WOR Worthington Enterprises Inc

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Board is currently comprised of John Blystone (Chair), Kerrii Anderson, Michael Endres and Ozey Horton, Jr. No member of the Compensation Committee is a present or past employee or officer of ours.  During Fiscal 2022 and through the date of this Proxy Statement, none of our executive officers has served on the board of directors or compensation committee (or other committee performing equivalent functions) of any other entity, whose executive officers served on the Board or Compensation Committee.

Communications with the Board

The Board believes it is important for shareholders and other interested persons to have a process by which to send communications to the Board and its individual members, including the Lead Independent Director.  Accordingly, shareholders and other interested persons who wish to communicate with the Board, the non-management directors as a group, the Independent Directors, as defined by the Corporate Governance Guidelines and applicable NYSE Rules as a group, the Lead Independent Director or any other individual director may do so by addressing such correspondence to the name(s) of the specific director(s), to the “Non-Management Directors” as a whole, to the “Independent Directors” as a whole or to the “Board of Directors” as a whole, and sending it in care of our Secretary, to our executive offices at 200 Old Wilson Bridge Road, Columbus, Ohio 43085.  The mailing envelope must contain a clear notation indicating that the enclosed correspondence is a “Shareholder/Interested Person – Non-Management Director Communication”, “Shareholder/Interested Person – Independent Director Communication”, “Shareholder/Interested Person – Board Communication”, “Shareholder/Interested Person – Lead Independent Director Communication”, or “Shareholder/Interested Person – Director Communication”, as appropriate.  All such correspondence must identify the author as a shareholder or other interested person (identifying such interest) and clearly indicate whether the communication is directed to all members of the Board, to the “Non-Management Directors” as a whole, to the “Independent Directors” as a whole or to a certain specified individual director(s).  Copies of all such correspondence will be circulated to the appropriate director(s).  Correspondence marked “personal and confidential” will be delivered to the intended recipient(s) without opening.  There is no screening process in respect of communications from shareholders or other interested persons. The process for forwarding communications to the appropriate Board member(s) has been approved by the Independent Directors.

Questions, complaints and concerns may also be submitted to our directors through our Worthington Industries Code of Conduct & Ethics Line website at www.Worthington.EthicsPoint.com or by calling 877-263-9893 inside the United States and Canada.

Corporate Citizenship and Sustainability Highlights

In addition to our commitment to high ethical standards and sound corporate governance practices, which are summarized in the “Commitment to Shareholders / Governance” section in this Proxy Statement, we are dedicated to responsible corporate citizenship. Although our approach to corporate citizenship is ever evolving, our primary focus remains our people, our community and our environmental footprint. We are constantly seeking to improve on and rely on our Philosophy rooted in the Golden Rule to guide us through all aspects of corporate citizenship and sustainability.

In line with our people-first Philosophy, our employees have always been, and will always be, our most important asset. As such, we are continually focused on creating and maintaining a strong corporate culture.  Our culture provides employees with opportunities for personal and professional development, as well as community engagement, all of which we believe contribute to our overall success. We have repeatedly been recognized as a top place to work and we offer our employees competitive pay and above-market benefits, as compared to others in our industry, all while focusing on safety, wellness, and promoting a diverse and inclusive culture.

Our Philosophy guides and encourages us to practice good citizenship which is reflected in our employees’ efforts in our communities. Through financial contributions to not-for-profit organizations and volunteering, we are working to improve the quality of life in the communities where we live and work. We believe that together, better is possible at work and in our communities.  

We have always made protecting our people and the environment a top priority. We have demonstrated our commitment to environmentally responsible operations by conforming to international standards for environmental management (ISO 14001) and reducing our impact on the environment in multiple areas of our global business. In addition, we have sought continuous improvement in our health and safety programs, which follow ISO 45001 standards, and regularly have an industry-leading safety record.  

For more details on our corporate citizenship and sustainability efforts, please see our annual Corporate Citizenship and Sustainability Report available on our website at https://worthingtonindustries.com/Sustainability-Report.

Proposal 1:  Election of Directors

There are currently 11 directors – four in the class whose terms expire at the Annual Meeting and who are proposed to be re-elected for terms expiring at the Annual Meeting of Shareholders in 2025; four in the class whose terms expire at the Annual Meeting of Shareholders in 2023; and three in the class whose terms expire at the Annual Meeting of Shareholders in 2024.  

The Board proposes that the four director nominees named in the following summary, each of whom was unanimously recommended by the Nominating and Governance Committee, be re-elected as directors at the Annual Meeting.  Each individual elected as a director at the Annual Meeting will hold office for a three-year term, expiring at the Annual Meeting of Shareholders in 2025, and until his/her successor is duly elected and qualified, or until his/her earlier death, resignation or removal from office.  The individuals named as proxy holders in the form of proxy solicited by the Board intend to vote the common shares represented by the proxies received under this solicitation for the Board’s nominees, unless otherwise instructed on the form of proxy.  If any nominee becomes unable to serve or for good cause will not serve as a candidate for election as a director, the individuals designated to vote the proxies will have full discretion to vote the common shares represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee designated by the Board.  The Board has no reason to believe that any of the Board’s nominees will be unable to serve or for good cause will not serve as a director if elected.

Information Concerning Nominees and Continuing Directors

The information set forth in the following summary, concerning the age, principal occupation, other affiliations and business experience of each director has been furnished to us by such director as of August 1, 2022.  Except where otherwise indicated, each director has had the same principal occupation for the last five years.  There are no family relationships among any of our current directors, director nominees and executive officers.

Nominees Standing for Re-Election to the Board at the 2022 Annual Meeting

Directors Whose Terms Continue Until the 2023 Annual Meeting of Shareholders

Directors Whose Terms Continue Until the 2024 Annual Meeting of Shareholders

Required Vote and Board’s Recommendation

Under Ohio law and our Code of Regulations, the four nominees for election to the Board receiving the greatest number of votes “FOR” their election will be elected as directors of the Company.

Except in the case of broker non-votes, common shares represented by properly completed and timely received forms of proxy will be voted “FOR” the election of the Board’s nominees, unless authority to vote for one or more of the nominees is withheld.  Common shares as to which the authority to vote is withheld will not be counted toward the election of directors or the election of the individual nominees specified on the form of proxy.  Proxies may not be voted for more than four nominees.

THE BOARD UNANIMOUSLY RECOMMENDS THAT

OUR SHAREHOLDERS VOTE “FOR” THE

ELECTION OF EACH OF THE DIRECTOR NOMINEES NAMED ABOVE.

Meetings of the Board

The Board held four meetings during Fiscal 2022.  During Fiscal 2022, each incumbent director attended at least 75%, other than Mr. Karmanos who attended 50% due to a temporary inability to travel, of the aggregate of (a) the total number of meetings held by the Board, and (b) the total number of meetings held by all committees of the Board on which such director served.

The Board and our management are committed to effective corporate governance practices. The Corporate Governance Guidelines describe the governance principles and procedures by which the Board functions. The Board annually reviews and updates, as appropriate, the Corporate Governance Guidelines and the charters of the committees of the Board in response to corporate governance developments, including changes in applicable NYSE Rules and SEC Rules, and recommendations by directors in connection with Board and Board committee evaluations. In accordance with the Corporate Governance Guidelines and applicable NYSE Rules, our non-management directors, who are all “Independent” Directors, as defined by the Corporate Governance Guidelines and applicable NYSE Rules, meet (without management present) in executive session at such times as the non-management directors deem necessary or appropriate, but at least once annually.  These executive sessions are typically held in conjunction with regularly scheduled Board meetings and are led by the Lead Independent Director, and appropriate feedback from these sessions is given to the Chief Executive Officer (“CEO”) and the Executive Chairman.  The non-management and the Independent Directors met in executive session after each of the four regularly scheduled Board meetings held in Fiscal 2022.

Board Member Attendance at Annual Meetings of the Shareholders

We do not have a formal policy with respect to attendance by our directors at the annual meetings of the shareholders. Five of the 11 then-incumbent directors attended our 2021 annual meeting of shareholders (“2021 Annual Meeting”): Mr. Blom, Mr. Blystone, Mr. Horton, Mr. McConnell and Ms. Schiavo.

