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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

(Amendment No.      )

Filed by the Registrant                             Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to §240.14a-12

PARKER-HANNIFIN CORPORATION

(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 all boxes that apply):

 

No fee required.

 

Fee paid previously with preliminary materials.

 

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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PARKER

HANNIFIN

PROXY

STATEMENT        

 

 

 

 

   LOGO                         

  

 

 

LOGO

 

ENGINEERING YOUR SUCCESS.      


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Parker-Hannifin Corporation is a Fortune 250 global leader in motion and control technologies. For more than a century, the company has engineered the success of its customers in a wide range of diversified industrial and aerospace markets.

 

The Win Strategy -  

The Win Strategy is Parker’s business system that defines the goals and initiatives that drive growth, transformation and success.

 

 

LOGO

 

Our Values -  

Our values shape our culture and our interactions with stakeholders and the communities in which we operate and live.

 

    

    

    

   

  

Winning Culture

 

We insist on integrity and ethical behavior and we value compassion, respect and inclusion in all aspects of our global business. We seek to raise the quality of life through responsible, global stewardship.

    

 

Passionate People

 

We are empowered – every idea counts and every role has a voice. We are committed to safety and realize the value of our collective efforts. We believe our strength comes from the relationships and trust we establish with each other, our customers, suppliers, distributors and the world we serve.

 

 

 

  

    

    

    

 
  

Valued Customers

 

We partner with our customers to increase their productivity and profitability, ensuring their success as well as ours. We are committed to serving our customers through innovation, value creation and the highest quality system solutions.

    

 

Engaged Leadership

 

We lead by example, demonstrating our values in all circumstances and at all times. Our character, experience and abilities are the foundation of Parker’s operational excellence. We hold ourselves accountable for achieving the results our stakeholders expect. We listen to and encourage one another, and take pride in our growth and accomplishments.

 

 
    

    

    

 

Our Purpose -  

Our purpose provides inspiration and direction for our team members and highlights how we can have a positive impact on the world.

ENABLING ENGINEERING

BREAKTHROUGHS THAT

LEAD TO A BETTER TOMORROW.

 


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Parker-Hannifin Corporation

6035 Parkland Boulevard, Cleveland, Ohio, 44124-4141

NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS

 

 

   LOGO

  DATE AND TIME   

 

LOGO

  ADDRESS   

 

LOGO

  RECORD DATE
 

 

October 26, 2022 (Wednesday)
9:00 AM EDT

 

 

Parker-Hannifin Corporation

6035 Parkland Boulevard
Cleveland Ohio, 44124

 

 

September 2, 2022

To Our Shareholders:

You are cordially invited to attend the Annual Meeting of Shareholders of Parker-Hannifin Corporation. The meeting will be held at our headquarters located at 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, on Wednesday, October 26, 2022, at 9:00 a.m., Eastern Time, for the following purposes:

Voting Items

 

           
  1      Election of Directors   2   Approval of the Compensation of Our Named Executive Officers on a Non-Binding, Advisory Basis   3   Ratify the Appointment of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm
   
  LOGO     

FOR each director nominee

 

LOGO

 

FOR

 

LOGO

 

FOR

and to transact such other business as may properly come before the meeting.

Shareholders of record at the close of business on September 2, 2022 are entitled to vote at the meeting. On September 2, 2022, 128,460,821 shares were outstanding and entitled to vote at the meeting. Each share is entitled to one vote. This Proxy Statement and the form of proxy are being mailed to shareholders on or about September 23, 2022. Your vote is important, so if you do not expect to attend the meeting, or if you do plan to attend but wish to vote by proxy, please mark, date, sign and return the enclosed proxy card promptly in the envelope provided or vote electronically via the internet or by telephone in accordance with the instructions on the proxy card. Please refer to the section “General Information About the Annual Meeting” for more information.

Thank you for your support of Parker-Hannifin Corporation.

By Order of the Board of Directors

 

LOGO

Joseph R. Leonti

Secretary

September 23, 2022

 

  How to Vote              
    LOGO  

VOTE VIA INTERNET

www.proxyvote.com

  LOGO  

VOTE BY

PHONE

800-690-6903

  LOGO  

VOTE BY MAIL

Vote Processing

c/o Broadridge 51 Mercedes Way, Edgewood, NY 11717

       LOGO     

VOTE AT THE MEETING

Parker-Hannifin Corporation 6035 Parkland Boulevard Cleveland Ohio, 44124

   

    

               

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on October 26, 2022.

 

This Proxy Statement, along with our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, is available free of charge on our investor relations website (www.phstock.com).

 

 

 

2022 Proxy Statement   1
  


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TABLE OF CONTENTS

 

3   

Our Company

3   

Business Highlights and Performance

4   

Executive Compensation Highlights

5   

Environmental, Social and Governance Highlights

10   

Shareholder Engagement Highlights

11    Proxy Statement Summary/
Voting Roadmap
12    LOGO      Item 1 – Election of Directors
13   

Director Selection and Nomination, Qualifications

and Diversity

14   

Director Skills and Experience

15   

Director Biographies

15   

Nominees for Election as Directors for Terms Expiring

in 2023

21   

Director Independence

21   

Annual Elections; Majority Voting; No Cumulative Voting

21   

New Elections and Departures

22   

Corporate Governance

22   

Board and Committee Structure

22   

Current Leadership Structure

23   

Board Committees; Committee Charters

24   

Meetings and Attendance; Executive Sessions

25   

Director Education and Orientation Program

25   

Board and Committee Evaluations

26   

Board Strategic and Risk Oversight

26   

Board’s Role in Strategic Oversight

27   

Board’s Role in Risk Oversight

28   

Spotlight: Oversight of Cybersecurity

28   

Spotlight: Succession Planning

28   

Spotlight: Board’s ESG Oversight

30   

Communications with Directors

30   

Other Governance Matters

30   

Review and Approval of Transactions with

Related Persons

31   

Proxy Access

31   

Stock Ownership Guidelines

31   

Stock Ownership Restrictions - Speculative Transactions/Hedging

31   

Governance Documents

32   

Director Compensation

32   

Compensation of Directors

33   

Director Compensation for Fiscal Year 2022

34   

Executive Compensation

34    LOGO      Item 2 – Advisory Vote to
Approve Named Executive
Officer Compensation
35   

Compensation Discussion & Analysis

35   

Named Executive Officers

35   

Executive Summary

40   

Compensation Setting Process

45   

Principal Elements of Executive Compensation

58   

Other Compensation Policies and Practices

60   

Accounting and Tax Considerations

60   

Compensation Committee Report

61   

Compensation Tables

61   

Summary Compensation Table for Fiscal Year 2022

63   

Grants of Plan-Based Awards for Fiscal Year 2022

65   

Outstanding Equity Awards at June 30, 2022

67   

Option Exercises and Stock Vested for Fiscal Year 2022

68   

Pension Benefits for Fiscal Year 2022

69   

Nonqualified Deferred Compensation for
Fiscal Year 2022

70   

Potential Payments Upon Termination or Change of
Control at June 30, 2022

77   

Chief Executive Officer Pay Ratio

78    LOGO      Item 3 – Ratification of the Independent Registered Public Accounting Firm
78   

Audit Fees and All Other Fees

79   

Audit Committee Pre-Approval Policies and Procedures

79   

Report of the Audit Committee

80   

Beneficial Ownership of Common Stock

80   

Principal Shareholders

81   

Delinquent Section 16(a) Reports

82   

General Information About the

Annual Meeting

83   

Other Matters

83   

General

85   

Shareholders’ Proposals

85   

Shareholder Recommendations for Director Nominees

 

 

 

 
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OUR COMPANY

Parker-Hannifin Corporation is a Fortune 250 global leader in motion and control technologies. For more than a century, the company has engineered the success of its customers in a wide range of diversified industrial and aerospace markets.

The following sections provide highlights from our fiscal year 2022 across matters of importance to our shareholders, including business and financial performance, executive compensation, our environment, social and governance (“ESG”) program and shareholder engagement.

Business Highlights and Performance

Fiscal year 2022 was a year marked by significant macroeconomic headwinds, including inflation, supply chain constraints, international conflict and ongoing COVID-19 challenges. Nonetheless, The Win Strategy drove sustained profitable growth and strong financial performance as compared to our diversified industrial proxy peers. The actions taken under The Win Strategy to strengthen our portfolio and improve our performance have built a business that we believe is better equipped than ever before to be resilient across macroeconomic cycles. Our Purpose Statement: Enabling Engineering Breakthroughs that Lead to a Better Tomorrow continued to provide inspiration and direction for our team members, and represents how we can strengthen our communities and have a positive impact on the world.

In fiscal year 2022, we delivered strong financial performance and value for our shareholders, including:

 

LOGO

   

LOGO

   

LOGO

   

LOGO

 

Sales            

    Cash Flow from      

Operations

    Continued Dividend Increase        

Meggitt

Acquisition    

 

 $15.86B

  TOTAL NET SALES
  WERE A RECORD AT

  $15.86 BILLION

 

$2.44B

CASH FLOW FROM
OPERATING ACTIVITIES
(CFOA) WAS 15.4% OF SALES
AT $2.44 BILLION

 

66th YEAR

INCREASED ANNUAL
DIVIDEND PER SHARE
FOR THE 66TH YEAR
IN A ROW

  ANNOUNCED
ACQUISITION OF
MEGGITT PLC (WHICH
WAS COMPLETED ON
SEPTEMBER 12, 2022)

 

2022 Proxy Statement   3
  


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Our Company

 

 

Executive Compensation Highlights

The tables below highlight the performance-based nature of our compensation program and how our program aligns with what we view as executive compensation best practices.

Elements of Executive Compensation

 

     Elements of Compensation    Purpose
 Fixed    Base Salary         Attracts, retains and motivates the highly-talented and values-driven individuals we need to advance the goals of The Win Strategy
   Annual Cash Incentive    RONA Bonuses (General and Converted)    Incentivizes executive officers to maximize return on net assets (“RONA”) by focusing on various key business strategies, such as value pricing and strategic supply chain, market-driven innovation, system solutions and strong distribution channels
     

 

      Target Incentive Bonuses    Incentivizes executive officers to maximize free cash flow by focusing on various key business strategies, such as continuous improvement in net income, lean initiatives, inventory controls, collection of receivables, control of payables and capital expenditures, and the ability to finance dividends, acquisitions and product innovations
     

 

 Variable/

 At-Risk

      Profitable Growth Incentive Plan*    Incentivizes executive officers to maximize sales growth (organic and through acquisitions) by focusing on various key business strategies, such as profitable and sustainable sales growth
  

 

  

Long-

Term Equity Incentive

   Long Term Incentive Performance (“LTIP”) Awards    Incentivizes executive officers to maximize long-term sales growth, earnings per share (“EPS”) growth, and growth in average return on invested capital (“ROIC”) by focusing on various key business strategies, such as market-driven innovation, on-time delivery of quality products, value-added services and systems, strategic supply chain, lean enterprise, value pricing and profitable growth
     

 

          Stock Incentives/ Stock Appreciation Rights (“SARs”)    Incentivizes executive officers to maximize our stock price by focusing on various key business strategies, such as sustained profitable growth and financial and operational performance that contribute to appreciation of our stock price

 

*

Officer participation in our Profitable Growth Incentive Plan is limited to our operating group presidents.

Executive Compensation Practices

 

  LOGO   What We Do          LOGO   What We Don’t Do

LOGO  Executive compensation program with pay-for-performance structure aligned with The Win Strategy

 

LOGO  The target total direct compensation package for our Chief Executive Officer is a mix of 9% fixed and 91% at-risk, and for our other Named Executive Officers is an average mix of 18% fixed and 82% at-risk

 

LOGO  Annual advisory vote on executive compensation with consistent high degree of approval

 

LOGO  One-year minimum vesting or performance period requirements for equity incentives under our Amended and Restated 2016 Omnibus Stock Incentive Plan “

 

LOGO  Claw back” policy to recover or withhold incentive-based compensation to executive officers in certain circumstances

 

LOGO  Anti-hedging and anti-pledging policy for Directors and executive officers

 

LOGO  Robust Stock Ownership Guidelines for executive officers and Directors

    

LOGO   Offer employment agreements to our executives

 

LOGO   Offer above-market earnings on contributions to deferred compensation accounts

 

LOGO   Grant stock options or SARs with an exercise price less than the fair market value of Parker’s common stock on the date of grant

 

LOGO   Re-price stock options or SARs

 

LOGO   Cash out underwater stock options or SARs

 

LOGO   Include reload provisions in any stock option or SAR grant

 

LOGO   Permit directors or employees, or their respective related persons, to engage in short sales of Parker’s stock or to trade in instruments designed to hedge against price declines in Parker’s stock

 

LOGO   Permit directors or officers to hold Parker securities in margin accounts or to pledge Parker securities as collateral for loans or other obligations

 

 
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Our Company

 

 

Environment, Social and Governance Highlights

Our ESG program includes a range of initiatives around corporate social responsibility and sustainability, taking into account the interests of our key stakeholders, including our shareholders, team members, customers and communities. Issues that we focus on include, among others, workplace health and safety, climate risk, water conservation, human capital management, diversity, equity and inclusion, cyber security, and business ethics and compliance. For information on Board and Committee ESG oversight responsibilities, see “Board’s Role in Risk Oversight” on page 27 of this Proxy Statement.

We publish our Sustainability Report in line with Sustainability Accounting Standards Board (SASB) standards, addressing the many ways in which we apply our core technologies to make a positive impact on the world, including through our team members, social responsibility, environmental initiatives, product stewardship, and governance, ethics and compliance. Selected aspects of our most recent Sustainability Report are highlighted below.

We are proud of our corporate social responsibility and sustainability accomplishments, but recognize that best practices in ESG integration and reporting frameworks continue to evolve. While there is more work to be done, we are confident in our strategy of achieving business success through social responsibility and sustainable business practices:

Environment

 

 
   Environmental    Stewardship     

We are committed to driving sustainable, long-term growth and doing so in a way that makes the world a better place.

 

   We are committing to achieve carbon neutral operations by 2040. To ensure continued progress in minimizing our carbon footprint, we established a series of emissions targets, which include:

 

   Reducing absolute emissions directly from our operations by 50% by 2030; and

 

   Reducing indirect absolute emissions related to materials sourcing, logistics and services by 15% by 2030, and by 25% by 2040.

 

   We have reported energy and emissions data to the Carbon Disclosure Project (“CDP”) since 2008.

   Water

   Conservation

    

   We recognize that water is becoming a critical resource and is in short supply in certain parts of the world. As a result, Parker has launched a new water conservation initiative that targets high risk and high volume facilities.

 

   Our goal is to implement water management best practices at 100% of sites in water-scarce locations by 2030 based on the definition by the World Resources Institute.

   Waste and Materials

   Management

    

   We manage materials and waste responsibly and in accordance with applicable laws in the communities in which we operate. We have steadily reduced our hazardous waste production through the years and we have systematically upgraded our hazardous materials storage to minimize potential for releases to the environment.

 

   Our Simple by Design innovation methods as well as our focus on kaizen process improvements promote the reduction of waste in all aspects of our manufacturing process.

 

2022 Proxy Statement   5
  


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Our Company

 

 

 

   Supplier

   Partnerships

    

   We recently implemented several supply chain initiatives to reduce our environmental footprint. This includes leveraging sustainable transport methods to reduce emissions associated with air freight, as well as transitioning to electronic documentation to reduce paper waste. Through kaizen initiatives, our team members continue to develop innovations to help achieve our environmental stewardship goals.

 

   Since 2013, we have been a member of the U.S. Environmental Protection Agency SmartWay® Transport Partnership aimed at identifying technologies and strategies to reduce carbon emissions and set goals and track progress towards reducing fuel consumption and improve the efficiency of freight transport.

 

   Our global supply chain team employs dual sourcing and other risk management strategies to ensure the availability of materials needed for production. We also require our suppliers to comply with all laws and regulations related to human rights, resource conservation and other environmental and legal requirements.

   Technologies

   Enabling a Better

   Tomorrow

    

   Our interconnected portfolio of technologies features a broad range of highly efficient solutions engineered to improve performance and efficiency and to help end users reduce resource consumption and greenhouse gas emissions.

 

   We deliver components and systems that enable the adoption of cleaner and more efficient energy, electrification, light weighting and other innovations to provide a more positive, global environmental impact to companies across the industrial, mobile and aerospace markets, including:

 

   A comprehensive suite of engineered materials such as thermal management, coatings, adhesives and vibration control that enable more electric applications.

 

   A broad range of motion and control technologies to support the use of various clean energy sources such as batteries, fuel cells, hydrogen, sustainable fuels and renewable energy.

 

   A strong motion technology offering with electro-hydraulic, electromechanical, and pneumatic actuators, valves, pumps, motors, controllers, software and conveyance for more electric aerospace, mobile and industrial applications.

 

   A broad platform of filtration technologies to accelerate a cleaner and more sustainable world.

 

 
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Our Company

 

 

Social

 

 
   Safety      Safety is a core value that all team members share, and our goal is to achieve a zero-incident workplace. To measure our safety progress, we have established long-term safety targets. Our goals is to have zero recordable incidents by 2030. We have reduced our Recordable Incident Rate by 72% from 2015 through 2022 and our Lost Time Incident Rate by 44% in the same time period.

   Diversity, Equity

   and Inclusion

    

An inclusive environment is a core tenet of our values and one of our key measures of success within The Win Strategy. In 2020, we appointed our first Vice President of Diversity, Equity and Inclusion (“DEI”) to lead an ongoing commitment to an inclusive and welcoming workplace. We also established four global Diversity, Equity and Inclusion High Performance Teams (“HPTs”) focused on Talent Attraction, Talent Development, Governance and Knowledge. Each team is led by a senior executive and tasked with improving the way we attract and develop diverse team members, design education and awareness opportunities, and define sustainable progress measures in fostering an inclusive culture.

 

A component of our DEI program focus is to support the development and deployment of Business Resource Groups (“BRGs”). Our first BRG, Peer W, was established in 2015 to support the attraction, development and retention of women at Parker. Peer W has grown into a well-developed global network of 24 local chapters and established a Mentoring Circles program in 2020. In 2021, we introduced and launched two additional BRGs which are the Nia Network, supporting the attraction, development and retention of Black team members, and Parker Next, dedicated to our team members’ professional growth and personal development.

 

Our focus on DEI is to promote a strong, cohesive work environment that will provide us the best talent and further strengthen our organization for future success. Maintaining a strong DEI program starts with our leadership and is reflected in our CEO’s statement on diversity, equity and inclusion: Continually Build Upon the Diversity, Equity and Inclusion of Our Global Team to be Reflective of the Communities in Which We Do Business.

   Social

   Responsibility

    

Our social responsibility strategy, with the support of the Parker-Hannifin Foundation, empowers team members to make a difference in the communities we call home. The Parker Foundation has three areas of focus:

 

   STEM EDUCATION: Supporting schools, universities and community agencies to promote access to science, technology, engineering and mathematics education, and the resources and support needed to thrive in the classroom.

 

   COMMUNITY NEEDS: Supporting our team members, families and neighbors by contributing to the advancement and well-being of our communities.

 

   SUSTAINABILITY: Supporting long-term efforts to build sustainable communities, address key societal issues and create a better tomorrow.

 

For nearly 70 years, the Parker-Hannifin Foundation has extended the goodwill of our team members with donations that benefit the communities where we operate. Through our Parker Foundation programs, we have donated over $70 million since 2010, including $7 million in 2022.

 

2022 Proxy Statement   7
  


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Our Company

 

 

Governance

 

 

   Board Diversity

   and Composition

    

Our Board of Directors is committed to sound corporate governance practices, promoting the long-term interests of our shareholders and holding itself and management accountable for our performance.

 

The metrics included in the graphic below reflect the Board structure and composition of our twelve current Directors. Each Director brings his or her own unique background and range of expertise, knowledge and experience, which we believe provides an optimal and diverse mix of skills and qualifications necessary for our Board to effectively fulfill its oversight responsibilities.

 

 

LOGO

 

 

 
8    LOGO


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Our Company

 

 

 

   Board and

   Committee

   Practices

    

   Modified our Corporate Governance Guidelines and the charters of our Audit, Corporate Governance and Nominating and Human Resources and Compensation Committees to expressly identify the specific areas of ESG oversight responsibility of the full Board and each Committee.

 

   Director retirement is mandatory (with no exceptions or conditions) after reaching age 72

 

   Robust stock ownership guidelines for our Directors and executive officers (all of whom are compliant with such guidelines)

 

   Annual Board, Committee and individual Director evaluations

 

   Annual review of our Chief Executive Officer by all independent Directors

 

   None of our Directors are “overboarded” – three do not sit on any other public company boards, seven sit on one other public company board, one sits on two other public company boards, and one sits on three other public company boards

 

   Each of our Directors attended more than 94% of his or her meetings of our Board of Directors and his or her Committee meetings during fiscal year 2022

 

   Each Committee of our Board of Directors has a published charter that is reviewed and evaluated at least annually

   Shareholder Rights       

   Annual election of all Directors

 

   Majority voting and resignation policy for uncontested Director elections

 

   Proxy access permitted for eligible shareholders

 

   Board

   Independence

    

   Board Committees are 100% comprised of independent Directors

 

   Independent Directors meet regularly and frequently (at least four times per year) without management

 
   Oversight of Risk     

   Our Chairman of the Board and Lead Director ensure the entire Board of Directors maintains regular oversight of key risk areas, such as corporate strategy, management succession planning, cyber security, enterprise risk management, and ESG matters. For more information on the Board’s oversight responsibilities, see pages 26-29 of this Proxy Statement.

   Guidelines and

   Codes of Conduct

    

   Published Global Code of Business Conduct applicable to our Board of Directors

 

   Published Corporate Governance Guidelines

 

2022 Proxy Statement   9
  


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Our Company

 

 

Shareholder Engagement Highlights

We actively seek and highly value feedback from our shareholders. During fiscal year 2022, in addition to our traditional investor relations outreach efforts, we proactively reached out to shareholders representing over 51% of our outstanding common stock to engage with them on ESG matters. We engaged with each shareholder that accepted our invitation.

