Mr. Griffin is African-American or Black.

 

Board Diversity Matrix (As of June 30, 2024)

Total Number of Directors: 9

    
     Female    Male    Non-Binary    Did Not Disclose
Gender

Part I: Gender Identity

                   

Directors

   2    7    0    0

Part II: Demographic Background

                   

African-American or Black

   0    1    0    0

Alaskan Native or Native American

   0    0    0    0

Asian

   0    0    0    0

Hispanic or Latinx

   0    0    0    0

Native Hawaiian or Pacific Islander

   0    0    0    0

White

   2    6    0    0

Two or More Races or Ethnicities

   0    0    0    0

LGBTQ+

   0   

Did Not Disclose Demographic Background

   0   

In June 2024, the Board expanded the number of directors to nine and appointed Mr. Ash to fill the vacancy, all as part of the Board’s long-term succession planning processes. Consistent with how the Board has prepared for and addressed age-based director retirements under the Company’s Corporate Governance Guidelines in the past, these actions came in anticipation of several upcoming age-based director retirements, the next of which will occur at next year’s annual meeting with Mr. Swartz. The Board continues to value the diversity of its directors and recognizes that these succession planning actions have reduced the Board’s gender and racial diversity percentages in the near term. However, the Board expects this effect will be temporary, as the occurrence of anticipated age-based retirements and future director recruiting efforts will alter the Board’s demographics and ultimately increase the diversity of its directors.

 

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Proposal One: Election of Directors

Nominees for Election

 

Nominee Biographies

 

 

LOGO

 

    

Joseph B. Armes

 

Chairman, CEO and President, CSW Industrials

 

Professional Highlights

Mr. Armes has served as Chief Executive Officer and Chairman of the Board of the Company since September 2015, and as President of the Company since February 2018. Prior to the Company’s spin-off in September 2015 from Capital Southwest Corporation, Mr. Armes served as the Chief Executive Officer and President of Capital Southwest Corporation from June 2013 to September 2015, and as Chairman of the Board from January 2014 through August 2017.

 

Key Skills and Qualifications

We believe Mr. Armes is well qualified to serve as a director due to his position as the Company’s Chief Executive Officer, which provides the Board with knowledge of the Company’s day-to-day operations. Mr. Armes also has broad executive and board leadership experience, finance and accounting expertise, compliance and governance expertise, and corporate development experience, all of which support the Company’s strategic growth plans.

 

Other Public Company Directorships

   Switchback Energy Acquisition Corp. (2019-2021)

   RSP Permian, Inc. (2013-2018)

   Capital Southwest Corporation (2013-2017)

 

Age: 62

 

Director Since:

September 2015

 

CSWI Board Committee(s):

  None

  

 

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Darron K. Ash

 

CEO, Sammons Enterprises, Inc.

 

Professional Highlights

Mr. Ash has served as Chief Executive Officer of Sammons Enterprises, Inc., a diverse global holding company, since January 2023. Mr. Ash joined Sammons Enterprises in June 2006 as its Chief Financial Officer, and in June 2015 was appointed to the Executive Committee of Sammons Enterprises’ board of directors, on which he continues to serve. Since June 2015, Mr. Ash has also served as Chairman and Chief Executive Officer of Sammons Industrial, which is the parent company of Sammons Enterprises’ industrial investments and operating companies. Mr. Ash began his career in public accounting, and prior to joining Sammons Enterprises, he served in financial leadership roles in the private equity, consumer products manufacturing, professional services, and real estate sectors.

 

Key Skills and Qualifications

We believe Mr. Ash is well qualified to serve as a director due to his executive and board leadership experience and his deep financial and operational expertise. Mr. Ash’s experience and expertise leading complex, global organizations, as well has his corporate development experience and investment acumen, provides the Board with unique insight into the Company’s growth opportunities and positions him well to support the Company’s growth strategy and manufacturing optimization focus.

 

Age: 59

 

Director Since:

June 2024

 

INDEPENDENT

 

CSWI Board Committee(s):

  Compensation & Talent Development

  

 

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| 2024 Proxy Statement

   13


Proposal One: Election of Directors

Nominees for Election

 

LOGO

 

    

Michael R. Gambrell

 

Former EVP, The Dow Chemical Company

 

Professional Highlights

Mr. Gambrell had a 37-year career at The Dow Chemical Company, a publicly traded chemicals company (now Dow, Inc.), most recently serving as an Executive Vice President and an advisor to the Chairman and CEO of Dow. During his time at Dow, Mr. Gambrell served on the company’s Executive Leadership Committee, Strategy Board, Sustainability Team, and Geographic Leadership Council, and he was an ex officio member of the Board’s Environment, Health and Safety Committee. In 2012, Mr. Gambrell founded GamCo, LLC, a privately-held company providing advisory services to public, private equity, and start-up companies as well as non-profit organizations. He served as Chairman of the Campbell Institute from 2012 to 2015, and as a director and member of the Executive Committee and Strategic Planning Committee of the National Safety Council from 2011 to 2015.

 

Key Skills and Qualifications

We believe Mr. Gambrell is well qualified to serve as a director due to his executive and board leadership experience and his extensive knowledge of the chemicals industry, which provide a global perspective and deep understanding of the Company’s products, customers, end markets, competitive landscape, and operational challenges and opportunities. In addition, Mr. Gambrell has extensive corporate development experience and integration expertise, as well as knowledge and experience in addressing health, safety and environmental issues, which provides the Board unique insight into the Company’s strategic growth plans.

 

Other Public Company Directorships

   TRW Automotive Inc. (2007-2015)

 

Age: 70

 

Director Since:

September 2015

 

INDEPENDENT

 

CSWI Board Committee(s):

  Compensation & Talent Development 

  Nominating & Corporate Governance (Chair)

  

 

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Bobby Griffin

 

Chief Diversity, Equity & Inclusion Officer,
Rockwell Automation

 

Professional Highlights

Mr. Griffin has served as Chief Diversity, Equity & Inclusion Officer of Rockwell Automation, Inc. since February 2021. Prior to that role and beginning in 2017, Mr. Griffin served as Vice President of Diversity and Inclusion at CBRE Group, Inc., and prior to that served as Global Director of Diversity and Inclusion at Flowserve Corporation. Additionally, Mr. Griffin held various human resources and business partner leadership positions in Fortune 100 companies, including Coca-Cola Enterprises and Merck & Co.

 

Key Skills and Qualifications

We believe Mr. Griffin is well qualified to serve as a director due to his notable expertise in corporate culture, organizational health, diversity & inclusion, talent management, leadership development, and compensation and benefits, which provides the Board a valuable perspective on the Company’s core values and employee-centric culture. His experience also provides strategic insight into the Company’s leadership development, human capital management, and organizational design opportunities in support of the Company’s strategic growth plans.

 

Age: 57

 

Director Since:

December 2021

 

INDEPENDENT

 

CSWI Board Committee(s):

  Compensation & Talent Development

  Nominating & Corporate Governance

  

 

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Proposal One: Election of Directors

Nominees for Election

 

 

LOGO

 

    

Terry L. Johnston

 

Former EVP & COO, Commercial Segment,
Lennox International

 

Professional Highlights

Mr. Johnston was Executive Vice President and Chief Operating Officer of the Commercial Segment of Lennox International Inc., a leading international provider of heating and cooling systems and technologies for residential and commercial applications, from 2013 until October 2019. Before assuming that position, Mr. Johnston held roles of increasing responsibility with Lennox International from the time he joined the company in 2001. Prior to his time with Lennox International, Mr. Johnston spent 20 years with General Electric Company, serving primarily in marketing and commercial leadership roles.

 

Key Skills and Qualifications

We believe Mr. Johnston is well qualified to serve as a director due to his executive leadership experience and extensive knowledge of the Company’s served industrial markets. In addition, Mr. Johnston has extensive global experience, strategic planning experience, and operational and commercial expertise, which provides the Board with a global perspective and positions him well to support the Company’s growth strategy and manufacturing optimization focus.

 

 

Age: 66

 

Director Since:

January 2017

 

INDEPENDENT

 

CSWI Board Committee(s):

  Audit

  Nominating & Corporate Governance

  

 

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Linda A. Livingstone, Ph.D.

 

President, Baylor University

 

Professional Highlights

Dr. Livingstone is President of Baylor University, a position she has held since June 2017. From August 2014 through May 2017, she served as Dean of The George Washington University School of Business, and she previously served as Dean of the Graziadio School of Business and Management at Pepperdine University for twelve years. Dr. Livingstone began her academic career at Baylor University, where she served for eleven years as an Assistant and then Associate Professor of Management, which included serving for four years as Associate Dean for Graduate Programs. Dr. Livingstone currently serves on the board of directors and as a member of the Executive Committee for each of the American Council on Education and the Big 12 Conference. She also serves on the NCAA Board of Governors and the NCAA Division 1 board of directors, as well as the board of directors of Independent Colleges and Universities of Texas.

 

Key Skills and Qualifications

We believe Dr. Livingstone is well qualified to serve as a director due to her extensive executive leadership experience, as well as experience as an administrator and educator in the field of business administration, all of which provide the Board a valuable perspective on organizational development, corporate governance, information security, executive compensation and leadership development matters.

 

 

Age: 64

 

Director Since:

September 2015

 

INDEPENDENT

 

CSWI Board Committee(s):

  Compensation & Talent Development

  Nominating & Corporate Governance

  

 

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| 2024 Proxy Statement

   15


Proposal One: Election of Directors

Nominees for Election

 

 

LOGO

 

    

Anne B. Motsenbocker

 

Former Managing Director, J.P. Morgan Chase

 

Professional Highlights

Ms. Motsenbocker is a former Managing Director of J.P. Morgan Chase, a global financial services company. She retired from J.P. Morgan Chase in February 2021 after a 36-year career with the firm, serving most recently as Managing Director and functional CEO of the Southwest Region of the Commercial Bank. Prior to that position, she held roles of increasing responsibility at J.P. Morgan Chase, including National Head of Multinational Corporations, President of Dallas Region Middle Market Bank, and Head of the Dallas Region of the Private Bank. From 2016 to 2022, Ms. Motsenbocker was a director of Children’s Health System of Texas, where she served as the chair of the HR and Compensation Committee and as a member of the Audit Committee. She also serves on the boards of the National Kidney Foundation, United Way Foundation of Metropolitan Dallas, NACD North Texas Chapter, and Economic Mobility Systems.

 

Key Skills and Qualifications

We believe Ms. Motsenbocker is well qualified to serve as a director due to her executive and board leadership experience and her strategic and financial acumen. Ms. Motsenbocker’s extensive experience in advising companies in the development and implementation of capital strategies, managing risk, achieving operational excellence, and growing organically and inorganically positions her well to support the Company’s strategic growth plans.

 

Other Public Company Directorships

   U.S. Physical Therapy, Inc. (2022-Present)

 

Age: 62

 

Director Since:

June 2022

 

INDEPENDENT

 

CSWI Board Committee(s):

  Audit (Chair)

  Compensation & Talent Development

 

  

 

LOGO

 

 

 

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Robert M. Swartz

 

Former EVP & COO, Glazer’s, Inc.

 

Professional Highlights

From January 2011 until June 2016, Mr. Swartz served as the Executive Vice President and Chief Operating Officer for Glazer’s, Inc., a privately-held distributor of wines and spirits, prior to Glazer’s combination with Southern Wine and Spirits. For the remainder of 2016, Mr. Swartz oversaw the integration of the combined company, Southern Glazer’s Wine and Spirits of America. Since January 2017, Mr. Swartz has served as a member of the Board of Managers of Glazer’s Beer & Beverage, LLC. Since 2018, Mr. Swartz has been a partner in Northaven Capital Partners, a lower middle market private equity firm focused on businesses headquartered in the southwestern U.S. He also serves as an operating partner with Concentric Equity Partners and is active in several investments within service and distribution industries. Additionally, Mr. Swartz served in various executive positions at Centex Corporation from 1999 to 2007. Mr. Swartz has served as the Company’s Lead Independent Director since September 2015.

 

Key Skills and Qualifications

We believe Mr. Swartz is well qualified to serve as a director due to his experience and expertise in corporate development, finance, and accounting. Mr. Swartz also has extensive executive and board leadership experience as well as deep operational expertise that provides the Board with insight into the Company’s operations and leadership development opportunities.

 

Other Public Company Directorships

   Resolute Energy Corporation (2009-2015)

 

Age: 72

 

Director Since:

September 2015

 

INDEPENDENT

 

CSWI Board Committee(s):

  Audit

  Nominating & Corporate Governance

 

  

 

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Proposal One: Election of Directors

Nominees for Election

 

 

LOGO

 

    

J. Kent Sweezey

 

Founding Partner, Turnbridge Capital, LLC

 

Professional Highlights

Mr. Sweezey is a founding partner of Turnbridge Capital, LLC, an energy services, equipment and infrastructure-focused private equity firm, which was founded in 2008. Prior to co-founding Turnbridge Capital, Mr. Sweezey served as the Managing Partner of Centre Southwest Partners, LLC, a middle-market private equity firm focused primarily on energy services and equipment-related investments. Prior to his time with Centre Southwest Partners, Mr. Sweezey was with Donaldson, Lufkin & Jenrette (“DLJ”) and its successor firm, Credit Suisse First Boston, where he focused on transactions in the energy sector, as well as in the consumer products, building products, and manufacturing sectors. Mr. Sweezey was also involved in DLJ’s early principal investing activities through its investments in Seven-Up Company, Dr Pepper/Seven-Up Companies, and Dr Pepper Bottling Company of Texas, where he served on the board of directors from 1989 to 1999.

 

Key Skills and Qualifications

We believe Mr. Sweezey is well qualified to serve as a director due to his executive leadership experience, strategic acquisition and financial expertise, and governance expertise. His extensive experience in corporate development matters positions him well to support the execution of the Company’s growth strategy and capital allocation plans.

 

Age: 71

 

Director Since:

December 2016

 

INDEPENDENT

 

CSWI Board Committee(s):

  Audit

  Compensation & Talent Development (Chair)

  

Board Independence

Our Corporate Governance Guidelines require that a majority of our directors satisfy applicable independence requirements set forth in Nasdaq listing rules and under applicable law. Only those directors who have no material relationship with the Company (except in their role as a director) are deemed independent. The Board has determined that, other than Mr. Armes, who is the Company’s Chairman, Chief Executive Officer and President, each member of the board meets the independence standards set forth in the applicable rules of the Securities and Exchange Commission (the “SEC”) and Nasdaq.