Board Leadership Structure

The Board is led by Mr. McConnell, who became Executive Chairman in September 2020, after serving as CEO from June 1993 until September 2020.  He has been a director of the Company since 1990 and has served as Chairman of the Board since September 1996.  The Board is currently comprised of Mr. McConnell and ten non-management directors.  Mr. Blystone is our Lead Independent Director.

The Board has four standing committees: Audit, Compensation, Executive, and Nominating and Governance.  Each of the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee is chaired by a separate Independent Director and is comprised solely of Independent Directors.  Detailed information on each Board committee is contained in the section captioned “Proposal 1: Election of Directors — Committees of the Board” in this Proxy Statement.

We do not have a fixed policy regarding whether the offices of Chairman of the Board and CEO should be vested in the same person or two different people. Prior to Mr. McConnell retiring as CEO in September 2020, the Board had long determined that the most effective leadership structure was having Mr. McConnell in both roles, coupled with a Lead Independent Director, independent chairs for our Audit Committee, our Compensation Committee, and our Nominating and Governance Committee, and regularly scheduled executive sessions of the non-management and independent directors.

The Board believes having Mr. McConnell in the role of Executive Chairman and Mr. Rose as the CEO, while maintaining a Lead Independent Director, is an effective management structure, and that the structure promotes the development and execution of our business strategy and facilitates information flow between management and the Board, which are essential to effective governance. The Board believes that its strong governance practices, including its supermajority of Independent Directors, the change to separate the Executive Chairman and CEO roles, and the clearly-defined Lead Independent Director responsibilities, provide an appropriate balance among strategy development, operational execution and independent oversight of the Company.

The Board periodically reviews our leadership structure and retains the authority to modify the structure, as and when appropriate, to address our then current circumstances.

Lead Independent Director

In January 2007, we established a Lead Independent Director position and appointed Mr. Blystone as the Lead Independent Director.

A copy of our Lead Independent Director Charter is available on the “Governance” page of the “Investors” section of our website located at www.worthingtonindustries.com.  In addition to the other duties more fully described in our Lead Independent Director Charter, the Lead Independent Director is responsible for:

Committees of the Board

The Board has four standing committees: the Executive Committee, the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee.  The charter for each committee has been reviewed and approved by the Board and is available on the “Governance” page of the “Investors” section of our website located at www.worthingtonindustries.com.

*Independent director under applicable NYSE Rules

Executive Committee

The Executive Committee acts in place of, and on behalf of, the Board in the intervals between meetings of the Board.  The Executive Committee has all of the authority of the Board, other than the authority (a) to fill vacancies on the Board or on any committee of the Board, (b) to amend our Code of Regulations, (c) that has been delegated by the Board exclusively to other committees of the Board, and (d) that applicable law or our governing documents do not permit to be delegated to a committee of the Board.

Audit Committee

The Board has determined that each member of the Audit Committee qualifies as an Independent Director under the applicable NYSE Rules and under SEC Rule 10A-3.  The Board believes each member of the Audit Committee is qualified to discharge his or her duties on our behalf and satisfies the financial literacy requirement of the applicable NYSE Rules.  The Board has also determined that each of Ms. Anderson, Mr. Davis and Mr. Nelson qualifies as an “audit committee financial expert”, as that term is defined in Item 407(d)(5) of SEC Regulation S-K, by virtue of their respective experience, including as described in Proposal 1 (Election of Directors) of this Proxy Statement.  No member of the Audit Committee serves on the audit committee of more than two other public companies.

The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act.  The Audit Committee is organized and conducts its business pursuant to a written charter.  The primary responsibility of the Audit Committee is to assist the Board in the oversight of the financial and accounting functions, controls, reporting processes and audits.  Specifically, the Audit Committee appoints and evaluates our independent registered public accounting firm and approves the audit engagement, including fees and terms, and non-audit engagements, if any, of such firm.  The Audit Committee, on behalf of the Board, reviews, monitors and evaluates: (a) our consolidated financial statements and the related disclosures, including the integrity and quality of our consolidated financial statements; (b) our compliance with legal and regulatory requirements, including the financial reporting process; (c) our systems of disclosure controls and procedures and internal control over financial reporting and its accounting and financial controls; (d) the performance, qualifications and independence of our independent registered public accounting firm, including the performance and rotation of the lead and concurring partners of that firm; (e) the performance of our internal audit function; (f) the annual independent audit of our consolidated financial statements; (g) financial, reporting and compliance risk management; and (h) our overall enterprise risk management program including such matters related to privacy, information security, cybersecurity, business conduct, health and safety, compliance, environmental and social aspects.  The Audit Committee also prepares the report that the SEC Rules require be included in our annual proxy statement.

Additional duties and responsibilities set forth in the Audit Committee’s charter include:

Pursuant to its charter, the Audit Committee has the authority to engage and terminate such legal counsel and other consultants and advisors as it deems appropriate to carry out its functions, including the sole authority to approve the fees and other terms of retention of such legal counsel and other consultants and advisors.

At least annually, the Audit Committee evaluates its performance, reviewing and assessing the adequacy of its charter and recommending any proposed changes to the full Board, as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

The Audit Committee met four times during Fiscal 2022.  The Audit Committee’s report relating to Fiscal 2022 is located in the “Audit Committee Matters” section in this Proxy Statement.

Compensation Committee

The Board has determined that each member of the Compensation Committee qualifies as an Independent Director under the applicable NYSE Rules.  The Board has also determined that each member of the Compensation Committee satisfies the additional independence standards for members of a compensation committee under the applicable NYSE Rules.  All members of the Compensation Committee also qualify as “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act.

The Compensation Committee’s charter sets forth the duties and responsibilities of the Compensation Committee, which include:

The Compensation Committee’s processes and procedures to determine executive compensation, including the use of compensation consultants and the role of executive officers in the executive compensation decision-making process, are described in the sections captioned “Executive Compensation — Compensation Discussion and Analysis — Role of the Compensation Committee” and “Executive Compensation — Compensation Discussion and Analysis — Executive Compensation Philosophy and Objectives” in this Proxy Statement.

Pursuant to its charter, the Compensation Committee has sole authority to retain and terminate any compensation consultant, legal counsel or other advisor, as the Compensation Committee deems appropriate to assist the Committee in the performance of its duties, including the sole authority to approve the fees and other terms and conditions of retention.  Prior to any such retention, the Compensation Committee assesses any factors relevant to such consultant’s, legal counsel’s or advisor’s independence from management, including the factors specified in NYSE’s Corporate Governance Standards or other listing rules, to evaluate whether the services to be performed will raise any conflict of interest or compromise the independence of such consultant, legal counsel or advisor.

The Compensation Committee periodically reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board, as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.  The Compensation Committee evaluates its performance at least annually.

The Compensation Committee met three times during Fiscal 2022.  The Compensation Discussion and Analysis regarding compensation for our NEOs and the Compensation Committee Report are located in the “Executive Compensation” section in this Proxy Statement.

Nominating and Governance Committee

The Board has determined that each member of the Nominating and Governance Committee qualifies as an Independent Director under the applicable NYSE Rules.  

Under the terms of its charter, the Nominating and Governance Committee is to:

To the extent not otherwise delegated to the Audit Committee, the Nominating and Governance Committee is also to:

The Nominating and Governance Committee periodically reviews and assesses the adequacy of its charter and recommends any proposed changes to the full Board, as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.  The Nominating and Governance Committee evaluates its performance at least annually.

The Nominating and Governance Committee met two times during Fiscal 2022.

Board’s Role in Risk Oversight

Our management is principally responsible for defining, identifying and assessing the various risks we face, formulating enterprise risk management policies and procedures and managing our risk exposures on a day-to-day basis.  A risk committee, comprised of senior executives, directs this process.  Management provides an annual risk assessment to the Board, with quarterly updates. The Board’s responsibility is to oversee our risk management processes by understanding and evaluating management’s identification, assessment and management of our critical risks.

The Board as a whole has responsibility for this risk oversight, assisted by the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. Areas of focus include strategic, operational, liquidity, market, financial, reporting, succession, compensation, compliance, privacy, information security, cybersecurity, business conduct, health and safety, environmental, social, governance and other risks.  The Audit Committee is tasked with oversight of financial, reporting and compliance risk management, along with our overall risk management program. The Compensation Committee is tasked with oversight of compensation risk management. The Nominating and Governance Committee manages risks associated with corporate governance, Board composition, and the performance of the Board, its committees and directors. The Board as a whole oversees all other risk management.