 

  We Sought Input from Shareholders
  Representing
   Company Representatives    Topics Discussed    Feedback/Actions Informed by
Feedback

 

 

   LOGO

  

 

   General Counsel
and Secretary

 

   Investor Relations

 

   Other members of Senior Management, including our Environmental, Health and
Safety (“EHS”) leader

  

 

Governance Topics

 

   Our commitment to performance- based executive compensation

 

   Board refreshment and diversity

 

   Board composition &
leadership structure

 

   Board risk oversight

 

   COVID-19 response

 

Sustainability Topics

 

   Environmental / Climate goals
and strategies

 

   Environmental reporting frameworks

 

   Human capital management matters, including labor
market challenges

 

  

 

   Supportive of recent director refreshment efforts

 

   Positive feedback on our climate commitments and reporting frameworks

 

   Published additional EEO-1 workforce data in our Sustainability Report

We also shared the feedback received during these meetings with our Corporate Governance and Nominating Committee, our Human Resources and Compensation Committee and our full Board of Directors. As a result of our shareholder engagement efforts and the feedback we received, we strengthened our disclosures in this Proxy Statement and our Sustainability Report.

 

 
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PROXY STATEMENT SUMMARY/

VOTING ROADMAP

This summary highlights certain information relating to the voting items for our 2022 Annual Meeting of Shareholders. Additional details are found throughout this Proxy Statement.

 

 

 

 

 

Item 1 – Election of Directors

  Shareholder approval is sought to elect the following directors for a term that will expire at our Annual Meeting of Shareholders in 2023:
 

   Lee C. Banks

  

   Linda A. Harty

  

   Joseph Scaminace

  

   James R. Verrier

 

   Jillian C. Evanko

  

   William F. Lacey

  

   Åke Svensson

  

   James L. Wainscott

 

   Lance M. Fritz

  

   Kevin A. Lobo

  

   Laura K. Thompson

  

   Thomas L. Williams

 

 

 

LOGO   

 

 

The Board of Directors unanimously recommends a vote “FOR” each of the nominees to the Board of Directors.

See page 12 for details

 

 

 

 

 

 

Item 2 – Proposal to Approve the Compensation of our
Named Executive Officers on a Non-Binding, Advisory Basis

 

 

 

  In accordance with the requirements of Section 14A of the Securities Exchange Act of 1934 and the related SEC rules, we are providing our shareholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of the Named Executive Officers as disclosed in this Proxy Statement. We encourage our shareholders to carefully read this Proxy Statement in its entirety before deciding whether or not to vote for or against this Item 2.  

 

 

 

LOGO   

 

 

The Board of Directors unanimously recommends a vote “FOR” the approval of the compensation of the Named Executive Officers as disclosed in this Proxy Statement on a non-binding, advisory basis.

See page 34 for details

 

 

 

 

 

 

 

 

 

Item 3 – Ratification of the Appointment of Independent
Registered Public Accounting Firm

 

 

 

  The Audit Committee recommends ratification of its appointment of Deloitte and Touche LLP (“D&T”) as the independent registered public accounting firm to audit our financial statements as of and for the fiscal year ending June 30, 2023. D&T served as the independent registered public accounting firm to audit our financial statements as of and for the fiscal year ended June 30, 2022, and has served as our independent auditor since fiscal year 2008.  

 

 

 

LOGO   

 

 

The Board of Directors unanimously recommends a vote “FOR” the proposal to ratify the appointment of D&T as our independent registered public accounting firm for the fiscal year ending June 30, 2023.

See page 78 for details

 

 

 

 

 

2022 Proxy Statement   11
  


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ITEM 1 – ELECTION OF DIRECTORS

Shareholder approval is sought to elect Lee C. Banks, Jillian C. Evanko, Lance M. Fritz, Linda A. Harty, William F. Lacey, Kevin A. Lobo, Joseph Scaminace, Åke Svensson, Laura K. Thompson, James R. Verrier, James L. Wainscott and Thomas L. Williams as Directors for a term that will expire at our Annual Meeting of Shareholders in 2023.

Our Board of Directors has concluded that the nominees presented in this “Item 1—Election of Directors” collectively represent a highly-qualified and diverse group of individuals who will effectively serve the long-term interests of our business, our team members and our shareholders. Our Board of Directors believes that each nominee should serve on our Board for the coming year based on his or her record of effective past service on our Board and the specific experiences, qualifications, attributes and skills described in his or her biographical information presented in this “Item 1—Election of Directors” section.

Should any nominee become unable to accept nomination or election, the proxies will be voted for the election of another person as our Board of Directors may recommend. However, our Board of Directors has no reason to believe that this circumstance will occur.

Board Nominees

 

                Committee Membership    
  Name   Principal Employment       Director Since          HRC         CGN         AC   

Lee C. Banks

 

Vice Chairman and President of

Parker-Hannifin Corporation

  2015    

 

   

 

   

 

Jillian C. Evanko

 

President and Chief Executive Officer of

Chart Industries, Inc.

  2021   LOGO    

 

  LOGO

Lance M. Fritz

  Chairman, President and Chief Executive Officer of Union Pacific Corporation   2021   LOGO   LOGO    

 

Linda A. Harty

 

  Former Treasurer of Medtronic plc   2007    

 

  LOGO   LOGO

William F. Lacey

  Vice President of Finance (Books, Kindle and Digital Content) of Amazon   2021    

 

  LOGO   LOGO

Kevin A. Lobo

 

Chairman, Chief Executive Officer and President of

Stryker Corporation

  2013   LOGO    

 

  LOGO

Joseph Scaminace    

 

Former Chairman and Chief Executive Officer of OM

Group, Inc.

  2004   LOGO   LOGO    

 

Åke Svensson

 

  Chairman of Swedavia AB   2010    

 

  LOGO   LOGO

Laura K. Thompson

  Former Executive Vice President and Chief Financial Officer of The Goodyear Tire & Rubber Company   2019    

 

  LOGO   LOGO

James R. Verrier

 

Former President and Chief Executive Officer of

BorgWarner, Inc.

  2016   LOGO    

 

  LOGO

James L. Wainscott

(Lead Director)

  Former Chairman, Chief Executive Officer and President of AK Steel Holding Corporation   2009   LOGO   LOGO    

 

Thomas L. Williams

 

Chairman and Chief Executive Officer of

Parker-Hannifin Corporation

  2015    

 

   

 

   

 

 

  AC Audit Committee

 

 

 

 

 

LOGO

 

 

 

 

 

 

Member

 

 

   

            

     

            

 

  HRC Human Resource and Compensation Committee

 

    LOGO       Chair      

  CGN Corporate Governance and Nominating Committee

 

       

 

 

       LOGO   

 

  

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS.

 

 

 
12    LOGO


Table of Contents

Item 1 – Election of Directors

 

 

Director Selection and Nomination, Qualifications

and Diversity

The Corporate Governance and Nominating Committee of our Board is responsible for identifying, evaluating and recommending potential Director candidates. The Corporate Governance and Nominating Committee ensures that Director recruiting, succession and refreshment are persistent areas of focus and regularly reviews the size, composition and independence of our Board, and any expected vacancies, in determining whether and to what extent to actively recruit new Directors or to replace departing Directors.

The Corporate Governance and Nominating Committee utilizes a variety of methods and processes to identify potential Director candidates, including through reputable third-party search firms, unsolicited recommendations from other third-party search firms, and referrals from current or past members of our Board. In addition, the Corporate Governance and Nominating Committee will give appropriate consideration to qualified persons recommended by shareholders for nomination as Directors (provided that such recommendations comply with the procedures set forth under the caption “Shareholder Recommendations for Director Nominees”) and will consider such candidates on the same basis as candidates recommended by other sources.

The Corporate Governance and Nominating Committee generally will not, however, consider recommendations for Director nominees submitted by individuals who are not affiliated with us. The Corporate Governance and Nominating Committee has developed and implemented a robust process to ensure that its formal Director searches are appropriately scoped and designed to produce a slate of potential candidates representing a broad range of backgrounds, educations, experiences, skills and viewpoints that will enable them, individually and collectively, to address the issues affecting our Board, our business, our team members and our shareholders, and optimize the functioning and decision-making and oversight roles of our Board and its Committees. The Corporate Governance and Nominating Committee currently focuses on the following key search and evaluation criteria, but considers the entirety of each proposed candidate’s credentials and all available information that may be relevant to each candidate’s nomination.

 

  Key Criteria    Overall Philosophy and Approach

Culture and Values

   The Corporate Governance and Nominating Committee places high value on cultural fit. Our Directors must be able to work together to efficiently and effectively oversee the issues and risks facing our business, and have the commitment, integrity, honesty, judgment and professionalism required under our Corporate Governance Guidelines and Global Code of Business Conduct, and to otherwise serve the long-term interests of our Board of Directors, our business, our team members and our shareholders.

Diversity

   The Corporate Governance and Nominating Committee firmly believes diversity is critical to a well-functioning Board of Directors, and is committed to enhancing diversity on our Board. As a result, our Corporate Governance Guidelines require each search for qualified director candidates to include individuals with diverse backgrounds, including gender, ethnicity and race. In our most recently completed Director search in 2021, for example, a majority of the candidates presented for consideration were diverse candidates which ultimately resulted in the elections of Ms. Evanko, Mr. Fritz and Mr. Lacey, strengthening the gender and racial diversity of our Board.

Skills and Qualifications

   The Corporate Governance and Nominating Committee also believes it is essential to have a Board with the range of skills and experience needed to effectively evaluate, monitor and oversee the wide range of considerations presented by the size and scope of our Company, operations, products and markets. As a result, the Corporate Governance and Nominating Committee seeks to identify nominees who are independent and well equipped with a broad set of key skills, including those shown on the table on page 14.

The Corporate Governance and Nominating Committee, utilizing its robust and thoughtful approach to Director recruiting, succession and refreshment, has built an experienced, diverse and independent Board that provides significant oversight over our plans and strategies for growth, financial performance and shareholder value creation.

 

     2019 

 

    Laura K. Thompson

  

LOGO   

  

 2021 

 

Jillian C. Evanko

Lance M. Fritz

William F. Lacey

   4  

new directors since 2019

 

       
      3  

new diverse directors since 2019

 

     

 

2022 Proxy Statement   13
  


Table of Contents

Item 1 – Election of Directors

 

 

Director Skills and Experience

In addition to the metrics included on page 8, the following table presents on an individual basis the skills and experience of our Board in areas that are of importance to our Company. Our Board refreshment efforts over the last several years have strengthened the culture, skills and diversity of our Board. Each Director nominee brings his or her own unique background and range of expertise, knowledge and experience which provides a comprehensive and optimal mix of skills and qualifications necessary for our Board to effectively fulfill its oversight responsibilities.

 

    

     Director Experience

 

  LOGO      LOGO      LOGO      LOGO      LOGO      LOGO      LOGO      LOGO      LOGO      LOGO      LOGO      LOGO   

LOGO

 

Public Company CEO, COO, CFO,

or Other Senior Leadership

                  

 

                                       

LOGO

 

Sales & Marketing

                  

 

                                       

LOGO

 

Manufacturing

                                                           

LOGO

 

Technology/Digital

                  

 

                                       

LOGO

 

Corporate Strategy

                                                           

LOGO

 

Industrial &/or

Aerospace Industry

                            

 

                             

LOGO

 

International

             

 

                                            

LOGO

 

Finance & Accounting

                                                           

LOGO

 

Risk Management

                                                           

 

 
14    LOGO


Table of Contents

Item 1 – Election of Directors

 

 

Director Biographies

Nominees for Election as Directors for Terms Expiring in 2023

Lee C. Banks

 

LOGO     

 

Director Since: 2015                                         

 

Age: 59

 

Committees: None

  

 

Other Public Company Directorships:

 

   Westinghouse Air Brake Technologies Corporation (Wabtec)
(since 2020)

 

   Nordson Corporation (former) (2010-2020)

Mr. Banks has been our Vice Chairman and President since August 2021. From February 2015 to August 2021 he was President and Chief Operating Officer. He was our Executive Vice President from August 2008 to February 2015 and our Operating Officer from November 2006 to February 2015.

Our Board believes that Mr. Banks will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service as Vice Chairman and President, President and Chief Operating Officer, and in various other senior leadership positions during his over 30-year career with us;

 

 

intimate working knowledge of our day-to-day business, plans, strategies and initiatives;

 

 

service on other public company boards;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors, our business, our team members, and our shareholders and a high level of integrity, honesty, judgment and professionalism.

 

 

Jillian C. Evanko

 

LOGO     

 

Director Since: 2021                                         

 

Age: 44

 

Committees: Audit

 

Human Resources and Compensation

  

 

Other Public Company Directorships:

 

   Chart Industries, Inc. (since 2018)

 

   Alliant Energy Corporation (former) (2019-2021)

Ms. Evanko has been President and Chief Executive Officer of Chart Industries, Inc. (cryogenic technologies) since June 2018. She was the Chief Financial Officer of Chart from March 2017 until January 2019. Prior to Chart, Ms. Evanko served as Vice President and Chief Financial Officer of Truck-Lite Co., LLC (truck and commercial vehicle products) since October 2016. Prior to Truck-Lite, Ms. Evanko was Vice President and Chief Financial Officer of Dover Corporation’s Dover Fluids (diversified global manufacturer) since January 2014.

Our Board believes that Ms. Evanko will effectively serve our Board of Directors, our business, our team members and our shareholders based on her significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service as Chief Executive Officer and Chief Financial Officer of Chart Industries, Inc., and other leadership positions at successful global companies of significant size;

 

 

service on other public company boards;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

 

2022 Proxy Statement   15
  


Table of Contents

Item 1 – Election of Directors

 

 

Lance M. Fritz

 

LOGO     

 

Director Since: 2021                                         

 

Age: 59

 

Committees: Corporate Governance and Nominating

 

Human Resources and Compensation

  

 

Other Public Company Directorships:

 

   Union Pacific Corporation (since 2015)

Mr. Fritz has been Chairman of the Board of Union Pacific Corporation (rail transport) since October 2015, and President and Chief Executive Officer since February 2015.

Our Board believes that Mr. Fritz will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service as President and Chief Executive Officer of Union Pacific Corporation and other leadership positions at successful global companies of significant size;

 

 

service on other public company boards;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

Linda A. Harty

 

LOGO     

 

Director Since: 2007                                         

 

Age: 62

 

Committees: Audit (Chair)

 

Corporate Governance and Nominating

  

 

Other Public Company Directorships:

 

   Westinghouse Air Brake Technologies Corporation (Wabtec) (since 2016)

 

   Syneos Health, Inc. (since 2017)

 

   Chart Industries, Inc. (since 2021)

Now retired, Ms. Harty was Treasurer of Medtronic plc (medical technology) from February 2010 to April 2017.

Our Board believes that Ms. Harty will effectively serve our Board of Directors, our business, our team members and our shareholders based on her significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service in senior finance and accounting leadership positions at Medtronic plc and other successful global companies of significant size;

 

 

service on other public company boards;

 

 

former Certified Public accountant (CPA) and qualification as an audit committee financial expert as defined in the federal securities laws;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

 

 
16    LOGO


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Item 1 – Election of Directors

 

 

William F. Lacey

 

LOGO     

 

Director Since: 2021                                         

 

Age: 52

 

Committees: Audit

 

Corporate Governance and Nominating

  

 

Other Public Company Directorships:

 

   None

Mr. Lacey has been Vice President of Finance (Books, Kindle and Digital Content) of Amazon (e-commerce) since February 2022. He previously was Chief Executive Officer of GE Lighting (lighting technology), a Savant company, from 2015 to February 2022; and served as Chief Financial Officer of GE Home and Business Solutions Lighting from 2011 to 2015.

Our Board believes that Mr. Lacey will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service as President and Chief Executive Officer of GE Lighting and in senior finance and accounting leadership positions at Amazon and General Electric, successful global companies of significant size;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

Kevin A. Lobo

 

 

LOGO     

 

Director Since: 2013                                         

 

Age: 57

 

Committees: Audit

 

Human Resources and Compensation

  

 

Other Public Company Directorships:

 

   Stryker Corporation (since 2012)

Mr. Lobo has been Chairman of the Board of Stryker Corporation (medical technologies) since July 2014 and has been Chief Executive Officer, President and a Director since October 2012.

Our Board believes that Mr. Lobo will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service in senior leadership positions at Stryker Corporation and other successful global companies of significant size;

 

 

service on other public company boards;

 

 

qualification as an audit committee financial expert as defined in the federal securities laws;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

 

2022 Proxy Statement   17
  


Table of Contents

Item 1 – Election of Directors

 

 

Joseph Scaminace

 

LOGO     

 

Director Since: 2004                                         

 

Age: 69

 

Committees: Human Resources and Compensation (Chair)

 

Corporate Governance and Nominating

  

 

Other Public Company Directorships:

 

   Cintas Corporation (since 2010) (Lead Director)

Now retired, Mr. Scaminace served as the Chairman and Chief Executive Officer of OM Group, Inc. (metal-based specialty chemicals) from June 2005 to October 2015 and Chairman of the Board of OM Group from August 2005 to October 2015.

Our Board believes that Mr. Scaminace will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service as Chief Executive Officer and Chairman of the Board of OM Group, Inc., and prior leadership positions at other successful global companies of significant size;

 

 

service on other public company boards;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

Åke Svensson

 

LOGO     

 

Director Since: 2010                                         

 

Age: 70

 

Committees: Audit

 

Corporate Governance and Nominating

  

 

Other Public Company Directorships:

 

   None

Mr. Svensson is Chairman of Swedavia AB (transport infrastructure). He was Chairman of the Association of Swedish Engineering Industries (manufacturing trade organization), and Board Member of the Confederation of Swedish Enterprises from May 2018 until May 2020. He was previously Director General of Swedish Engineering Industries from September 2010 to August 2016. Mr. Svensson is a former Director, Chief Executive Officer and President of Saab AB.

Our Board believes that Mr. Svensson will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service and leadership positions with Saab AB, a successful European aerospace, defense and security company of significant size;

 

 

extensive knowledge of European aerospace, defense and security businesses and related issues and trends;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

 

 
18    LOGO


Table of Contents

Item 1 – Election of Directors

 

 

Laura K. Thompson

 

LOGO     

 

Director Since: 2019                                         

 

Age: 58

 

Committees: Audit

 

Corporate Governance and Nominating

  

 

Other Public Company Directorships:

 

   Wesco International (since 2019)

 

   Titan International, Inc. (since 2021)

Now retired, Ms. Thompson served as Executive Vice President of The Goodyear Tire & Rubber Company (tire manufacturing) from December 2013 until her retirement in March 2019, and Chief Financial Officer of Goodyear from December 2013 until October 2018.

Our Board believes that Ms. Thompson will effectively serve our Board of Directors, our business, our team members and our shareholders based on her significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service as Executive Vice President and Chief Financial Officer and in other key leadership positions at The Goodyear Tire & Rubber Company, a successful global company of significant size;

 

 

service on other public company boards;

 

 

qualification as an audit committee financial expert as defined in the federal securities laws;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

James R. Verrier

 

LOGO     

 

Director Since: 2016                                         

 

Age: 59

 

Committees: Audit

 

Human Resources and Compensation

  

 

Other Public Company Directorships:

 

   BorgWarner, Inc. (former) (2013-2018)

Now retired, Mr. Verrier served as a Board Advisor to BorgWarner, Inc. (powertrain solutions) from August 1, 2018 until his retirement on February 28, 2019. He previously served as Chief Executive Officer and director of BorgWarner, Inc. from January 2013 until July 31, 2018, and President of BorgWarner from March 2012 until July 31, 2018.

Our Board believes that Mr. Verrier will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

service as a director, Chief Executive Officer and President of BorgWarner, Inc., a successful global company of significant size;

 

 

service on other public company boards;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

 

2022 Proxy Statement   19
  


Table of Contents

Item 1 – Election of Directors

 

 

James L. Wainscott

 

LOGO     

 

Director Since: 2009                                         

 

Age: 65

 

Committees: Corporate Governance and Nominating (Chair and Lead Director)

 

Human Resources and Compensation

  

 

Other Public Company Directorships:

 

   CSX Corporation (since 2020)

Now retired, Mr. Wainscott was Chairman of the Board of AK Steel Holding Corporation (steel producer) from January 2006 to May 2016; and President, Chief Executive Officer and a Director of AK Steel Holding Corporation from October 2003 to January 2016.

Our Board believes that Mr. Wainscott will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service as President, Chief Executive Officer and Chairman of the Board of AK Steel Holding Corporation, a successful global company of significant size;

 

 

service on other public company boards;

 

 

independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

 

proven ability to effectively serve as our Lead Director and to otherwise work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

 

Thomas L. Williams

 

LOGO     

 

Director Since: 2015                                         

 

Age: 63

 

Committees: None

  

 

Other Public Company Directorships:

 

   The Goodyear Tire & Rubber Company (since 2019)

 

   Chart Industries, Inc. (former) (2008-2019)

Mr. Williams has been our Chairman of the Board since January 2016, and our Chief Executive Officer since February 2015. He was our Executive Vice President from August 2008 to February 2015 and our Operating Officer from November 2006 to February 2015.

Our Board believes that Mr. Williams will effectively serve our Board of Directors, our business, our team members and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

 

extensive service as Chief Executive Officer, Executive Vice President and Operating Officer and various other operational leadership positions during his 18-year career with us;

 

 

intimate, working knowledge of our day-to-day business, plans, strategies and initiatives;

 

 

service on other public company boards;

 

 

proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

 

high level of commitment to our Board of Directors, our business, our team members, and our shareholders, and a high level of integrity, honesty, judgment and professionalism.