 

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   17


Corporate Governance

Governance Highlights

Our Board of Directors is committed to sound governance practices, including the following:

 

   

 

 Board Independence

  

 

  Eight of our nine director nominees are independent

 

  Our CEO is our only management director

 

Board Composition   

  All board members are elected annually

 

  The Board annually assesses and evaluates its performance and the performance of its committees

 

  The Nominating & Corporate Governance Committee leads the full Board in considering board member competencies in light of Company strategy

 

  Our Corporate Governance Guidelines maintain an age-based retirement limit for directors at age 73

 

  Our directors have a diverse mix of backgrounds, qualifications, skills and experiences that we believe contribute to a well-balanced Board that is positioned to effectively oversee our strategy

 

  33% of our director nominees are female and/or diverse following recent director appointments for succession planning purposes, and we have a plan to increase our diversity

 

Board Committees   

  We have three committees – Audit; Compensation & Talent Development; and Nominating & Corporate Governance

 

  All committees are composed entirely of independent directors

 

 Leadership Structure   

  Our Board has a lead independent director that works closely with our Chairman, CEO and President in fulfilling responsibilities and duties

 

  Our lead independent director chairs executive sessions of the independent directors, among other duties

Environmental,

 Social & Governance

Oversight

 

  

  Our Nominating & Corporate Governance Committee oversees our Environmental, Social & Governance (ESG) Program

 

Risk Oversight   

  Our Board is responsible for enterprise risk oversight and has committees designated to oversee specific key risks

 

  Our Audit Committee oversees administration of the Company’s Enterprise Risk Management (ERM) Program for the assessment and mitigation of key risks

 

Open Communication   

  We encourage open communication and strong working relationships among the lead independent director, Chairman and other directors

 

  Our directors have direct and unrestricted access to management and other employees

 

Stock Ownership   

  Our directors and executive officers are subject to robust stock ownership requirements

 

Board and Committee Structure

Board Leadership Structure

 

The Board’s current leadership structure is characterized by:

 

An engaged, qualified and independent board;

 

A combined Chairman of the Board and Chief Executive Officer;

 

An independent, highly experienced lead independent director with well-defined responsibilities that support and facilitate the Board’s oversight responsibilities; and

 

 

 

 

A strong committee structure consisting entirely of independent directors with well-defined authority and risk oversight responsibilities.

 

 

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Corporate Governance

Board and Committee Structure

 

The Board has appointed Mr. Swartz as the lead independent director of the Board. The lead independent director serves an important leadership and oversight role by providing input on the Board’s annual schedule and collaborating with the Chairman and CEO on the agendas for all board meetings. Additionally, the lead independent director provides support and advice to the Chairman and CEO, reinforcing the CEO’s reporting relationship and accountability to the Board.

The Board believes it is important to retain flexibility to allocate the responsibilities of the positions of Chairman of the Board and Chief Executive Officer in a manner that it believes is in the best interests of the Company and its shareholders. The Board does not have a policy mandating that the Chief Executive Officer should or should not also serve as Chairman. Rather, the Board considers this issue as part of the CEO succession planning process, and the decision is based on its evaluation of current circumstances and the needs of the Company at the time it is considering candidates for the CEO role. Based on Mr. Armes’ significant knowledge of the Company, the Board has concluded that combining the roles of Chairman and Chief Executive Officer, along with the presence of a strong lead independent director, is in the best interests of the Company and its shareholders at this time to promote the pursuit of the Company’s business objectives and strategic growth plans.

 

 

Lead Independent Director Responsibilities

 

   Provide leadership to the independent board members

   Provide support and advice to the Chairman and CEO

   Preside over executive sessions of the independent board members

  

 

   Collaborate with the Chairman and CEO on board meeting agendas

   Oversee director recruiting

   Coordinate the Board’s self-assessment processes

Board Committees

The Board maintains an Audit Committee, a Compensation & Talent Development Committee (“Compensation Committee”), and a N&CG Committee. Only independent directors are eligible to serve on these standing board committees. Each committee is governed by a written charter, all of which are available on the Company’s website at www.cswindustrials.com under “Investors — Corporate Governance.”

The Board has determined that all members of all committees meet the independence standards of the SEC and Nasdaq, including the heightened independence requirements for certain committee members.

Audit Committee

 

Members and Other Information

   Primary Oversight Responsibilities

Committee Chair:

Anne Motsenbocker

 

Other Members:

Terry Johnston

Robert Swartz

Kent Sweezey

  

  Engage the Company’s independent auditors and approve the scope of the annual external audit

  Approve any audit and non-audit services provided by the independent auditor

  Meet regularly with the independent auditors in executive session to discuss audit reports and auditor recommendations on a confidential basis

  Oversee financial reporting processes, including the integrity of the Company’s financial statements and compliance with legal and regulatory requirements

  Oversee internal controls matters, which includes information security and cybersecurity risk

  Oversee the Company’s compliance program, including the Company’s Code of Business Conduct and Ethics

  Oversee management’s administration of the Enterprise Risk Management program

 

 

 

5 Meetings in Fiscal 2024

 

The Board has determined that both Ms. Motsenbocker and Mr. Swartz qualify as audit committee financial experts under SEC rules. The Board has also determined that all members of the Audit Committee are financially sophisticated within the meaning of Nasdaq’s corporate governance requirements.

 

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   19


Corporate Governance

Board and Committee Structure

 

Compensation & Talent Development Committee

 

Members and Other Information

   Primary Oversight Responsibilities

Committee Chair:

Kent Sweezey

 

Other Members:

Darron Ash

Michael Gambrell

Bobby Griffin

Linda Livingstone

Anne Motsenbocker

 

4 Meetings in Fiscal 2024

  

  Establish executive compensation for the Company’s officers, including compensation philosophy

  Oversee risk management related to the Company’s executive compensation programs

  Administer the Company’s equity and incentive compensation plan

  Review executive performance, management succession plans and talent development

  Oversee the Company’s Diversity & Inclusion program and related initiatives

  Recommend changes in director compensation to the Board

Nominating & Corporate Governance Committee

 

Members and Other Information

   Primary Oversight Responsibilities

Committee Chair:

Michael Gambrell

 

Other Members:

Bobby Griffin

Terry Johnston

Linda Livingstone

Rob Swartz

 

4 Meetings in Fiscal 2024

  

  Identify and recommend candidates for membership to the Board

  Recommend to the Board candidates for Chairman of the Board and Chief Executive Officer

  Manage risks associated with board independence and potential conflicts of interest

  Establish corporate governance principles and policies, including overseeing the Company’s Corporate Governance Guidelines

  Oversee the Company’s ESG program and related initiatives

  Oversee the Board and committee self-evaluation process

The Board has a responsibility to oversee the Chief Executive Officer and other members of senior management in the competent and ethical operation of the Company and to ensure that our shareholders’ best interests are being served. To meet this responsibility, the Board has established Corporate Governance Guidelines designed to promote effective oversight of the Company’s business affairs. The Board monitors and updates these Guidelines periodically as it deems appropriate.

As discussed in this section of the proxy, the Guidelines cover a range of matters, including:

 

the director selection process;

 

the composition of the Board and its committees;

 

the review and evaluation of the Chief Executive Officer;

 

succession planning and management development;

director compensation;

 

the review of individual directors and the Board’s performance; and

 

director independence requirements, age-based service limits and other restrictions for directors.

 

 

The Corporate Governance Guidelines are available on the Company’s website at www.cswindustrials.com under “Investors — Corporate Governance.”

Director Engagement

Executive Sessions

Executive sessions of non-employee directors are normally held at each regular board meeting. Any non-employee director may request that additional executive sessions be scheduled. Our lead independent director, Mr. Swartz, presides at the executive sessions.

 

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Corporate Governance

Director Engagement

 

Director Attendance at Meetings

Board members are expected to devote the time necessary to appropriately discharge their responsibilities and to rigorously prepare for and, to the extent possible, attend and participate in all board meetings and meetings of board committees on which they serve. In fiscal 2024, the Board held seven meetings, and each director attended at least 75% of the meetings of the Board and committees on which he or she served during the period for which he or she was a director.

The Company encourages all directors to attend the annual meeting of shareholders, though we do not have a specific policy with respect to director attendance. All of the Company’s then-current directors attended the 2023 annual meeting of shareholders.

Director Education and Orientation Program

The company provides an orientation program and continuing education process for board members to enable them to better understand our Company and to remain current on developments related to their board and committee service. Educational opportunities include, seminars, management and third-party expert presentations, meetings with key management, and visits to Company facilities.

 

 

New Director Orientation

  

 

When a new director joins the Board, the Company provides an interactive, customized orientation and onboarding program. After completing the program, new directors should understand the Company’s strategy, reportable segments and product brands, organizational structure, leadership team, and Company resources available to them to help them be successful in their new role. This helps new directors quickly engage with other board members and executive leadership and best fulfil their responsibilities and fiduciary duties as directors.

Continuing Education

   The Company provides regular updates on continuing education opportunities and will reimburse board members for the cost of any programs attended.

Outside of the Boardroom

   Throughout a board member’s service, our directors have discussions with each other and key leaders of the Company outside of regularly scheduled Board and committee meetings to foster a deeper understanding of the Company’s business and build relationships through sharing of perspectives and ideas.

Board Self-Evaluation

Our Board has conducted an annual self-evaluation since CSWI’s inception. The self-evaluation is designed to assess whether the Board and its committees are functioning effectively. The Board’s committees also conduct annual self-evaluations for the same purpose. These evaluations focus on the performance of the Board or the committee, as applicable, as a unit, rather than the performance of any individual director. The N&CG Committee oversees our annual board self-evaluation process, which is illustrated below. The Board believes this annual self-evaluation process supports its effectiveness and continuous improvement efforts.

 

 

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Corporate Governance

Director Engagement

 

Board Oversight of Risk Management

The Company’s Chief Executive Officer and other members of senior management are responsible for the ongoing assessment and management of the risks the Company faces. These enterprise risks are formally assessed annually by management as part of the Company’s robust Enterprise Risk Management program. At least annually, the Board—both as a whole and through its committees—oversees the Company’s risk profile and management’s policies and processes for assessing and managing risk. Responsibilities for risk management are allocated generally as set forth below.

 

LOGO

The Board is regularly informed through committee reports of each committee’s activities in overseeing risk management within their respective areas of oversight responsibility.

Our Enterprise Risk Management (“ERM”) program, which is overseen by our Audit Committee, supports our risk management and strategic planning efforts. Since our inception, our ERM program has begun with an annual risk assessment survey. Near the end of each calendar year, approximately 30 key leaders across our organization receive a focused questionnaire that they use to provide feedback on a universe of nearly 50 enterprise risks covering six distinct risk categories: Strategic; Financial; Legal & Compliance; Operational; IT & Systems; and Talent Management. The following graphic illustrates this process:

 

    
  

 

Enterprise Risk Assessment

 

  Each risk is evaluated for likelihood, impact, and control effectiveness, and risk tolerance data is collected

  Prioritized risks listing assembled using analyzed respondent data

  “Dashboards” developed for each prioritized risk, identifying risk owner, key risk indicators, and risk prevention and mitigation actions

  The Company’s “risk culture” is evaluated for continual improvement

 

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Corporate Governance

Board Oversight of Risk Management

 

 

Spotlight on Cybersecurity

 

Cybersecurity is a critical component of the Company’s Enterprise Risk Management program. The Company has established an information security framework to help safeguard the confidentiality, integrity, and access of its information assets and to ensure regulatory, contractual, and operational compliance. The Board oversees cybersecurity risk, and the Audit Committee oversees information security compliance as part of its broader compliance oversight mandate. Together they ensure that the Board has a comprehensive view of the Company’s cybersecurity risk profile and framework.

 

The Board receives cybersecurity updates from senior management, including our head of Information Technology, at least twice per year, and the Audit Committee receives quarterly reports on any notable incidents or control issues that may have occurred during the quarter. The Company has experienced, and expects to continue experiencing, cyber threats and incidents; however, to date, no incidents have been material to the Company, and expenses incurred in response to incidents have been immaterial in any given fiscal year.

 

Corporate Sustainability, Culture & Compliance

Environmental, Social and Governance Matters

 

CSWI’s Environmental, Social, and Governance (ESG) strategy is based on our belief that long-term shareholder value, sustainable growth, and social responsibility are interrelated. Corporate responsibility lies at the heart of our culture and speaks directly to our ACT. RISE. core values: Accountability, Citizenship, Teamwork, Respect, Integrity, Stewardship, and Excellence. Driven by our executive leadership team, sustainability influences how we operate our business, take care of our people, and serve our customers. Our ESG initiatives are aligned with and inform the long-term strategies of our operating companies and corporate center. Additionally, ESG-related enterprise risks and opportunities are identified and addressed through our strategic processes, helping further align our initiatives and strategy.   

Corporate Sustainability lies at the heart of our culture and speaks directly to our ACT. RISE. core values

Our Board’s proactive engagement and oversight on ESG matters is demonstrated in the following ways:

 

 

Our N&CG Committee has primary oversight responsibility for our ESG program.

 

 

Our Board and its committees engage at least quarterly with our executive team members having responsibility to present and discuss various ESG topics. In the past year, management has presented to the Board and its committees on initiatives such as business continuity, environmental compliance, employee health and safety, gender pay equity, diversity and inclusion, and employee welfare programs.

 

 

Our Audit Committee and Board have direct engagement with ESG risk areas through our robust ERM program.

Commitment to Environmental Stewardship

We are committed to being good stewards of the environment. We demonstrate our commitment by actively working to reduce the environmental impact of our operations and by providing environmentally responsible products and services to our customers. Our products help our customers protect and reduce emissions from industrial systems and mission-critical equipment; improve the energy efficiency and resource consumption of HVAC/R, plumbing, and electrical systems; and make commercial and residential buildings safer for occupants and their surrounding communities. Additionally, certain manufacturing facilities within our operating companies are ISO 9001 and 14001 certified.