Transactions With Certain Related Persons

Review, Approval or Ratification of Transactions with Related Persons

As described in the Code of Conduct, conflicts of interest can arise when an employee’s or a director’s personal or family relationships, financial affairs, an outside business involvement or other private interest may adversely influence the judgment or loyalty required for performance of his or her duties to us.  In cases where there is an actual or even the appearance of a conflict of interest, the individual involved is required to notify his or her supervisor or our Ethics Officer.  The supervisor will then consult with management or the Ethics Officer, as appropriate.  The Code of Conduct provides that any action or transaction in which the personal interest of an executive officer or a director may be in conflict with our interest is to be reported to the Audit Committee.  The Audit Committee must investigate and, if it is determined that such action or transaction would constitute a violation of the Code of Conduct, the Audit Committee is authorized to take any action it deems appropriate.

Our written Related Person Transaction Policy (the “Policy”), which supplements the Code of Conduct provisions addressing conflicts of interest, addresses our policy with respect to related person transactions.  The Policy was adopted by the Board and is administered by the Audit Committee and our General Counsel.  The Policy applies to any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we participate, directly or indirectly, and a related person has, had or will have a direct or indirect material interest.  Under the Policy, a “related person” is any person:

All related person transactions are to be brought to the attention of management who will then refer each matter to our General Counsel and the Audit Committee.  Each director, director nominee or executive officer must notify our General Counsel in writing of any interest that such individual or an immediate family member of such individual has, had or may have, in a related person transaction.  In addition, any related person transaction proposed to be entered into by us must be reported to our General Counsel by the employee who has authority over the transaction.  On an annual basis, our directors, director nominees and executive officers must complete a questionnaire designed to elicit information about existing and potential related person transactions.  Any potential related person transaction that is raised will be analyzed by our General Counsel, in consultation with management and with outside counsel, as appropriate, to determine whether the transaction, arrangement or relationship does, in fact, qualify as a related person transaction requiring review by the Audit Committee under the Policy.

Under the Policy, all related person transactions (other than those deemed to be pre-approved or ratified under the terms of the Policy) will be referred to the Audit Committee for approval (or disapproval), ratification, revision or termination. Whenever practicable, a related person transaction is to be reviewed and approved or disapproved by the Audit Committee prior to the effectiveness or consummation of the transaction.  If our General Counsel determines that advance consideration of a related person transaction is not practicable, the Audit Committee will review and, in its discretion, may ratify the transaction at the Audit Committee’s next meeting.  However, our General Counsel may present a related person transaction arising between meetings of the Audit Committee to the Chair of the Audit Committee who may review and approve (or disapprove) the transaction, subject to ratification by the Audit Committee at its next meeting if appropriate.  If we become aware of a related person transaction not previously approved under the Policy, the Audit Committee will review the transaction, including the relevant facts and circumstances, at its next meeting and evaluate all options available to us, including ratification, revision, termination or rescission of the transaction, and take the course of action the Audit Committee deems appropriate under the circumstances.

No director may participate in any approval or ratification of a related person transaction in which the director or an immediate family member of the director is involved.  The Audit Committee may only approve or ratify those transactions the Audit Committee determines to be in our best interest.  In making this determination, the Audit Committee will review and consider all relevant information available to it, including:

Any related person transaction previously approved or ratified by the Audit Committee or otherwise already existing that is ongoing in nature is to be reviewed by the Audit Committee annually.

Under the terms of the Policy, the following related person transactions are deemed to be pre-approved or ratified (as appropriate) by the Audit Committee even if the aggregate amount involved would exceed $120,000:

In addition, the Audit Committee will presume that the following transactions do not involve a material interest:

Transactions with Related Persons

We are a party to certain agreements relating to the rental of aircraft to and from JMAC, which is owned by Mr. McConnell and members of his family, and JMAC’s subsidiary, JMAC Air, LLC (“JMAC Air”). Under agreements with JMAC and JMAC Air, we may lease aircraft owned by JMAC as needed for a rental fee per flight and JMAC may lease aircraft operated by us, on a per-flight basis, when we are not using the aircraft.  We also make our pilots available to JMAC Air, for a per-day charge.  The rental fees paid to us under the per-flight rental agreements are set based on Federal Aviation Administration (“FAA”) regulations.  We believe the rental fees set in accordance with such FAA regulations for Fiscal 2022 exceeded the direct operating costs of the aircraft for such flights.  Also, based on quotes for similar services provided by unrelated third parties, we believe that the rental rates paid to JMAC are no less favorable to us than those that could be obtained from unrelated third parties.

For Fiscal 2022, we paid an aggregate amount of $102,057 under the JMAC Air lease agreement and received $67,212 for airplane rental and pilot services.

During Fiscal 2022, we, directly or indirectly through business expense reimbursement, paid approximately $282,535 to Double Eagle Club, a private golf club owned by the McConnell family (the “Club”).  We use the Club’s facilities for corporate functions and meetings, and for meetings and entertainment for our customers, suppliers and other business associates.  Amounts charged to us by the Club are no less favorable to us than those that are charged to unrelated members of the Club for the same type of use.

During Fiscal 2022, we, directly or indirectly through business expense reimbursement, paid approximately $181,430 to the Columbus Blue Jackets, a National Hockey League team of which Mr. McConnell is the majority owner, for suite expenses, game tickets and special event tickets, often used in connection with meetings and entertainment for customers, suppliers and other business associates, at prices no less favorable to us than those charged to third parties.  We have also contributed suite use and tickets for charitable purposes.

Executive Compensation

Compensation Discussion and Analysis

Role of the Compensation Committee

The Compensation Committee reviews and administers the compensation for the CEO and other members of our executive management team, including the NEOs.  The Compensation Committee also oversees our annual incentive plan for executives, long-term incentive program, restricted common share awards, stock option plans, and non-qualified deferred compensation plans.  A more detailed discussion of the duties of the Compensation Committee is set forth in the section captioned “Proposal 1: Election of Directors – Committees of the Board – Compensation Committee” in this Proxy Statement.

The Compensation Committee is comprised of four directors, each of whom qualifies as an “Independent Director” under the Corporate Governance Guidelines, applicable SEC Rules and applicable NYSE Rules, and is free from any relationship (including disallowed consulting, advisory or other compensatory arrangements) prohibited by applicable laws, rules or regulations or that, in the opinion of the Board, is material to his or her ability to be independent from our management in connection with the duties of a member of the Compensation Committee or to make independent judgments about our executive compensation.  Each member also qualifies as a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act.

The Compensation Committee has sole authority to retain and terminate such compensation consultants, legal counsel and other advisors as the Compensation Committee deems appropriate to fulfill its responsibilities, including sole authority to approve the fees and other terms of retention.  The Compensation Committee has retained an independent compensation consultant, Willis Towers Watson, for the purpose of assisting the Compensation Committee in fulfilling its responsibilities, including providing advice on the amount and form of executive and director compensation. Fees paid related to executive and director compensation matters were $82,000 in Fiscal 2022. Management also periodically retains Willis Towers Watson to provide additional services to us, including advising on other compensation matters. Our risk management team also separately engaged (in their own discretion, and not at the recommendation or subject to the approval of the Board or the Compensation Committee) an insurance affiliate of Willis Towers Watson to broker liability insurance for us and such affiliate received commissions totaling $150,000, which were paid by the issuer of the insurance policy. Willis Towers Watson was also separately engaged by our human resources team (in their own discretion, and not at the recommendation or subject to the approval of the Board or the Compensation Committee) to conduct certain due diligence activities in connection with our acquisition of Tempel and the fees paid related to that engagement were $240,000. The Compensation Committee has conducted an assessment, which included the consideration of the six factors specified in the NYSE Corporate Governance Standards and SEC Rule 10C-1(b)(4), to evaluate whether the services performed by Willis Towers Watson and the insurance affiliate of Willis Towers Watson raise a conflict of interest or compromise the independence of Willis Towers Watson.  Based upon this assessment, the Compensation Committee determined that Willis Towers Watson qualifies as an independent compensation consultant and the work of Willis Towers Watson and its affiliates does not raise any conflict of interest.