 

 

 

 
20    LOGO


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Item 1 – Election of Directors

 

 

Director Independence

Our Corporate Governance Guidelines require at least a majority of our Directors to be “independent” as defined in the listing standards established by the New York Stock Exchange. Our Board of Directors has also adopted standards for Director independence, which are set forth in our Independence Standards for Directors.

Of the twelve current members of our Board of Directors, ten are independent based on our Board of Directors’ consideration of the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors. In addition, each of the Audit Committee, the Corporate Governance and Nominating Committee and the Human Resources and Compensation Committee of our Board of Directors is composed entirely of independent Directors. As a result, independent Directors directly oversee critical matters such as our executive compensation program, our Corporate Governance Guidelines, policies and practices, the integrity of our financial statements and our internal controls over financial reporting.

Our Board of Directors has affirmatively determined that the following ten individuals who currently serve as Directors are independent: Jillian C. Evanko, Lance M. Fritz, Linda A. Harty, William F. Lacey, Kevin A. Lobo, Joseph Scaminace, Åke Svensson, Laura K. Thompson, James R. Verrier and James L. Wainscott.

Among other things, our Board of Directors does not consider a Director to be independent unless it affirmatively determines that the Director has no material relationship with us either directly or as a partner, shareholder or officer of an organization that has a relationship with us. Our Corporate Governance and Nominating Committee and our Board of Directors annually reviews and determines which of its members are independent based on the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors. During such review, our Corporate Governance and Nominating Committee and our Board of Directors broadly consider all facts and circumstances which they deem relevant, including any commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships between us and any of our Directors.

In fiscal year 2022, after considering the facts and circumstances applicable to each Director, our Board of Directors determined that Ms. Evanko and Messrs. Fritz, Lacey and Lobo served as executive officers of companies that have existing customer and/or supplier relationships with us. Our Corporate Governance and Nominating Committee and our Board of Directors further analyzed these relationships and found that each of Ms. Evanko and Messrs. Fritz, Lacey and Lobo does not receive any direct or indirect personal benefits as a result of these relationships, that the relationships were on ordinary course, competitive terms, and that the amounts paid to or by us under such relationships fell significantly below the threshold for independence provided in the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors. Our Board of Directors thus affirmatively concluded that each of Ms. Evanko and Messrs. Fritz, Lacey and Lobo is independent.

Annual Elections; Majority Voting; No Cumulative Voting

Our Amended and Restated Regulations provide for the annual election of our entire Board of Directors. Accordingly, each Director elected at this Annual Meeting of Shareholders will hold office until the next Annual Meeting of Shareholders and until his or her successor is elected.

Our Amended Articles of Incorporation provide for a majority voting standard in the annual election of our Directors. Accordingly, at each Annual Meeting of Shareholders, each candidate for Director is elected only if the votes “for” the candidate exceed the votes “against” the candidate, unless the number of candidates exceeds the number of Directors to be elected. If the number of candidates exceeds the number of Directors to be elected, then in that election the candidates receiving the greatest number of votes shall be elected. Abstentions and broker non-votes shall not be counted as votes “for” or “against” a candidate, and shareholders are not able to cumulate votes in the election of Directors.

New Elections and Departures

We had no new Director elections in fiscal year 2022. On October 27, 2021 Candy M. Obourn retired from our Board of Directors.

 

2022 Proxy Statement   21
  


Table of Contents

    

 

 

CORPORATE GOVERNANCE

Board and Committee Structure

Current Leadership Structure

Our Board of Directors currently employs a “dual leadership” structure. We have a Lead Director who is also the Chair of the Corporate Governance and Nominating Committee, and a Chairman of the Board, who is our Chief Executive Officer.

 

LOGO   

 

Thomas L. Williams

 

Chairman of the Board since 2016

 

LOGO   

 

James L. Wainscott

 

Lead Independent Director since 2016

Our Lead Director is elected solely by the independent members of our Board of Directors and holds a position separate and independent from our Chairman of the Board. Our Corporate Governance Guidelines provide that the Chair of the Corporate Governance and Nominating Committee will serve as our Lead Director and that the Chair of the Corporate Governance and Nominating Committee is elected every five years.

The specific authorities, duties and responsibilities of our Lead Director are described in our Corporate Governance Guidelines. Among other things, our Lead Director presides over and supervises the conduct of all meetings of our independent Directors, calls meetings of our independent Directors, and prepares and approves all agendas and schedules for meetings of our Board.

Our Board believes that having a Lead Director who is elected by our independent Directors ensures that our Board will at all times have an independent Director in a leadership position. At the same time, our Board of Directors believes that it is important to maintain flexibility in its leadership structure to allow for a member of management to serve in a leadership position alongside the Lead Director if our Board of Directors determines that such a leadership structure best meets the needs of our Board, our business, our team members and our shareholders.

Our Board has determined that this leadership structure is currently more efficient and effective than a structure which employs a single, independent Chairman of the Board. Our Board of Directors views this structure as one that ensures both independence in leadership and a balance of knowledge, power and authority. For example, our leadership structure employs both a Chairman of the Board who is also our Chief Executive Officer and who possesses an intimate working knowledge of our day-to-day business, plans, strategies and initiatives, and a Lead Director who has a strong working relationship with our non-management, independent Directors. These two individuals combine their unique knowledge and perspectives to ensure that management and our independent Directors work together as effectively as possible. Among other things, our Chairman of the Board ensures that our Board addresses strategic issues that management considers critical, while our Lead Director ensures that our Board addresses strategic issues that our independent Directors consider critical.

Our Board recognizes, however, that no single leadership model may always be appropriate. Accordingly, our Board of Directors regularly reviews its leadership structure to ensure that it continues to represent the most efficient and effective structure for our Board of Directors, our business, our team members and our shareholders.

 

 
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 Board Committees; Committee Charters

Our Board has established and delegated certain authorities and responsibilities to three committees: the Human Resources and

Compensation Committee, the Corporate Governance and Nominating Committee, and the Audit Committee. Each Committee of our Board is governed by a written charter which is posted and available on the Corporate Governance page of our investor relations website at www.phstock.com. Shareholders may request copies of these charters, free of charge, by writing to Parker-Hannifin Corporation, 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, Attention: Secretary, or by calling (216) 896-3000.

All members of each Committee are independent under the listing standards of the New York Stock Exchange as well as our Independence Standards for Directors. Each Committee regularly reports its activities to the full Board of Directors.

Each of our Committees works with members of our Human Resources, Internal Audit, Enterprise Compliance, Legal, and other departments to oversee and evaluate other risks relevant to each Committee.

  Human Resources and Compensation Committee

 

 

Members: Joseph Scaminace (CHAIR), Jillian C. Evanko, Lance M. Fritz, Kevin A. Lobo, James
R. Verrier, James L. Wainscott

 

  

 

Number of meetings in fiscal year

2022: 4

 

  KEY OVERSIGHT RESPONSIBILITIES

 

   

Administration, structure and determination of our executive compensation program.

 

   

ESG strategies, initiatives, policies and risks related to (a) key compensation and benefit plans (including the inclusion and impact of any ESG-based performance measures), (b) executive compensation program, strategy, structure and mix, (c) leadership performance, development and succession, (d) compensation-related ratings and disclosures, and (e) other ESG areas impacting or resulting from the Committee’s duties and responsibilities or as the Board may otherwise delegate.

 

   

Working with its independent executive compensation consultant and our human resources, legal and other management personnel to oversee and evaluate other risks relating to our compensation policies and practices for all team members, our succession planning and talent development strategies and initiatives, and other human resources issues.

 

 

  Corporate Governance and Nominating Committee

 

 

Members: James L. Wainscott (CHAIR), Lance M. Fritz, Linda A. Harty, William F. Lacey,

Joseph Scaminace, Åke Svensson, Laura K. Thompson

 

  

 

Number of meetings in fiscal year

2022: 2

 

  KEY OVERSIGHT RESPONSIBILITIES

 

   

Evaluating and recommending to our Board of Directors qualified nominees for election as Directors and qualified Directors for Committee membership, establishing evaluation procedures for the performance of our Board of Directors and its Committees, developing corporate governance guidelines and independence standards, and considering other matters regarding our corporate governance structure.

 

   

ESG strategies, initiatives, policies and risks related to (a) Board performance, structure, composition and refreshment, (b) corporate governance ratings and disclosures, (c) shareholder engagement processes and feedback, (d) Board and committee oversight responsibilities and meeting cadences on ESG matters, and (e) other ESG areas impacting or resulting from the Committee’s duties and responsibilities or as the Board may otherwise delegate.

 

   

Working with our legal and other management personnel to oversee and evaluate other risks relating to:

 

   

Director independence, qualifications and diversity issues;

 

   

Board of Directors and Committee leadership, composition, function and effectiveness;

 

   

alignment of the interests of our shareholders with the performance of our Board of Directors;

 

   

compliance with applicable corporate governance rules and standards; and

 

   

other corporate governance issues and trends.

 

 

 

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 Audit Committee

 

 

Members: Linda A. Harty (CHAIR) (ACFE), Jillian C. Evanko (ACFE), William F. Lacey (ACFE),
Kevin A. Lobo (ACFE), Åke Svensson, Laura K. Thompson (ACFE), James R. Verrier

 

  

 

Number of meetings in fiscal year

2022: 6

 

The Audit Committee of our Board of Directors is our standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Each member of our Audit Committee is independent, as defined in our Independence Standards for Directors and in compliance with the independence standards applicable to audit committee members under the New York Stock Exchange listing standards and under the federal securities laws.

KEY OVERSIGHT RESPONSIBILITIES

 

   

Appointing, compensating, retaining, and overseeing our independent registered public accounting firm and evaluating its independence, approving all audit and non-audit engagements with our independent registered public accounting firm, and reviewing our annual and quarterly financial statements, internal and independent audit plans, the results of such audits and the adequacy of our internal control structure.

 

   

ESG strategies, initiatives, policies and risks related to (a) ethics, integrity, and compliance, (b) audit and financial controls, reporting and disclosures, (c) audit and financial implications of ESG data and processes, (d) governance structures, financial impacts and funding status of employee retirement plans, and (e) other ESG areas impacting or resulting from the Committee’s duties and responsibilities or as the Board may otherwise delegate.

 

   

Working with our internal audit, compliance, legal, and other departments, to oversee and evaluate other significant risks (financial, tax, strategic, operational, legal, regulatory) and management policies, guidelines and processes for assessing and managing such risks.

 

   

Meeting privately at each of its meetings with representatives from our independent registered public accounting firm and our Vice President – Audit, Compliance and Enterprise Risk Management.

Our Board of Directors has determined that each of Jillian C. Evanko, Linda A. Harty, William F. Lacey, Kevin A. Lobo and Laura K. Thompson, are audit committee financial experts (designated above as (ACFE)) as defined in the federal securities laws.

 

 

Meetings and Attendance; Executive Sessions

 

During fiscal year 2022, there were ten meetings of our Board of Directors. Each Director attended 100% of the meetings held by our Board of Directors and the Committees of our Board of Directors on which he or she served, except one director who was excused from one meeting for a valid reason.

 

We hold a regularly scheduled meeting of our Board of Directors in conjunction with our Annual Meeting of Shareholders. Directors are expected to attend the Annual Meeting of Shareholders absent an appropriate reason. We held our Annual Meeting of Shareholders virtually in 2021 and all of the members of our Board of Directors attended and were available to answer shareholder questions.

 

In accordance with the listing standards of the New York Stock Exchange, our non-management Directors are scheduled to meet regularly in executive sessions without management and, if required, our independent Directors will meet at least once annually. Additional meetings of our non-management Directors may be scheduled from time to time when our non-management Directors determine that such meetings are desirable. Our non-management Directors met four times during fiscal year 2022.

 

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Director Education and Orientation Program

Our director orientation program includes extensive meetings with management and other Directors and familiarizes new directors with The Win Strategy and Parker’s businesses, strategies, policies and corporate governance framework; assists them in developing company and industry knowledge; and educates them with respect to their fiduciary duties and legal responsibilities.

Our Board places high importance on the continuous development and education of our Board members. Directors have ongoing education and development opportunities through participation in Board and Committee meetings, and publications and activities offered by reputable third party organizations. Directors receive specialized presentations on an established cadence from senior-level leaders across our global businesses and functions. When appropriate, our Board also travels to put “feet on the ground” at Company locations to expand their knowledge and oversight of the Company. Most recently, the Board visited our facilities in Clyde, New York and Erie, Pennsylvania as part of our regularly scheduled Board and Committee meetings in April 2022.

Board and Committee Evaluations

Our Board recognizes that a rigorous and constructive evaluation process is an essential component of good corporate governance and Board effectiveness. Under the leadership of our Lead Director, the Corporate Governance & Nominating Committee oversees the annual evaluation process and periodically reviews the format of the process to help ensure it is eliciting actionable feedback with respect to the effectiveness of the Board, Board committees and each individual Director. The annual evaluation process consists of the following components:

 

 

Continuous Evaluation/

Annual Review

 

   Through ongoing discussions at Board and Committee Meetings, our Board and Committees are continually seeking ways to strengthen their governance and oversight practices and effectiveness.

   Towards the end of our fiscal year, each director completes a questionnaire assessing the performance of the Board and its committees on which he or she serves.

   Our Lead Director and Chairman also conduct evaluations of each individual Director towards the end of our fiscal year.

 

 

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Assessment

 

   The questionnaire results are provided to the Board and to each of the Audit, Human Resources and Compensation and Corporate Governance and Nominating Committees, generally at our regularly scheduled Board and Committee meetings in August.

   The results of the individual Director evaluations are also shared with the Corporate Governance and Nominating Committee in August.

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Discussion

 

   The Board and each such committee discuss the results and identify areas for continuous improvement. The results of the committee sessions are communicated to the full Board.

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Feedback

 

   As a result of the Board’s 2022 self- assessment process, the Board identified opportunities to further strengthen the Board’s practices in areas relating to Board and committee-level oversight of ESG matters; meeting process efficiency; director education; and engagement with management.

 

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Board Strategic and Risk Oversight

Management and our Board of Directors and its Committees are collectively engaged in identifying, overseeing, evaluating and managing the strategic priorities and material risks facing our business to ensure that our strategies and objectives align with the goals of The Win Strategy and work to minimize such risks. Our Board believes that its current level of independence, leadership structure and qualifications and diversity of its members facilitate the effective identification, oversight, evaluation and management of our business strategy and related risks.

Board’s Role in Strategic Oversight

 

LOGO

 

One of the Board’s primary responsibilities is overseeing management’s development and execution of The Win Strategy. In addition to the ongoing activities detailed in the paragraph to the right, our Board conducts an in-depth annual review of our corporate strategy and annual operating plan, which covers significant strategic topics such as our key markets, operational priorities under The Win Strategy, strategic positioning, financial and operational outlooks, capital allocation, balance sheet strength, debt portfolio and positions, share repurchase activity, and dividend history and strategies.   

 

Led by our CEO, our executive management team develops and implements strategic goals and priorities under The Win Strategy. On a quarterly basis the CEO, our executive leadership team and other business leaders provide detailed business and strategy updates to the Board including progress against business objectives, updates on the competitive landscape facing the Company, economic trends, acquisition and divestiture opportunities and other matters.

 

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 Board’s Role in Risk Oversight

Management and our Board of Directors and its Committees view the risk management role of our Board of Directors and its Committees, and their relationship with management in the identification, oversight, evaluation and management of risk, as paramount to the short-term viability and long-term sustainability of our business.

 

 

BOARD OF DIRECTORS

Our Board of Directors has the ultimate responsibility to monitor the risks facing our business. Among other things, our Board of Directors receives a report from our Audit Committee which reviews and discusses in detail, at least annually, the business and operational risks identified through our enterprise risk management and integrated risk management programs which are led by our Vice President of Audit and Compliance. As set forth in our Corporate Governance Guidelines, although it may delegate certain oversight responsibilities to its Committees, our full Board retains ultimate oversight responsibility over the Company’s strategies, initiatives, policies and risks related to ESG matters, including in the areas of corporate strategy, purpose and values, environmental sustainability (e.g., climate targets and actions), social responsibility, team member safety and engagement, diversity, equity and inclusion, cybersecurity, and external reporting. For more detail on the Board’s role in risk management, including cybersecurity and ESG oversight, see the spotlight sections on the next page.

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OUTSIDE ADVISORS

 

Management and our Board of Directors and its Committees also engage outside advisors where appropriate to assist in the identification, oversight, evaluation and management of the risks facing our business. These outside advisors include our independent registered public accounting firm, external legal counsel and insurance providers, and the independent compensation consultant retained by the Human Resources and Compensation Committee.

 

LOGO

 

 

 

LEAD DIRECTOR AND BOARD COMMITTEES

The Committees of our Board of Directors are each responsible for the various areas of risk oversight as described in the “Board and Committee Structure” and “Board Strategic and Risk Oversight” sections of this Proxy Statement. Management and the Chair of the applicable Committee ensure that any significant risks are reported to and addressed with the entire Board of Directors. Our Lead Director and the other Committee Chairs ensure that risk management is a recurring agenda item for meetings of our Board and its Committees. Our Lead Director meets regularly with our other independent Directors without management to discuss current and potential risks and the means of mitigating those risks, and has the authority to direct and evaluate our risk management efforts.

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LOGO

 

 

 

MANAGEMENT

Various members of management are responsible for our day-to-day risk management activities, including members of our Human Resources, Internal Audit and Compliance, Legal, Tax, Risk Management, Treasury, Finance, and Information Technology departments. We have an internal Cyber Security Committee comprised of our Vice President-Chief Digital and Information Officer and other senior members of our IT department. We also have an ESG Steering Committee which is comprised of senior management, including our Chief Operating Officer, General Counsel and Secretary and our EHS leader. Working together with our CEO, these management committees and individuals are charged with identifying, overseeing, evaluating and managing risks in their areas of responsibility and for ensuring that any significant risks are addressed with our Board or the appropriate Board Committees.

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Corporate Governance

 

 

Spotlight: Oversight of Cybersecurity

Our Board understands the importance of maintaining a secure environment for our products, data and systems that effectively supports our business objectives and customer needs. We have adopted comprehensive Information Security Policies and Standards that clearly articulate Parker’s expectations and requirements with respect to acceptable use, risk management, data privacy, education and awareness, security incident management and reporting, identity and access management, third-party management, security (with respect to physical assets, products, networks and systems), security monitoring and vulnerability identification. These policies and standards set forth a detailed security incident management and reporting protocol, with clear escalation timelines and responsibilities. We also maintain a global incident response plan and regularly conduct exercises to help with our overall preparedness. We believe cybersecurity is the responsibility of every team member. We take measures to improve and update our cybersecurity program, including independent program assessments, penetration testing and scanning of our systems for vulnerabilities. The Digital and Information Technology strategy is led by our Vice President – Chief Digital and Information Officer, who provides multiple updates each year to the Board regarding this program, including information about cyber-risk management and the status of projects to strengthen cybersecurity effectiveness. In addition, the Board receives an in-depth report, at least annually, on the overall cybersecurity program from our Vice President – Chief Digital and Information Officer and our Vice President–Cyber Security and Infrastructure.

 

Spotlight: Succession Planning

As reflected in our Corporate Governance Guidelines, one of the Board’s primary responsibilities includes planning for CEO succession and overseeing management’s succession planning for other senior executives. The Board’s goal is to have a long-term program for effective senior leadership development and succession, as well as short-term contingency plans for emergency and ordinary course contingencies. The program plays an important role in our success and the effectiveness of our leadership development program.

The Board and the Human Resources and Compensation Committee works with our CEO, Executive Vice President – Human

Resources and External Affairs and other senior leaders to plan for succession. The Board has an opportunity to meet regularly with executives at many levels across the Company through formal presentations at Board meetings and other informal interaction throughout the year. Our Board reviews succession planning and management development topics on an ongoing basis, including an in-depth review of potential successors to key leadership positions at least annually.

 

Spotlight: Board’s ESG Oversight

Our ESG program includes a range of initiatives around corporate social responsibility and sustainability, taking into account the interests of our key stakeholders, including our shareholders, team members, customers and communities. Issues that we focus on include, among others, workplace health and safety, climate risk, water conservation, human capital management, diversity, equity and inclusion, cybersecurity, and business ethics and compliance.

Our Board maintains oversight over ESG matters at the full Board level and through our relevant committees, while senior management manages and monitors such matters on a day-to-day basis throughout the year, supported by our internal ESG Steering Committee, which includes our Chief Operating Officer and other members of our senior management. The full Board reviews our ESG program at least annually. In August 2022, we amended our Corporate Governance Guidelines and the charters of each of our Committees to expressly include ESG areas of oversight responsibility for the full Board and its Committees.

 

 
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The primary areas of ESG oversight responsibility of the Board and Committees are:

 

   

Full Board

 

Our full Board retains ultimate oversight

responsibility over strategies, initiatives,

policies and risks related to ESG matters,

including in the areas of corporate

strategy, purpose and values,

environmental sustainability (e.g., climate

targets and actions), social responsibility,

team member safety and engagement,

diversity, equity and inclusion,

cybersecurity, and external reporting.

   

LOGO

Audit Committee       

Human Resources and

Compensation Committee

      

Corporate Governance

and Nominating Committee

    Review, monitor and evaluate ESG     Review, monitor and evaluate ESG
Review, monitor and evaluate ESG     strategies, initiatives, policies and risks     strategies, initiatives, policies and risks
strategies, initiatives, policies and risks     related to (a) key compensation program     related to (a) Board performance,
related to (a) ethics, integrity and     and benefit plans (including the inclusion     structure, composition and refreshment,
compliance, (b) audit and financial     and impact of any ESG-based performance     (b) corporate governance ratings and
controls, reporting and disclosures, (c)     measures), (b) executive compensation     disclosures, (c) shareholder engagement
audit and financial implications of ESG data     program strategy, structure and mix, (c)     processes and feedback, (d) Board and
and processes, (d) governance structures,     leadership performance, development and     committee oversight responsibilities and
financial impacts and funding status of     succession, (d) compensation-related     meeting cadences on ESG matters, and (e)
employee retirement plans, and (e) other     ratings and disclosures, and (e) other ESG     other ESG areas impacting or resulting
ESG areas impacting or resulting from the     areas impacting or resulting from the     from the Committee’s duties and
Committee’s duties and responsibilities or     Committee’s duties and responsibilities or     responsibilities or as the Board may

as the Board may otherwise delegate.