Our environment-focused initiatives have included:

 

Reducing overall energy consumption as a percentage of sales and increasing the amount of consumed electricity that is generated from renewable sources, such as solar and wind

 

 

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Corporate Governance

Corporate Sustainability, Culture & Compliance

 

Reducing solid, liquid and air discharges, including continuing and increasing our efforts to improve air quality by reducing VOC emissions

 

Reducing the amount of scrap and non-recyclable waste generated by our operations by increasing the use of rework and recycled metal and materials

 

Increasing ISO 9001 and 14001 certifications at manufacturing facilities

 

Expanding LEED certifications for product categories

 

Increasing usage of CSWI-produced environmentally-friendly lubricants in manufactured mechanical products

 

Increasing usage of environmentally-friendly cleaners and chemicals in manufacturing processes

 

Reducing hazardous waste generation as a percentage of finished goods

As we look forward, we are in the process of making the environmental initiatives of our operating companies more coordinated and standardized. This will help us provide more disclosure about these initiatives and align such disclosures with the Industrial Machinery & Goods and Chemicals SASB® Standards.

Commitment to Our Employees and Communities

At CSWI, how we succeed matters. We live out our commitment to doing the right things the right way by first taking care of the health, safety, and wellbeing of our employees—our most valuable asset. We view this duty holistically and address it on multiple fronts, including through competitive total rewards compensation; providing comprehensive benefits and retirement plans, offering employer-funded healthcare coverage and defined contribution benefit plans with profit sharing; requiring health and safety training and programs; and offering training and development, including job skills and compliance training, leadership training, and advancement opportunities.

In fiscal 2024, we demonstrated our commitment to our employees in numerous ways, including:

 

 

Continued to promote equal employment opportunities in all our operations, which begins with employee recruiting process and continues through our employees’ relationship with the Company.

 

 

Continued to provide Company-subsidized medical, dental, vision, life, short-term and long-term disability insurance plans, as well as paid supplemental life and accident insurance plans.

 

 

Assessed employee engagement through targeted surveys, providing feedback on subjects including safety, communications, diversity and inclusion, performance management, development opportunities, respect and recognition and management support, with 75% of our employees participating in our fiscal 2024 survey conducted through Great Place to Work®. In February 2024, we received the Great Place to Work® CertificationTM for the second consecutive year.

 

 

Continued to provide developmental opportunities to help our employees build the skills necessary to reach their career goals, including on-the-job training, online learning, professional memberships, and leadership and management training.

 

 

Achieved a Company-wide voluntary retention rate of 83%, well in excess of manufacturing industry averages.

 

 

Held our third annual Safety Awareness Month with supplemental training.

Demonstrating our commitment to creating and maintaining a safe, healthy working environment, we delivered a Total Recordable Incident Rate (“TRIR”) of 0.9 at the end of calendar 2023, a marked decrease over the prior calendar year and our best TRIR performance on record. Through the first three months of calendar 2024 (the end of our fiscal year), our TRIR was 1.1, demonstrating our consistent, sharp focus on safety performance and improving the safety performance of acquired companies.

In fiscal 2024, we maintained our comprehensive and competitive retirement and benefit programs. Since our inception, we have provided a 100% match of employee contributions to our 401(k) plan up to 6% of compensation, as well as an additional 7% to 11% of eligible compensation each year through profit sharing benefit programs, including our Employee Stock Ownership Plan (“ESOP”), which strongly aligns our employees’ interests with those of our shareholders. This equates to 13% to 17% of each employee’s annual eligible compensation that we invest to help provide a safe, secure, and dignified retirement.

 

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Corporate Governance

Corporate Sustainability, Culture & Compliance

 

Commitment to Sound Governance Practices

Sound governance practices are foundational to any high performing organization. We believe the principles and policies described throughout this Proxy Statement clearly demonstrate our commitment to thoughtful, value-focused governance that helps us effectively manage our enterprise risks and ultimately preserve and create shareholder value.

Shareholder Communications with the Board

Shareholders and other interested parties may communicate with the Board directly by writing to: Robert Swartz, Lead Independent Director, c/o CSW Industrials’ Corporate Secretary, CSW Industrials, Inc., 5420 Lyndon B. Johnson Freeway, Suite 500, Dallas, Texas 75240. All such communications will be delivered to our lead independent director.

Other Governance Policies and Practices

Integrity and Ethics

Our ACT. RISE. core values form the foundation for our decentralized, entrepreneurial culture, and our Code of Business Conduct represents our shared commitment to living out these core values with the highest level of ethical conduct. All our employees across the globe, including our executive officers, are required to abide by our Code of Business Conduct to ensure that our business is conducted in a consistently legal and ethical manner. Our Code of Business Conduct covers many topics, including conflicts of interest, anticorruption, financial reporting, confidentiality, insider trading, antitrust and competition law, cybersecurity and information security, appropriate use of social media, and respect in the workplace. All employees receive on-line and in-person training on all topics addressed in our Code of Business Conduct every year, and they are required to certify that they will comply with our Code of Business Conduct.

Employees are required to report any conduct that they believe in good faith violates our Code of Business Conduct. Through our Ethics Hotline, the Audit Committee has adopted procedures to receive and address complaints related to accounting policy, internal controls, auditing matters or fraud, and to enable the confidential and anonymous submission by employees or others of concerns relating to questionable accounting or auditing matters. Information on how to submit any such communications through our Ethics Hotline is on the Company’s website at www.cswindustrials.com under “Investors — Corporate Governance,” and also is available through cswindustrials.ethicspoint.com. Our Senior Vice President and General Counsel, who serves as our chief compliance officer, reports directly to the Audit Committee on compliance matters, and periodically updates the Audit Committee on compliance with the Company’s Code of Business Conduct, including the overall effectiveness of the Company’s compliance program.

Our integrity and compliance program also includes, among other elements, a Supplier Code of Business Conduct that extends to our operating companies’ global supply chains. The Supplier Code of Business Conduct reinforces our expectation that suppliers will live up to our high standards of integrity and compliance, including our policies regarding Conflict Minerals, Human Rights, and Environmental, Health and Safety. Suppliers are monitored according to these standards, and if found to be deficient, are issued a corrective action plan or are replaced.

 

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Corporate Governance

Other Governance Policies and Practices

 

Certain Relationships and Related Transactions

The Company has adopted a written policy for approval of transactions between the Company and its directors, director nominees, executive officers, greater-than-5% beneficial owners, and their respective immediate family members, where the amount involved in the transaction exceeds or is expected to exceed $120,000 in a single calendar year.

The policy provides that the N&CG Committee reviews transactions subject to the policy and determines whether to approve or ratify those transactions. In doing so, the N&CG Committee takes into account, among other factors it deems appropriate, whether a transaction is on terms that are no less favorable to the Company than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. In addition, the Board has delegated authority to the Chairman of the N&CG Committee to pre-approve or ratify transactions where the aggregate amount involved is expected to be less than $1 million. A summary of any new transactions pre-approved by the Chairman is provided to the full N&CG Committee for its review in connection with each regularly scheduled N&CG Committee meeting.

The N&CG Committee has considered and adopted standing pre-approvals under the policy for limited transactions with related persons. Pre-approved transactions include:

 

 

business transactions with other companies in which a related person’s only relationship is as an employee, director or less-than-10% beneficial owner if the amount of business falls below the thresholds in Nasdaq’s listing standards and the Company’s director independence standards; and

 

 

charitable contributions, grants or endowments to a charitable organization where a related person is an employee if the aggregate amount involved does not exceed the greater of $1 million or 2% of the organization’s total annual receipts.

The N&CG Committee was not requested to and did not approve any transactions required to be reported under applicable SEC rules in fiscal 2024.

Age and Term Limits

Our Corporate Governance Guidelines provide that no individual may be nominated to stand for election or re-election to the Board if they reach the age of 73 before the date of election. We do not have term limits, as our Board believes such limits work against retaining the valued contributions of directors who have developed increasing insight into the Company and its operations over time.

Limits on Other Board Service

Board members are expected to ensure that their other commitments do not materially interfere with their service as a director. To that end, our Corporate Governance Guidelines require that directors may not serve on more than three other public company boards. Additionally, directors must advise the Chairman of the Board and the Chair of the N&CG Committee before accepting an invitation to serve on the board of directors or similar body of another company.

Compensation Committee Interlocks and Insider Participation

During fiscal 2024, the members of the Compensation Committee included Mr. Sweezey (current Chair), Mr. Gambrell, Mr. Griffin, Dr. Livingstone, and Ms. Motsenbocker. None of the members of the Compensation Committee were formerly an officer of the Company or were at any time during fiscal 2024 an officer or employee of the Company. None of our executive officers serve as a member of the board of directors or a compensation committee of any entity that has one or more executive officers serving as a member of our Board or Compensation Committee.

 

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Corporate Governance

Other Governance Policies and Practices

 

Director Compensation

2024 Director Compensation Elements

The following table shows the fiscal 2024 non-employee director compensation elements, which were reviewed and adjusted in fiscal 2024 based on competitive benchmarking and market analysis in consultation with NFP Consulting, the Compensation Committee’s independent compensation consultant (“NFP”):

 

Annual Director Compensation Element

   Amount ($)  

Cash Retainer

     75,000  

Equity Compensation (annual target value)

     110,000  

Lead Independent Director Retainer

     25,000  

Audit Committee Chair Retainer

     20,000  

Compensation & Talent Development Committee Chair Retainer

     15,000  

Nominating & Corporate Governance Committee Chair Retainer

     10,000  

Non-Chair Committee Member Retainers:

  

Audit

     10,000  

Compensation & Talent Development

     8,000  

Nominating & Corporate Governance

     8,000  

The equity portion of non-employee director compensation is provided in the form of restricted stock of the Company. The Company typically makes annual non-employee director equity grants upon the directors’ reelection each year (grant values are prorated if a director joins the Board mid-year). The restricted stock, which fully vests on the earliest of the director’s reelection as a director, one year from the date of grant, the termination of the director’s service due to death or disability, or a change in control, has full voting rights and is eligible to receive dividends (if any) from the date of grant.

Directors are also eligible to receive special additional compensation when performing services that are determined by the Board to be well above and beyond the normal director service requirements. The Board has not set a compensatory rate for these services, and no fees were paid for this purpose in fiscal 2024.

 

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Corporate Governance

Director Compensation

 

2024 Director Compensation Table

The following table sets forth certain information with respect to our non-employee director compensation for the fiscal year ended March 31, 2024. Compensation information for Mr. Armes is set forth below under “Executive Compensation—Summary Compensation Table.” Mr. Armes did not receive any additional compensation for his service as a director.

 

Name

   Fees Earned
or Paid in
Cash
($)
   Stock
Awards
($)
(1)(2)
   Total
($)

Darron Ash(3)

                    

Michael Gambrell

       93,000        110,158        203,158

Bobby Griffin

       91,000        110,158        201,158

Terry Johnston

       93,000        110,158        203,158

Linda Livingstone

       91,000        110,158        201,158

Anne Motsenbocker

       99,945        110,158        210,103

Robert Swartz

       121,055        110,158        231,213

Kent Sweezey

       100,000        110,158        210,158

 

(1)

Eligible non-employee directors received an annual equity grant of 607 shares of restricted stock on August 29, 2023. The amounts shown in this column reflect the grant date fair value of the awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification 718, “Compensation—Stock Compensation,” and are calculated using a price per share of $181.48, the closing market price of the Company’s common stock as quoted by Nasdaq on the date of grant. Equity grant valuations are discussed in Note 5 to the Company’s audited consolidated financial statements for the year ended March 31, 2024, in the Annual Report on Form 10-K filed with the SEC on May 23, 2024 (“Annual Report”).

 

(2)

The current non-employee directors each had 607 shares of restricted stock outstanding at March 31, 2024. The non-employee directors did not have any stock option awards outstanding at March 31, 2024.

 

(3)

Mr. Ash joined the Board in June 2024, as such he did not receive any compensation in fiscal 2024.

Stock Ownership Guidelines

Under the Company’s Stock Ownership and Retention Guidelines, all non-employee directors are expected to own shares of Company common stock with a value equal to at least five times the annual cash retainer (currently equal to $375,000) by their fifth anniversary of board service. As of March 31, 2024, all non-employee directors were in compliance with Company ownership guidelines.

 

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Executive Officers

The following sets forth information about the Company’s executive officers. Information for Mr. Armes, who is both Chairman of the Board and an executive officer of the Company, is presented above under “Nominees for Election—Nominee Biographies.”

 

  

 

   Name    Age    Year Joined CSWI    Position With the Company   In Position Since

 

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   Joseph B. Armes    62    2015    Chairman, CEO and President   2015
LOGO    James E. Perry    53    2020    Executive VP, CFO   2020
LOGO    Donal J. Sullivan    61    2015    Executive VP, Chief Strategy Officer   2024
LOGO    Luke E. Alverson    46    2016    Senior VP, General Counsel and Secretary   2016
LOGO    Danielle R. Garde    53    2022    Senior VP, Chief People Officer   2022
LOGO    Jeff A. Underwood    42    2018    Senior VP & GM, Contractor Solutions   2024

James E. Perry has served as Executive Vice President and Chief Financial Officer since June 2020. From 2004 through May 2020, Mr. Perry served in senior financial leadership roles with Trinity Industries, a publicly held, diversified industrial company, including serving as Chief Financial Officer from May 2010 to February 2019. From 2001 to 2004, Mr. Perry served in senior financial leadership roles at RMH Teleservices, a telemarketing and customer service company, including serving as Chief Financial Officer. Mr. Perry began his career at JP Morgan Chase & Co. in the investment banking division, and he also served in a consulting group within Ernst & Young LLP.

Donal J. Sullivan has served as Chief Strategy Officer since April 2024 and as Executive Vice President since May 2020. Previously, Mr. Sullivan served as General Manager, Contractor Solutions from May 2020 through March 2024, and as Senior Vice President & General Manager, Industrial Products from January 2016 through May 2020. From May 2015 to January 2016, Mr. Sullivan was the Chief Operating Officer for RectorSeal, the Company’s operating subsidiary now within the Contractor Solutions segment. From October 2010 to April 2015, he served as Division President of Goodman Global, a member of the Daikin Group, a leading global HVAC manufacturer. Prior to 2005, Mr. Sullivan held a variety of management positions at Carrier Corporation, a leading heating, air-conditioning and refrigeration solutions company, including sales, product management and general management.

 

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Executive Officers

 

Luke E. Alverson has served as Senior Vice President, General Counsel and Secretary since February 2016. From May 2008 to February 2016, he held roles of increasing responsibility with Flowserve Corporation, a leading global manufacturer of fluid motion control products and provider of related services, serving most recently as Vice President, Corporate Legal Services and Assistant Secretary. Prior to 2008, Mr. Alverson was associated with the law firms of Vinson & Elkins, LLP in Dallas, Texas, and Hallett & Perrin, P.C., in Dallas, Texas.