While the Compensation Committee retains Willis Towers Watson, in carrying out assignments for the Compensation Committee, Willis Towers Watson may interact with our management including the Senior Vice President-Chief Human Resources Officer, the Vice President-General Counsel and the Vice President-Chief Financial Officer and their respective staffs in order to obtain information.  In addition, Willis Towers Watson may, in its discretion, seek input and feedback from management regarding its work product prior to presentation to the Compensation Committee in order to confirm information is accurate or address certain issues.

The agendas for the Compensation Committee’s meetings are determined by the Compensation Committee’s Chair with assistance from the CEO, the Senior Vice President-Chief Human Resources Officer and the Vice President-General Counsel.  These individuals, with input from the Compensation Committee’s compensation consultant, make compensation recommendations for the NEOs and other executive officers.  However, decisions regarding the compensation of the NEOs are made solely by the Compensation Committee.

After each regularly scheduled meeting, the Compensation Committee may meet in executive session.  When meeting in executive session, the Compensation Committee may have a session with the CEO only, a session with the compensation consultant only, and a session with Compensation Committee members only.  The Compensation Committee Chair reports on Compensation Committee actions to the full Board at the following Board meeting.

For purposes of these guidelines, stock ownership includes common shares held directly or indirectly, common shares held in an executive’s 401(k) plan account(s) and theoretical common shares credited to the bookkeeping account of an executive or a director in one of our non-qualified deferred compensation plans.  

Under the stock ownership guidelines, once an executive or a director reaches the target ownership level, and so long as those common shares are retained and the individual remains subject to the same guideline level, there is no obligation to purchase additional common shares as a result of fluctuations in the price of the common shares.

Each covered executive or director is expected to attain the target level of stock ownership within five years from the date he or she is appointed or elected to the position. All directors and executive officers have met their respective target ownership levels, with the exception of two non-NEO executive officers who were appointed to their current positions in the last 18 months, and Mr. Blom, who became a director in June 2019.

Anti-Hedging Policy

We prohibit our directors, officers (including the NEOs) and other key employees from engaging in hedging transactions with respect to the common shares. Prohibited hedging transactions include short sales, transactions in publicly-traded options such as puts, calls or similar derivative securities, or financial instruments such as zero cost collars, prepaid variable forward contracts, equity swaps and exchange funds designed to or which have the effect of offsetting a decrease in the value of the common shares. We have not made this anti-hedging policy applicable to our employees in general.

Compensation Philosophy

Our basic philosophy has long been that employees should have a meaningful portion of their total compensation tied to performance and that we should use incentives which are intended to drive and reward performance.  In furtherance of this philosophy, there is broad-based participation among our full-time, non-union employees in some form of incentive compensation program.  These programs include cash profit sharing programs, which compute payouts based on a fixed percentage of profits, and annual incentive bonus programs that primarily tie bonuses to our aggregate operating results or the operating results of the applicable segment or business unit.

We have also made broad-based grants of equity awards periodically to a number of salaried employees below the executive level.

Executive Compensation Philosophy and Objectives

Our objectives with respect to executive compensation are to attract and retain highly-qualified executives, to align the interests of management with the interests of shareholders and to provide incentives, based primarily on our performance, for reaching established goals and objectives.  To achieve these objectives, the Compensation Committee has determined that total compensation for executives will exhibit the following characteristics:

Our practice has long been that executive compensation be highly leveraged.  Our compensation program emphasizes performance-based compensation (pay-at-risk) that promotes the achievement of our short-term and long-term objectives.  We believe it is appropriate to provide a balance between incentives for short-term performance and incentives for long-term profitability.  Our executive compensation program, therefore, includes both an annual cash incentive bonus program and a long-term incentive compensation program.  We also believe it is appropriate for long-term incentives to have a cash compensation component and an equity-based compensation component, which incentivize executives to drive our performance and align their interests with those of our shareholders.  The individual components of executive compensation are discussed below.

In fulfilling its responsibilities, the Compensation Committee annually reviews certain market compensation information with the assistance of its independent compensation consultant, Willis Towers Watson, who is directly engaged by the Compensation Committee to prepare the information.  This includes information regarding compensation paid to officers with similar responsibilities from a broad-based group of approximately 700 companies (the “comparator group”).  A list of the entities in the comparator group is set forth on Appendix I to this Proxy Statement.

The comparator group is comprised largely of manufacturing companies, maintained in the executive compensation database of Willis Towers Watson at the time the study is conducted, with median revenues of $4.0 billion.  Changes in the comparator group occur as companies begin or cease participation in the database, due to a sale, merger or acquisition of the companies included or for other reasons.  The Compensation Committee neither selects nor specifically considers the individual companies which are in the comparator group.  For comparison purposes, due to variances in the size of the companies in the comparator group, regression analysis, which is an objective analytical tool used to determine the relationship between data, is used to adjust data to better align with our revenue size, which the Compensation Committee set at $4.0 billion for purposes of its analysis.  The Compensation Committee believes that using this broad-based comparator group minimizes the effects of changes to the group due to changes in database participation, lessens the impact a single entity can have on the overall data, provides more consistent results and better reflects the market in which we compete for executive talent.

During its review process, the Compensation Committee meets directly with its compensation consultant and reviews comparator group information with respect to base salaries, annual cash incentive bonuses and long-term incentive compensation programs.  The Compensation Committee considers comparator group information provided by the compensation consultant as an important factor in determining the appropriate levels and mix of executive compensation.

Base salaries of the NEOs and other executive officers generally fall below market median comparables developed from the comparator group, although the actual base salaries of the NEOs and other executive officers vary from individual to individual and from position to position due to factors such as time in the position, performance, experience, internal equity and other factors the Compensation Committee deems appropriate.  Annual cash incentive bonus opportunities to be paid to the NEOs and other executive officers for achieving targeted levels of performance are generally above what the compensation consultant considers market median for annual bonuses because base salaries are intentionally set below market median comparables. In setting normal annual long-term incentive compensation opportunities of the NEOs and other executive officers, the Compensation Committee generally starts with the market median developed by the compensation consultant, and then makes adjustments the Compensation Committee deems appropriate.

While comparator group information is a factor considered in setting compensation, where a specific NEO’s or other executive officer’s annual cash incentive bonus and long-term incentive compensation fall relative to the market median developed from the comparator group will vary based upon internal equity and other factors listed in the preceding paragraph.  Annual cash incentive bonuses and long-term incentive compensation actually paid may vary significantly depending on Corporate and/or business unit performance during the applicable year(s).

The Compensation Committee uses tally sheets as a tool to assist in its review of executive compensation.  These tally sheets contain the components of the CEO’s and other NEOs’ current and historical compensation, including base salary, annual cash incentive bonuses and long-term incentive compensation.  These tally sheets and other information provided to the Compensation Committee also show the estimated compensation that would be received by the CEO and other NEOs under certain scenarios, including in connection with a change in control of the Company.

While prior compensation or amounts realized or realizable from prior awards are given some consideration, the Compensation Committee believes that the current and future performance of the Company, its business units and the individual executive officers should be the most significant factors in setting the compensation for our executive officers.

The CEO’s performance is annually evaluated by the Compensation Committee and the full Board.  The criteria considered include: our overall performance; overall leadership; the CEO’s performance in light of, and his development and stewardship of, our Philosophy and our current and long-term strategic plans, goals and objectives; development of an effective senior management team; positioning us for future success; and effective communications with the Board and stakeholders.  The Compensation Committee also evaluates the performance of the other NEOs when annually reviewing and setting executive compensation levels.  The criteria considered for the other NEOs are similar to those for the CEO, adjusted to reflect each NEO’s position, with a focus on the applicable business unit for any NEO who is a business unit President.

Compensation Risk Analysis

Our executive compensation programs are designed to be balanced, with a focus on both achieving consistent, solid year-over-year financial results and growing shareholder value over the long term.  The highest amount of compensation can be attained under these programs, taken as a whole, through consistently strong performance over sustained periods of time.  This provides strong incentives for achieving success over the long term and avoiding excessive risk-taking in the short term.