 

   

as the Board may otherwise delegate.

 

   

otherwise delegate.

 

 

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Communications with Directors

Our shareholders and other interested parties may communicate with our Board of Directors as a group, with the non-management Directors as a group, or with any individual Director by sending written communications to Parker-Hannifin Corporation, 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, Attention: Secretary. Complaints regarding accounting, internal accounting controls or auditing matters will be forwarded directly to the Chair of the Audit Committee. All other communications will be provided to the individual Director(s) or group of Directors to whom they are addressed. Copies of all communications will be provided to all other Directors; provided, however, that any such communications that are considered to be improper for submission to the intended recipients will not be provided to the Directors. Examples of communications that would be considered improper for submission include customer complaints, solicitations, communications that do not relate, directly or indirectly, to our business and/or our subsidiaries, or communications that relate to improper or irrelevant topics.

Other Governance Matters

Review and Approval of Transactions with Related Persons

The Corporate Governance and Nominating Committee is responsible for considering questions of possible conflicts of interest of Directors and executive officers and for making recommendations to prevent, minimize or eliminate such conflicts of interest. Our Global Code of Business Conduct provides that our Directors, officers, and other team members and their spouses and other close family members must avoid interests or activities that create any actual or potential conflict of interest. These restrictions cover, among other things, interests or activities that result in receipt of improper personal benefits by any person as a result of his or her position as our Director, officer, or other team member or as a spouse or other close family member of any of our Directors, officers or other team members. Our Global Code of Business Conduct also requires our Directors, officers and other team members to promptly disclose any potential conflicts of interest to our Corporate Compliance Office. We also require that each of our executive officers and Directors complete a detailed annual questionnaire that requires, among other things, disclosure of any transactions with a related person meeting the minimum threshold for disclosure under the relevant U.S. Securities and Exchange Commission (“SEC”) rules. All responses to the annual questionnaires are reviewed and analyzed by our legal counsel and, as necessary or appropriate, presented to the Corporate Governance and Nominating Committee for analysis, consideration and, if appropriate, approval.

The Corporate Governance and Nominating Committee will consider the following in determining if any transaction with a related person or party should be approved, ratified or rejected:

 

 

the nature of the related person’s interest in the transaction;

 

 

the material terms of the transaction;

 

 

the importance of the transaction to the related person and to us;

 

 

whether the transaction would impair the judgment or the exercise of the fiduciary obligations of any Director or executive officer;

 

 

the possible alternatives to entering into the transaction;

 

 

whether the transaction is on terms comparable to those available to third parties; and

 

 

the potential for an actual or apparent conflict of interest.

During fiscal year 2022, we determined that no material related-party transactions exist which would require disclosure under the U.S. Securities and Exchange Commission Rules or otherwise require approval, ratification, or rejection of the Corporate Governance and Nominating Committee. This review included a review of the annual questionnaires and a detailed evaluation of the transactions reviewed and analyzed by our Board of Directors in determining Director independence as described in the “Director Independence” section of this Proxy Statement.

None of our Directors are related to each other and no arrangements or understandings exist pursuant to which any Director was selected as a Director or Director nominee.

 

 
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Proxy Access

Our Amended and Restated Regulations permit a shareholder, or a group of up to twenty shareholders, owning three percent or more of the Company’s outstanding shares of Common Stock continuously for at least three years to nominate and include in the Company’s annual meeting proxy materials a number of director nominees up to a greater of (x) two, or (y) twenty percent of the Board, provided that the shareholder(s) and nominee(s) satisfy the requirements specified in our Amended and Restated Regulations.

Stock Ownership Guidelines

Our stock ownership guidelines align the financial interests of our executive officers and Directors with those of our shareholders by encouraging the accumulation and retention of our common stock by our Directors and executive officers. Our Board of Directors has approved the following amended stock ownership guidelines for our Directors and executive officers:

 

 Participants        Guidelines

 Chairman of the Board and Chief Executive Officer

 

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Six times annual base salary

 Vice Chairman and President

 

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Four times annual base salary

 Chief Operating Officer

 

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Four times annual base salary

 Executive or Senior Vice Presidents

 

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Three times annual base salary        

 Other Executive Officers

 

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Two times annual base salary

 Non-Management Directors

 

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Five times annual retainer

The recommended time period for achieving compliance with the guidelines is five years from election or appointment to the position that is subject to the guidelines. The Human Resources and Compensation Committee reviews share ownership information with the Chief Executive Officer in August of each year to ensure compliance with the guidelines. As of June 30, 2022, all executive officers and Directors in their positions for at least five years were in compliance with the guidelines.

Stock Ownership Restrictions - Speculative Transactions/Hedging

We maintain an insider trading policy that applies to all of our Directors, officers, other team members and consultants. The insider trading policy prohibits those covered by the policy from engaging in speculative transactions with respect to Company securities that could lead to inadvertent violations of securities laws, such as short sales and acquiring exchange-traded options (including puts, calls and other derivatives). Furthermore, the insider trading policy prohibits certain arrangements that could result in sales or transfers of Company securities without the covered person’s consent at times at which he or she is not permitted to trade in Company securities, including holding Company securities in margin accounts or pledging them as collateral.

The insider trading policy also prohibits those covered by the policy from entering into hedging or monetization transactions (such as zero-cost collars and forward sale contracts) with respect to Company securities, because such transactions may provide ownership of Company securities without the full risks and rewards of such ownership.

Governance Documents

Our Global Code of Business Conduct, our Corporate Governance Guidelines, and our Independence Standards for Directors are posted and available on the Corporate Governance page of our investor relations website at www.phstock.com. Shareholders may request copies of these documents, free of charge, by writing to Parker-Hannifin Corporation, 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, Attention: Secretary, or by calling (216) 896-3000. The information contained on or accessible through our website is not a part of this Proxy Statement.

 

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DIRECTOR COMPENSATION

Compensation of Directors

Directors who are also our team members do not receive any additional compensation for their services as Directors. As a result, Thomas L. Williams and Lee C. Banks are not included in the table on page 33. During fiscal year 2022, non-employee Directors received an annual retainer, meeting fees (if applicable), and a restricted stock unit award. Our non-employee Directors are also eligible to participate in our Matching Gifts Program as described in the Compensation Discussion and Analysis section on page 60 of this Proxy Statement. The following table reflects the annual retainers of the non-employee Directors effective during fiscal year 2022:

 

     Approved
August 15 and
September 7, 2018
          Approved
August 11, 2021
 
  Annual Retainers    Effective beginning
10/24/2018
         

Effective beginning

10/27/2021

 

Lead Director and Corporate Governance and Nominating Committee Chair:

     $200,000      

 

     $220,000  

Audit Committee Chair:

     $165,000      

 

     $180,000  

Human Resources and Compensation Committee Chair:

     $165,000      

 

     $180,000  

Non-Chair Committee members:

     $140,000      

 

     $150,000  

In addition to the annual retainers described above, non-employee Directors are entitled to receive a $2,000 fee for attending each Board of Directors or Committee meeting that exceeds the number of regularly scheduled Board or Committee meetings in a fiscal year by more than two. On that basis, in fiscal year 2022 each director received two additional payments of $2,000.

During fiscal year 2022, Directors could elect to defer all or a portion of their annual retainers under our Deferred Compensation Plan for Directors.

Each Director who was serving as a Director on October 27, 2021 and who was not a current employee was granted 556 restricted stock units (“RSUs”) under our Amended 2016 Equity Plan (as defined below). Ms. Evanko’s and Mr. Fritz’s pro-rated award of 547 RSUs granted upon their appointments to the Board in January 2021 vested on January 27, 2022; Mr. Lacey’s pro-rated award of 365 RSUs granted upon his appointment to the Board in April 2021 vested on April 22, 2022. The terms of the RSUs provide that the RSUs will vest 100% on the later of (a) one year from the grant date; or (b) on the date of our next Annual Shareholders Meeting, also known as, in each case, the Vesting Date, except that if a Director ceases to be a Director for any reason prior to the next Annual Meeting of Shareholders that occurs after the grant date, a pro-rated portion of her or his RSUs will vest on the Vesting Date and the remaining RSUs will be forfeited. All RSUs earn dividend equivalent units paid as additional RSUs, which are subject to the terms and conditions of the original RSU award and are payable directly to each Director to whom they are issued.

 

 
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Director Compensation

 

 

Director Compensation for Fiscal Year 2022

The following table sets forth compensation information for our non-employee Directors for fiscal year 2022.

 

  Name    Fees Earned or
Paid in Cash
($)
     Stock
Awards
($)(1)
     All Other
Compensation
($)(2)
    

Total

($)

 

Jillian C. Evanko

     150,774        165,677        2,314        318,765  

Lance M. Fritz

     150,774        165,677        2,314        318,765  

Linda A. Harty

     179,161        165,677        1,704        346,542  

William F. Lacey

     150,774        165,677        2,577        319,028  

Kevin A. Lobo

     150,774        165,677        1,704        318,155  

Joseph Scaminace

     179,161        165,677        11,704        356,542  

Åke Svensson

     150,774        165,677        1,704        318,155  

Laura K. Thompson

     150,774        165,677        4,204        320,655  

James R. Verrier

     150,774        165,677        1,704        318,155  

James L. Wainscott

     217,548        165,677        11,704        394,929  

Candy M. Obourn

     45,161                      45,161  

 

(1)

This column represents the aggregate grant date fair value of RSUs granted under our Amended 2016 Equity Plan in fiscal year 2022 and computed in accordance with FASB ASC Topic 718. The amount was calculated using the closing stock price on the date of each of the grants. Each of the non-employee Directors serving as a Director on October 27, 2021 received 556 RSUs on his or her grant date. As of June 30, 2022, each non-employee Director, other than Ms. Obourn, held 556 RSUs, and none of the non-employee Directors held options or SARs.

 

(2)

The amounts reported in this column include (a) the value of the dividend equivalent units earned as additional RSUs on the unvested RSUs granted in fiscal year 2022 and in the case of Jillian C. Evanko, Lance M. Fritz and William F. Lacey, the unvested RSUs granted in 2021, and (b) the following matching gifts under our Matching Gifts Program: Mr. Scaminace-$10,000; Ms. Thompson- $2,500; and Mr. Wainscott-$10,000. For more information regarding our Matching Gifts Program, see the Compensation Discussion and Analysis section on page 60 of this Proxy Statement.

 

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Table of Contents

    

 

 

EXECUTIVE COMPENSATION

 

 

Item 2 – Advisory Vote to Approve Named Executive Officer Compensation

In accordance with the requirements of Section 14A of the Securities Exchange Act of 1934 and the related SEC rules, we are providing our shareholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of the Named Executive Officers as disclosed in this Proxy Statement. We encourage our shareholders to carefully read this Proxy Statement in its entirety before deciding whether or not to vote for or against this Item 2.

At our 2017 Annual Meeting of Shareholders, shareholders voted in favor of annual frequency for the non-binding, advisory approval of the compensation of the Named Executive Officers. The next non-binding, advisory vote on the compensation of the Named Executive Officers is expected to take place at our 2023 Annual Meeting of Shareholders.

As described in detail throughout our Compensation Discussion and Analysis section of this Proxy Statement, our executive compensation program features, among other things, the following:

 

   

A “pay-for-performance” structure which helps ensure that a significant portion of the compensation for our executive officers is “at-risk,” is dependent on the short-term and long-term performance of our business and encourages and rewards performance that drives the key goals, operational priorities and metrics that we use to profitably grow our business and enhance shareholder value;

 

 

   

A structure which helps ensure that our executive compensation program aligns the interests of our executive officers and our shareholders, is not overly weighted towards annual cash incentive compensation and does not otherwise have the potential to threaten long-term shareholder value by promoting unnecessary or excessive risk-taking by our executive officers;

 

 

   

A structure consistent with our philosophy of targeting executive compensation at market median, which allows us to remain competitive with companies that compete with us for talented team members and shareholder investment;

 

 

   

Various executive compensation practices that contribute to good corporate governance, including a “clawback” policy, stock ownership guidelines for Directors and executive officers, hedging, pledging and other stock ownership restrictions, and an annual compensation risk review; and

 

 

   

Effective oversight and decision-making by a highly-independent Board of Directors and a Human Resources and Compensation Committee consisting entirely of independent Directors that retains an independent executive compensation consultant.

 

The vote on this Item 2 is non-binding and advisory in nature, which means that the vote is not binding on us, our Board of Directors or any of the Committees of our Board of Directors. However, our Board of Directors values the views of our shareholders and our Board of Directors and Human Resources and Compensation Committee will review the results of the vote and take them into account when addressing future compensation policies and decisions.

Our Board of Directors believes that our executive compensation program is reasonable and well-structured, satisfies its objectives and philosophies and is worthy of shareholder support. Accordingly, our Board of Directors requests that our shareholders vote to approve the following resolution:

RESOLVED, that the compensation paid to our Named Executive Officers, as disclosed pursuant to the rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and narrative discussions, is approved on a non-binding, advisory basis.

 

     LOGO    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF
THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT ON A NON-BINDING, ADVISORY BASIS.

    

 

 
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Executive Compensation

 

 

Compensation Discussion & Analysis

Named Executive Officers

Our named executive officers for fiscal year 2022 are:

 

 

Thomas L. Williams Chairman & Chief Executive Officer

 

 

Todd M. Leombruno Executive Vice President and Chief Financial Officer

 

 

Lee C. Banks Vice Chairman and President

 

 

Jennifer A. Parmentier Chief Operating Officer

 

 

Andrew M. Weeks former Vice President and President - Engineered Materials Group

Executive Summary

Objectives and Philosophies of the Executive Compensation Program

The Win Strategy has been the foundation of our business and has represented the unified strategic vision of our team members worldwide since it was first introduced in 2001. The Win Strategy defines the key goals, operational priorities and metrics used to profitably grow our business. We are confident that our continuing focus on The Win Strategy maximizes long-term shareholder value by helping us realize our goal of top-quartile performance among our competitors and peers and steady appreciation of our stock price.

The Win Strategy also provides the means by which we measure and reward success. In fact, the objective of our executive compensation program is to encourage and reward performance that implements the strategies and advances the goals of The Win Strategy. The program is designed to:

 

 

   LOGO   

  

 

Align the financial interests of our executive officers and our shareholders by encouraging and rewarding our executive officers for performance that achieves or exceeds significant financial and operational performance goals and by holding them accountable for results.

 

 

 

   LOGO

 

 

Encourage and reward our executive officers for experience, expertise, level of responsibility, continuity of leadership, leadership qualities, advancement, individual accomplishment and other significant contributions to the enhancement of shareholder value and to the success of our business.

 

 

   LOGO

  

 

Provide market competitive compensation to attract, retain and motivate highly-talented and ethical individuals at all levels who are focused on the long-term success of our business and who are equipped, motivated and poised to lead and manage our business presently and in the future.

 

 

 

   LOGO   

 

 

Promote accountability by providing executive officers a mix of cash and equity compensation, allocating a greater proportion of the compensation for executive officers, as compared to other team members, to elements that are dependent on the performance of our business.

 

 

   LOGO

 

  

 

Maintain a level of flexibility sufficient to adjust for trends and changes in the continuously evolving global business and regulatory environment.

 

 

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Executive Compensation

 

 

2022 Executive Compensation Program

Categories and Elements of Executive Compensation

Our executive compensation program covers all compensation paid to our executive officers. In fiscal year 2022 our executive officers included, among others, our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executive officers identified in the Summary Compensation Table for Fiscal Year 2022, which we refer to as the Named Executive Officers.

Our executive compensation program offers the categories and elements of compensation identified in the following table. Each element of compensation is more specifically defined and described in the “Principal Elements of Executive Compensation” section beginning on the page indicated in the table.

 

  Category of Compensation    Element(s) of Compensation     

Defined/Described 

Beginning on: 

 

Base Salaries

     Base Salaries        Page 45   

Annual Cash Incentive Compensation

     Target Incentive Bonuses        Page 47   

 

     General RONA Bonuses        Page 48   

 

     Converted RONA Bonuses        Page 48   
 

 

     PGI Plan        Page 50   

Long-Term Incentive Compensation

     LTIP Awards        Page 51   

 

     Stock Incentives        Page 53   
 

 

     Restricted Stock Units        Page 54   

Employee Benefits

     Various        Page 54   

Executive Perquisites

     Various        Page 59   

“Pay-for-Performance” — Structure, Key Financial Metrics and Impact on Compensation

Our executive compensation program is structured to ensure that a significant portion of the compensation for executive officers is dependent upon the performance of our business. This “pay-for-performance” structure drives the program to achieve its objective to encourage and reward performance that implements the strategies and advances the goals of The Win Strategy. Our program is also structured to help ensure that the compensation for our executive officers is not overly weighted toward annual cash incentive compensation and does not otherwise have the potential to threaten long-term shareholder value by promoting unnecessary or excessive risk-taking by our executive officers. The “Compensation Setting Process” section describes our policies and practices for allocating executive compensation among the various categories and elements.

 

 
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Executive Compensation

 

 

To illustrate, the following graphics show the mix of fixed and at-risk annual and long-term cash and equity compensation represented by base salaries and the elements of annual cash incentive compensation and long-term incentive compensation for the Named Executive Officers for fiscal year 2022 at target levels. The percentages of total target compensation reflected in this chart were calculated using each Named Executive Officer’s fiscal year 2022 base salary, target annual cash incentive compensation and target long-term incentive compensation (as set in August 2021).

 

 

LOGO

 

*

Rounded to the nearest percentage point.

The “Principal Elements of Executive Compensation” section provides detailed discussion and analysis regarding how each element of compensation encourages and rewards performance that implements the strategies and advances the goals of The Win Strategy. Our compensation structure includes both fixed and at-risk compensation comprised of various cash and equity elements, which is structured generally as follows:

 

 

LOGO

 

*

General RONA and Converted RONA, which are based on our return on net assets.

 

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Executive Compensation

 

 

We provide base salaries, employee benefits and executive perquisites primarily to ensure that our executive compensation program remains competitive to attract, retain and motivate the individuals needed to implement and advance our strategies and goals. In addition, as illustrated in the following table, we provide each element of annual cash incentive compensation and each element of long-term incentive compensation primarily to encourage and reward performance that implements and advances The Win Strategy, in particular, our strategies and goals relating to financial performance and profitable growth, aligning such elements with our performance in certain key financial metrics that we use to measure the overall performance of our business.

We also ensure that base salary adjustments consider performance and results in certain ESG-related metrics embedded in The Win Strategy, such as, among others, team member safety, engagement and inclusion. The Human Resources and Compensation Committee also recognizes the potential for incorporating ESG-related metrics into our incentive compensation plans and programs and will continue to consider and evaluate appropriate opportunities to do so within our executive compensation program.

The following table shows the behaviors, key financial metrics and fiscal year 2022 results driven by each element of at-risk compensation provided to the Named Executive Officers.

 

             Element of Compensation   

Encourages executive

officers to maximize

  

By focusing on various

key business strategies, such as

   Fiscal year 2022 results

 

 

 

LOGO     

 

    

 

 

LOGO

 

 

RONA Bonuses

(General and

Converted)

(cash)

  

 

return on net assets

  

 

value pricing and strategic supply chain, market-driven innovation, system solutions and strong distribution channels

 

  

 

Our return on consolidated net assets was above target.

 

 

Target Incentive

Bonuses

(cash)

  

 

free cash flow

  

 

continuous improvement in net income, lean initiatives, inventory controls, collection of receivables, control of payables and capital expenditures, and the ability to finance dividends, acquisitions and product innovations

 

  

 

Our operating cash flows were $2.44 billion or 15.4% of sales, resulting in a free cash flow margin of 13.94%.*

 

 

Profitable Growth

Incentive Plan**

(cash)

  

 

sales growth (organic and through acquisitions)

  

 

profitable and sustainable sales growth

  

 

The Profitable Growth Incentive Plan multiplier was applied to Mr. Weeks’ General RONA Bonus, increasing his General RONA Bonus payout by approximately 30%.

 

    LOGO     

 

LTIP Awards

(equity)

  

 

long-term sales growth, earnings per share growth, and growth in average return on invested capital

  

 

market-driven innovation, on-time delivery of quality products, value-added services and systems, strategic supply chain, lean enterprise, value pricing and profitable growth

  

 

Our results for revenue and earnings per share growth were at top quartile, and our results for growth in average return on invested capital was between the median and top quartile performance levels, resulting in a payout at 186.66% of target.

 

 

 

Stock Incentives/Stock

Appreciation Rights

(SARs)

(equity)

  

 

our stock price

  

 

sustained profitable growth and financial and operational performance that contribute to appreciation of our stock price

 

  

 

Our average daily closing per share stock price was $294.14 in fiscal year 2022, as compared to $260.14 in fiscal year 2021.

 

 

*

Free cash flow margin is calculated as disclosed on page 47.

 

**

Officer participation in our Profitable Growth Incentive Plan is limited to our operating group presidents; as such, Mr. Weeks (Vice President and President—Engineered Materials Group) is the only Named Executive Officer who was eligible for the Profitable Growth Incentive Plan in fiscal year 2022.

 

 
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Executive Compensation

 

 

Compensation Practices

The following table highlights some of the key aspects of our executive compensation program for fiscal year 2022. This table is not a substitute for, nor does it purport to include, all of the information provided in this Compensation Discussion and Analysis and the Compensation Tables presented later in this Proxy Statement.