Danielle R. Garde has served as Senior Vice President and Chief People Officer since October 2022. From June 2020 to October 2022, she was the Chief Human Resources Officer at Play Power, Inc., a privately held producer of recreation equipment. From March 2014 to February 2020, Ms. Garde held roles of increasing responsibility with KidKraft, Inc., a privately held producer of children’s toys and furniture, last serving as Vice President, Human Resources. Prior to this, from 2007 to 2014, she served in several senior leadership roles at Danone North America, a food and beverage company, last serving as Senior Director, North America Operations. Additionally, she developed deep human resources acumen between 1993 and 2007 in numerous organizational development roles at J.P. Morgan, Unilever Cosmetics International, American Express, and Deloitte.

Jeff A. Underwood has served as Senior Vice President & General Manager, Contractor Solutions since April 2024. From May 2021 through March 2024, he served as Senior Vice President, Sales & Marketing, for RectorSeal, the Company’s operating subsidiary within the Contractor Solutions segment, and from September 2018 through April 2021, he served as Vice President of Sales for RectorSeal. Prior to joining the Company, Mr. Underwood held roles of increasing responsibility at Goodman Manufacturing, a leading manufacturer of HVAC products and systems and an independent subsidiary of Daikin Group, where he served most recently as Vice President of Marketing. Prior to his time with Goodman Manufacturing, Mr. Underwood was a manager at Bain & Company, a business consulting firm.

 

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Proposal 2:

Advisory Vote on Executive Compensation

The Board is providing shareholders the opportunity to cast an advisory vote on the compensation of our Named Executive Officers pursuant to Section 14A of the Securities Exchange Act of 1934. This proposal, commonly known as a “Say on Pay” proposal, gives our shareholders the opportunity to endorse or not endorse our executive compensation programs and policies and the compensation paid to our Named Executive Officers. We currently hold annual “Say on Pay” votes.

The Board values the opinions of the Company’s shareholders as expressed through their votes and other communications. This Say on Pay vote is advisory, meaning that it is not binding on the Compensation Committee or the Board. This vote will not affect any compensation already paid or awarded to any Named Executive Officer, nor will it change any decisions the Board has made. Nonetheless, the Compensation Committee and the Board will review and carefully consider the outcome of this advisory vote when making future decisions regarding our executive compensation programs and policies.

We design our executive compensation programs to implement our core objectives of aligning the long-term interests of our executives with those of our shareholders, rewarding current performance, driving future performance, and attracting and retaining key leaders. Shareholders are encouraged to read the Compensation Discussion and Analysis (“CD&A”) section of this Proxy Statement, including the “Executive Summary.” In the CD&A, we describe our compensation programs, including the underlying philosophy and strategy, the individual elements of compensation, and how our compensation plans are administered. We also describe how the Compensation Committee continues to evolve our executive compensation program based on shareholder feedback.

We believe shareholders should consider the following information when voting on this proposal:

 

 

Shareholder Responsiveness. The Board and the Compensation Committee take the results of each Say on Pay vote seriously, and we regularly engage with shareholders to solicit feedback on our executive compensation program. The Board and the Compensation Committee take Say on Pay voting results into account and respond directly to shareholder feedback in establishing the Company’s compensation practices, as it did so again in fiscal 2024. For additional information, see “The 2023 Say on Pay Vote and Shareholder Engagement” within the CD&A on page 35.

 

 

Annual Incentive Plan Performance. Concerning our Annual Incentive Plan, consolidated EBITDA performance increased 13.9% over fiscal 2023 and resulted in a payout of 122% of target for that metric, and operating cash flow performance increased 39.7% over fiscal 2023 and resulted in a payout of 153% of target for that metric. Combined, this resulted in a weighted average financial performance metric payout of 128.2% of target for the consolidated CSWI financial metrics.

 

 

At Risk Pay. On average, the Named Executive Officers had 70.5% (or 83.5% in the case of the CEO) of their target pay “at risk,” or dependent upon both Company and individual performance.

 

 

Benchmarking. Compensation program elements and Named Executive Officer compensation amounts are benchmarked against practices among the broader market

  and a thoughtfully selected group of peer industrial companies. Individual compensation levels are benchmarked using market median as a reference point.

 

 

Performance Matrix Maximums. Maximum payout levels for the annual cash incentive award are capped at 200% of target, with formulaic positive or negative adjustment for financial and individual performance, and the performance share award payouts are capped at 200% of target. These caps moderate total compensation amounts and reduce the incentive to engage in unnecessarily risky behavior.

 

 

Threshold Performance Requirements. The annual cash incentive award and the performance share award have threshold performance requirements, ensuring that incentive compensation is reduced or eliminated altogether if minimum performance levels are not achieved.

 

 

Ownership Guidelines. Our officers are subject to stock ownership guidelines, which further encourage a long-term focus on sustainable performance and align our officers’ interests with those of our shareholders.

 

 

No Hedging or Pledging. Our officers are prohibited from pledging Company stock or engaging in transactions designed to hedge the value of the Company’s stock.

 

 

No Perquisites. The Company does not provide perquisites or special benefits to executive officers, other than those generally provided to all employees.

 

 

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Proposal 2: Advisory Vote on Executive Compensation

Required Vote and Recommendation

 

The Board believes the Company’s executive compensation program uses appropriate structures and sound pay practices promoting our core objectives. Accordingly, the Board recommends that you vote in favor of the following resolution:

“RESOLVED, that the CSW Industrials, Inc. shareholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as described in the section of this Proxy Statement entitled ‘Executive Compensation.’”

Required Vote and Recommendation

Approval of this proposal requires the affirmative vote of a majority of the votes cast in person or represented by proxy. The individuals named as proxies on the enclosed proxy card will vote your proxy “FOR” this proposal unless you instruct otherwise or you withhold authority to vote. For more information, see “General Voting and Meeting Information—Voting—Counting of Votes.”

The advisory vote on executive compensation is non-binding, meaning that our Board will not be obligated to take any compensation actions, or to adjust our executive compensation programs or policies, as a result of the vote. However, our Compensation Committee considers the results of the vote in evaluating our executive compensation program.

 

 

LOGO

  

 

 

THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THIS ADVISORY VOTE ON EXECUTIVE COMPENSATION.

 

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Executive Compensation

Compensation & Talent Development Committee Report

During fiscal 2024, the Compensation Committee was comprised of five independent directors: Kent Sweezey (Chair), Mike Gambrell, Bobby Griffin, Linda Livingstone, and Anne Motsenbocker.

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that this Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended March 31, 2024.

Kent Sweezey, Chair

Michael Gambrell

Bobby Griffin

Linda Livingstone

Anne Motsenbocker

 

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Compensation Discussion and Analysis

Table of Contents

 

Introduction

     34  

The 2023 Say on Pay Vote and Shareholder Engagement

     35  

Executive Summary

     35  

The Compensation Decision Making Process

     41  

Executive Compensation Program

     45  

Principles

     45  

Base Salary

     46  

Annual Incentive Program

     47  

Long-Term Equity Incentives

     53  

Additional Executive Compensation Information

     57  

Summary Compensation Table

     61  

2024 Grants of Plan-Based Awards

     62  

Outstanding Equity Awards at Year-End 2024

     63  

2024 Option Exercises and Stock Vested

     64  

2024 Pension Benefits

     64  

Potential Payments upon Termination or Change-In-Control

     65  

CEO Pay Ratio

     68  

Pay Versus Performance Disclosure

     69  

Introduction

This Compensation Discussion and Analysis (“CD&A”) contains an overview and analysis of our executive compensation program and policies and the material compensation decisions our Compensation & Talent Development Committee (“Compensation Committee”) have made for the executive officers named in the “Summary Compensation Table” on page 61. We refer to this group of executive officers collectively as our Named Executive Officers (“NEOs”). For fiscal 2024, our NEOs were:

 

   

Joseph B. Armes

   Chairman, Chief Executive Officer (“CEO”) and President (principal executive officer)

James E. Perry

   Executive Vice President and Chief Financial Officer (“CFO”) (principal financial officer)

Donal J. Sullivan

   Executive Vice President and Chief Strategy Officer (formerly Executive Vice President and General Manager, Contractor Solutions through March 31, 2024)

Luke E. Alverson

   Senior Vice President, General Counsel & Secretary

Danielle R. Garde   

   Senior Vice President, Chief People Officer

 

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Executive Compensation

Compensation Discussion and Analysis

 

The 2023 Say on Pay Vote and Shareholder Engagement

 

The Company has a demonstrated track record of seeking and considering shareholder feedback in designing and implementing our executive compensation program, and our current program is a product of that interactive process. The Compensation Committee, along with the entire Board, takes the outcome of every Say on Pay vote seriously. The 2023 Say on Pay vote was no exception, where we received 96.8% support for our annual Say on Pay proposal, the highest approval level achieved in our history.

 

While the Say on Pay vote is non-binding, the Compensation Committee believes this record level of approval indicated that our shareholders strongly support our executive compensation program and policies and the material compensation decisions made for executive officers. As it always does, the Compensation Committee will consider the results of this year’s Say on Pay vote, as well as continuing feedback from our shareholders, when evaluating future executive compensation decisions.

 

96.8%

Say on Pay

approval

in 2023

Executive Summary

Fiscal 2024 Financial Results and Other Achievements

Our stated approach to driving sustainable growth and long-term shareholder value once again enabled us to deliver record results in fiscal 2024. These results were achieved against a backdrop of challenging key end markets and ultimately surpassed the impressive results of the prior year. Throughout fiscal 2024, we efficiently allocated capital on a risk-adjusted returns basis, grew our operating results to record levels, drove cash flow conversion, and delivered record growth in shareholder value. Importantly, we achieved all of this while remaining committed to our distinctive employee-centric culture, where we are committed to diversity, inclusion, and respect and focus on recruiting and retaining great talent, offering rewarding careers, and recognizing team members who excel while providing the opportunity for a safe, secure, and dignified retirement.

The following highlights our consolidated financial results achieved in fiscal 2024 (comparisons to fiscal 2023).

 

 

Revenues

$792.8m

+4.6%

 

  

 

Adjusted EBITDA*

$200.0m

+14.9%

 

  

 

Adjusted EPS*

$7.01

+13.1%

 

  

 

Operating Cash Flow

$164.3m

+35.2%

 

 

*

Reconciliation to GAAP amounts appear on Exhibit B.

Compensation Objectives

The Compensation Committee has designed our executive compensation program for one purpose: to support and enable execution of CSWI’s growth strategy. To accomplish this purpose, we have adopted the following key executive compensation objectives:

 

LOGO     LOGO     LOGO     

 

LOGO

Align Long-Term
Executive and
Shareholder
Interests

 

    Reward Current
Performance
    Drive Future
Performance
     Attract and Retain
Key Leaders

 

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Executive Compensation

Compensation Discussion and Analysis

 

Overview of the Executive Compensation Program

We utilize the following compensation elements to achieve each of our key executive compensation objectives:

 

Pay Element

  Form     

 

  Compensation Objective
Addressed
  Description & Rationale

Base Salary

  Cash  

 

 

 

LOGO

  Reward Current Performance   Fixed cash compensation aligned with responsibilities of the position and market benchmarks
 

 

   

 

   

 

 

 

LOGO

  Attract and Retain

Annual Incentive

  Performance Cash Opportunity  

 

LOGO

  Shareholder Alignment   Annual cash incentive tied to achievement of short-term performance metrics aligned with the Company’s strategy. Payout ranges from 0% to 200% of target.

 

 

 

 

 

 

 

LOGO

  Reward Current Performance
 

 

   

 

   

 

 

 

LOGO

  Attract and Retain

Long-Term Equity Incentive

 

Performance Shares

 

LOGO

 

 

 

NEO average

target grant value

 

 

 

 

LOGO

  Shareholder Alignment  

Cliff vest at end of a three-year period at 0% to 200% of award value based on TSR performance against the Russell 2000 Index

 

No voting rights and not eligible to receive dividends (if any) until vesting

 

 

LOGO

 

 

 

Drive Future Performance

 

 

 

LOGO

  Attract and Retain

 

 

Restricted Stock

 

LOGO

 

 

 

NEO average

target grant value

  LOGO   Shareholder Alignment  

Vests ratably over a three-year period

 

Has voting rights and is eligible to receive dividends (if any) from date of grant

 

 

 

LOGO

 

 

Drive Future Performance

   

 

LOGO

  Attract and Retain    

Other

 

Health, Welfare and Retirement

Programs

 

 

LOGO

  Attract and Retain  

Executives participate in the same benefit programs as other employees, including:

  Employee Stock Ownership Plan, through which approximately 4% of our Company is owned by our employees, aligning our collective interests

  Qualified 401(k) Plan

 

  Severance Benefits   LOGO   Shareholder Alignment   Standardized benefits in the event of termination without cause by the Company or for good reason by the executive
         

 

LOGO

  Attract and Retain

 

  Change-in-Control Benefits  

 

 

 

LOGO

  Shareholder Alignment   Standardized “double trigger” severance benefits for executive officers in the event of termination following a change in control
         

 

LOGO

  Attract and Retain
 

 

  Other Benefits    

 

   

 

  No perquisites offered, other than those generally provided to all employees

 

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Executive Compensation

Compensation Discussion and Analysis

 

As discussed in further detail below, one of our compensation program principles states that a majority of an executive’s total compensation should be performance-based and “at risk,” or dependent upon the Company’s and the individual’s performance, As shown below, for fiscal 2024, our CEO had 83.5% of his target pay “at risk,” and our other NEOs had on average 67.2% of their target pay “at risk.”

 

 

LOGO

Pay for Performance Alignment

The following charts illustrate the relationship between our Company performance and CEO pay.

 

 

LOGO

 

 

LOGO

 

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Executive Compensation

Compensation Discussion and Analysis

 

As discussed in more detail under “Executive Compensation Program—Annual Incentive Program,” our Annual Incentive Program (“AIP”) allows our NEOs, as well as almost all other Company employees, to receive a cash incentive payment based upon achievement of pre-established financial and individual goals. Based on our fiscal 2024 results, the Company achieved approximately 104% of our aggregate semi-annual EBITDA goals and achieved approximately 113% of our aggregate semi-annual Operating Cash Flow goals.