We have long believed that compensation incentives, based primarily upon our earnings or similar performance measures, have played a vital role in our success.  Making profit sharing, bonuses and/or other incentive payments broadly available to all levels of non-union employees has fostered an ownership mentality throughout the workforce which has resulted in long-term employment and a desire to drive consistent financial performance.  Our culture, aided by this ownership mentality, is focused on striving to continually improve performance and achieve long-term success without engaging in excessive risk-taking.

We do not believe that our compensation incentives encourage excessive risk-taking for the following reasons:

Cash Compensation Earned in Fiscal 2022 and Company Performance

Short-term cash compensation includes base salary and the annual cash incentive bonus paid to our executives, including the CEO and the other NEOs. Consistent with our compensation philosophy, base salaries in Fiscal 2022 were generally below market median levels for the comparator group.    

The Compensation Committee believes that we have been performing exceptionally well and have responded extremely well to a very challenging environment that included supply chain constraints, steel price volatility, a tight labor market and inflationary cost pressures.  Despite these challenges and record performance in Fiscal 2021, we still achieved year-over-year improvements in almost all of our major businesses.

Management has continued to do an outstanding job managing through the lingering supply chain, labor and other challenges presented by COVID-19, which in many cases have been exacerbated by the war in Ukraine and the current inflationary environment, and has shown great discipline in executing on our strategies. During Fiscal 2022, we also continued to take action to better position ourselves in the future.  Management remained focused on improving our businesses by investing in new product development and production capacity, and improving efficiencies, all with the aid of transformation and innovation efforts.  We and our M&A team added new businesses through acquisitions, focusing on supplying products to the high-growth electric vehicle and electricity infrastructure markets, as well as lightweighting applications for the automotive industry, all of which should contribute to our growth in the coming years.  

Consistent with our compensation philosophy, annual incentive compensation earned by our executives continued to move in the direction of our results. Due to our very strong performance, annual cash incentive bonuses for our executives were up for Fiscal 2022, with Corporate paying out at 200% of target, following payouts of 185% of target for Fiscal 2021 and only 75% of target for Fiscal 2020.

Our financial position remains strong, as we generated a considerable amount of cash from operations in recent years. We were able to pay most of the purchase price for the acquisitions of Shiloh Industries’ U.S. BlankLight® business and Tempel, an aggregate amount of approximately $377.3 million before closing adjustments, from existing cash. Our capital structure is also in a sound position. We have in place $200 million of long-term senior notes due 2032, $250 million of long-term senior notes due 2026, and $150 million of long-term senior notes due 2024. We also have a $500 million revolving credit facility, through August 2026, and a revolving trade accounts receivable securitization facility allowing us to borrow up to $175.0 million. These committed lines of credit had a total of $518.6 million of borrowing capacity available to be drawn as of July 29, 2022.

We have also been able to reward our shareholders by steadily increasing our quarterly dividend from $0.23 for Fiscal 2019, to $0.24 for Fiscal 2020, to $0.25 for the first, second, and third quarters of Fiscal 2021, to $0.28 for fourth quarter of Fiscal 2021 and each quarter of Fiscal 2022, and to $0.31 for the first quarter of Fiscal 2023. In addition, we continued our stock buy-back program in Fiscal 2022, repurchasing a total of 3,235,000 common shares last year.

The direct relationship of annual cash incentive bonuses earned by the NEOs to our performance has been exemplified by the amount of annual cash incentive bonuses paid to the NEOs not only in Fiscal 2022, but also in prior fiscal years.  The following table summarizes results for the last five fiscal years. Effective June 1, 2021, the beginning of Fiscal 2022, we separated our legacy Pressure Cylinders segment into three new segments, Consumer Products, Building Products and Sustainable Energy Solutions.

The relationship of incentive compensation earned to our results is also reflected in payments which have been earned under the long-term cash performance and performance share awards.  Results for each of the last five completed three-fiscal-year performance periods are summarized below.

Say-on-Pay Consideration

At the 2021 Annual Meeting, our shareholders approved the executive compensation as disclosed in the proxy statement for that Annual Meeting, with over 84% of the common shares represented by those shareholders present in person or represented by proxy at the 2021 Annual Meeting voting for approval.  The vote for approval was over 97%, excluding broker non-votes.  The Compensation Committee evaluated the results of this strongly supportive advisory vote, together with the other factors and data discussed in this Compensation Discussion and Analysis, in determining executive compensation policies and making executive compensation decisions.

Compensation Components

Base Salaries

Base salaries for the NEOs are set to reflect the duties and responsibilities inherent in each position, individual levels of experience, performance, market compensation information, internal pay equity, and the Compensation Committee’s judgment.  The Compensation Committee annually reviews information regarding compensation paid by the comparator group to executive officers with similar responsibilities.  It is the Compensation Committee’s intent, in general, to set base salaries below market median levels, with consideration given to the factors listed above, and have total annual cash compensation driven by bonuses.

Annual Bonus Compensation

The NEOs and certain other key employees participate in our annual cash incentive bonus program under which annual bonus awards are tied to attainment of target results.  These awards are generally tied to achieving specified levels (threshold, target and maximum) of Corporate and/or business unit performance for the applicable 12-month performance period.  The type of performance measured and the weighting of those measurements is shown below. Restructuring charges and non-recurring gains and losses are excluded from all calculations, and the impact of inventory holding gains or losses are factored out in calculating Corporate EPS and Steel Processing business unit earnings.

For performance falling between threshold and target or between target and maximum, the award is linearly pro-rated.  If threshold levels are not reached for any performance measure, no bonus will be paid under that performance metric.

Annual incentive bonuses are paid within a reasonable time following the end of the performance period in cash, unless the Board specifically provides for a different form of payment.  In the event of a change in control of the Company, followed by the actual or constructive termination of a participant’s employment during the relevant performance period, the annual cash incentive bonus award of the participant would be considered to be earned at the target level and payable as of the date of actual or constructive termination of employment.

The annual cash incentive bonuses paid to the NEOs for Fiscal 2022 were consistent with Fiscal 2021, due to the strong results in both Fiscal 2022 and Fiscal 2021.  Annual cash incentive bonuses for Fiscal 2022 results were paid at 200% of target levels for Corporate executives, 200% for Steel Processing executives, 168% for Consumer Products executives, 189% for Building Products executives and 100% for Sustainable Energy Solutions executives.  Annual cash incentive bonuses for Fiscal 2021 were paid at 185% of target levels for Corporate executives, 183% for Steel Processing executives and 166% for legacy Pressure Cylinders executives.

Annual cash incentive bonuses earned by the NEOs for Fiscal 2022, Fiscal 2021 and Fiscal 2020, are shown in the “Fiscal 2022 Summary Compensation Table” in this Proxy Statement in the “Annual Incentive Bonus Award” column within “Non-Equity Incentive Plan Compensation”.  

On June 21, 2022, the Compensation Committee granted annual cash incentive bonus awards to the NEOs for Fiscal 2023. These annual cash incentive bonus awards are shown in the “Annual Cash Incentive Bonus Awards Granted to NEOs for Fiscal 2023” table in this Proxy Statement.

Long-Term Incentive Compensation

The Compensation Committee has implemented a long-term incentive compensation program for the NEOs and other executives, which consists of:

Long-term performance share awards, long-term cash performance awards, and restricted common share awards are made under the Worthington Industries, Inc. Amended and Restated 1997 Long-Term Incentive Plan (the “1997 LTIP”).  Stock options are generally granted out of our 2010 Stock Option Plan.  These plans have been approved by our shareholders.

In setting the size of the overall normal long-term incentive compensation awards, the Compensation Committee generally begins by looking at market median values for the comparator group, and then making adjustments for each individual for items such as the executive officer’s time in the position, internal equity, performance and such other factors as the Compensation Committee deems appropriate.  The percentage of the long-term compensation provided by each type of award (long-term cash performance awards, long-term performance share awards, stock options and restricted common shares) is determined by the Compensation Committee.  The value given to stock options for purposes of these awards is determined by the Compensation Committee based on input from its compensation consultant taking into account the anticipated grant date fair value calculated under applicable accounting rules and the stock option values used for recent annual grants.  The same is true for restricted common shares, the value of which is generally based on a recent market price of the common shares.  Likewise, the value of the long-term performance share awards is generally based upon the number of common shares that can be earned at target, multiplied by a recent common share price.  The value used for long-term cash performance awards is generally the amount that can be earned at target.  The amount of each type of award granted to an executive officer is determined consistent with the above factors, with the specific amount determined by the Compensation Committee on a subjective basis combining all of the factors considered.