 

LOGO   What We Do        LOGO   What We Don’t Do

LOGO   Executive compensation program with pay-for-performance structure aligned with The Win Strategy

 

LOGO   The target total direct compensation package for our Chief Executive Officer is a mix of 9% fixed and 91% at-risk, and for our other Named Executive Officers is an average mix of 18% fixed and 82% at-risk

 

LOGO   Annual advisory vote on executive compensation with consistent high degree of approval

 

LOGO   One-year minimum vesting or performance period requirements for equity incentives under our Amended and Restated 2016 Omnibus Stock Incentive Plan

 

LOGO   “Claw back” policy to recover or withhold incentive-based compensation to executive officers in certain circumstances

 

LOGO   Anti-hedging and anti-pledging policy for Directors and executive officers

 

LOGO   Robust Stock Ownership Guidelines for executive Officers and Directors

    

LOGO   Offer employment agreements to our executives

 

LOGO   Offer above-market earnings on contributions to deferred compensation accounts

 

LOGO   Grant stock options or SARs with an exercise price less than the fair market value of Parker’s common stock on the date of grant

 

LOGO   Re-price stock options or SARs

 

LOGO   Cash out underwater stock options or SARs

 

LOGO   Include reload provisions in any stock option or SAR grant

 

LOGO   Permit directors or employees, or their respective related persons, to engage in short sales of Parker’s stock or to trade in instruments designed to hedge against price declines in Parker’s stock

 

LOGO   Permit directors or officers to hold Parker securities in margin accounts or to pledge Parker securities as collateral for loans or other obligations

 

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Executive Compensation

 

 

Compensation Setting Process

Roles and Responsibilities

 

THE HUMAN

RESOURCES AND

COMPENSATION

COMMITTEE

   

 

The Human Resources and Compensation Committee, which we refer to in this Compensation Discussion and Analysis as the Committee, consists solely of independent Directors and has various duties and responsibilities with respect to the administration, oversight and determination of executive compensation. As described in the Committee’s Charter, which is posted and available on the Corporate Governance page of our investor relations website at www.phstock.com, these duties and responsibilities include:

 

   establishing our executive compensation program and philosophies and overseeing their development and implementation;

 

   reviewing and approving the performance and compensation of our Chief Executive Officer and other executive officers; and

 

   overseeing and evaluating any significant risks arising from our compensation policies and practices.

 

To assist in its risk oversight duties and responsibilities, the Committee ensures management and the Committee’s independent compensation consultant conduct an annual compensation risk review. The results of this review are evaluated and discussed among management, the Committee and its independent executive compensation consultant and, if any significant risks are identified, the full Board of Directors. Based on the review conducted during fiscal year 2022, we believe that our current compensation policies and practices are designed to mitigate risks related to compensation, and such policies and practices do not create risks that are likely to have a material adverse effect on our business.

 

The Committee also retains the discretion to authorize periodic compensation adjustments due to promotions or increases in the responsibilities of our executive officers.

 

In fulfilling its duties and responsibilities, the Committee seeks periodic input, advice and recommendations from various sources, including our Board of Directors, our executive officers and the Committee’s independent executive compensation consultant. The Committee is not bound by that input or advice or those recommendations. The Committee at all times exercises independent discretion in its executive compensation decisions. The Committee may, in its discretion, create subcommittees of its members and delegate to them any of its duties and responsibilities. It may also delegate certain authority to management with respect to our benefit plans, but it may not so delegate approval of executive officer compensation, stock plan design, director compensation, or change in control plans and agreements.

 

     
BOARD OF DIRECTORS    

 

Our Board of Directors approves all plans and programs which, by their terms, require approval of our Board. Our Board does not authorize or approve any other specific executive compensation matters. Our Board oversees the Committee’s activities and performance, including the identification, evaluation and monitoring of risks arising from our compensation policies and practices, and reviews all material information relating to executive compensation matters approved by the Committee. This oversight helps ensure that the Committee fulfills its duties and responsibilities and that the executive compensation program is reasonable and appropriate, meets its objectives and effectively serves the interests of our business and our shareholders.

 

     
EXECUTIVE OFFICERS    

 

Our executive officers also play a role in the administration, oversight and determination of executive compensation. At the beginning of each fiscal year, each executive officer sets annual performance goals for his or her direct reports, which may include other executive officers. The performance goals are designed to promote individual performance consistent with the strategies and goals of The Win Strategy. Throughout the fiscal year, each executive officer’s performance is reviewed and evaluated against his or her performance goals. At the end of the fiscal year, each executive officer conducts a final performance review for each of his or her direct reports. Based on those reviews, our executive officers, other than our Chief Executive Officer, recommend any annual compensation adjustments and awards for their executive officer direct reports to our Chief Executive Officer.

 

Our Chief Executive Officer similarly reviews and evaluates his direct reports, which include each of the other Named Executive Officers except for Mr. Weeks who was reviewed and evaluated by Ms. Parmentier. Our Chief Executive Officer also reviews and evaluates the recommendations made with respect to all of our other executive officers and makes any modifications that he deems appropriate. Our Chief Executive Officer then recommends to the Committee annual compensation adjustments and awards for all of our executive officers other than himself.

 

Our Chief Executive Officer, Vice Chairman and President, Chief Operating Officer, Executive Vice President–Human Resources & External Affairs and our Secretary attend all meetings of the Committee other than executive sessions. None of these officers attend discussions regarding their individual compensation. Our executive officers prepare and provide to the Committee performance summaries for certain executive officers, which are used by the Committee to understand and measure the performance and effectiveness of our annual cash incentive compensation and long-term incentive compensation. Our executive officers also periodically consult with and assist the Committee in calculating incentive compensation payouts, establishing and monitoring performance goals and addressing other appropriate executive compensation matters.

 

 

 
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Executive Compensation

 

 

Compensation Consultants and Benchmarking

The Committee regularly monitors, reviews and evaluates our executive compensation program to help ensure that it provides reasonable compensation ranges at competitive, appropriate and effective levels. The Committee engages Mercer Human Resource Consulting, an independent human resources and compensation consulting firm, which we refer to as Mercer, to assist the Committee in its monitoring, review and evaluation responsibilities, and to otherwise provide assistance and guidance to the Committee on executive officer and Director compensation matters. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies, Inc. The Committee first engaged Mercer in fiscal year 2009 following a robust procurement process involving multiple consulting firms. The Committee selected Mercer based on its level of expertise and financial and strategic fit. Mercer reports directly to the Committee and attends all meetings of the Committee. The Committee has sole authority for the appointment, removal, replacement, compensation and oversight of Mercer and its affiliates for executive officer and Director compensation matters.

Mercer provides a wide range of executive officer and Director compensation consulting services for the Committee. Mercer prepares and provides to the Committee a comprehensive annual review of base salaries, target annual cash incentive compensation, target long-term incentive compensation and target total cash and direct compensation for all of our executive officers. Mercer uses this annual review to advise the Committee with respect to the effectiveness and competitiveness of our executive compensation program. The Committee considers this annual review when establishing compensation levels and otherwise to ensure that our executive compensation program remains competitive and effective.

Mercer uses proxy statement data and surveys published by leading human resources and compensation consultants to conduct market analyses of base salaries, target annual cash incentive compensation, target long-term incentive compensation and target total cash and direct compensation offered to executives of other diversified industrial companies with revenues and market values comparable to ours, which we refer to as the Peer Group or Peer Group companies. Mercer also uses broader market data on companies outside of the Peer Group to the extent that it is available and appropriate.

The Committee regularly reviews and, when necessary or advisable, updates the Peer Group to make sure it consists of companies that directly compete with us for talented team members and shareholder investment, and it otherwise represents a meaningful group of peers. In evaluating the Peer Group companies, the Committee looks for companies in the Diversified Industrials sector with characteristics and business strategies similar to ours. The Peer Group companies for fiscal year 2022 remained the same as fiscal year 2021 and consisted of the following companies:

 

 

 

Peer Group Companies

 

     
 

   Caterpillar Inc.

 

   Colfax Corporation(1)

 

   Cummins Inc.

 

   Danaher Corporation

 

   Deere & Company

 

   Dover Corporation

 

  

   Eaton Corporation plc

 

   Emerson Electric Co.

 

   Flowserve Corporation

 

   Fortive Corporation

 

   Honeywell International Inc.

 

   Illinois Tool Works Inc.

 

  

   Ingersoll Rand Inc.

 

   ITT Inc.

 

   Johnson Controls International plc

 

   Rockwell Automation, Inc.

 

   Textron Inc.

 

   Trane Technologies plc

 

 

(1)

Colfax Corporation became Enovis Corporation in April 2022

Mercer also provided other compensation consulting services to the Committee during fiscal year 2022, including:

 

 

preparing for and participating in the Committee’s meetings and conference calls, including advance and subsequent meetings with the chair of the Committee and senior management;

 

 

conducting a pay-for-performance review to evaluate the level of alignment between our executive compensation program and performance levels relative to our Peer Group companies;

 

 

preparing and providing to the Committee a comprehensive review of compensation provided to our non-management Directors;

 

 

assessing our free-cash flow performance versus peers over a one, three and five-year period;

 

 

working with management to conduct the annual compensation risk review; and

 

 

periodically assisting management on other select executive compensation topics.

 

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Executive Compensation

 

 

In fiscal year 2022, we paid $212,473 in fees, administrative charges, out-of-pocket expenses and other costs to Mercer for executive officer and Director compensation consulting services provided to the Committee.

We also directly engage Marsh & McLennan Companies, Inc. and its affiliates (including Mercer) in the ordinary course of business, without the approval of our Board of Directors or the Committee, to provide services in areas other than executive officer and Director compensation. These additional services included:

 

 

consulting services regarding life insurance, prescription drug and other benefits programs for our team members generally;

 

 

consulting services regarding investment options available under our benefit plans for our team members generally;

 

 

providing benchmarking surveys for information on compensation and benefits for our team members generally; and

 

 

providing services as an insurance broker.

In fiscal year 2022, we paid $745,898 in fees, administrative charges, commissions, out-of-pocket expenses and other costs to Marsh & McLennan Companies, Inc. and its affiliates (including Mercer) for these additional services. The majority of these fees were not paid pursuant to engagements of Marsh & McLennan Companies, Inc. by management, but were rather either paid by our third-party administrators to Marsh & McLennan Companies, Inc. relating to risk insurance and for insurance and prescription drug services provided under our team member health and welfare plans, or were direct engagements with Marsh & McLennan Companies, Inc. made by various divisions worldwide for market surveys related to those particular divisions. The consolidated revenues of Marsh & McLennan Companies, Inc. were $19.82 billion as reported in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The Committee has considered and assessed all relevant factors, including but not limited to those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Securities Exchange Act of 1934, that could give rise to a potential conflict of interest with respect to Mercer. Based on this review, we are not aware of any conflict of interest that has been raised by the work performed by Mercer. The Committee also periodically reviews the relationship with Mercer to determine whether sufficient internal safeguards are in place to ensure that Mercer provides services to the Committee independent of any influence from management. The Committee identified the following safeguards:

 

 

Mercer reports directly to the Committee and not to management on executive officer and Director compensation matters;

 

 

at each Committee meeting, Mercer and the Committee meet in executive session without members of management present;

 

 

all non-executive compensation services are provided by Mercer consultants who are not involved in providing executive officer and Director compensation consulting services to the Committee;

 

 

the Committee has exclusive authority to retain and set the compensation for Mercer’s executive officer and Director compensation consulting services;

 

 

the individual Mercer consultants to the Committee do not provide any services to us other than those provided for the Committee;

 

 

the individual Mercer consultants to the Committee do not participate in any client development activities that are not directly related to executive officer or Director compensation services for the Committee; and

 

 

the amounts paid to Mercer by the Committee are not directly impacted by any growth in the fees we pay to Marsh & McLennan Companies, Inc. and its affiliates (including Mercer).

 

 
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Executive Compensation

 

 

Consideration of 2021 Say-on-Pay Vote

At our 2021 Annual Meeting of Shareholders, we received approval, based on the total votes cast, for our advisory “say-on-pay” vote to approve the compensation of our Named Executive Officers. The Committee and Mercer specifically considered the voting results when exploring potential changes to our executive compensation program in fiscal year 2022. The Committee believes the voting results demonstrate strong, consistent support for our executive compensation program. The Committee will continue to explore with Mercer potential improvements to our executive compensation program to the extent appropriate to keep our executive compensation program aligned with best practices in our competitive market.

General Policies and Practices Relating to Executive Compensation

Allocation of Executive Compensation

The Committee seeks to provide compensation, employee benefits and executive perquisites which are competitive with the market and help us attract, retain and motivate present and future executive officers. Annually, base salaries, target annual cash incentive compensation and target long-term incentive compensation for each executive officer is compared to the median of companies included in Mercer’s annual review with the objective that, in the aggregate, our target compensation remains generally aligned with the median of the Peer Group companies.

When deciding whether to increase or decrease the amount of any element of compensation, the Committee considers Mercer’s annual review, the annual performance reviews of the executive officers and the performance of our business as a whole. The Committee does not consider amounts realized from prior compensation in determining the levels of compensation paid to executive officers.

To ensure that our executive compensation program meets its objectives to drive and support The Win Strategy, the Committee allocates the majority of compensation for executive officers to annual cash incentive compensation and long-term incentive compensation. Each of the at-risk elements of compensation within those categories is directly tied to appreciation of our stock price and/or to significant financial and operational performance goals. More than one-half of the targeted total compensation for the executive officers is, therefore, “at-risk” and may significantly fluctuate from year to year based on our financial, operational and stock performance. In addition, the Committee makes sure that executive officers have a greater proportion of their total compensation allocated to these at-risk elements than other team members. The Committee structures the program in this manner to better align the financial interests of our executive officers with the financial interests of our shareholders, to better ensure a “pay-for-performance” result and to promote internal equity by recognizing that our executive officers, as compared to other team members, have greater responsibility and influence over the performance of our business.

 

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Executive Compensation

 

 

Our executive compensation program is also structured to offer a reasonable balance of annual and long-term, as well as cash and equity, elements of compensation. The program provides a mix of those elements specifically designed to encourage and reward performance that contributes to the advancement of The Win Strategy. The Committee does not have any formal policies or guidelines with respect to the allocation of executive compensation between annual and long-term elements, cash and equity elements or different forms of equity elements. In practice, however, the Committee has taken the following approaches.

 

 

Allocation between annual and long-term elements. The Committee considers Mercer’s annual review as it sets each executive officer’s base salary and annual cash incentive compensation to ensure that it is reasonable in the context of the midpoint value of his or her comparable position within the Peer Group. The Committee also considers Mercer’s annual review as it sets the total target value of each executive officer’s long-term incentive compensation as a multiple of the midpoint of the base salary range of his or her comparable position within the Peer Group companies.

 

 

Allocation between cash and equity elements. Base salaries and annual cash incentive compensation are paid in cash. Long-term incentive compensation is paid in equity because of the long-term nature of equity awards and our desire to encourage performance that drives long-term shareholder value.

 

 

Allocation between different forms of equity elements. The Committee generally allocates 50% of the total target value of each executive officer’s long-term incentive compensation to LTIP Awards and 50% to Stock Incentives. The Committee takes this approach to balance the allocation between elements based on long-term financial, operational and strategic metrics and those based on long-term performance of our common stock.

The Committee generally makes all elements of executive compensation available to all executive officers and makes executive compensation decisions on a consistent and equitable basis. The Committee generally does not offer any element to an executive officer that is not available to other executive officers. As described beginning on page 50, however, the PG RONA Multiplier is applied only to our operating group presidents, and, therefore, Mr. Weeks is our only Named Executive Officer to whom the PG RONA Multiplier was applied in fiscal year 2022. The Committee also occasionally grants retention and/or recognition awards to executive officers who make extraordinary contributions to the Company’s success, or for whom a retention incentive is appropriate.

Committee Discretion

The Committee does not change the pre-determined performance goals or increase the amount of any at-risk compensation following the grant date except as permitted by applicable laws and regulations. The Committee may increase the amount of any award of annual cash incentive compensation made outside of the Performance Bonus Plan if appropriate to account for corporate policy changes, executive compensation program changes and major corporate programs, and to account for the negative impact of acquisitions on goodwill and amortization expense, losses on dispositions of real property during plant moves or shutdowns and other unexpected occurrences that negatively impact awards.

The Committee may reduce the amount of any award of annual cash incentive compensation or long-term incentive compensation made to the Named Executive Officers other than Stock Incentives. The Committee retains this downward discretion for the following purposes:

 

 

to ensure greater control over final performance-based compensation amounts based on its assessment of the quality of our results relative to our various performance measures, the risks taken to attain those results and our overall financial performance;

 

 

to help ensure that performance-based compensation continues to effectively serve the interests of our business and our shareholders; and

 

 

to avoid inappropriately rewarding executive officers based on events or circumstances that were not expected at the beginning of the performance period.

The Committee has historically exercised this downward discretion with respect to General RONA Bonuses awarded under the Performance Bonus Plan to the Chief Executive Officer, the Chief Financial Officer and certain other executive officers. At the beginning of the year, the Committee determines for each of these executive officers a General RONA Bonus award opportunity that is large enough to ensure that we meet our objectives for annual cash incentive compensation and, at the same time, preserve the ability of the Committee to exercise its discretion to reduce the amount of the award payout to an appropriate level as compared to the final payouts made to executive officers who receive annual cash incentive compensation outside the Performance Bonus Plan and after taking into account individual performance and contributions to the success of our business. In addition, our calculation methodology for LTIP Award payouts also allows the Committee to exercise this discretion with respect to LTIP Award payouts.

 

 
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Compensation Risk Review

The annual compensation risk review, first described on page 40, begins with a global assessment of any plans or programs that could potentially encourage excessive risk-taking or otherwise present significant risks to our business. The review also takes into account our individual business units to determine whether any of them carries a significant portion of our risk profile, structures compensation significantly different than others or is significantly more profitable than others.

The review then evaluates whether the applicable plans and programs are likely to encourage excessive risk-taking or detrimental behavior, vary significantly from our risk-reward structure, or otherwise present significant risks to our business.

During our fiscal year 2022 compensation risk review, we also identified and evaluated various mechanisms that we currently have in place that may serve to mitigate any existing or potential risks arising from our compensation policies and practices, including the following:

 

 

our executive officers and other management-level team members are compensated with a mix of annual and long-term incentives, fixed and at-risk compensation, cash and multiple forms of equity compensation;

 

 

compensation packages gradually become more focused on long-term, at-risk and equity compensation as our team members ascend to and through management-level positions;

 

 

our global compensation plans and programs generally utilize the same or substantially similar performance measures;

 

 

we use multiple performance measures to determine payout levels under certain elements of incentive compensation and different performance measures for our annual incentives as compared to our long-term incentives;

 

 

the performance of our team members is not evaluated or measured based solely on changes in our stock price;

 

 

our incentive compensation programs generally limit payouts to a specified maximum, while those that do not are mitigated by other factors (e.g., stock appreciation rights are mitigated by long-term vesting periods and stock ownership guidelines);

 

 

we do not offer “guaranteed” bonuses and all of our incentive compensation elements carry downside risk for participants;

 

 

our executive officers are subject to specific stock ownership guidelines, a “clawback” policy and provisions requiring forfeiture of certain elements of incentive compensation under certain circumstances;

 

 

our compensation packages, including severance packages and supplemental pensions, are within market ranges;

 

 

the Human Resources and Compensation Committee has the discretion to assess the quality of our results in relation to our various performance measures and the risks taken to attain those results in approving final incentive payouts;

 

 

our decentralized organizational structure lessens the impact of any excessive risks taken by individual business units or operating groups; and

 

 

our team members are evaluated, measured and assessed based on their compliance with our Global Code of Business Conduct and other internal policies and controls, and the extent to which they act in the best interests of our business and our shareholders.

During the annual compensation risk review, we also consider whether any changes to our compensation plans and programs may be necessary to further mitigate risk. While no changes to our compensation plans and programs were made as a result of the fiscal year 2022 compensation risk review, a new Officer Annual Cash Incentive Plan was implemented for fiscal year 2023 and changes were made to the performance metric weighting of our 2022-23-24 LTIP awards (as compared to our 2021-22-23 LTIP awards) as further discussed in this Compensation Discussion and Analysis section.

Principal Elements of Executive Compensation

Base Salaries

Each of the Named Executive Officers receives an annual base salary to:

 

 

encourage and reward attainment of individual performance goals established during the annual performance review process;

 

 

recognize experience, expertise, level of responsibility, continuity of leadership, leadership qualities, advancement, individual accomplishment and other significant contributions to the enhancement of shareholder value and the success of our business; and

 

 

attract, retain and motivate the highly-talented and values-driven individuals we need to advance the goals of The Win Strategy.

 

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The Committee establishes a base salary range for each Named Executive Officer by using Mercer’s annual review to analyze base salaries of persons holding comparable positions within the Peer Group companies. The Committee determines the base salary for each Named Executive Officer for the next fiscal year based on the Named Executive Officer’s annual performance review, and compares the amount to the applicable market range to make sure that it is reasonable. Among other matters, annual performance reviews and base salary adjustments consider performance and results aligned with The Win Strategy, including in certain of its ESG-related metrics such as, among others, team member safety, engagement and inclusion. The Committee may increase base salaries, where appropriate, periodically throughout the fiscal year based on the results of interim performance reviews. The Committee generally tries to target base salary amounts at approximately the median of the Peer Group companies.

In fiscal year 2022, base salaries for the Named Executive Officers were generally increased in the range of approximately 5.5% to 7.5% for officers remaining in their same role year over year in consideration of the factors described above and to better align with the Peer Group median for similarly situated persons at our Peer Group companies. The table below reflects the base salaries as approved by the Committee in fiscal year 2022 as well as the total base salary actually paid to each of the Named Executive Officers as of June 30, 2022, which is also included in the “Salary” column of the Summary Compensation Table for Fiscal Year 2022.