As discussed in more detail under “Executive Compensation Program—Long-Term Equity Incentives,” our NEOs, as well as other Company employees, are eligible to receive equity awards under our Long-Term Incentive Program (“LTIP”) that include performance shares, which vest based upon the Company’s financial performance against pre-established goals. For the April 1, 2021 to March 31, 2024 performance period, our NEOs at the time received performance shares that vested based on the Company’s TSR compared to the TSRs of the Russell 2000 Index’s members. When measured as prescribed in our performance share awards, the Company achieved a TSR of 78.5% for this performance period, which ranked 254th among the members of the Russell 2000 Index, or the 86.8th percentile, which vested these performance shares at 200% of target, the maximum allowable under our LTIP. This result is consistent with our emphasis on long-term shareholder value creation and the achievement of benchmarked performance goals, which are described in more detail throughout this CD&A. The chart below illustrates the actual relative TSR performance for the fiscal 2022 performance share awards, as well as the projected relative TSR performance for the fiscal 2023 and 2024 performance share awards, all compared to the Russell 2000 Index’s members at March 31, 2024.

 

LOGO

 

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Executive Compensation

Compensation Discussion and Analysis

 

Executive Compensation Program Changes for Fiscal 2024

The Compensation Committee is committed to continuously evaluating our executive compensation program, with a focus on the best interests of our shareholders and the Company and sound compensation practices, consistent with our compensation program purpose and objectives. The Compensation Committee evaluated all elements of our compensation program for fiscal 2024, in consultation with management and NFP. As a result of this evaluation, the Compensation Committee updated elements of the AIP, the LTIP, and took actions responsive to market competitive compensation.

Annual Incentive Plan Changes

Payout Matrix Update. For fiscal 2024, the Compensation Committee modified the AIP’s payout matrix for the consolidated EBITDA financial metric so that: (1) threshold (or 50% payout) performance will begin at 80% of target (increased from 75%), and (2) maximum (or 200% payout) performance will be achieved at 120% of target (reduced from 125%). The prior AIP payout matrix had been in place since fiscal 2018, and since that time, the Company has grown significantly, which prompted the Compensation Committee to reevaluate the payout matrix to ensure continued alignment with our compensation program objectives and principles.

Making the threshold performance level more difficult to achieve appropriately increased the rigor of the AIP and was viewed to be necessary given the Company’s strong performance history and meaningfully increased absolute value of the primary financial metric target. Additionally, lowering the maximum performance level maintained symmetry within the AIP payout matrix, but more importantly ensured that achievement of maximum performance remains a realistic probability to motivate overperformance for shareholders’ benefit.

Metric Target Setting Process. The Compensation Committee again utilized a semi-annual target-setting process for AIP performance metrics in fiscal 2024, as was used in fiscal 2022 and 2023. The Compensation Committee, with the support of NFP and management, believed this approach remained appropriate based on the presence of continued uncertainty in overall business conditions, particularly in light of the unprecedented inflationary environment and significant volatility in actual and forecasted input costs, including freight.

We have used a more frequent than annual target setting interval since the beginning of the COVID-19 pandemic in fiscal 2021, which has demonstrated that utilizing more frequent target setting intervals has a limiting effect on AIP payouts. It has mitigated the risk of inflated payouts resulting from targets being set too conservatively in the face of significant uncertainty. It has also made achieving “maximum” payout levels for the full year more difficult, as “maximum” performance must be achieved over more than one measurement period. As the Compensation Committee did over the last three years, it continued to adhere to our compensation objectives and principles in fiscal 2024, including ensuring that performance targets for all financial metrics used in our AIP are set at objective, challenging levels that require significant effort and achievement by our NEOs for a target payout to occur.

The Compensation Committee has determined that the AIP will return to using an annual target setting process in fiscal 2025, as further discussed in “Executive Compensation Program Changes for Fiscal 2025” below.

Long-Term Incentive Program Changes

Weighting of LTIP Awards. For fiscal 2024, the Compensation Committee modified the weighting of LTIP awards for our CEO, increasing the percentage of awards allocated to performance shares. Since the Company’s inception, target LTIP awards for all NEOs have been weighted 50% to performance shares and 50% to time-vested restricted stock. Focusing on our compensation principle of “total compensation should be primarily performance-based, with a majority ‘at risk,’” the Compensation Committee desired to increase the performance share weighting of our CEO’s target LTIP awards considering the responsibilities and expectations of the leadership position and to increase his proportion of performance-based target compensation. As such, target LTIP award values for our CEO in fiscal 2024 were approximately 57% weighted to performance shares, and 43% weighted to restricted stock.

 

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Executive Compensation

Compensation Discussion and Analysis

 

Timing of LTIP Awards. The Compensation Committee approved a change in the timing of approving performance share grants under our LTIP such that performance share grants were made after the Compensation Committee reviewed and approved NEO target compensation levels for fiscal 2024. Historically, performance share grants to our NEOs had been approved on or around the beginning of our fiscal year, which occurs on April 1 and comes before the Compensation Committee reviews and approves target compensation levels for our NEOs for the new fiscal year. This timing necessitated the use of prior year target compensation levels in determining target grant values for performance share awards, generally resulting in lower target values than restricted stock grants, which are made later in the fiscal year after current fiscal year compensation is approved. In fiscal 2024, LTIP performance share grants occurred after target NEO compensation levels were approved for the current fiscal year, so grant values were determined using the same target compensation levels as restricted stock grants made later in the year.

Market-Competitive Pay

The Compensation Committee annually reviews relevant market compensation survey data to evaluate and benchmark our compensation program’s market competitiveness, consistent with our compensation program objectives and principles. This specifically furthers our “Attract and Retain Key Leaders” objective and enables the achievement of our other objectives. The Compensation Committee uses data provided by NFP to benchmark all elements of our NEOs’ compensation. These compensation levels are set using the 50th percentile of benchmarked compensation data as a reference point, which helps ensure compensation levels are market competitive.

As discussed in prior years, the Compensation Committee continued making appropriate, incremental market-based adjustments to NEOs’ base salaries and other compensation elements. Utilizing NFP’s guidance and consistent with each NEO’s performance, these adjustments were made to bring NEO target compensation levels into closer alignment with market benchmarks and our compensation objectives. This incremental approach will continue as needed, which the Compensation Committee believes will appropriately mitigate compensation program risk and ensure our compensation structure remains performance-focused at market competitive levels.

 

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Executive Compensation

Compensation Discussion and Analysis

 

Executive Compensation Practices

In support of our compensation program objectives, the Compensation Committee maintains a thoughtful approach to our executive compensation program design and governance practices. The below table summarizes these practices.

 

What We Do

   

 

 

What We Don’t Do

 

LOGO

 

 

Promote a strong pay for performance plan design

    LOGO   

No hedging, pledging, or short sales of stock permitted

LOGO  

Regularly benchmark executive compensation against peers of comparable size, complexity, and industry

    LOGO   

No change in control excise tax gross ups

LOGO  

Maintain meaningful stock ownership guidelines for our directors and executive officers

    LOGO   

No option repricing without shareholder approval

LOGO  

Have double trigger requirements on cash payments following a change in control

    LOGO   

No perquisites offered, other than those generally provided to all employees

LOGO  

Conduct an annual compensation risk review

    LOGO   

No dividends paid and no voting rights on unvested performance-based equity awards

LOGO  

Provide reasonable and standardized benefits upon severance or change in control

    LOGO   

No duplication of metrics in annual and long-term incentive plans

 

LOGO

 

 

Engage an independent compensation consultant

    LOGO   

No supplemental executive retirement plans

 

LOGO

 

 

Maintain an incentive compensation clawback policy

      

The Compensation Decision Making Process

How Compensation Decisions Are Made For Our NEOs

 

 

LOGO

 

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Executive Compensation

Compensation Discussion and Analysis

 

Roles and Responsibilities

 

         
   
Compensation Committee    CEO and Management    Independent Compensation Consultant
   

  Oversees the Company’s compensation and benefit programs, including the AIP and LTIP

  Administers the executive compensation program

  Evaluates NEO performance and sets target compensation levels for all NEOs

  Approves incentive plan performance metrics and targets

  Oversees the assessment of compensation program risks

  Oversees management’s leadership development and succession planning programs

  Engages the independent compensation consultant

  Oversees stock ownership guidelines and clawback policy

  Recommends changes in director compensation for Board approval

  Composed entirely of independent, non-employee directors, per Nasdaq requirements

  

  CEO evaluates other NEO performance and makes recommendations to the Compensation Committee on compensation levels in light of performance and market benchmarks

  Other members of the executive team, as appropriate, advise the Compensation Committee on compensation program elements, market practices, and compliance matters

  No member of management participates in discussions concerning his or her compensation

  

  Engaged by, and reports to, the Compensation Committee

  Assists and advises the Compensation Committee on aspects of compensation program objectives, principles and design

  Advises the Compensation Committee on selection of competitive market benchmarking data, including the Compensation Peer Group

  Analyzes competitive market data in the context of the Company’s program and provides recommendations to the Compensation Committee

  Provides compensation program risk assessment

  Provides no services to the Company

Reviewing Executive Compensation Program Effectiveness

As shown above, the Compensation Committee annually conducts a comprehensive review of all components of our executive compensation program. This review is facilitated by management with the assistance of NFP and is influenced by feedback from our shareholders. The Compensation Committee continually evaluates whether our executive compensation program is aligned with and supports the Company’s strategic objectives, and it considers evolving market practices in the general industry, external regulatory requirements, shareholder feedback, the competitive market for executives, and our compensation program objectives and principles. In conducting its review, the Compensation Committee assesses all information related to each executive officer’s compensation, including base salary, target short-term and long-term incentives, and retirement, health and welfare benefits.

 

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Executive Compensation

Compensation Discussion and Analysis

 

Market Competitiveness and External Benchmarking

The Compensation Committee regularly reviews relevant market compensation survey data to evaluate the market competitiveness of our executive compensation program. This specifically furthers our “Attract and Retain Key Leaders” compensation program objective and enables the achievement of our other objectives. The Compensation Committee uses survey data provided by NFP, which consists of compensation data for comparable executive positions within a group of peer companies (the “Compensation Peer Group”). The data also includes data from comparably sized companies within the broader market, as candidates for executive roles, as well as market opportunities for our current executives, are not limited to companies in our industry sectors.

The process for selecting the members of the Compensation Peer Group is shown below.

 

 

LOGO

The Compensation Peer Group used to evaluate executive compensation in fiscal 2024 is as follows:

 

   

AAON, Inc.

Armstrong World Industries, Inc.

Barnes Group Inc.

Columbus McKinnon Corp.

EnPro Industries, Inc.

ESCO Technologies Inc.

Franklin Electric Co., Inc.

Gibraltar Industries, Inc.

 

Helios Technologies, Inc.

Innospec Inc.

Kadant Inc.*

Livent Corporation

Mueller Water Products, Inc.

PGT Innovations, Inc.

SPX Technologies, Inc.

Standex International Corp.

   

* New for fiscal 2024

 

Compared to fiscal 2023, only incremental updates were made to the Compensation Peer Group. One company, GCP Applied Technologies, was acquired in calendar 2022 and removed from the group. This position was replaced with a qualifying industrial equipment company, maintaining the group’s industry representation and the size of the data set for statistical purposes.

All compensation elements for our NEOs are generally set using the 50th percentile of benchmarked compensation data as a reference point. This includes base salaries, annual incentive opportunities, total target cash compensation, long-term incentive compensation and total target compensation. This approach helps the Compensation Committee balance a performance-focused structure with the need to maintain market-competitive target and realized compensation. Actual benchmarked percentile rankings for our NEOs target compensation levels varies and can be above or below the 50th percentile reference point for a variety of reasons, including individual performance, experience, succession potential, and scope of responsibilities.

 

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Executive Compensation

Compensation Discussion and Analysis

 

Executive Compensation Program Risk Assessment

A critical part of the Compensation Committee’s executive compensation program review is an evaluation of whether the program, both as a whole and its individual elements, is consistent with the Company’s risk management objectives. If any program element is determined to be inconsistent with our objectives and principles, or if it is determined to encourage risks that are reasonably likely to have a material adverse effect on us, the elements are adjusted as necessary.

The Compensation Committee, in consultation with NFP, has concluded that no risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on the Company. In reaching this conclusion, the Compensation Committee noted that:

 

     
LOGO   Compensation elements are balanced    We provide a balanced mix of base salary, annual cash incentive compensation and long-term equity incentives. This balanced mix provides the incentive to perform at high levels and maximize Company performance. At the same time, it does not encourage singular focus on compensation performance metrics to the detriment of other important business metrics or overlooking how goals are accomplished.
LOGO   Performance metrics balance short-term and long-term goals    Our incentive compensation metrics are balanced between short- and long-term business and financial objectives. The metrics for our short- and long-term plans do not overlap, which prevents executives from focusing on one goal at the expense of others. All the performance goals are aligned with shareholder interests.
LOGO   Individual performance is emphasized    We emphasize individual, non-financial performance metrics in determining individual compensation amounts. The Compensation Committee strongly believes this effectively encourages and rewards behaviors that are consistent with our business objectives and core values and discourages behaviors that are not.
LOGO   Incentive programs have performance thresholds and are capped    Both the AIP opportunity and performance shares have threshold payout levels and/or performance contingencies, which ensure that incentive compensation is reduced or eliminated if minimum performance levels are not achieved. They also have maximum payout levels, which helps avoid excessive total compensation and reduces the incentive to engage in unnecessarily risky behavior.
LOGO   Compensation is benchmarked    The Compensation Committee benchmarks compensation against both our Compensation Peer Group and the broader market to ensure our programs are performance-based, competitive, equitable, and generally consistent with industry and comparator company practices.
LOGO   Executives have equity ownership guidelines    Our officers have robust equity ownership guidelines, which encourage a long-term focus on sustainable performance and further align our officers’ interests with those of our shareholders. Executives are prohibited from pledging stock and engaging in transactions designed to hedge against the value of the Company’s stock.

 

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Executive Compensation

Compensation Discussion and Analysis

 

Executive Compensation Program

 

Principles

The Compensation Committee has established the following principles to guide achievement of our compensation objectives and the design and administration of specific programs for our NEOs.

Total Compensation Should be Primarily Performance-Based, With a Majority “At Risk”

A meaningful portion of our executives’ total compensation should be performance-based (rather than fixed or merely variable), and at least a majority of total compensation should be “at risk” – in other words, variable dependent upon our stock price, our financial performance, or an executive’s individual performance. This ensures a strong correlation between executive pay and Company and individual performance, and it helps achieve our first compensation program objective: “Align Long-Term Executive and Shareholder Interests.” Additionally, the proportion of total compensation that is “at risk” versus fixed should increase in line with the scope and level of the executive’s responsibilities.