The Compensation Committee believes that using a blend of restricted common share awards, stock option awards, long-term performance share awards and long-term cash performance awards represents a particularly appropriate and balanced method of motivating and rewarding senior executives.  Restricted common share awards and stock option awards align the interests of employee recipients with those of shareholders by providing value tied to appreciation in the common share price.  Long-term cash performance awards motivate long-term results because their value is tied to sustained financial achievement over a multiple-year period.  Long-term performance share awards blend both of these features because the number of performance shares received is tied to sustained financial achievement over a multiple-year period, and the value of those performance shares is tied to the price of the common shares.  The Compensation Committee believes the combination of these forms of incentive compensation is superior to reliance upon only one form and is consistent with our compensation philosophy and objectives.

The Compensation Committee generally approves annual restricted common share awards, annual stock option grants, long-term performance share awards and long-term cash performance awards at its June meeting.  The stock option grants and restricted common share awards are generally made effective following the meeting and after we report earnings for the just-completed fiscal year.  Long-term performance share awards and long-term cash performance awards have been based on performance over a three-fiscal-year period beginning with the first day of the first fiscal year in that period.  An explanation of the calculation of the compensation expense relative to the equity-based long-term incentive compensation is set forth in the section of this Compensation Discussion and Analysis captioned “Equity-Based Long-Term Incentive Compensation Accounting”.

We have not backdated stock option grants to provide for lower exercise prices, nor have we repriced or offered buyouts of underwater stock options.  Current plan provisions prohibit such repricing without shareholder consent.

Stock Options

Stock options are generally granted annually to the NEOs and a select group of key executives.  In practice, the number of common shares covered by a stock option award generally depends upon the employee’s position and external market data.  

The following describes the Compensation Committee’s general practice in granting stock options, excluding grants tailored to meet specific circumstances.

Nearly all stock options granted to employees since June 1, 2011 have been non-qualified stock options which vest at a rate of 33% per year and fully vest at the end of three years.  In the event an optionee’s employment terminates as a result of retirement, death or total disability, any unexercised stock options outstanding, vested and exercisable on that date will remain exercisable by the optionee or, in the event of death, by the optionee’s beneficiary, until the earlier of either the fixed expiration date, as stated in the applicable stock option award agreement, or 36 months after the last day of employment due to retirement, death or total disability.  Should termination occur for any reason other than retirement, death or disability, unexercised stock options are generally forfeited.  In the event of a change in control of the Company (as defined in the respective stock option plans or award agreements), followed by an actual or constructive termination of employment, stock options then outstanding will become fully vested and exercisable.  The Compensation Committee may allow an optionee to elect, during the 60-day period following a change in control, to surrender a stock option or a portion thereof in exchange for a cash payment equal to the excess of the change in control price per share over the exercise price per share.

Effective June 25, 2021, we made awards of non-qualified stock options to 26 employees to purchase an aggregate of 54,500 common shares, with an exercise price equal to $60.19, the fair market value of the common shares on the grant date.  Of those stock options, an aggregate of 31,100 common shares were covered by stock options granted to the NEOs.

The stock option grants to the NEOs in Fiscal 2022 are detailed in the “Grants of Plan-Based Awards for Fiscal 2022” table in this Proxy Statement.  For purposes of the “Grants of Plan-Based Awards for Fiscal 2022” table, stock options are valued based on a grant date fair value and calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”).  This value for stock options is also reported in the “Option Awards” column of the “Fiscal 2022 Summary Compensation Table” in this Proxy Statement.

Information on stock options granted, effective June 24, 2022, to NEOs for Fiscal 2023 is set forth in the section captioned “Long-Term Performance Awards, Option Awards and Restricted Common Share Awards Granted to NEOs in Fiscal 2023” in this Proxy Statement.

Long-Term Performance Awards – General

We award a select group of key executives, including the NEOs, long-term cash performance awards and long-term performance share awards which are earned based upon results over a prospective three-fiscal-year performance period.

These long-term performance awards are intended to reward executives for achieving pre-established financial goals over a three-fiscal-year period.  Restructuring charges and non-recurring items are excluded from all calculations, and the impact of inventory holding gains or losses are factored out in calculating Corporate EPS and Steel Processing business unit earnings.

If the performance level falls between threshold and target or between target and maximum, the award is linearly pro-rated.  Payouts, if any, would generally be made in the quarter following the end of the applicable performance period.  Calculation of our results and the level of attainment of performance measures are made solely by the Compensation Committee based upon our consolidated financial statements.

The Compensation Committee determines the appropriate changes and adjustments and may make adjustments for other unusual or non-recurring events, including, without limitation, changes in tax and accounting rules and regulations, extraordinary gains and losses, mergers and acquisitions, and purchases or sales of substantial assets.

These performance measurements have been chosen because the Compensation Committee believes that:

We have used these, or similar performance measures, since long-term cash performance awards were first granted for the performance period ended May 31, 1998.

The Compensation Committee periodically considers whether to change the performance measures used under the incentive awards and reviews the types of measures used by other companies and other relevant information provided by its compensation consultant.  As noted above, the Compensation Committee determined to change certain performance measures for the business unit executives for the three-fiscal-year period beginning with Fiscal 2022.

As a result of the very strong results in Fiscal 2022, long-term cash performance awards and long-term performance share awards for the three-fiscal-year period ended with Fiscal 2022 were paid out at 200% of target levels for Corporate executives, 191% for Steel Processing executives and 200% for legacy Pressure Cylinders executives.  

Long-Term Cash Performance Awards

Long-term cash performance awards are intended to reward executives for achieving pre-established financial goals over a three-fiscal-year period.  Long-term cash performance awards may be paid in cash, common shares or any combination thereof, as determined by the Compensation Committee at the time of payment.  To date, earned long-term cash performance awards have been paid in cash.  If the performance criteria are met, payouts are generally made in the quarter following the end of the performance period.  Nothing is paid under the long-term cash performance awards if none of the three-fiscal-year financial thresholds are met.

Treatment of awards on a change in control or a termination of employment, including termination due to death, disability or retirement, is discussed below in the section captioned “Long-Term Performance Awards – Impact of Termination/Change in Control”.  The performance measures for the long-term cash performance awards are discussed above in the section captioned “Long-Term Performance Awards – General”.

Long-term cash performance awards earned for the three-fiscal-year performance period ended with Fiscal 2022 are described above in the section captioned “Long-Term Performance Awards – General”.  The amount of the awards earned by the NEOs for this period is shown in the “Fiscal 2022 Summary Compensation Table” in this Proxy Statement under the “3-year Cash Performance Award” column within “Non-Equity Incentive Plan Compensation”.  The long-term cash performance awards earned were paid in cash.

Long-term cash performance awards granted in Fiscal 2022 for the three-fiscal-year performance period ending with Fiscal 2024 are reported in the “Grants of Plan-Based Awards for Fiscal 2022” in this Proxy Statement.

Information on long-term cash performance awards granted in Fiscal 2023 for the three-fiscal-year performance period ending with Fiscal 2025 is shown in the “Long-Term Performance Awards, Option Awards and Restricted Common Share Awards Granted to NEOs in Fiscal 2023” table in this Proxy Statement.

Long-Term Performance Share Awards

Performance share awards are intended to reward executives for both achieving pre-established financial goals over the three-fiscal-year period and increasing the common share price.  The long-term performance share awards are generally paid in common shares and the value is determined not only by the number of common shares earned, but also by the value of the common shares at the time the awards are earned and the common shares are paid out.  If the performance criteria are met, payouts are generally made in the quarter following the end of the performance period.  Nothing is paid under the long-term performance share awards if none of the three-fiscal-year financial threshold measures are met.

Treatment of awards on a change in control or a termination of employment, including termination due to death, disability or retirement, is discussed below in the section captioned “Long-Term Performance Awards – Impact of Termination/Change in Control”.  The performance measures for the long-term performance share awards are discussed above in the section captioned “Long-Term Performance Awards – General”.  

Long-term performance share awards earned for the three-fiscal-year performance period ended with Fiscal 2022, are described above in the section captioned “Long-Term Performance Awards – General”.  The long-term performance share awards earned were paid in common shares.