 

 

  Base Salaries

                                                                                                                                                                                                                              

 

  Named Executive Officers   

FY2022

Base Salary ($)(1)

    

FY2022

Base Salary ($) (Actual)

 

Thomas L. Williams

     $1,400,000        $1,387,500  

Todd M. Leombruno(2)

     $720,000        $736,667  

Lee C. Banks

     $1,125,000        $1,112,500  

Jennifer A. Parmentier(3)

     $750,000        $765,423  

Andrew M. Weeks

     $643,300        $636,283  

 

(1)

Base salaries as set in August 2021 and effective September 1, 2021.

 

(2)

Mr. Leombruno’s annual base salary was increased to $720,000 effective September 1, 2021 and he received a mid-year increase to $780,000 effective February 1, 2022.

 

(3)

Ms. Parmentier was promoted to Chief Operating Officer effective August 9, 2021. Her annual base salary effective on that date was $750,000. She received a mid-year increase to $820,000 effective February 1, 2022.

Annual Cash Incentive Compensation

Our executive officers are eligible to receive annual cash incentive compensation based on pre-determined financial and growth objectives that are dependent on free cash flow margin, return on net assets and revenue growth. This category of compensation consists of three specific elements, which we refer to as Target Incentive Bonuses, General RONA Bonuses, and Converted RONA Bonuses. All of the Named Executive Officers are eligible to receive Target Incentive Bonuses, General RONA Bonuses and Converted RONA Bonuses. As described beginning on page 50, Mr. Weeks is the only Named Executive Officer whose General RONA Bonus is subject to the application of our Profitable Growth Incentive Plan, which we refer to as the PGI Plan.

The Committee allocates a significant portion of the total cash compensation for executive officers to annual cash incentive compensation, which is wholly dependent on achieving pre-determined financial and operational goals. At the beginning of fiscal year 2022, Target Incentive Bonuses, General RONA Bonuses and Converted RONA Bonuses, in the aggregate at target, represented the following percentages of base salary for each of our Named Executive Officers, which percentages remained consistent with target aggregate percentages for fiscal year 2021 for officers serving in the same role year over year:

 

 

  Target Percentage of Base Salary

                                                                                                                                                                                            

 

  Named Executive Officers   

Target Incentive Bonuses

General RONA Bonuses(1) and
Converted RONA Bonuses

 

Thomas L. Williams

     161%  

Todd M. Leombruno

     96%  

Lee C. Banks

     107%  

Jennifer A. Parmentier

     108%  

Andrew M. Weeks

     74%  

 

(1)

Because General RONA Bonuses are calculated based on actual base salary received during the fiscal year the mid-year increases in salary for Mr. Leombruno and Ms. Parmentier had an impact on General RONA bonus payouts.

 

 
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The Committee pre-determines the performance measures applicable to each element by analyzing our annual goals and objectives for each performance measure and, for Target Incentive Bonuses, Mercer’s annual review. The Committee directly and materially links annual cash incentive compensation to performance that drives and supports The Win Strategy.

Target Incentive Bonuses

During fiscal year 2022, the Named Executive Officers received annual cash incentive compensation based on our free cash flow margin, which we refer to as Target Incentive Bonuses. Free cash flow margin is calculated as the percentage of sales represented by actual operating cash flow less capital expenditures, excluding any discretionary pension contributions made during the fiscal year.

The Committee identified free cash flow margin as a performance measure critical to the profitable growth and financial performance goals of The Win Strategy. Maximizing free cash flow allows us to continue to pay annual dividends, strategically acquire our outstanding shares, and reinvest in our business by funding innovation and financing growth through acquisitions of businesses and technologies. Target Incentive Bonuses encourage executive officers to maximize free cash flow by increasing net income, implementing lean initiatives, controlling inventory, collecting receivables, controlling accounts payable, and optimizing capital expenditures. We have also identified a strong correlation between increases in free cash flow and increases in operating earnings.

Target Incentive Bonuses are designed to directly reward executive officers for free cash flow margin performance against our annual plan and the performance of the Peer Group. Specifically, the Committee determines the target award opportunity for each of the executive officers and establishes the levels of performance for threshold, target and maximum payouts after evaluating our annual plan for free cash flow margin and the one-year, three-year and five-year average free cash flow margin within the Peer Group. Based on this data, the Committee estimated that 5.5%, 10% and 14.5% free cash flow margins would represent bottom-quartile, median and top-quartile free cash flow margin results, respectively, within the Peer Group companies during fiscal year 2022. After review and consideration of such data and our annual plan for free cash flow margin, the Committee increased the free cash flow top-quartile and median payout thresholds for our Target Incentive Bonuses from fiscal year 2021 levels of 12.5% and 9%, respectively, to 14.5% and 10%, respectively, for fiscal year 2022, and kept the bottom quartile threshold the same as fiscal year 2021 at 5.5%.

The following table illustrates how final fiscal year 2022 Target Incentive Bonus amounts would be calculated:

 

Below Threshold        

       

Threshold

        Target        

Maximum

           

    Actual Free Cash Flow Margin: 13.94%

    Actual Payment 187.56%

 
                   

 

  FY2022 Free Cash Flow Margin  

 

 

                                     

                                                                                                                                   
 

 

 

Less than

5.5%

   

 

  5.5%    

 

    10%    

 

  14.5%    

 

Payout%

  0%    

 

  50%    

 

    100%    

 

  200%    

 

This table illustrates that each recipient of a Target Incentive Bonus would receive a year-end payout of 100% of his or her target award if our free cash flow margin for fiscal year 2022 was 10.0% and a maximum payout of 200% of his or her target award if our free cash flow margin was greater than or equal to 14.5%, representing top-quartile free cash flow margin. This table also illustrates that no Target Incentive Bonuses would be paid if our free cash flow margin for fiscal year 2022 was less than 5.5%. The payout percentage that is applied is interpolated on a linear basis between the points in the above table.

In consideration of the foregoing, at the beginning of fiscal year 2022, the Committee approved the following Target Incentive Bonuses in the table below for each of the Named Executive Officers. Our actual free cash flow margin for fiscal year 2022 was 13.94% (calculated by taking the difference of fiscal year 2022 cash flow from operating activities of $2,441,730,000 less fiscal year 2022 capital expenditures of $230,044,000 and dividing the result by fiscal year 2022 net sales of $15,861,608,000). Accordingly, each of the Named Executive Officers received 187.56% of their Target Incentive Bonus award. These amounts are shown in the table below and are included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal Year 2022.

 

  Named Executive Officer    Target Incentive Bonus ($)      Actual Target Incentive Bonus Amount ($)  

Thomas L. Williams

     980,000        1,838,088  

Todd M. Leombruno

     288,000        540,173  

Lee C. Banks

     506,300        949,616  

Jennifer A. Parmentier

     337,500        633,015  

Andrew M. Weeks

     160,800        301,596  

 

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Target Incentive Bonuses are paid in one lump sum in August for each executive officer whose Target Incentive Bonus is awarded under the Performance Bonus Plan, and are paid in three installments in March, June and August for all other executive officers. The March and June payments are estimated based on year-to-date results, and the August payment represents the balance of the Target Incentive Bonus payable based on the actual results for the entire fiscal year. We generally hold back 25% of the year-to-date estimate from each March and June payment to ensure that we have the flexibility to reconcile the August payments to final year-end results. All payments are made in cash, except that the August payment may, at the election of the recipient, be deferred as a credit to the recipient’s account under the Executive Deferral Plan, which we describe in the section, “Non-Qualified Benefit Plans”.

General RONA Bonuses and Converted RONA Bonuses

During fiscal year 2022, each of the Named Executive Officers was eligible for, and received, annual cash incentive compensation based on our return on net assets, which we refer to as General RONA Bonuses and Converted RONA Bonuses. The Committee awards General RONA Bonuses to our executive officers to encourage and reward performance which maximizes our returns on net assets. The Committee awards Converted RONA Bonuses to our executive officers in place of certain executive perquisites.

The performance measures used to determine payouts on General RONA Bonuses are as follows:

 

 

for executive officers who receive General RONA Bonuses under the Performance Bonus Plan, return on consolidated net assets;

 

 

for executive officers who are operating group presidents and do not receive General RONA Bonuses under the Performance Bonus Plan or who are not Executive Vice Presidents, return on average division net assets for divisions in the applicable operating group; and

 

 

for all other executive officers, return on average net assets for all divisions.

The performance measure used to determine the amount of the payouts on Converted RONA Bonuses is the return on average net assets for all of our divisions.

Return on net assets is calculated by dividing earnings (year-to-date segment operating income) by average assets (average of inventory, accounts receivable, prepaid expenses, property, plant and equipment, goodwill and intangibles, less trade accounts payable and contract reserves), at the beginning of the fiscal year and at the end of each applicable quarter.

The Committee identified return on net assets as a performance measure critical to the financial performance and profitable growth goals of The Win Strategy. The Committee uses General RONA Bonuses and Converted RONA Bonuses to encourage executive officers and other team members to increase segment operating income and control net average assets by reducing investments in assets and increasing efficiency in managing those investments. In addition, General RONA Bonuses and Converted RONA Bonuses encourage executive officers and other team members to increase sales and to reduce operating expenses and other costs associated with managing our working capital and investments. The Committee also believes that offering Converted RONA Bonuses in lieu of certain eliminated executive perquisites is appropriate to keep us competitive in attracting, retaining, and motivating present and future executive officers and to hold our executive officers accountable for results.

General RONA Bonuses awarded under the Performance Bonus Plan are paid in one lump sum in August. General RONA Bonuses awarded outside the Performance Bonus Plan and Converted RONA Bonuses, which are not awarded under the Performance Bonus Plan, are paid in four installments in October, January, April and August. Each installment is based on actual year-to-date results. We generally hold back 25% of the year-end estimate from each October, January and April installment to ensure that we have the flexibility to reconcile the August payments with final year-end results. All payments are made in cash, except that General RONA Bonus payments made in August may, at the election of the recipient, be deferred as a credit to the recipient’s Executive Deferral Plan account.

The Committee determines and calculates General RONA Bonuses and Converted RONA Bonuses as follows:

 

 

Setting Target Amounts: During the first quarter of the fiscal year, the Committee determines target General RONA Bonuses and target Converted RONA Bonuses for each of the executive officers. The Committee makes these determinations after review and consideration of Mercer’s annual review, and focuses on setting targets that are reasonable in relation to the median of similar compensation offered to executives in similar positions by the Peer Group companies.

 

 

Converting Target Amounts to “RONA shares”: Once determined, the target amounts set for General RONA Bonuses and Converted RONA Bonuses are converted into a number of “RONA shares” based on our annual goals for return on net assets. In fiscal year 2022, we established and communicated an overall goal of 21.4% return on net assets on a consolidated basis, with a target “multiple” of 5% of base salary for each “share.” The target amounts were converted into “shares” at the 5% target multiple by dividing the executive officer’s General RONA Bonus or Converted RONA Bonus target by the product of the executive officer’s base salary and the 5% target “multiple.”

 

 
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Determining the Actual Multiple: At each installment date, the actual return on net assets is calculated and, as follows, used to determine the actual “multiple”: (a) for that portion of the applicable return on net assets which is less than or equal to 35%, the actual multiple is 1% for every 5.6% of return on net assets; and (b) for that portion of return on net assets in excess of 35%, the actual multiple is 1% for every 11.2% of the excess. We allow our divisions to consider the benefit of intercompany sales when calculating return on net assets, and, therefore, to compensate for this additional benefit, we require an actual return on net assets of 28% for a payout multiple at the 5% target (i.e., 28.0% ÷ 5.6%). In other words, the 28% internal goal represents our estimate of division-level return on net assets performance (which would include intercompany sales) needed to achieve 21.4% return on net assets on a consolidated basis (after excluding intercompany sales).

 

 

Calculating the Actual RONA Bonuses: For General RONA Bonuses and Converted RONA Bonuses, the amounts of the actual bonuses earned are calculated by multiplying the executive officer’s “shares” by his or her multiple, and multiplying that total by his or her base salary for the fiscal year.

The following tables show each of the Named Executive Officers’ General RONA Bonus and Converted RONA Bonus target amounts, “shares”, “multiples” and actual amounts.

 

General RONA Bonuses  
  Named Executive Officer   

Base

Salary Earned

    

Target

General

RONA

Bonus

Amount

    

Target

General

RONA

Bonus

“Shares”

    

General

RONA

Bonus

“Multiple”

    

Actual

General

RONA

Bonus

Amount

 

Thomas L. Williams

     1,387,500        1,190,000        17        7.69%        1,813,879  

Todd M. Leombruno

     736,667        324,000        9        7.69%        509,847  

Lee C. Banks

     1,112,500        618,750        11        7.69%        941,064  

Jennifer A. Parmentier(1)

     765,423        412,500        11        7.69%        617,544  

Andrew M. Weeks(2)

     636,283        257,320        8        10.00%        509,027  

 

(1)

Ms. Parmentier’s Target General RONA Bonus was increased by 15%, from 40% to 55%, as a result of her promotion to Chief Operating Officer effective August 9, 2021, and her target General RONA Bonus shares were increased to 11 shares.

 

(2)

In fiscal year 2022, Mr. Weeks received his General RONA Bonus under the Performance Bonus Plan. As a result, the Committee used return on consolidated net assets to determine that his maximum General RONA Bonus “Multiple” was 8.91%. As described below, however, Mr. Weeks’ General RONA Bonus “Multiple” was reduced to 7.69% upon the Committee’s exercise of downward discretion, and then increased to 10.00% after applying his PG RONA Multiplier under our PGI Plan.

 

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Converted RONA Bonuses
  Named Executive Officer    Target
Converted
RONA
Bonus
Amount
     Converted
RONA
Bonus
“Shares”
     Converted
RONA
Bonus
“Multiple”
     Actual
Converted
RONA
Bonus
Amount
 

Thomas L. Williams

     83,700        1.19        7.69%        128,731  

Todd M. Leombruno

     79,900        1.48        7.69%        88,312  

Lee C. Banks

     83,260        1.69        7.69%        128,054  

Jennifer A. Parmentier

     57,420        1.88        7.69%        122,886  

Andrew M. Weeks

     57,240        1.86        7.69%        88,035  

Each of the Named Executive Officers received the General RONA Bonuses and Converted RONA Bonuses included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal Year 2022. In arriving at these amounts, the Committee compared the original award opportunities for executive officers receiving General RONA Bonuses under the Performance Bonus Plan (including each of the Named Executive Officers) with the final payout amounts of annual cash incentive compensation for the other executive officers, and evaluated the individual performance and contributions to the success of our business of the executive officers receiving General RONA Bonuses under the Performance Bonus Plan. Based on that comparison and evaluation, the Committee determined that it would be appropriate to exercise downward discretion and reduce the final General RONA Bonus payout amounts for General RONA Bonuses awarded to the Named Executive Officers under the Performance Bonus Plan by approximately 47.5%. The amounts reported in the General RONA Bonuses table above represent the final amounts paid to the Named Executive Officers following those exercises of discretion.

Converted RONA Bonus payments are not eligible for deferral under the Executive Deferral Plan, the Retirement Savings Plan, or the Savings Restoration Plan. Converted RONA Bonuses are also not considered in calculating benefits under the Pension Plan, the Pension Restoration Plan, the Supplemental Retirement Program, the Defined Contribution Supplemental Retirement Program, the Executive Long-Term Disability Plan, and the Change in Control Agreements. The Committee determined that it would not be appropriate to allow Converted RONA Bonuses to be deferred under those plans or considered in those calculations because they are intended to replace executive perquisites which, historically, were not used or taken into account for those purposes.

Profitable Growth Incentive Plan

Our PGI Plan is designed to implement the strategies and advance the goals of The Win Strategy by encouraging and rewarding participants for sales growth, organically and through acquisitions at the operating group or division level. The Committee identified sales growth, organically and through acquisitions, as a performance measure critical to advance the financial performance and profitable growth goals of The Win Strategy. Under our PGI Plan, the General RONA Bonuses for participants may be adjusted after each fiscal year on the basis of a multiplier, which we refer to as the PG RONA Multiplier, that is determined by the three-year compound annual growth rate of external customer sales for the applicable operating group or division, which we refer to as 3-year CAGR. The following table sets forth examples of the PG RONA Multiplier that may be applied to, and which may increase or decrease, the General RONA Bonuses under our PGI Plan after each fiscal year:

 

  3-year CAGR:    Less than or equal
to -5%
     3%-5%      8%      Greater than or equal
to 15%
 

PG RONA Multiplier:

     90%        100%        105%        130%  

The PG RONA Multiplier is interpolated on a linear basis between the points in the above table. Of our executive officers, only our operating group presidents’ General RONA Bonuses are subject to our PGI Plan, and, therefore, the PGI Plan applies to Mr. Weeks, but not to any of our other Named Executive Officers. During fiscal year 2022, the three-year CAGR applicable to Mr. Weeks’ General RONA Bonus was 17.52%, resulting in a PG RONA Multiplier of 130%. This PG RONA Multiplier was applied to Mr. Weeks’ final RONA Bonus causing the increase from a 7.69% General RONA Bonus multiple to 10% for Mr. Weeks, as reflected in the General RONA Bonuses table above.

Fiscal Year 2023 Annual Cash Incentive Program

On August 17, 2022, the Committee approved and adopted the Parker-Hannifin Corporation Officer Annual Cash Incentive Plan (the “Officer ACIP”), effective July 1, 2022, and established fiscal year 2023 target opportunities thereunder for the Company’s executive officers. Commencing with fiscal year 2023, the Officer ACIP replaces Target Incentive Bonuses, General RONA Bonuses, Converted RONA Bonuses and the Profitable Growth Incentive Plan.

 

 
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The Officer ACIP provides for annual award payouts based on the achievement of performance goals. The performance goals are tied to three performance metrics (segment operating income weighted at 40%, sales revenue weighted at 20% and cash flow weighted at 40%), with each metric evaluated at three performance levels (threshold, target or maximum). The performance levels equate to a percentage of the target payout with respect to the applicable metric (50% for threshold, 100% for target and 200% for maximum). The percentage payout for each metric will be interpolated for performance levels achieved between threshold and target and between target and maximum. The award payout may be further modified by applying a multiplier of up to plus or minus 20% based upon additional performance goals relating to environmental, social and governance matters and other strategic imperatives. The application of the multiplier cannot increase a participant’s award payout above 200% of such participant’s target opportunity. We expect to discuss the Officer ACIP program for fiscal 2023 in greater detail in our 2023 Proxy Statement.

Long-Term Incentive Compensation

The Named Executive Officers receive long-term incentive compensation consisting of long-term incentive performance awards, which we refer to as LTIP Awards, and stock appreciation rights, which we refer to as Stock Incentives. The target amounts of LTIP Awards and the number of Stock Incentives awarded to the Named Executive Officers are based on similar compensation awarded to persons holding comparable positions within the Peer Group companies.

LTIP Awards and Stock Incentives encourage long-term focus on shareholder value and are directly and materially linked to performance that advances both the financial performance and profitable growth goals of The Win Strategy over the long-term. LTIP Award payouts are based on a comparison of our performance against the Peer Group companies in certain key financial metrics over a three-year performance period. The holders of Stock Incentives realize a payout only if our stock price increases above the applicable grant price over a three-year pro-rata vesting period. LTIP Awards and Stock Incentives work together to align the long-term financial interests of our executive officers and shareholders.

 

  Component    Description    2022    2023    2024
  LTIP Awards   

LTIP Awards are granted to eligible employees on an annual basis at the January meeting of the Committee. This meeting is typically scheduled at least one year in advance. The only exceptions to this practice are that pro-rated LTIP Awards are granted to individuals who become executive officers, are promoted to new executive officer positions, or are given increased responsibilities during a performance period.

 

   “Cliff” vesting after

three-year performance period

        
        
        
        
  Stock Incentives            Stock Incentives are granted to eligible team members on an annual basis at the August meeting of the Committee. This meeting is typically scheduled at least one year in advance.    Annual vesting over

three-year performance period

     1/3    1/3    1/3

The Committee does not grant LTIP Awards or Stock Incentives to executive officers in anticipation of the release of significant positive earnings announcements or other material non-public information likely to result in changes to the price of our common stock. Similarly, the Committee does not time the release of material non-public information based on Stock Incentive grant dates.

LTIP Awards

During the third quarter of fiscal year 2011, the Committee adopted a Long-Term Incentive Performance Plan under the Performance Bonus Plan, which we refer to as the Officer LTIP Plan, to establish the terms and conditions for LTIP Awards granted to our executive officers during and after fiscal year 2011. During the third quarter of fiscal year 2022, the Committee granted to each of the Named Executive Officers, under the terms of the Officer LTIP Plan and our Amended and Restated 2016 Omnibus Stock Incentive Plan, which we refer to as the Amended 2016 Equity Plan, the following target LTIP Award values for the calendar year 2022-23-24 performance period based on the following target LTIP Award values for the calendar year 2022-23-24 performance period:

 

  Named Executive Officer   

Target LTIP Award

Shares

     Target LTIP Award
Values ($)
 

Thomas L. Williams

     18,480        5,750,000  

Todd M. Leombruno

     4,500        1,400,000  

Lee C. Banks

     8,360        2,600,000  

Jennifer A. Parmentier(1)

     5,300        1,650,000  

Andrew M. Weeks

     2,410        750,000  

 

(1)

Ms. Parmentier also received supplemental LTIP awards for the calendar years 2019-20-21, 2020-21-22 and 2021-22-23 performance periods in the amounts of 763, 2,067 and 2,714 target shares respectively, for a total number of 5,544 additional LTIP target shares in connection with her promotion to Chief Operating Officer.

 

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The target LTIP Award shares shown in this table are also included in the “Estimated Future Payouts Under Equity Incentive Plan Awards—Target” column of the Grants of Plan-Based Awards for Fiscal Year 2022 table. The “Stock Awards” column of the Summary Compensation Table for Fiscal Year 2022 includes the aggregate grant date fair value of these awards in fiscal year 2022.