The following table shows the percentage of each NEO’s total target compensation was “at risk” under the program.

PERCENT OF FISCAL 2024 TARGET PAY “AT RISK”(1)

 

LOGO

 

(1)

Calculated by dividing (i) the sum of the annual incentive opportunity and target long-term incentive opportunity by (ii) total target compensation.

Incentive Compensation Should Balance Short-Term and Long-Term Performance

Executive compensation should be linked to building long-term shareholder value while remaining consistent with our business objectives. The Base Salary and Annual Incentive compensation elements emphasize short-term financial and individual performance, as well as the achievement of annually defined business and financial objectives. The Long-Term Equity Incentive compensation element emphasizes long-term financial performance and strategic plan execution by tying a meaningful portion of compensation to the performance of the Company’s common stock.

Compensation Should be Market Competitive and Reflect Individual Performance

Achievement of our compensation objectives requires our compensation program, and the compensation elements within it, to be market competitive. If we are unable to attract and retain top executive talent within the markets in which we compete, we will hinder our ability to create long-term shareholder value. As discussed above, the Compensation Committee utilizes the Compensation Peer Group and relevant market compensation survey data, with the assistance of NFP, to ensure our compensation program is benchmarked and that each NEO’s total target compensation is appropriately tailored for the leadership roles in which they serve.

At the same time, a critical aspect of our culture examines how the Company succeeds, which is reinforced through our ACT. RISE. core values. We seek to attract and retain executive leaders who exemplify our values in how they lead and accomplish business objectives. Compensation programs that are overly focused on market benchmarking, or incentive plans that are purely formulaic, are limited in their ability to account for qualitative performance assessments. This creates program risk and can work against the Company’s and shareholders’ long-term interests. Accordingly, the Compensation Committee retains an element of discretion to ensure an executive’s realized compensation reflects individual, qualitative performance, consistent with our culture and values.

 

 

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Executive Compensation

Compensation Discussion and Analysis

 

Performance-Based Compensation Metrics Should Be Objective, Clear, Challenging, and Achievable

In simple terms, the objective of any performance- or incentive-based program is to produce a desired result. Achievement of a desired result cannot be determined if the desired result is not objectively defined. Additionally, performance targets must be clear and uncomplicated so that a path to achievement can be developed and understood. As such, the Compensation Committee establishes our incentive plans with objective, clearly defined performance targets that are focused on performance metrics that our Board believes are most critical to the Company’s success.

Aligning our incentive compensation programs with shareholder interests requires that NEOs be paid commensurate with performance, and performance targets must be challenging to create shareholder value. At the same time, performance targets must be realistically achievable to create the proper incentive and reward structure, or else a disincentive risk can emerge. The Compensation Committee balances these interests by setting performance targets at levels requiring significant effort and achievement by our NEOs, relative to Company circumstances and market conditions, for a target-level payout

to occur, within a structure that provides a meaningful incentive to drive overperformance.

Performance-Based Metrics Should be Externally Benchmarked

Measuring how the Company performs against internally developed targets is an important aspect of incentive compensation, as it sets expectations and motivates performance. However, internal performance metrics alone do not create a full picture of Company performance. As such, the performance-based elements of our executive compensation program should also evaluate the Company’s performance relative to external benchmarks.

Since inception, the performance shares granted under our LTIP have used an external benchmark for measuring Company performance, and since 2017, that benchmark has been the Russell 2000 Index, of which the Company is a member. This shows, on a relative basis, how well we deliver results that directly create long-term shareholder value. Additionally, AIP performance metric targets are set in reference to how the Company is expected to perform both compared to the prior year and relative to forecasted market growth rates.

 

 

Base Salary  LOGO   LOGO

The Compensation Committee reviews and establishes NEO base salaries consistent with the process described above under “The Compensation Decision Making Process.” For each NEO, the Compensation Committee considers our NEOs scope of responsibilities, experience, and individual performance and then balances these factors against competitive salary practices, including internal pay equity. The Compensation Committee does not assign any relative or specific weights to these factors. The base salaries established for fiscal 2024 are presented in the following table.

 

Named Executive Officer

  

Fiscal 2024
Annual Base Salary

($)

  

Fiscal 2023
Annual Base Salary

($)

Joseph B. Armes

  

800,000

  

700,000

James E. Perry

  

475,000

  

450,000

Donal J. Sullivan

  

475,000

  

450,000

Luke E. Alverson

  

412,000

  

375,000

Danielle R. Garde

  

390,000

  

375,000

The Compensation Committee’s fiscal 2024 compensation evaluation adjusted NEO base salaries as it determined appropriate, making market-based adjustments in its continued effort to improve competitive market alignment. The Compensation Committee determined the above base salary adjustments were appropriate considering our compensation objectives, our desire to minimize retention risk, and the executive team’s strong performance.

Mr. Armes’ base salary and other compensation components in fiscal 2024 are discussed below in further detail under “Chief Executive Officer Compensation in 2024.”

 

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Executive Compensation

Compensation Discussion and Analysis

 

Annual Incentive Program  LOGO   LOGO   LOGO

Our AIP exists to provide employees with a short-term, performance-based cash incentive that promotes achievement of our annual operating budget and the financial metrics that we believe most strongly correlate to long-term shareholder value creation. This incentive most directly supports our “Align Long-Term Executive and Shareholder Interests” and “Reward Current Performance” compensation objectives.

AIP Target Opportunities

The Compensation Committee establishes an AIP target opportunity for each NEO consistent with the process described above under “The Compensation Decision Making Process.” The Compensation Committee also approves the AIP’s financial performance metrics at that same time.

Our NEO’s AIP target opportunities are expressed as a percentage of base salary. AIP target opportunities established for fiscal 2024 are presented in the following table.

 

Named Executive Officer

     Fiscal 2024 AIP
Target ($)
     Fiscal 2024 AIP
Target % of
Base Salary
     Fiscal 2023 AIP
Target % of
Base Salary

Joseph B. Armes

      

 

1,040,000

      

 

130

%

      

 

130

%

James E. Perry

      

 

356,250

      

 

75

%

      

 

75

%

Donal J. Sullivan

      

 

356,250

      

 

75

%

      

 

75

%

Luke E. Alverson

      

 

226,600

      

 

55

%

      

 

55

%

Danielle R. Garde

      

 

214,500

      

 

55

%

      

 

55

%

The Compensation Committee did not make any changes to AIP target percentages for fiscal 2024. The Compensation Committee determined that, as adjusted for the market-driven base salary increases for fiscal 2024 discussed above, the AIP targets and resulting total target cash compensation for each NEO were within acceptable proximity to market benchmarks and provided incentives consistent with our objectives.

AIP Performance Metrics

The Compensation Committee, working with management and NFP, evaluates and approves the Company’s AIP performance metrics for each fiscal year when AIP target opportunities are established. The Compensation Committee weights performance metrics for each NEO—including business unit leaders—in proportions that ensure performance metrics are heavily weighted toward the Company’s consolidated performance. We believe it is important that all NEOs are primarily focused on setting the strategic direction of the Company (rather than only at the business unit level) and achieving overall Company results.

The Compensation Committee also believes that AIP payouts should reflect individual, non-financial performance metrics. This serves to mitigate the risks that objective factors can have on incentive pay when overused. Importantly, non-formulaic metrics provide the Compensation Committee with discretion to adjust compensation upward or downward based on how an executive accomplished objectives and goals, thereby rewarding behaviors that are consistent with our business objectives and ACT. RISE. core values.

 

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Executive Compensation

Compensation Discussion and Analysis

 

The Company’s fiscal 2024 AIP performance metrics are set forth below and are unchanged from fiscal 2023. The Compensation Committee selected these performance metrics, with input from management and NFP, because they support the key strategies that we believe drive sustainable and profitable Company growth and create shareholder value.

 

 

 

LOGO

 

  Consolidated

  EBITDA

  Consolidated Operating Cash Flow  

Business Unit

EBITDA

  Business Unit Operating Cash Flow  

Individual

Performance

Why we use it: Measures and supports both our revenue and profitability growth objectives, aligning our interests with the interests of our shareholders

 

Why we use it:
Measures and supports our strategic objectives of managing working capital efficiently and delivering strong cash flow from operations to fund growth and returns to shareholders

 

Why we use it: Measures and supports both our revenue and profitability growth objectives at the segment/operating company level, which are in direct control of the executive

 

 

Why we use it:
Measures and supports our strategic objectives of managing working capital efficiently and delivering strong cash flow from operations to fund growth and returns to shareholders

 

Why we use it: Emphasizes individual performance and qualitative achievement of goals to promote and reward behaviors consistent with our business objectives and core values

 

How we measure it:

U.S. GAAP net income, plus interest, taxes, depreciation, and amortization

 

How we measure it:

U.S. GAAP (net cash provided by operating activity)

 

How we measure it:

U.S. GAAP net income, plus interest, taxes, depreciation, and amortization

 

How we measure it:

U.S. GAAP (net cash provided by operating activity)

 

How we measure it:

Board and CEO assessment of individual performance against predetermined goals and objectives

 

Payout range:

0%—200%

 

Payout range:

0%—200%

 

Payout range:

0%—200%

 

Payout range:

0%—200%

 

Payout range:

0%—200%

 

 

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Executive Compensation

Compensation Discussion and Analysis

 

AIP Performance Calculation and Payout

When the Compensation Committee approves AIP performance metrics for the year, it also establishes a payout matrix for the AIP, which determines the percentage of AIP target that is paid for performance achieved. Achievement of financial-based performance metrics is objective and calculated as appropriate. Payout percentages for each NEO’s qualitative individual performance metric are determined by the Compensation Committee based on individual performance assessments, as discussed previously.

Fiscal 2024 AIP Payout Matrix and Performance Measurement

Payout Matrix. The fiscal 2024 payout matrix established for all AIP metrics was 0% to 200% of the target award opportunity, which was unchanged from fiscal 2023. The actual AIP payout percentage is calculated by comparing actual financial metric performance against the established targets. Payouts for each of the financial metrics are calculated on a straight-line basis between the applicable performance levels (“threshold,” “target,” and “maximum”).

Target Setting. In fiscal 2024, the Compensation Committee, with the support of NFP, continued to use a semi-annual target setting process for both our EBITDA and Operating Cash Flow (“OCF”) financial metrics. The Compensation Committee believed this approach remained appropriate based on continued uncertainty in overall business conditions. First fiscal half (“1H”) performance metric targets were established in early May 2023 (in the first quarter of fiscal 2024), and second fiscal half (“2H”) performance metric targets were established in mid-November 2023 (in the third quarter of fiscal 2024).

As the last four fiscal years have demonstrated, utilizing more frequent financial target setting intervals has a limiting effect on AIP payouts, as it mitigates the risk of overpayment resulting from annual targets being set too conservatively in the face of significant uncertainty. As the Compensation Committee has always done, it continued to adhere to our compensation objectives and principles, including ensuring that performance targets for the AIP’s financial metrics are set at objective, challenging levels that require significant effort and achievement by our NEOs for a target payout to occur.

Financial Performance Adjustments. For all financial metrics, the Compensation Committee may exercise its judgment, within parameters it establishes at the beginning of the year, about whether to exclude the effect of certain developments in measuring performance. These developments may include unanticipated changes in accounting principles or extraordinary, unusual, or unplanned events, such as the effects of restructurings, impairments, reorganizations, acquisitions, or dispositions.

Any adjustments approved by the Compensation Committee in measuring financial metric performance are fully disclosed below. Concerning acquisitions in particular, the Compensation Committee has consistently applied a policy to exclude the impact of acquisitions consummated during a performance period on AIP financial metrics, ensuring AIP payouts never benefit from acquired, unbudgeted EBITDA and cash flow impacts.

Performance Measurement and Payout. The following graphics show the fiscal 2024 AIP’s performance metrics, targets, payout matrixes, performance results, and percentage payouts.

 

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Executive Compensation

Compensation Discussion and Analysis

 

LOGO

In fiscal 2024, the Company delivered $198.3 million of measured EBITDA, a record performance and 13.9% increase over fiscal 2023. The EBITDA target for fiscal 2024 1H was a 6.0% increase over fiscal 2023 1H actual results, and the EBITDA target for fiscal 2024 2H was a 12.6% increase over fiscal 2023 2H actual results. Consistent with our objectives and historical approach to acquisitions, the fiscal 2024 measured performance excluded all EBITDA impacts from acquisitions, as well as all associated one-time transactional expenses. For the full fiscal 2024 year, the net EBITDA adjustments reduced the AIP’s measured EBITDA by $1.7 million compared to reported EBITDA.

 

LOGO

 

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Executive Compensation

Compensation Discussion and Analysis

 

In fiscal 2024, the Company delivered $165.8 million of measured OCF, a record performance and 39.7% increase over fiscal 2023. The OCF target for fiscal 2024 1H was a 67.4% increase over fiscal 2023 1H actual results, and the OCF target for fiscal 2024 2H was a 4.8% decrease over fiscal 2023 2H actual results. The fiscal 2024 measured performance excluded all operating cash impacts from acquisitions, as well as all cash used (net of tax benefit) to fund associated one-time transactional expenses. For the full fiscal 2024 year, the net OCF adjustments increased the AIP’s measured OCF by $1.6 million compared to reported operating cash flow.

 

 

LOGO

In fiscal 2024, the Company’s Contractor Solutions segment delivered $174.4 million of measured EBITDA, a record performance and 13.5% increase over fiscal 2023. These results are used in calculating Mr. Sullivan’s Business Unit EBITDA metric payout percentage. Contractor Solutions’ EBITDA target for fiscal 2024 1H was a 6.2% increase over fiscal 2023 1H actual results, and the EBITDA target for fiscal 2024 2H was an 11.7% increase over fiscal 2023 2H actual results. As with consolidated results, this measured performance excluded all EBITDA impacts from businesses acquired during a performance period, as well as all one-time transactional expenses associated with the acquisitions. For the full fiscal 2024 year, the net business unit EBITDA adjustments increased the AIP’s measured business unit EBITDA by $0.8 million compared to reported business unit EBITDA.

 

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Executive Compensation

Compensation Discussion and Analysis

 

LOGO

 

These results are used in calculating Mr. Sullivan’s Business Unit OCF metric payout percentage. The Company has chosen not to disclose the Threshold, Target, Maximum and Measured Performance data for Contractor Solutions’ OCF metric, as this metric corresponds to financial data that is not publicly disclosed and is used primarily to assess compensation. The Company believes that disclosing such information would cause competitive harm to the Company without adding meaningfully to the understanding of its business.