Long-term performance share awards granted in Fiscal 2022 for the three-fiscal-year performance period ending with Fiscal 2024 are reported in the “Grants of Plan-Based Awards for Fiscal 2022” table in this Proxy Statement.  An explanation of the calculation of the compensation expense relative to those awards is set forth in the “Equity-Based Long-Term Incentive Compensation Accounting” section in this Compensation Discussion and Analysis.  If the performance criteria are met, the long-term performance shares earned would generally be issued in the quarter following the end of the performance period.

Information on long-term performance share awards granted in Fiscal 2023 for the three-fiscal-year performance period ending with Fiscal 2025 is shown in the “Long-Term Performance Awards, Option Awards and Restricted Common Share Awards Granted to NEOs in Fiscal 2023” table in this Proxy Statement.

Long-Term Performance Awards – Impact of Termination/Change in Control

In general, termination of employment results in termination of long-term cash performance awards and long-term performance share awards.  However, if termination is due to death, disability or retirement, a pro rata payout will be made for performance periods ending 24 months or less after termination of employment based on the number of months of employment completed by the participant during the performance period before the effective date of termination, provided that the applicable performance goals are achieved.  No payout will be made for performance periods ending more than 24 months after termination of employment.  Unless the Compensation Committee specifically provides otherwise at the time of grant, in the event of a change in control of the Company followed by an actual or constructive termination of employment, all long-term cash performance awards and long-term performance share awards would be considered to be earned and payable in full at the maximum level, and immediately settled or distributed.

Annual Restricted Common Share Awards to Executives

Effective June 25, 2021, the Compensation Committee granted annual restricted common share awards to 44 employees covering an aggregate of 109,300 restricted common shares, which will cliff vest on the third anniversary of the grant date.  Of those awards, an aggregate of 55,000 restricted common shares were awarded to the NEOs.  Restricted common share awards are intended to reward and incent executives by directly aligning the interests of management with the interests of shareholders.  The vesting provision of the restricted common shares also serves as a management retention incentive.  For further details with respect to the restricted common share awards granted to the NEOs effective June 25, 2021, see the “Stock Awards” column of the “Fiscal 2022 Summary Compensation Table” in this Proxy Statement.

Restricted common share awards to the NEOs in Fiscal 2022 are detailed in the “Grants of Plan-Based Awards for Fiscal 2022” table in this Proxy Statement.  For purposes of the “Grants of Plan-Based Awards for Fiscal 2022” table, restricted common share awards are valued based on grant date fair value and calculated in accordance with ASC 718.  This value for restricted common share awards is also reported in the “Stock Awards” column of the “Fiscal 2022 Summary Compensation Table” in this Proxy Statement.

For further details with respect to the restricted common share awards granted to the NEOs effective June 24, 2022, see the “Long-Term Performance Awards, Option Awards and Restricted Common Share Awards Granted to NEOs in Fiscal 2023” table in this Proxy Statement.

Other Restricted Common Share Awards to NEOs in Fiscal 2022

On June 25, 2021, the Compensation Committee made an award of 10,000 restricted common shares to Ms. Lyttle, which will cliff vest on the third anniversary of the grant date.

Other Restricted Common Share Awards to non-NEOs in Fiscal 2022

It has been our practice to award restricted common shares to a broader group of employees every two or three years, and to grant restricted common shares to select employees at other times such as when their employment began or they received a promotion.  Such awards provide employees with the opportunity to participate in increases in shareholder value as a result of common share price appreciation, and further our objective of aligning the interests of management with the interests of shareholders.

Between June 24, 2021 and April 27, 2022, we made awards to 96 employees covering an aggregate of 57,700 restricted common shares, which will cliff vest on the third anniversary of the respective grant dates.  None of these awards were made to an NEO.

Special Performance-Based/Time-Vested Restricted Common Share Awards

The Compensation Committee has at times granted special “one-off” performance-based/time-vested restricted common share awards to select executives, with vesting tied to the price of the common shares attaining certain levels for a ninety consecutive day period during the term of the award.  These awards are viewed as particularly appropriate as they are earned by top management only when the common share price increases significantly and, thus, our shareholders are also significantly benefited. While these awards do require a significant increase in the price of the common shares from that on the grant date in order to vest, the Compensation Committee believes that the common share price targets for these awards are reasonable targets which can be met with steady consistent growth in our performance without the need for any undue risk-taking.  The time-based vesting requirements mitigate the incentive for risky behavior intended to drive only a short-term common share price increase, and instead encourage activity that would lead to steady increases in financial results and a common share price which can be maintained.

In Fiscal 2022, no such awards were issued.

In Fiscal 2021, the Compensation Committee made a special award, effective June 25, 2020, of 25,000 performance-based/time-vested restricted common shares to Mr. Gilmore. The term of this restricted common share award is five years and the restricted common shares will vest if and only when both of the following conditions are met:  (a) the closing price of the common shares averages $65.00 per share for any 90 consecutive day period during the five-year term; and (b) Mr. Gilmore has remained continuously employed by us through June 25, 2023, or if later, the date the stock price condition is met. The restricted common shares will be forfeited five years from the effective date of the award if the performance-based vesting condition is not met by that date, or as of the date of termination if Mr. Gilmore’s employment is terminated (with certain exceptions discussed below) before June 25, 2023.  If Mr. Gilmore’s employment is terminated by us without “cause” or Mr. Gilmore dies or becomes permanently disabled after the performance condition has been met but before the time-based vesting condition has been met, the restricted common shares will be fully vested as of the date of termination.  In the case of death or disability of Mr. Gilmore, the Compensation Committee may elect, in its sole discretion, to accelerate the vesting of all or a portion of the restricted common shares.  

In Fiscal 2020, the Compensation Committee made a special award, effective September 25, 2019, to Mr. Hayek of 50,000 performance-based/time-vested restricted common shares. During Fiscal 2019, in connection with the naming of Mr. Rose as President and Mr. Gilmore as Chief Operating Officer (“COO”), the Compensation Committee made special awards, effective September 26, 2018, of 175,000 performance-based/time-vested restricted common shares to Mr. Rose and 50,000 performance-based/time-vested restricted common shares to Mr. Gilmore. The term of each of these restricted common share awards is five years from the date of grant and the restricted common shares will vest if and only when both of the following conditions are met:  (a) the closing price of the common shares equals or exceeds $65.00 per share for 90 consecutive days during the five-year term; and (b) the applicable NEO has remained continuously employed by us for five years. The restricted common shares will be forfeited five years from the effective date of the award if the performance-based vesting condition is not met by that date, or as of the date of termination if the NEO’s employment is terminated (with certain exceptions discussed below) before the end of the five-year period.  If the applicable NEO’s employment is terminated by us without “cause” or if he dies or becomes permanently disabled after the performance condition has been met but before the time-based vesting condition has been met, the restricted common shares will be fully vested as of the date of termination.  In the case of death or disability, the Compensation Committee may elect, in its sole discretion, to accelerate the vesting of all or a portion of the restricted common shares.  

The Compensation Committee believes the average or continuous (as applicable) $65.00 per share closing price for 90 consecutive days condition was an appropriate performance target, as its achievement will not only reward the NEO, but also our shareholders in general, as the $65.00 stock price would be a significant increase in the price of the common shares from the price on the grant date. The Compensation Committee believed this to be a reasonable target which can be reached by steady, consistent growth in our performance, without the need for any undue risk-taking.

In the event of a change in control followed by an actual or constructive termination of employment (as defined by the Compensation Committee), the restricted common shares will vest, subject to any Internal Revenue Code Section 280G limitation imposed by the Compensation Committee.  

Each of Mr. Rose, Mr. Hayek, and Mr. Gilmore has been a key player in driving our efforts and financial results, as well as in strategic actions taken by us.  The Board (and, with respect to Mr. Hayek and Mr. Gilmore, the CEO) have identified Mr. Rose, Mr. Hayek and Mr. Gilmore as key executives who have key roles and responsibilities in leading us forward.  The Compensation Committee believes these special restricted common share awards have served, and continue to serve, as a strong retention mechanism that provides a unique incentive to these identified leaders to further enhance our success, and directly ties their compensation to our first corporate goal of increasing the value of our shareholders’ investment.