Under the Officer LTIP Plan, the actual payouts for these LTIP Awards will be calculated following the three-year performance period ending December 31, 2024, as follows:

 

 

The Committee will first determine if, during the performance period, we achieved an average return on average equity of 4% or an average free cash flow margin of 4%.

 

 

If at least one of these threshold performance measures above are not achieved, participants will not receive a payout.

 

 

If at least one of these threshold performance measures above are achieved, participants will become eligible to receive the maximum payout of 200% of the applicable target LTIP Award value. The Committee will then, if appropriate, apply its discretion to reduce the final payouts based on any performance measures that the Committee determines to be appropriate. The Committee determined that this calculation methodology would provide the Committee with more flexibility to ensure payout levels are as accurately reflective of the Company’s performance against the Peer Group as possible and are otherwise in the best interests of our business and our shareholders.

To provide the Committee with guidelines for exercising its discretion, the Officer LTIP Plan provides that the Committee may, among other things, following the calendar years 2022-23-24 performance period compare our revenue growth, growth in fully diluted earnings per share from continuing operations and average return on invested capital from continuing operations against the corresponding results of the Peer Group companies during their three most recent fiscal years. The Committee has identified long-term revenue growth, earnings per share growth and return on invested capital as performance measures critical to the financial performance and profitable growth goals of The Win Strategy because, among other things, they encourage our executive officers to provide on-time delivery of quality products, value-added services and systems, strategic supply chain, lean enterprise, value pricing, market-driven innovation and strong distribution.

For calendar year 2022-23-24 LTIP awards, the Committee determined to adjust the weighting for revenue growth, growth in the fully diluted earnings per share for continuing operations, and average return on invested capital from 20%, 40% and 40% respectively, to 40%, 40% and 20% respectively. The Committee believes the increase over prior years in weighting from 20% to 40% in revenue growth and decrease from 40% to 20% for average return on invested capital from continuing operations more closely aligns the 2022-23-24 LTIP awards with the strongest drivers of total shareholder returns.

The following table illustrates how final LTIP Awards will pay out using the weightings as specified above for the applicable performance period:

 

  Peer Group Percentile Rank:    Less than 35th      35th      50th      75th or higher  

Payout%

     0%        50%        100%        200%  

At the end of calendar year 2024, if we achieve an average return on average equity or an average free cash flow margin of 4% or greater, the Committee may exercise discretion in determining the appropriate payout by determining our percentile rank as compared to the Peer Group for each of the three performance measures. Using the table above, the Committee will calculate the portion of the target LTIP Award value earned with respect to each performance measure. The Committee will multiply each portion by its applicable weight and add up the total to determine the total LTIP Award payout for the calendar years 2022-23-24 performance period. This table illustrates that recipients of LTIP Awards granted during calendar year 2022 will receive the maximum payout of 200% of the applicable target LTIP Award value if we rank at or above the 75th percentile among the Peer Group companies in the aggregate based on all three performance measures, and will receive no payout if we rank at or below the 35th percentile in the aggregate based on all three performance measures. The payout percentage that is applied is interpolated on a linear basis between the points in the above table.

LTIP Award payouts for the calendar years 2022-23-24 performance period may only be paid after the end of the applicable three-year performance period in unrestricted shares of our common stock.

The Committee designed these LTIP Awards to reward executive officers directly in relation to our long-term performance against the Peer Group. The Committee determined that requiring performance in excess of the 50th percentile for a payout in excess of 100% would encourage executive officers to achieve performance above median Peer Group performance. The Committee also determined that requiring performance at the 75th percentile for a maximum payout, and awarding no payout for performance at or below the 35th percentile, would further encourage executive officers to achieve top-quartile performance within the Peer Group companies.

 

 
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In addition, each of the Named Executive Officers received a payout during fiscal year 2022 under LTIP Awards granted during the third quarter of fiscal year 2019 for the three-year performance period ending December 31, 2021. We exceeded our threshold performance measures of 4% average return on average equity and 4% average free cash flow margin with an average return on average equity for the three-year performance period of 22.2% and average free cash flow margin for the three-year performance period of 14.5%, which caused each participant to be eligible for a payout of 200% of the applicable LTIP award. The Committee decided to exercise discretion to determine the appropriate payout and determined that we achieved the following percentile rankings among the Peer Group companies with respect to the LTIP Award performance measures for the calendar years 2019-20-21 performance period:

 

  Performance Measure    Result      Percentile Rank      Weighted Payout
Percentage
 

Revenue Growth (20%)

     5.33%        83rd        40%  

Earnings Per Share Growth (40%)

     40.22%        78th        80%  

Average Return on Invested Capital (40%)

     15.53%        67th        66.66%  

As a result, each of the Named Executive Officers received the LTIP Award payout during fiscal year 2022 included in the “Number of Shares Acquired on Vesting” column of the Option Exercises and Stock Vested for Fiscal Year 2022 table. Each payment represents a total payout of 186.66% of the target LTIP Award values for the three-year performance period ended December 31, 2021. In utilizing negative discretion to reduce the 2019-20-21 LTIP awards from 200% to 186.66% guided by the performance measures above, the Committee determined to exclude certain unusual expenses related to the pending acquisition of Meggitt PLC, including expenses from the Company’s deal contingent forward hedge and commercial paper issuance.

Stock Incentives

Each of the Named Executive Officers received Stock Incentives under our Amended 2016 Equity Plan during the first quarter of fiscal year 2022. The Committee grants Stock Incentives to executive officers to encourage and reward efforts and accomplishments that advance the goals of The Win Strategy and make other contributions to maximize long-term shareholder value.

The number of Stock Incentives granted by the Committee is determined by utilizing the Black-Scholes valuation model to convert a target dollar value into the number of Stock Incentives to be granted. The Committee uses Mercer’s annual review to help ensure the target dollar values are reasonable in relation to the median of similar compensation offered within the companies included in Mercer’s annual review. The following table shows the target value and the number of Stock Incentives granted to each of the Named Executive Officers in the first quarter of fiscal year 2022:

 

  Named Executive Officer    Target
Value
     Stock Incentive Grants
(# of Underlying Shares)
 

Thomas L. Williams

   $ 5,750,000        51,700  

Todd M. Leombruno

   $ 1,400,000        12,590  

Lee C. Banks

   $ 2,600,000        23,380  

Jennifer A. Parmentier

   $ 1,650,000        14,840  

Andrew M. Weeks

   $ 750,000        6,740  

The fiscal year 2022 Stock Incentive grants shown above are also included in the “All Other Option Awards: Number of Securities

Underlying Options” column of the Grants of Plan-Based Awards for Fiscal Year 2022 table and the “Option Awards—Number of Securities Underlying Unexercised Options—Unexercisable” column of the Outstanding Equity Awards at June 30, 2022 table. The “Option Awards” column of the Summary Compensation Table for Fiscal Year 2022 includes the aggregate grant date fair value of these awards in fiscal year 2022.

As required by the terms of our Amended 2016 Equity Plan, these fiscal year 2022 Stock Incentives have an exercise price equal to the closing price of our common stock on the date of grant. The plan does not permit the re-pricing of Stock Incentives. The Committee analyzed the terms of our Amended 2016 Equity Plan and considered Mercer’s annual review to establish all other terms of these Stock Incentives. These fiscal year 2022 Stock Incentives have a ten-year term and vest in one-third increments over three years following the grant date. When vested, each Stock Incentive will entitle the holder to receive the increase in value of one common share from the grant date to the date of exercise.

Upon exercise of fiscal year 2022 Stock Incentives, common shares will be issued directly to the holder. The appreciation in these Stock Incentives will be calculated by subtracting the grant price from the fair market value of the common shares at exercise, and multiplying the result by the number of Stock Incentives exercised. The number of common shares to be issued is determined by dividing that appreciation by the market price of the common shares at exercise.

 

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Restricted Stock Units

On January 26, 2022 the Committee granted an award of 1,610 RSUs to Mr. Weeks for retention purposes and in recognition of his performance and contributions to the execution of the goals of The Win Strategy. This award had a vesting date of January 26, 2025 and would generally have vested only if Mr. Weeks remained an active full-time employee through that date. As a result of his announced retirement on July 26, 2022, Mr. Weeks forfeited this RSU award.

This RSU award, however, was granted during fiscal year 2022 and is therefore included in the “All Other Stock Awards: Number of Shares of Stock or Units” column of the Grants of Plan-Based Awards for Fiscal Year 2022 table, and it’s fiscal year 2022 aggregate grant date fair value is included in the “Stock Awards” column of the Summary Compensation Table for Fiscal Year 2022.

Employee Benefits

The Named Executive Officers are eligible to participate in various employee benefit plans and programs. These plans and programs reward experience, expertise, level of responsibility, continuity of leadership and advancement. We use these plans to ensure that our executive compensation program remains sufficiently competitive to attract, retain and motivate the executive officers and other team members necessary to advance the goals of The Win Strategy.

Qualified Benefit Plans

During fiscal year 2022, the Named Executive Officers participated in the following tax-qualified benefit plans and programs:

 

 

The Parker-Hannifin Consolidated Pension Plan, which we refer to as the Pension Plan, except for Ms. Parmentier and Mr. Weeks who are not eligible to participate in the Pension Plan; and

 

 

The Parker Retirement Savings Plan, which we refer to as the Retirement Savings Plan.

PENSION PLAN

The Pension Plan is a qualified defined benefit pension plan in which most full-time non-union U.S. salaried employees hired prior to April 1, 2004, participate. The Pension Plan offers normal retirement, early retirement and death benefits. The monthly normal retirement benefit is the greater of a minimum benefit and an amount based on final average pay. The minimum benefit and final average pay amounts are calculated as follows:

 

Minimum Benefit:

   $21.00 multiplied by years of service, up to a maximum of 40 years.

Final Average Pay         Amount:

  

   0.75% of the highest five consecutive year average of monthly base salary, Target Incentive Bonuses and General RONA Bonuses up to the social security wage base, multiplied by years of service up to a maximum of 35 years; plus

 

   1.36% of the highest five consecutive year average of monthly base salary, Target Incentive Bonuses and General RONA Bonuses in excess of the social security wage base, multiplied by years of service up to a maximum of 35 years; plus

 

   0.50% of the highest five consecutive year average of monthly base salary, Target Incentive Bonuses and General RONA Bonuses multiplied by years of service in excess of 35 up to a maximum of five years.

The amount of the benefit is reduced by 6% per year for each year prior to age 65 if retirement occurs and payments commence before age 65 and after age 55. We elected to freeze new participation in the Pension Plan in 2004. All participants as of April 1, 2004, were given the option to either remain in the Pension Plan or terminate in favor of maintaining a retirement income account under the Retirement Savings Plan. Employees hired after April 1, 2004, including Ms. Parmentier and Mr. Weeks, were not eligible to participate in the Pension Plan and instead maintain a retirement income account under the Retirement Savings Plan. Each of the Named Executive Officers who are in the Pension Plan elected to remain in and continue to accrue benefits under the Pension Plan. All benefits accrued by team members who elected to terminate participation in the Pension Plan were frozen as of June 30, 2004. Those team members initiated their retirement income accounts on July 1, 2004.

 

 
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RETIREMENT SAVINGS PLAN

The Retirement Savings Plan is a qualified defined contribution pension plan under Section 401(k) of the Internal Revenue Code. Most full-time U.S. team members are eligible to participate in the Retirement Savings Plan. Participants may make pre-tax and post-tax contributions to the Retirement Savings Plan up to the applicable statutory limit. Converted RONA Bonuses are not eligible for deferral under the Retirement Savings Plan. Through December 31, 2021 we provided each participant with a matching contribution of 100% on the first 3% of pay contributed and 50% on the 4th and 5th percent of pay contributed on a pre-tax or Roth basis. Effective January 1, 2022, we provided each participant with a matching contribution of 100% on the first 5% of pay contributed on a pre-tax or Roth basis. As described above, certain participants also maintain a retirement income account within the Retirement Savings Plan. We provide to each holder of a retirement income account an annual contribution equal to a percentage of the amount of the participant’s annual compensation up to the Internal Revenue Service statutory limit (currently $305,000 per year), based on age and length of service. These contributions range from 3% to 6% of the participant’s compensation which does not exceed that limit. Participants accrue earnings on contributions based on the performance of various investment funds available within the Retirement Savings Plan. The contributions made by us under the Retirement Savings Plan for the Named Executive Officers during fiscal year 2022 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2022 on page 61.

Non-Qualified Benefit Plans

During fiscal year 2022, the Named Executive Officers participated in the following non-qualified benefit plans and programs:

 

 

The Parker-Hannifin Corporation Savings Restoration Plan, which we refer to as the Savings Restoration Plan;

 

 

The Parker-Hannifin Corporation Executive Deferral Plan, which we refer to as the Executive Deferral Plan, except for Ms. Parmentier and Mr. Weeks who do not participate in the Executive Deferral Plan;

 

 

The Parker-Hannifin Corporation Pension Restoration Plan, which we refer to as the Pension Restoration Plan, except for Ms. Parmentier and Mr. Weeks who are not eligible to participate in the Pension Restoration Plan as they are not participants in the Pension Plan;

 

 

The Parker-Hannifin Corporation Supplemental Executive Retirement Benefits Program, which we refer to as the Supplemental Retirement Program, except for Mr. Leombruno, Ms. Parmentier and Mr.Weeks who are not eligible to participate in the Supplemental Retirement Program; and

 

 

The Parker-Hannifin Corporation Defined Contribution Supplemental Executive Retirement Program, which we refer to as the Defined Contribution Supplemental Retirement Program (Mr. Leombruno, Ms. Parmentier and Mr. Weeks are the only Named Executive Officers who participate in the Defined Contribution Supplemental Retirement Program).

SAVINGS RESTORATION PLAN

The Savings Restoration Plan is available to team members who earn base salaries equal to or in excess of $150,000 per year and who are otherwise eligible to participate in the plan. The Savings Restoration Plan was established to restore deferral opportunities and matching contributions lost because of statutory limits in the Retirement Savings Plan. Specifically, the Savings Restoration Plan allows executive officers to defer a portion of their pre-tax compensation and receive matching contributions from us that would have been available under the Retirement Savings Plan if the Internal Revenue Service statutory limit did not exist. Converted RONA Bonuses are not eligible for deferral under the Savings Restoration Plan. Each Named Executive Officer may annually defer to his or her Savings Restoration Plan account any portion of the compensation that he or she cannot defer under the Retirement Savings Plan due to the statutory limit, other than Converted RONA Bonuses, up to the greater of 20% of base pay or $25,000. Through December 31, 2021 we provided each participant with a matching contribution of 100% on the first 3% of pay contributed and 50% on the 4th and 5th percent of pay contributed. Effective January 1, 2022 we provided each participant with a matching contribution of 100% on the first 5% of pay contributed. These matching contributions were reduced by the maximum matching contribution available to the participant under the Retirement Savings Plan. We also take into account the matching contributions made under the Retirement Savings Plan to ensure that the maximum match under both plans does not exceed $17,000. In addition, all participants who maintain a retirement income account within the Retirement Savings Plan also maintain a separate retirement income account within the Savings Restoration Plan. We provide to each holder of a retirement income account an annual contribution equal to a percentage of the amount of the participant’s annual compensation in excess of the Internal Revenue Service statutory limit determined based on age and length of service. These contributions range from 3% to 6% of the amount of the participant’s compensation in excess of that limit. All deferrals and contributions are made under the Savings Restoration Plan by accounting entry rather than any physical exchange of cash or common stock. Participants also accrue earnings, on an accounting-entry basis, on deferrals based on the performance of various investment fund choices and on contributions based on the performance of our common stock. Participants are our unsecured creditors for their respective account balances.

 

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Savings Restoration Plan and Executive Deferral Plan account balances are paid out upon any of the following events as follows:

 

 

     Retirement:

    

 

Balances are distributed to the participant in either a lump sum or in periodic installments, based on a prior election by the participant. The participant can delay the commencement of payments up to five years following retirement. Balances continue to accumulate earnings under the various investment funds at all times during the payout period.

 

      

 

     Termination Before

     Retirement:

 

    

 

Balances accruing on or prior to December 31, 2004 are, at our election, distributed to the participant in either a lump sum upon termination or in periodic installments. Account balances accruing on or after January 1, 2005 are distributed to the participant in a lump sum upon termination.

 

      

 

     Disability:

 

    

 

If we determine that a participant is totally disabled, the participant’s account balance will be paid upon termination in the same manner as if he or she retired.

 

      

 

     Withdrawals During

     Employment:

 

    

 

Balances can be withdrawn without penalty during employment only if we determine that the participant suffered severe financial hardship. Balances accruing on or prior to December 31, 2004 can also be withdrawn voluntarily during employment, subject to a 10% forfeiture penalty.

 

      

 

     Death:

 

    

 

Balances are distributed to the participant’s beneficiary in a lump sum or, if elected by the participant, in installments.

 

      

 

     Change in Control:

 

    

 

Under the Savings Restoration Plan, balances accruing on or prior to December 31, 2004 are distributed to the participant in a lump sum without penalty if the participant expressly elected a lump sum. If the participant did not expressly elect a lump sum, distributions are treated as unscheduled withdrawals and are subject to a forfeiture penalty of 5% if they are withdrawn within 30 days or 10% if they are withdrawn beyond the 30-day period. Balances accruing on or after January 1, 2005 are distributed to the participant in a lump sum. Under the Executive Deferral Plan, balances are distributed to the participant in a lump sum.

 

Our matching contributions made under the Savings Restoration Plan for the Named Executive Officers during fiscal year 2022 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2022. All contributions, earnings, withdrawals, distributions and aggregate balances for the Named Executive Officers participating in the Savings Restoration Plan during fiscal year 2022 are included in the Nonqualified Deferred Compensation for Fiscal Year 2022 table.

EXECUTIVE DEFERRAL PLAN

The Executive Deferral Plan is available to executive officers and certain other key team members. The Executive Deferral Plan provides executive officers with an opportunity to defer a portion of their compensation (in addition to that deferred under the Retirement Savings Plan and the Savings Restoration Plan) on a pre-tax basis, including Target Incentive Bonuses and General RONA Bonuses, and to accumulate tax-deferred earnings on the deferrals. LTIP Award payouts and Converted RONA Bonuses are not eligible for deferral under the Executive Deferral Plan. Each executive may defer to his or her account up to 80% of base salary and 80% of General RONA Bonuses paid in August and Target Incentive Bonuses paid in August. Similar to the Savings Restoration Plan, all deferrals are made under the Executive Deferral Plan by accounting entry rather than any physical exchange of cash. Participants also accrue earnings on an accounting-entry basis based on the performance of various investment fund choices. Participants are our unsecured creditors for their respective account balances. Account balances in the Executive Deferral Plan are paid as indicated in the table above. For those who were participants in the Executive Deferral Plan prior to January 1, 2016, prior to distribution, the balances are increased to reflect any “gross-up” amount necessary to offset federal excise taxes and any after-tax value the participant would have received if the account had remained in place and been paid as elected by the participant. Any balances on distribution to a participant in the Executive Deferral Plan who becomes a participant on or after January 1, 2016, are no longer increased to reflect any “gross-up” amount to offset federal excise taxes and any after-tax value the participant would have received if the account had remained in place and been paid as elected by the participant. All contributions, earnings, withdrawals, distributions and aggregate balances for the Named Executive Officers participating in the Executive Deferral Plan during fiscal year 2022 are included in the Nonqualified Deferred Compensation for Fiscal Year 2022 table.

 

 
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THE PENSION RESTORATION PLAN

The Pension Restoration Plan is available to all individuals who participate in the Pension Plan and who are otherwise eligible to participate in the Pension Restoration Plan. The Pension Restoration Plan was established to restore benefits lost because of statutory limits on the Pension Plan. Specifically, the benefits available under the Pension Restoration Plan equal the amount that would be payable to the participant under the Pension Plan in excess of the Internal Revenue Service statutory limit if that limit did not exist and the participant had not elected to defer any compensation under the Savings Restoration Plan and the Executive Deferral Plan. Similar to the Pension Plan, Converted RONA Bonuses are not considered in calculating the benefits available under the Pension Restoration Plan.

SUPPLEMENTAL RETIREMENT PROGRAM

The Supplemental Retirement Program was established to provide executive officers with retirement benefits supplemental to the benefits under the Pension Plan. The benefit provided under the Supplemental Retirement Program is intended, at age 65, to provide to participants with at least 15 years of service 55% of the average of the three highest years of base salary plus annual cash incentive compensation. Similar to the Pension Plan and the Pension Restoration Plan, Converted RONA Bonuses are not considered in calculating the benefits available under the Supplemental Retirement Program. LTIP Awards and Stock Incentives are also not considered in calculating the benefits available under the Supplemental Retirement Program. The benefit is subject to reduction for early retirement, less than 15 years of service, benefits under the Pension Plan, the Pension Restoration Plan and any of our non-U.S. pension plans, 50% of primary social security benefits and 100% of any similar non-U.S. state-provided retirement benefits, and contributions to the participant’s retirement income accounts under the Retirement Savings Plan and the Savings Restoration Plan. Participants vest at age 60, or at age 55 with the consent of the Committee, and with five years of participation in the Supplemental Retirement Program, or a lesser period established by the Committee at the time they become participants. To receive a benefit under the Supplemental Retirement Program, however, a vested participant must have at least five years of service. In January 2015, the Committee closed the Supplemental Retirement Program to new participants as of July 1, 2014.