The Compensation Committee believes that all performance targets for all financial metrics used in our AIP are set at definitive, challenging, and objective levels that require significant effort and achievement by our NEOs for a target payout to occur. Despite the inherent challenges of establishing performance targets in fiscal 2024 due to continued uncertainty in overall business conditions, particularly in light of the inflationary environment and significant volatility in actual and forecasted freight costs, the Compensation Committee believes the AIP target-setting approach used in fiscal 2024 ensured these intentions were met.

While AIP results for any given year will vary, the Compensation Committee believes that appropriate performance target setting,

when combined with strong Company and individual NEO performance, should result in AIP financial metric payouts that average close to target levels over a five-year period. For additional context, the following table summarizes the Company’s actual financial metric payout percentages under the AIP over the last five years.

 

LOGO

 

 

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Executive Compensation

Compensation Discussion and Analysis

 

Individual Performance

In determining individual performance payouts for our NEOs, the Compensation Committee considered pre-established individual performance goals and objectives for each NEO, which addressed the following topics:

 

 

Achievement of the Company’s and business units’ performance against key financial metrics, as applicable;

 

 

Execution of identified key growth initiatives and development of strategic growth capabilities, including integration of acquired businesses;

 

 

Improvement in human capital management metrics, including talent development, employee retention, and diversity and inclusion;

 

Achievement of operational excellence and sustainability initiatives;

 

 

Successful management and mitigation of enterprise risks; and

 

 

Improvement in performance against key ESG metrics, including environmental, health and safety.

 

 

Additionally, the Compensation Committee considered the leadership acumen demonstrated by each NEO in addressing the unique challenges of fiscal 2024, and how each NEO performed and delivered results in a manner consistent with our ACT. RISE. core values: Accountability, Citizenship, Teamwork, Respect, Integrity, Stewardship, and Excellence.

The payout percentages for the 25%-weighted individual performance metric for each NEO is set forth in the final AIP payments table below. The total AIP award earned by each NEO for fiscal 2024 is reported in the “Summary Compensation Table” under the “Non-Equity Incentive Plan Compensation” column.

 

  

 

  Target
AIP Award
    Consolidated
EBITDA
    Consolidated
Operating
Cash Flow
    Business Unit
EBITDA
    Business Unit
Operating
Cash Flow
    Individual
Performance
   

FY2024

AIP Award

 

Joseph B. Armes

 

$

1,040,000

 

 

 

$761,280
(122% Payout)


 

 

 

$238,680
(153% Payout)


 

 

 

 

 

 

 

 

 

$325,000
(125% Payout)


 

 

 

$1,324,960
(127.4% Payout)


 

James E. Perry

 

$

356,250

 

 

 

$260,775
(122% Payout)


 

 

 

$81,759
(153% Payout)


 

 

 

 

 

 

 

 

 

$111,328
(125% Payout)


 

 

 

$453,863
(127.4% Payout)


 

Donal J. Sullivan

 

$

356,250

 

 

 

$152,119
(122% Payout)


 

 

 

$54,506
(153% Payout)


 

 

 

$91,913
(129% Payout)


 

 

 

$56,644
(159% Payout)


 

 

 

$111,328
(125% Payout)


 

 

 

$466,509
(131.0% Payout)


 

Luke E. Alverson

 

$

226,600

 

 

 

$165,871
(122% Payout)


 

 

 

$52,005
(153% Payout)


 

 

 

 

 

 

 

 

 

$62,315
(110% Payout)


 

 

 

$280,191
(123.7% Payout)


 

Danielle R. Garde

 

$

214,500

 

 

 

$157,014
(122% Payout)


 

 

 

$49,228
(153% Payout)


 

 

 

 

 

 

 

 

 

$58,988
(110% Payout)


 

 

 

$265,229
(123.7% Payout)


 

Long-Term Equity Incentives  LOGO   LOGO   LOGO

Our LTIP exists to provide senior leaders a long-term, performance-based incentive that promotes building long-term shareholder value. These incentives most directly support our “Align Long-Term Executive and Shareholder Interests” and “Drive Future Performance” compensation objectives. LTIP awards take the form of Company equity, as the Compensation Committee believes that this is the best available vehicle to encourage performance with a view toward building long-term shareholder value.

 

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Executive Compensation

Compensation Discussion and Analysis

 

LTIP Award Structure

Our LTIP consists of two components: performance shares and restricted stock, as shown below.

 

LOGO

In fiscal 2024, all NEOs received their long-term incentive awards in these forms. The Compensation Committee believes these equity award forms and the target weighting appropriately balances ensuring executives have meaningful, long-term equity ownership, promoting stock price-based and financial-based achievements, and aligning the interests of the NEOs with the Company’s risk profile and the interests of our shareholders.

LTIP Target Opportunities

Target Opportunities. The Compensation Committee establishes a target opportunity for each NEO under the Company’s LTIP consistent with the process described above under “The Compensation Decision Making Process.” Our NEOs LTIP target opportunities are expressed as a percentage of base salary. The LTIP target opportunities established for fiscal 2024 are set forth in the table below.

 

Named Executive Officer

   2024 LTIP
Target ($)
     2024 LTIP
Target as %
of Base Salary
     2023 LTIP
Target as %
of Base Salary

Joseph B. Armes

    

 

3,000,000

      

 

375

%

      

 

325

%

James E. Perry

    

 

831,250

      

 

175

%

      

 

175

%

Donal J. Sullivan

    

 

831,250

      

 

175

%

      

 

175

%

Luke E. Alverson

    

 

473,800

      

 

115

%

      

 

115

%

Danielle R. Garde

    

 

448,500

      

 

115

%

      

 

115

%

 

In reviewing the NEO’s LTIP target opportunities for fiscal 2024, the Compensation Committee desired to increase Mr. Armes performance-based compensation and “at risk” pay, based on proximity to market benchmarks and supported by individual performance. As such, Mr. Armes’ LTIP target percentage was increased, and the entirety of the LTIP target percentage increase was allocated to performance shares, increasing

his performance share award allocation to approximately 57% of total LTIP. The Compensation Committee determined that the LTIP targets for other NEOs were within acceptable proximity to market benchmarks and provided performance-based compensation and “at risk” pay consistent with our objectives.

 

 

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Executive Compensation

Compensation Discussion and Analysis

 

Burn Rates and Dilution. The Compensation Committee also evaluates the impact of LTIP target opportunities and actual awards on “burn rates,” which measures the annual dilutive effect on our common stock resulting from shares awarded under our LTIP or otherwise. Generally, the Compensation Committee targets a Company-wide unadjusted “burn rate” of 1.0% or less for all annual grants of equity awards to all participants. Our equity granting practices have stayed well below this target every year since the Company’s inception, and the fiscal 2024 LTIP target opportunities established by the Compensation Committee ensured this practice continued.

Equity Grant Timing and Valuation. The Compensation Committee grants equity awards to NEOs at two points during the year: performance shares are granted in the first quarter of our fiscal year, and restricted stock is granted on or about October 1 (the middle of our fiscal year). The Compensation Committee does not grant equity awards to NEOs or other LTIP participants in anticipation of the release of material nonpublic information. Additionally, the Company does not time the release of material nonpublic information based on the grant date of equity awards.

The material terms and conditions of these equity awards are determined under the provisions of our existing equity compensation plan, which is available on the Company’s website at www.cswindustrials.com under “Investors —Financial Reports and Filings.”

The grant date fair value of the performance share and restricted stock awards granted to the NEOs during fiscal 2023, calculated in accordance with U.S. GAAP pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Compensation—Stock Compensation,” are shown in the “Summary Compensation Table” under the “Stock Awards” column and the accompanying footnotes. The actual award values of the equity awards at grant differ from the “grant date fair value” disclosed in the Summary Compensation Table due to the required accounting methodology, as discussed in footnote 2. Additional information on the awards granted in fiscal 2024 is shown in the “2024 Grants of Plan-Based Awards” table.

 

 

Restricted Stock Awards

 

Award Design. Restricted stock awards in fiscal 2024 maintained all of the design characteristics of the prior year and were otherwise unchanged. The awards vest ratably over a three-year period, delivering a meaningful long-term incentive that balances risk and potential reward. These awards help executives build ownership in the Company, aligning their interests with shareholders, and serve as an effective retention tool, encouraging our executive officers to remain with the Company and perform at high levels. Restricted stock awards are variable compensation, and the Compensation Committee considers them to be “at risk”—no compensation is realized when awards are made, the awards are subject to forfeiture based on employment status, and their future value to the executive is directly determined by the Company’s stock price.

Valuation and Other Terms. For the fiscal 2024 restricted stock awards, the reported value shown in the “Summary Compensation Table” was computed based on the “grant date fair value”, or the price of our common stock on the date of grant multiplied by the number of shares granted. The number of shares granted were computed by dividing target grant values by the volume weighted average trading price of our common stock in the last 20 trading days of August 2023, a methodology we have used since 2016.

Subject to limited exceptions, restricted stock awards are only earned if the individual continues to be employed by the Company through the vesting date. Unvested restricted stock has voting rights and earns dividends, if any, on the same basis as the Company’s outstanding unrestricted common stock.

 

 

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Executive Compensation

Compensation Discussion and Analysis

 

Performance Share Awards

 

Award Design and Performance Metric. Performance share awards in fiscal 2024 maintained all of the design characteristics of the prior year and were otherwise unchanged. The awards cliff vest at the end of a three-year performance period, and they have one performance metric—total shareholder return relative to the members of the FTSE Russell 2000 Index. The Compensation Committee believes using TSR as the sole performance metric supports the Company’s strategic objective of emphasizing growth in excess of market levels and unquestionably aligns our executives’ interests with those of our shareholders. The Compensation Committee believes the use of the Russell 2000 Index for TSR benchmarking is highly relevant, as the Company is a member of the index and competes with other index members for investor capital. Additionally, comparison to a broad index, rather than individually selected companies, better suits the highly diversified nature of the Company’s business and, as a fully objective standard, mitigates risk in the program.

Vesting Matrix. The Compensation Committee establishes a vesting matrix for performance shares when they are granted. This vesting matrix calculates the number of performance shares that vest relative to the number of shares originally granted. Like the AIP, this vesting matrix has an established upper limit and a minimum below which no shares will vest. For fiscal 2024, the vesting matrix established was 0% to 200% of the award value, unchanged from fiscal 2023. The vesting percentage is calculated using the Company’s TSR percentile ranking among the Russell 2000 Index members, and then multiplying the number of performance shares granted by the applicable interpolated vesting percentage, as set forth below:

 

 

LOGO

Relative TSR Percentile Ranking

As noted, the established vesting matrix features a limit on the number of shares that will vest if the Company’s TSR is negative for the performance period. If that occurs, the maximum amount of performance shares that can vest is 100%, even if the Company’s TSR performs above the 50th percentile of the Russell 2000 Index.

Valuation and Other Terms. For the fiscal 2024 performance share awards, the reported value shown in the “Summary Compensation Table” was computed based on the probable outcome of the performance conditions based on a Monte Carlo simulation and the grant date estimate of compensation cost to be recognized over the performance period, which was 144.6% of target, or $200.88 per share. This “grant date fair value” (i.e., 144.6% of the target amount) is reported in the “Summary Compensation Table” for the NEOs’ performance share awards. This reported amount is higher than the actual granted award value (i.e., 100% of the target amount) due to the accounting methodology for calculating this amount, as discussed in footnote 2 to the table.

The number of performance shares granted were computed by dividing target grant values by the volume weighted average trading price of our common stock in the last 20 trading days of March 2023, a methodology we have used since 2016. Performance shares are subject to forfeiture if the executive’s employment is terminated by the Company for cause or by the executive without good reason before the end of the three-year performance period. Until vesting, holders of performance shares do not have voting rights. They also do not receive dividends but are entitled to receive accrued dividend equivalents that vest, if at all, at the same percentage as the underlying award.

 

 

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Executive Compensation

Compensation Discussion and Analysis

 

Additional Executive Compensation Information

Anti-Hedging and Anti-Pledging

Under the Company’s Insider Trading Policy, which is available on our website at www.cswindustrials.com under “Investors —Corporate Governance,” directors, executives and other employees are prohibited from pledging stock, holding Company securities in a margin account, and engaging in transactions (such as trading in options, short sales, and sales “against the box”) designed to hedge against the value of the Company’s common stock.

Stock Ownership Guidelines

Our executive compensation program provides guidelines for executive ownership of Company common stock, expressed as a multiple of annual base salary. The Compensation Committee believes these guidelines encourage the alignment of executive and shareholder interests and promote the Company’s objective of building long-term shareholder value by requiring executives to build and maintain a meaningful stake in the Company.

The stock ownership guidelines are designed to encourage stock ownership at levels high enough to indicate management’s commitment to the Company and share value appreciation, while satisfying an individual executive’s prudent needs for investment diversification. The stock ownership guidelines are set by the Compensation Committee using competitive benchmarking data, and the guidelines are reviewed each year and updated as necessary. There were no changes to the stock ownership guidelines during fiscal 2024.

The Company’s current stock ownership guidelines for the NEOs and the number of shares needed to satisfy the guidelines are shown below.

 

Named Executive Officer

   Ownership Guideline    Ownership Guideline
at 3/31/2024
(# of Shares)(1)
   Current Ownership
(Shares and
Multiple of Salary)(1)

Joseph B. Armes

   6 x Annual Base Salary        20,461        67,044        19.4x

James E. Perry

   3 x Annual Base Salary        6,075        23,674        11.6x

Donal J. Sullivan

   3 x Annual Base Salary        6,075        34,392        16.8x

Luke E. Alverson

   3 x Annual Base Salary        5,269        20,014        11.3x

Danielle R. Garde

   3 x Annual Base Salary        4,988        2,640        1.6x

 

(1)

Based on a price per share of $234.60, the closing price of the Company’s stock on March 31, 2024.

Executives are expected to meet the stock ownership guidelines within five years from the date the guidelines are first applicable. Recognizing the time required to achieve the ownership guidelines, our guidelines contain an interim retention requirement. Specifically, executives who do not yet meet the applicable ownership requirement must retain at least 75% of the vested common stock they receive from equity awards granted from the time the ownership guidelines become applicable, net of any shares used or sold to pay applicable tax withholding. For fiscal 2024, all NEOs satisfied their ownership guideline or retention requirement.

The Compensation Committee periodically reviews the stock ownership guidelines and no less than annually monitors the executives’ progress toward meeting their target ownership levels. Shares held directly by an executive count toward satisfying the requirements, as do unvested restricted stock awards, but unvested equity awards with performance-based vesting conditions do not.

Recoupment of Incentive Compensation Policy

The Company maintains a Nasdaq-compliant Dodd-Frank Recoupment of Incentive Compensation Policy (the “Recoupment Policy”), which reinforces our commitment to our business objectives and core values. Under the Recoupment Policy, the Compensation Committee can “claw back” from an executive certain incentive compensation paid in the past three years if the Company is required to restate its financial statements. If a restatement occurs, the Compensation Committee will require any current or relevant former executive to reimburse the Company when the amount of compensation received was greater than the amount the Compensation Committee believes was actually earned based on the restated financial results. The Recoupment Policy does not require any finding of fault or malfeasance on the part of an executive to support the Company’s demand for recoupment.

 

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   57


Executive Compensation

Compensation Discussion and Analysis

 

Legacy Pension Plans

In connection with our spin-off from Capital Southwest Corporation in September 2015 (the “Spin-Off”), the Company assumed administrative responsibility and liability for certain legacy pension plans and the associated benefits payable to participating employees. On January 1, 2015, the legacy pension plans were closed to new participants. At the Spin-Off, the Company froze the legacy pension plans, and future benefits to plan participants ceased to accrue as of that date. Mr. Armes is the only NEO who accrued benefits under the legacy plans as part of his prior employment with Capital Southwest Corporation. In September 2019, the Company terminated the legacy pension plans.

The legacy pension plans included a qualified defined benefit, non-contributory retirement plan, as well as a restoration plan that provided benefits to the plan participants in the qualified plan to fulfill the intent of the qualified plan without regard to limitations under the Internal Revenue Code of 1986, as amended (the “Code”). The retirement benefits payable under the legacy pension plans depended on the participant’s years of service and their final average monthly compensation determined by averaging the five consecutive years of highest compensation prior to retirement. The amount of legacy pension plan benefits attributable to Mr. Armes as of March 31, 2024, and prior to the plan termination is shown in the “Pension Benefits” table below.

Other Benefits

As previously discussed, the Compensation Committee strives to make our executive compensation program primarily performance-based and, as such, does not provide perquisites for our executive officers other than benefits generally provided to all employees. Our executive compensation program from time to time may provide limited other benefits that the Compensation Committee determines to be competitive with the level of benefits offered by the companies with which we compete for executive talent. Any such benefits would serve to meet our stated objective of attracting and retaining executive talent. In addition, some benefits may, in the Compensation Committee’s view, be provided for the Company’s benefit, notwithstanding any personal benefit an executive may derive. No such other benefits were provided in fiscal 2024.

Chief Executive Officer Compensation in Fiscal 2024

The Compensation Committee set our CEO’s compensation in a manner consistent with our compensation philosophy and the general compensation objectives and principles discussed above. In the interest of providing shareholders with a better understanding of Mr. Armes’ compensation for fiscal 2024, we are providing the following discussion and analysis.

Employment Agreement

On October 1, 2015, the Company entered into an employment agreement with Mr. Armes. The employment agreement provides that Mr. Armes will serve as Chief Executive Officer of the Company and that the Board will nominate Mr. Armes for election to the Board during the term of the agreement. The employment agreement had an initial term of two years, but the term automatically extends for additional one-year periods unless Mr. Armes’ employment is terminated as provided in the employment agreement.

Base Salary and Incentive Opportunities

Base Salary

During fiscal 2024, Mr. Armes’ base salary was increased by 14.3% to $800,000. As discussed previously, this increase was made to address proximity to competitive market benchmarks, consistent with our stated executive compensation objectives and principles and supported by Mr. Armes’ performance.

 

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Executive Compensation

Compensation Discussion and Analysis

 

AIP Target and Fiscal 2024 Award

During fiscal 2024, Mr. Armes’ target AIP opportunity was maintained at 130% of base salary. After performance results for the fiscal year were confirmed, the Compensation Committee approved a total AIP payout of $1,324,960 or 127.4% of target, broken down as follows:

 

Metric

   Amount ($)      Weight      Payout

Consolidated EBITDA

       761,280          60 %          122 %

Consolidated Operating Cash Flow

       238,680          15 %          153 %

Individual Performance

       325,000          25 %          125 %

LTIP Target and Fiscal 2024 LTIP Awards

Annual LTIP Awards. During fiscal 2023, Mr. Armes’ target LTIP opportunity was increased to 375% of base salary from 325% of base salary, based on an analysis of comparative market data and to increase his performance-based compensation and “at risk” pay. As discussed above, the entirety of this LTIP target percentage increase was allocated to performance shares, bringing his LTIP award mix to 57% performance shares and 43% restricted stock. This made a majority (56.6%) of Mr. Armes’ total target compensation performance-based and increased his percentage of “at risk” pay to 83.5%.

Accordingly, Mr. Armes received an award of 12,422 performance shares in May 2023 ($1,700,000 target award value), and an award of 7,063 shares of restricted stock in October 2023 ($1,300,000 target award value). Mr. Armes did not receive any special equity awards outside of the LTIP in fiscal 2024.

Benefits Upon Termination

Under Mr. Armes’ employment agreement, if his employment is terminated due to death or disability, Mr. Armes will receive (1) his base salary and any unpaid benefits (including death benefits) through the date of termination; (2) the AIP cash payment related to the previous year, if the date of termination is after the end of a fiscal year but before the Company pays AIP cash incentives; and (3) a prorated AIP cash payment related to the then-current fiscal year, if the date of termination is before the end of a fiscal year. Additionally, all of Mr. Armes’ unvested equity-based awards will immediately vest in full, except for performance-based awards, which will vest when and to the extent that the performance conditions have been satisfied. Any options he holds will remain exercisable for one year following the date of termination.

If Mr. Armes’ employment is terminated by the Company without “cause” or by Mr. Armes for “good reason,” Mr. Armes will receive (1) his base salary and any unpaid benefits through the date of termination; (2) a lump sum payment equal to two times the sum of (a) his then-current base salary or any higher base salary that was in effect during the 12 months prior to the date of termination, and (b) the greater of his annual AIP payment for the prior fiscal year or his target AIP incentive for the current year; (3) the AIP cash payment related to the previous year, if the date of termination is after the end of a fiscal year but before the Company pays AIP cash incentives; (4) a prorated AIP cash payment related to the then-current fiscal year, if the date of termination is before the end of a fiscal year; and (5) continued medical and dental insurance for him and his dependents for 24 months following the date of termination. Additionally, and with certain exceptions related to Mr. Armes’ Special Equity Grant, all of Mr. Armes’ unvested equity-based awards will immediately vest in full, except for performance-based awards, which will vest when and only to the extent that the performance conditions have been satisfied.

If Mr. Armes’ employment is terminated by the Company for “cause” or by Mr. Armes without “good reason,” Mr. Armes will receive only his base salary and any unpaid benefits through the date of termination.

Additionally, Mr. Armes participates in the Company’s Executive Change in Control and Severance Benefit Plan (the “CIC and Severance Plan”). To the extent the provisions of the CIC and Severance Plan are more beneficial to Mr. Armes than the terms set forth in his employment agreement, such provisions would apply in the applicable termination scenario.

The employment agreement also provides that Mr. Armes will not engage in activities that are competitive with the Company’s business or solicit any key employees of the Company to leave or accept employment with another company for 24 months following the date of termination.

 

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   59


Executive Compensation

Compensation Discussion and Analysis

 

Executive Change in Control and Severance Benefit Plan

The Company maintains the CIC and Severance Plan. This plan is publicly filed, and its features are described more fully under “Potential Payments upon Termination or Change-In-Control—CSW Industrials, Inc. Executive Change in Control and Severance Benefit Plan” below. The Compensation Committee believes that this plan benefits shareholders in providing consistency and transparency in severance benefits if an executive officer’s employment is terminated, and also supports alignment between executive interests and shareholder interests should a transformative transaction arise that is in shareholders’ best interests.

Review and Assessment of Compensation Under Termination Scenarios

The Compensation Committee regularly reviews each NEO’s total compensation under several scenarios including a change-in-control of the Company, termination of employment by the Company, and resignation or retirement by the executive. Tally sheets setting forth all the listed scenarios are prepared by management and reviewed by the Compensation Committee with input from NFP. Based on its most recent review of the tally sheets, the Compensation Committee determined that the potential payments that would be provided to the NEOs were consistent with our executive compensation objectives and principles.

Executive Compensation Program Changes for Fiscal 2025

For the benefit of our shareholders, we summarize below certain changes and other matters that the Compensation Committee has approved regarding our fiscal 2025 executive compensation program. These and any other fiscal 2025 compensation program changes will be discussed in further detail in our proxy statement for the 2025 annual meeting of shareholders.

Annual Incentive Plan Changes

Metric Target Setting Process. For fiscal 2025, the Compensation Committee has approved a return to annual target setting for our AIP performance metrics. Our AIP has used a more-frequent-than annual target setting process for performance metrics since the beginning of the COVID-19 pandemic in fiscal 2021, as it has provided an artful solution to target setting challenges that existed in the face of pandemic-related business disruptions, heightened macroeconomic uncertainty, and changes in our business resulting from significant acquisitions.

The Compensation Committee, with the support of NFP and management, believes returning to an annual target setting approach in fiscal 2025 is appropriate at this time given the Company’s demonstrated ability to perform at a high level through market cycles. The Compensation Committee will continue to adhere to our compensation objectives and principles in fiscal 2025, including ensuring that performance targets for all financial metrics used in our AIP are set at objective, challenging levels that require significant effort and achievement by our NEOs for a target payout to occur.

Payout Matrix Update. For fiscal 2025, the Compensation Committee has approved a ratable narrowing of the AIP’s payout matrix for the EBITDA and Operating Cash Flow financial metrics. Consistent with the philosophy and approach used in fiscal 2024, the Compensation Committee will continue to evaluate our threshold performance levels to ensure an appropriate level of rigor for minimum payout is maintained, and that maximum performance remains a realistic probability to motivate overperformance for shareholders’ benefit.

Long-Term Incentive Program Changes

Performance Share Vesting Matrix. For fiscal 2025, the Compensation Committee has approved modifying the vesting matrix for performance shares to increase the level of performance required for a target (or 100%) payout. Performance shares will now achieve a target payout if the Company achieves a relative TSR ranking at the 51st percentile among the Russell 2000 Index members. While this increase in the target performance standard is modest, the Compensation Committee believed it was more consistent with our compensation philosophy to require greater than median relative performance for a target payout to be achieved.

 

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Executive Compensation

Summary Compensation Table

 

Summary Compensation Table

The following table sets forth compensation information for our NEOs—the individuals who served during fiscal 2024 as principal executive officer and principal financial officer of the Company, and the other most highly compensated executive officers of the Company serving at the end of fiscal 2024.

 

Name and

Principal Position

Year(1) Salary
($)
Bonus
($)
Stock
Awards
($)(2)
Non-Equity
Incentive Plan
Compensation
($)(3)
Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings
($)(4)
All Other
Compensation
($)(5)
Total
($)

Joseph B. Armes 

Chairman, CEO and President

  2024   800,000     3,733,051 (6)    1,324,960   3,022   102,212   5,963,245
  2023   700,000     2,251,035   1,223,950     101,502   4,276,487
  2022   600,000     15,314,974   1,029,990     98,133   17,043,097

James E. Perry

Executive VP, CFO

  2024   475,000     1,005,765 (7)    453,862     75,881   2,010,508
  2023   450,000     927,762   424,407     77,719   1,879,888
  2022   380,000     851,357   376,343     74,200   1,681,900

Donal J. Sullivan

Executive VP, Chief Strategy Officer

  2024   475,000     1,005,765 (8)    466,510     71,709   2,018,984
  2023   450,000     1,086,290   451,491     76,705   2,064,486
  2022   400,000   11,050   942,822   388,950     75,038   1,817,860

Luke E. Alverson

Senior VP, General Counsel and Secretary

  2024   412,000     573,257 (9)    280,191     77,010   1,342,458
  2023   375,000     436,848   243,891     78,308   1,134,047
  2022   325,000     384,882   236,039     74,167   1,020,088

Danielle R. Garde

Senior VP, Chief People Officer

  2024   390,000     542,860 (10)    265,230     75,859   1,273,949
 

 

2023

 

 

 

 

178,125

 

 

 

 

 

 

 

 

194,046

 

 

 

 

243,891

 

 

 

 

 

 

 

 

12,624

 

 

 

 

628,686

 

 

 

(1)

The Company’s fiscal year begins April 1 and ends March 31.

 

(2)

Represents the grant date fair value of long-term equity incentive awards under the Company’s LTIP computed in accordance with FASB ASC 718 “Compensation—Stock Compensation,” including the impact of forfeitures. The incentive awards are granted in the form of restricted stock, which generally vest ratably over a three-year period, and performance shares. The performance criteria for the performance share awards is based on the Company’s TSR over a three-year period compared to the TSR of the Company’s applicable benchmark group for the same period, as described in further detail under “Executive Compensation Program—Long-Term Equity Incentives—Performance Share Awards” above. The reported value of the performance unit awards is computed based on the probable outcome of the performance conditions based on a Monte Carlo simulation and the grant date estimate of compensation cost to be recognized over the performance period, which was 144.6% of target, or $200.88 per share. Payout for the performance share awards can range from 0% to a maximum of 200%. Assumptions used in the valuations are discussed in Note 6 to the Company’s audited consolidated financial statements for the year ended March 31, 2024, in the Annual Report.

 

(3)

The amounts in this column include an annual cash incentive bonus for fiscal 2024 under the Company’s AIP that was earned in fiscal 2024 but paid in fiscal 2025.

 

(4)

Reflects the annualized change in pension value under the restoration plan. There are no above-market or preferential earnings on compensation deferred under the restoration plan.

 

(5)

The components of this column for fiscal 2024 are set forth in the table below, calculated at the aggregate incremental cost to the Company (all in U.S. dollars):

 

Name

 

Retirement Plan
Contributions

($)(A)

 

ESOP
Contributions

($)(B)

 

Insurance
Premiums

($)(C)

 

Dividends
Paid

($)(D)

 

Total

($)

Joseph B. Armes

      29,700       19,800       16,587       36,125       102,212

James E. Perry

      30,075       19,800       21,228       4,778       75,881

Donal J. Sullivan

      30,046       19,800       16,622       5,241       71,709