DEFINED CONTRIBUTION SUPPLEMENTAL RETIREMENT PROGRAM

The Defined Contribution Supplemental Retirement Program was established to provide executive officers and certain other key management team members with retirement benefits supplemental to the benefits under the Retirement Savings Plan and the Savings Restoration Plan. The Defined Contribution Supplemental Retirement Program was established to replace the Supplemental Retirement Program for executive officers who are designated as participants on or after July 1, 2014. Depending on a participant’s salary grade on December 31 of each year, we provide an annual non-discretionary employer contribution of 8%, 10% or 12% of a participant’s base salary, Target Incentive Bonus and General RONA Bonus that was paid during the calendar year. The Committee may determine to make an additional annual discretionary contribution to a designated participant’s account. Participants vest at age 60, or at age 55 with the consent of the Committee, and with five years of participation in the Defined Contribution Supplemental Retirement Program, or a lesser period established by the Committee at the time they become participants. To receive a benefit under the Defined Contribution Supplemental Retirement Program, however, a vested participant must have at least five years of service. Messrs. Leombruno and Weeks, as well as Ms. Parmentier, are the only Named Executive Officers who participate in the Defined Contribution Supplemental Retirement Program.

Our contributions made under the Defined Contribution Supplemental Retirement Program for Mr. Weeks during fiscal year 2022 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2022. All contributions, earnings, withdrawals, distributions and aggregate balances for the Named Executive Officers participating in the Defined Contribution Supplemental Retirement Program during fiscal year 2022 are included in the Nonqualified Deferred Compensation for Fiscal Year 2022 table.

Health and Welfare Benefits

The Named Executive Officers participated in various health and welfare programs generally available to all team members during fiscal year 2022. The Named Executive Officers also participated in our Officer Life Insurance Plan and our Executive Long-Term Disability Plan.

OFFICER LIFE INSURANCE PLAN

Under the Officer Life Insurance Plan, we pay all required premiums for life insurance on executive officers who were participants prior to January 1, 2008 (which includes Messrs. Williams and Banks) for the longer of 10 years or until the executive officer reaches age 65. For those executive officers who were participants after January 1, 2008 (which includes Ms. Parmentier and Messrs. Leombruno and Weeks) we pay all required premiums for life insurance until retirement up to age 65. The premiums are designed to maintain death benefits equal to:

 

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five times base salary during employment and two times final base salary after retirement at age 65 for our Chief Executive Officer;

 

 

four times base salary during employment and two times final base salary after retirement at age 65 for our Chief Financial Officer, our President and our Chief Operating Officer; and

 

 

three times base salary during employment and two times final base salary after retirement at age 65 for all other Named Executive Officers and other participants.

If the participant retires between ages 55 and 65, the post-retirement death benefit is reduced by 10% of base salary for each year prior to age 65 that the participant retires. The amount of the death benefit is adjusted each year on January 1st based on the participant’s base salary as of the preceding December 1st. The policies underlying the plan are cash value life insurance policies owned by the participants. The premiums we paid on behalf of the Named Executive Officers during fiscal year 2022 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2022.

EXECUTIVE LONG-TERM DISABILITY PLAN

The Executive Long-Term Disability Plan is intended to replace a reasonable amount of an executive officer’s income upon disability. The plan provides a total benefit in the event of a qualifying disability of two-thirds of base salary plus Target Incentive Bonuses and General RONA Bonuses (after applying the PG RONA Multiplier if applicable) paid during the calendar year ending December 31 of the year prior to the disability, up to a maximum monthly benefit, in the case of Messrs. Williams and Banks, of $33,000, or, in the case of Ms. Parmentier and Messrs. Leombruno and Weeks, of $35,000. Our executive officers are not eligible to receive the long-term disability benefit generally available to other team members.

Other Compensation Policies and Practices

On July 26, 2022, Mr. Weeks and the Company mutually agreed on the terms of his retirement from the Company on August 31, 2022, following a brief transition period. In connection with Mr. Weeks’ agreed retirement, the Company and Mr. Weeks entered into a separation agreement, effective July 26, 2022. For more information, see the Potential Payments upon Termination or Change of Control at June 30, 2022 section of this Proxy Statement.

Change in Control Agreements

We are not a party to any written employment agreements with our executive officers. We have, however, entered into separate Change in Control Severance Agreements with our executive officers, which we refer to as the Change in Control Agreements. We are not obligated to pay severance to executive officers under any agreement other than the Change in Control Agreements. The executive officers are, however, eligible to receive severance upon termination for reasons other than a change in control in accordance with our general severance policy for salaried employees. The Change in Control Agreements are designed to attract, retain and motivate executive officers, provide for stability and continuity of management in the event of any actual or threatened change in control, encourage executive officers to remain in service after a change in control and ensure that executive officers are able to devote their entire attention to maximizing shareholder value and safeguarding team member interests in the event of a change in control. The Committee determined that the amounts payable under the Change in Control Agreements are reasonable and necessary to achieve those objectives. The Potential Payments upon Termination or Change of Control at June 30, 2022, tables and the related narrative descriptions provide additional information on the Change in Control Agreements, including a brief discussion of the material provisions of the Change in Control Agreements under the captions “Payments upon a Change in Control” and “Payments upon a Qualifying Termination in Connection with a Change in Control.”

Indemnification Agreements

We enter into separate Indemnification Agreements with each of our executive officers. Each agreement remains in effect during and after employment with respect to any action taken while the individual serves as an executive officer. The agreements are designed to attract, retain and motivate executive officers by encouraging reasonable and measured risk-taking in the interests of our business and our shareholders, and protecting against liabilities incurred in the performance of their duties to the maximum extent permitted by Ohio law.

The agreements provide for indemnification for all expenses, including attorney fees, judgments, fines, and settlement amounts, that the executive officer incurs by reason of his or her service:

 

 

in a civil action or proceeding by another party (unless it is proven that the officer’s act or failure to act was taken with deliberate intent to cause injury to our business or in reckless disregard for the best interest of our business); or

 

 

in a criminal action or proceeding (unless the officer had reasonable cause to believe his or her conduct was unlawful).

 

 
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“Clawback” Policy

Our Board of Directors maintains a “clawback” policy which allows us to recover or withhold any Target Incentive Bonuses, General RONA Bonuses, Converted RONA Bonuses or LTIP Awards which are paid or payable to an executive officer if:

 

 

payment, grant or vesting was based on the achievement of financial results that were subsequently the subject of a restatement of any of our financial statements filed with the SEC;

 

 

our Board of Directors determines in its sole discretion that the fraud or misconduct of the executive officer caused or contributed to the need for the restatement;

 

 

the amount that would have been paid or payable to the executive officer would have been less if the financial results had been properly reported; and

 

 

our Board of Directors determines in its sole discretion that it is in our best interests and in the best interests of our shareholders to require the executive officer to repay or forfeit all or any portion of the amount paid or payable.

Executive Perquisites

During fiscal year 2022, we made various executive perquisites available to each of the Named Executive Officers. These perquisites are offered to promote the business objectives for each perquisite as described below and to ensure that our executive compensation program remains competitive to attract, retain and motivate the individuals necessary to advance the goals of The Win Strategy. The costs of these perquisites for the Named Executive Officers reportable for fiscal year 2022 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2022.

Private Clubs. We pay or reimburse initiation fees for one private club for each executive officer. We offer this perquisite to encourage executive officers to entertain business colleagues and customers, engage in social interaction with peers from other companies, local leadership and the community, and hold business meetings at off-site locations. Historically we have paid or reimbursed the initiation fees and provided gross up payments on those fees for additional clubs for the Chief Executive Officer, the Chief Financial Officer, the President, and the Chief Operating Officer and at the Executive and Senior Vice President levels on a business-needs basis and only with appropriate advance approval. We maintain a policy of not providing gross up payments on private club initiation fees, and in fiscal year 2022 no such gross up payments were made.

Spousal Travel. In limited circumstances and only with appropriate advance approval, we reimburse our executive officers for transportation, lodging, meals, entertainment and other travel expenses for their spouses or other family members who accompany them on out-of-town business. We offer these perquisites to encourage executive officers to spend an appropriate amount of time with their direct reports in locations away from corporate headquarters, to allow executive officers and their spouses to develop a more personal relationship with the executive officers’ subordinates and their families, and to encourage spouses to attend retirement parties, funerals, business dinners and other corporate functions at locations away from their homes.

Executive Physicals. We pay for annual physicals and any necessary travel vaccinations for each of our executive officers and certain other key team members. We offer this benefit as part of our overall preventive medicine program to promptly identify and address medical issues and to preserve our investment in our executive officers by encouraging them to maintain healthy lifestyles and be proactive in addressing actual or potential health issues.

Leased Vehicles. We lease an automobile for each of our executive officers and for certain other key team members. We offer this perquisite to provide executive officers with use of a company car for business travel needs, recognizing that the vehicles can also be used for personal purposes. We pay or reimburse each executive officer for lease payments on one automobile, typically for a three-year term. Each executive officer has a maximum allowance of $1,570 per month. We also reimburse each executive officer for the cost of tires and maintenance and provide insurance on each vehicle during the lease term. We require each executive officer to take title to his or her vehicle at the end of the lease term because we amortize the entire cost of the vehicle over the lease term. We pay or reimburse each executive officer for sales taxes on his or her vehicle at the time of title transfer, but the executive officer is responsible for the payment of all income taxes assessed on payments and reimbursements made during the lease term and at the time of title transfer, including those assessed on the fair market value of the vehicle at the time of title transfer.

 

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Matching Gifts Program. We match any amount in excess of $50 contributed to any accredited educational institution by an active, full-time employee, retiree, or member of our Board of Directors with at least one year of service. Our matching contributions are capped at $5,000 per fiscal year for any individual’s contribution to any single institution, and $10,000 per fiscal year for any individual’s aggregate contributions to all institutions.

Company Apartments. We maintain apartments in Cleveland, Ohio, and Newport Beach, California to provide accommodations to team members working off-site at or relocating to our primary facilities. The apartments are also available to the executive officers for personal use with appropriate advance approval if the apartments are not otherwise being used for business purposes.

Entertainment Venues. We maintain loges, boxes and tickets at various entertainment venues to provide civic support to arts, entertainment and other cultural activities at certain significant business locations and to provide a favorable setting for our team members to entertain customers and other business associates. The loges, boxes and tickets are, however, available to executive officers for personal use if they are not otherwise being used for business purposes. We pay all costs of admission, but all costs of food are paid by the executive officer using the venue only for personal use.

Corporate Aircraft. Effective May 1, 2019, the Committee elected to offer limited non-business use of our corporate aircraft to our Chief Executive Officer, President, Chief Operating Officer and Chief Financial Officer for purposes of their safety, security, confidentiality and productivity while traveling. Such use is limited to U.S. domestic travel only and 50 hours of flight time per fiscal year for our Chief Executive Officer and 30 hours of flight time per fiscal year to each of our President, Chief Operating Officer and Chief Financial Officer. Otherwise, non-business use of our corporate aircraft by our executive officers is only available if (a) the flight was previously authorized for business purposes, there are available seats that are not being used for those business purposes and the officer’s use does not involve a deviation or extension of the planned business-travel itinerary, or (b) there is a medical emergency or other special circumstance and the flight is pre-approved by our Chief Executive Officer, President, Chief Operating Officer or Chief Financial Officer.

Accounting and Tax Considerations

Our executive compensation program is structured to achieve flexibility, maximize benefits and minimize detriments to our business and our executive officers from a tax and accounting perspective. As a result, we continuously review and evaluate the impact of changes in tax laws and accounting practices and interpretations and similar factors affecting our executive compensation program.

Compensation Committee Report

The Human Resources and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the Corporation’s management and, based on such review and discussions, the Human Resources and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

Human Resources and Compensation Committee:

Joseph Scaminace, Chair

Jillian C. Evanko

Lance M. Fritz

Kevin A. Lobo

James R. Verrier

James L. Wainscott

 

 
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Compensation Tables

Summary Compensation Table for Fiscal Year 2022

The following table sets forth compensation information for our Named Executive Officers.

 

  Name and Principal Position   Year     Salary
($)(1)
    Stock
Awards
($)(2)
    Option
Awards
($)(3)
    Non-Equity
Incentive Plan
Compensation
($)(4)
    Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)(5)
    All Other
Compensation
($)(6)
    Total ($)  

  Thomas L. Williams

    2022       1,387,500       5,800,687       4,282,828       3,780,697       3,044,860       151,597       18,448,169  

  Chief Executive Officer

  and Chairman of the Board

    2021       1,159,375       4,845,449       4,224,085       3,326,023       3,344,243       135,325       17,034,500  
    2020       1,159,375       5,350,280       2,992,950       3,230,087       5,986,427       143,742       18,862,861  

  Todd M. Leombruno

    2022       736,667       1,412,505       1,042,956       1,138,332       31,605       308,269       4,670,334  

  Executive Vice President

  and Chief Financial Officer

    2021       510,725       2,968,166       201,042       701,647       376,387       213,444       4,971,411  

  Lee C. Banks

    2022       1,112,500       2,624,120       1,936,799       2,018,734             244,187       7,936,340  

  Vice Chairman and President

 

    2021       971,250       2,213,292       1,931,105       1,792,662       1,051,869       224,943       8,185,121  
    2020       971,250       2,455,433       1,372,950       1,737,379       3,543,794       215,145       10,295,951  

  Jennifer A. Parmentier(7)

    2022       765,423       3,304,641       1,229,346       1,373,446             434,018       7,106,874  

  Chief Operating Officer

                                                               

  Andrew M. Weeks

    2022       636,283       1,261,838       558,342       898,658             301,171       3,656,292  

  Former Vice President and

  President - Engineered

  Materials Group

    2021       571,140       646,543       562,918       783,664             290,457       2,854,722  
    2020       571,140       688,038       384,413       648,957             638,204       2,930,752  
                                                               

 

(1)

For fiscal year 2022, reflects increases in base salary effective September 1, 2021 for all Named Executive Officers, and for Mr. Leombruno and Ms. Parmentier mid-year increases effective February 1, 2022, to the following base salary amounts: $1,400,000 for Mr. Williams; $780,000 for Mr. Leombruno; $1,125,000 for Mr. Banks; $820,000 for Ms. Parmentier; and $643,300 for Mr. Weeks. Amounts also include amounts deferred under the Savings Restoration Plan and the Executive Deferral Plan for fiscal year 2022:

Savings Restoration Plan: Mr. Williams—$25,000; Mr. Leombruno—$19,250; Mr. Banks—$25,000; Ms. Parmentier-$29,851; and Mr. Weeks—$26,053.

Executive Deferral Plan: Mr. Leombruno—$79,777

These amounts are also reported in the “Executive Contributions in Last Fiscal Year” column of the Nonqualified Deferred Compensation for Fiscal Year 2022 table on page 69.

 

(2)

For fiscal year 2022, these amounts consist of the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of (i) LTIP Awards granted during fiscal year 2022 to each of the Named Executive Officers, and (ii) a retention and recognition award of RSUs granted in the fiscal year 2022 to Mr. Weeks. For the LTIP awards, the amounts do not reflect whether a Named Executive Officer has actually realized a financial benefit from the LTIP awards. The amounts were calculated by multiplying the closing price on the date of grant by the number of LTIP Awards received and assuming a payout of 100%. As described beginning on page 51, however, LTIP Award payouts will be calculated following the applicable three-year performance period and could range from a minimum of 0% to a maximum of 200%. The grant date fair value of the LTIP Awards granted during fiscal year 2022 at the maximum payout of 200% are: Mr. Williams—$11,601,374; Mr. Leombruno—$2,825,010; Mr. Banks—$5,248,240, Ms. Parmentier—$6,609,282; and Mr. Weeks—$1,512,950. Dividends in the form of dividend equivalent units are awarded as earned LTIP award shares for those LTIP awards beginning with the calendar years 2019-20-21 performance period. Dividends are paid on the LTIP Awards awarded prior to calendar years 2019-20-21 performance period after the prior performance periods end and the shares are issued at which point they will be paid in proportion to the actual amount of shares earned for the applicable performance period.

 

(3)

Amounts reflect the aggregate grant date fair value for Stock Appreciation Rights granted in fiscal year 2022 computed in accordance with FASB ASC Topic 718 of Stock Incentive grants. The amounts do not reflect whether a Named Executive Officer has actually realized a financial benefit from the award. The amounts were calculated using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

 Fiscal Year

 of Grant

   Participant    Grant
Date
     Type of
Grant
     Risk-free
Interest Rate
     Expected Life
of Award
     Expected Dividend
Yield of Stock
     Expected Volatility
of Stock
 

 2022

   Named Executive Officers      8/11/2021        annual grant        0.81%        6.61 years        1.92%        34.4%  

During fiscal year 2022, no Stock Incentive awards were forfeited by any of the Named Executive Officers.

 

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(4)

Amounts consist of the following Target Incentive Bonuses, General RONA Bonuses with PGI Multiplier, if applicable, and Converted RONA Bonuses for fiscal year 2022, which were paid in one or more installments with the final payments in August 2021:

Target Incentive Bonus for fiscal year 2022: Mr. Williams—$1,838,088; Mr. Leombruno—$540,173; Mr. Banks—$949,616; Ms. Parmentier—$633,015; and Mr. Weeks —$301,596.

General RONA Bonus for fiscal year 2022: Mr. Williams—$1,813,879; Mr. Leombruno—$509,847; Mr. Banks—$941,064; Ms. Parmentier— $617,544; and Mr. Weeks—$509,027.

Converted RONA Bonus for fiscal year 2022: Mr. Williams—$128,731; Mr. Leombruno—$88,312; Mr. Banks—$128,054; Ms. Parmentier— $122,886; and Mr. Weeks—$88,035.

Amount also includes the following amount deferred under the Executive Deferral Plan:

Executive Deferral Plan: Mr. Leombruno—$79,777

 

(5)

Amounts consist of the change in annual actuarial present value of pension benefits for Messrs. Williams and Leombruno as also reported in the Pension Benefits for Fiscal Year 2022 table. Mr. Weeks and Ms. Parmentier do not have a benefit under our defined benefit pension plans. None of the Named Executive Officers received above-market or preferential earnings on deferred compensation. Mr. Banks’ actuarial present value of pension benefits declined by $809.050 in Fiscal Year 2022.

 

(6)

The following table describes each component of the All Other Compensation column:

 

 Name    Company Contributions to
Defined Contribution Plans
(a)
     Life Insurance
Premiums Paid
     Dividend
Equivalents
on RSUs
(b)
     Perquisites
(c)
    

Total

“All Other
Compensation”

 

 Thomas L. Williams

     15,226        8,000               128,371        151,597  

 Todd M. Leombruno

     169,171        44,657               94,441        308,269  

 Lee C. Banks

     15,431        29,635        66,388        132,733        244,187  

 Jennifer A. Parmentier

     209,495        38,169        26,564        159,790        434,018  

 Andrew M. Weeks

     229,020        32,459        10,536        29,156        301,171  

 

  (a)

Amount consists of the following company contributions to our Defined Contribution Plans:

Retirement Savings Plan: Mr. Williams—$13,476; Mr. Leombruno—$12,863; Mr. Banks—$13,681; Ms. Parmentier-$21,546; and Mr. Weeks—$25,670.

Savings Restoration Plan: Mr. Williams—$1,750; Mr. Leombruno—$1,347; Mr. Banks—$1,750; Ms. Parmentier-$41,176; and Mr. Weeks—$44,597.

Defined Contribution Supplemental Retirement Program: Mr. Leombruno—$154,961; Ms. Parmentier- $146,772; and Mr. Weeks—$158,753.

 

  (b)

Reported in this column are cash dividends that Mr. Banks received as dividend equivalents on RSUs that he was granted in fiscal years 2017 and 2019, and cash dividends that Ms. Parmentier and Mr. Weeks received as dividend equivalents on RSUs that they were granted in fiscal year 2019.

 

  (c)

Reported in this column are amounts reimbursed or incurred by us with respect to: (i) executive long-term disability insurance premiums; and (ii) one or more of the following executive perquisites: (A) leased vehicle, including state sales tax if applicable; (B) spousal travel; (C) executive physicals; (D) matching gifts program; (E) corporate aircraft travel; and (F) certain private club fees. The Named Executive Officers also use our loges, box seats or tickets to various entertainment venues. However, there is no incremental cost to us for their use of these loges, box seats and tickets. Other than the aggregate incremental cost to the Company of each of Messrs. Williams’, Banks’ and Leombruno’s personal use of the corporate aircraft of $88,983, $97,387 and $31,814, respectively, and Ms. Parmentier’s reimbursement of $69,639 for private club initiation fees, no Named Executive Officer received an executive perquisite in an amount that exceeds the greater of $25,000 or 10% of the total amount of executive perquisites received by the Named Executive Officer. We determine the incremental cost of the personal use of our corporate aircraft based on the variable operating costs to us, which includes: (i) landing, ramp, and parking fees and expenses; (ii) crew travel expenses; (iii) supplies and catering; (iv) aircraft fuel and oil expenses per hour of flight; (v) any customs, foreign permit, and similar fees; (vi) crew travel; and (vii) passenger ground transportation. Because our aircraft is used primarily for business travel, this methodology excludes fixed costs that do not change based on usage, such as salaries of pilots and crew, purchase or lease costs of aircraft, and costs of maintenance and upkeep.

 

(7)

Ms. Parmentier was not a Named Executive Officer in fiscal years 2020 and 2021.

 

 
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Grants of Plan-Based Awards for Fiscal Year 2022

The following table sets forth information with respect to non-equity and equity incentive plan awards granted to the Named Executive Officers during fiscal year 2022. The LTIP Awards and Stock Incentives listed below have been granted under our Amended 2016 Equity Plan.

 

               

Estimated Future Payouts

Under Non-Equity Incentive

Plan Awards

         

Estimated Future Payouts

Under Equity Incentive

Plan Awards

                         
  Name   Grant Date    

Compensation
Committee
Action Date

(If Different
than Grant
Date)

   

Threshold

($)

   

Target

($)

    Maximum
($)
           Threshold
(#)
    Target
(#)
   

Maximum

(#)

    All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
   

Grant

Date

Fair Value of
Stock and
Option
Awards

($)

 

  Thomas L. Williams