Clawback Policy

We do not have a specific compensation clawback policy.  If we are required to restate our earnings as a result of material non-compliance with a financial reporting requirement due to misconduct, under Section 304 of the Sarbanes-Oxley Act of 2002 (“SOX”), the CEO and our Chief Financial Officer (“CFO”) would be required to reimburse us for any bonus or other incentive-based or equity-based compensation received by them from us during the 12-month period following the first filing with the SEC of the financial document that embodied the financial reporting requirement required to be restated, and any profits realized from the sale of the common shares during that 12-month period, to the extent required by SOX.

On July 1, 2015, the SEC issued proposed rules relating to clawback policies and again solicited public comments on the proposed clawback rules in 2021 and 2022.  Once final SEC Rules have been adopted and the NYSE has, in turn, adopted new listing standards addressing the clawback policy requirements, we will adopt a clawback policy which satisfies the final SEC Rules and NYSE Rules.

Equity-Based Long-Term Incentive Compensation Accounting

The accounting treatment for equity-based long-term incentive compensation is governed by ASC 718.  Stock options are valued using the Black-Scholes pricing model based upon the grant date closing price per common share underlying the stock option award, the expected life of the stock option award, the risk-free interest rate, the dividend yield, and the expected volatility.  Further information concerning the valuation of stock options and the assumptions used in that valuation is contained in “Note A – Summary of Significant Accounting Policies – Stock-Based Compensation” and “Note L – Stock-Based Compensation” of the Notes to Consolidated Financial Statements in “Item 8. – Financial Statements and Supplementary Data” of the 2022 Form 10-K.

Long-term performance share awards payable in common shares are initially valued using the price per common share based on the target award, and compensation expense is recorded prospectively over the performance period on a straight-line basis.  This amount is then adjusted on a quarterly basis based upon an estimate of the performance level anticipated to be achieved for the performance period in light of actual and forecasted results.

Long-term cash performance awards are initially valued at the target level, and compensation expense is recorded prospectively over the performance period on a straight-line basis.  This amount is then adjusted on a quarterly basis based on an estimate of the performance level anticipated to be achieved for the performance period in light of actual and forecasted results.

Restricted common shares are valued at fair value as of the date of grant and the calculated compensation expense is recognized on a straight-line basis over their respective vesting periods.  For restricted common shares with only time-based vesting, fair value is generally equal to the closing price of the common shares at the respective grant date.  If the vesting is subject to other conditions, such as the special performance-based/time-vested restricted common share awards, the value is generally calculated under a Monte Carlo simulation model.  Further information concerning the valuation of restricted common shares and the assumptions used in that valuation is contained in “Note A – Summary of Significant Accounting Policies – Stock-Based Compensation” and “Note L – Stock-Based Compensation” of the Notes to Consolidated Financial Statements in “Item 8. – Financial Statements and Supplementary Data” of the 2022 Form 10-K.

Deferred Profit Sharing Plan

The NEOs participate in the Worthington Industries, Inc. Deferred Profit Sharing Plan (the “DPSP”), together with most of our other full-time, non-union employees.  The DPSP is a 401(k) plan and is our primary retirement plan.  Contributions made by us to participants’ accounts under the DPSP are generally based on 3% of eligible compensation which includes base salary, profit sharing, bonus and annual cash incentive bonus payments, overtime and commissions, up to the maximum limit set by the Internal Revenue Service (“IRS”) from year to year ($305,000 for calendar 2022).  In addition, the NEOs and other participants in the DPSP may elect to make voluntary contributions up to prescribed IRS limits.  These voluntary contributions are generally matched by our contribution of 50% of the first 4% of eligible compensation contributed by the participant.  Distributions under the DPSP are generally deferred until retirement, death or total and permanent disability.

Non-Qualified Deferred Compensation

The NEOs and other highly-compensated employees are eligible to participate in the Worthington Industries, Inc. Amended and Restated 2005 Non-Qualified Deferred Compensation Plan (as amended, the “2005 NQ Plan”).  The 2005 NQ Plan is a voluntary, non-tax-qualified, unfunded deferred compensation plan available only to select highly-compensated employees for the purpose of providing deferred compensation, and thus potential tax benefits, to these employees.

Under the 2005 NQ Plan, our executive officers may defer the payment of up to 50% of their base salary and up to 100% of their bonus and/or annual cash incentive bonus awards.  Amounts deferred are credited to the participants’ bookkeeping accounts under the 2005 NQ Plan at the time the base salary and/or bonus/annual cash incentive bonus awards would have otherwise been paid. In addition, we may make discretionary employer contributions to the participants’ bookkeeping accounts in the 2005 NQ Plan.  In recent years, we have made employer contributions in order to provide the same percentage of retirement-related deferred compensation to executive officers compared to other employees that would have been made but for the IRS limits on annual compensation that may be considered under the DPSP.  For the 2022, 2021 and 2020 calendar years, we made contributions to the 2005 NQ Plan for participants equal to (i) 3% of an executive’s annual compensation (base salary plus bonus/annual cash incentive bonus award) in excess of the IRS maximum; and (ii) a matching contribution of 50% of the first 4% of annual compensation contributed by the executive to the DPSP to the extent not matched by us under the DPSP.  Participants in the 2005 NQ Plan may elect to have their bookkeeping accounts treated as invested (a) with a rate of return reflecting: (i) the returns on those investment options available under the DPSP; or (ii) a fixed interest rate set annually by the Compensation Committee (0.85% for Fiscal 2022), or (b) in theoretical common shares reflecting increases or decreases in the fair market value of the common shares with dividends deemed reinvested.  Any portion of a participant’s bookkeeping account credited to theoretical common shares must remain credited to theoretical common shares until distributed.  Otherwise, participants in the 2005 NQ Plan may change the investment options for their bookkeeping accounts as of the time permitted under the DPSP for the same or a similar investment option.

Employees’ bookkeeping accounts in the 2005 NQ Plan are fully vested.  Payouts of amounts credited to theoretical common shares are made in whole common shares and cash in lieu of fractional shares.  Payouts of amounts credited to all other investment options are made in cash. Payments will be made as of a specified date selected by the participant or, subject to the timing requirements of Section 409A of the Internal Revenue Code, when the participant is no longer employed by us.  Payments are made either in a lump sum or in installments, all as chosen by the participant at the time the deferral is elected.  The Compensation Committee may permit hardship withdrawals from a participant’s account under defined guidelines.

Contributions or deferrals for the period before January 1, 2005, are maintained under the Worthington Industries, Inc. Non-Qualified Deferred Compensation Plan, effective March 1, 2000 (as amended, the “2000 NQ Plan”).  Contributions and deferrals for periods on or after January 1, 2005 are maintained under the 2005 NQ Plan, which was adopted to replace the 2000 NQ Plan in order to comply with the provisions of the then newly-adopted Section 409A of the Internal Revenue Code applicable to non-qualified deferred compensation plans.  Among other things, the provisions of Section 409A generally are more restrictive with respect to the timing of deferral elections and the ability of participants to change the time and manner in which accounts will be paid.  The 2005 NQ Plan and the 2000 NQ Plan are collectively referred to as the “Employee Deferral Plans”.

Perquisites

We make a Club membership available to NEOs and certain other executives because we believe that such memberships can be useful for business entertainment purposes.  

For security and safety reasons, the NEOs occasionally use our airplanes for personal travel, and due to COVID-19, such usage has increased during the last 30 months.  In such cases, the NEOs who use our airplanes for personal travel are charged an amount equal to the standard industry fare level, or SIFL rate, set forth in the regulations promulgated by the United States Department of the Treasury (“Treasury Regulations”), which is generally less than our incremental costs.

Other Company Benefits

We provide employees, including the NEOs, with a variety of other employee welfare benefits including medical benefits, disability benefits, life insurance, and accidental death and dismemberment insurance, which are generally provided to all full-time, non-union employees.

Change in Control

We have no formal employment contracts or other stand-alone change in control provisions relative to the NEOs or other top executives.  We have change in control provisions in our compensation plans, as described below.

Our stock option plans generally provide that, unless the Board or the Compensation Committee provides otherwise, upon a change in control of the Company followed by an actual or constructive termination of employment, all stock options then outstanding will become fully vested and exercisable.  In addition, the Compensation Committee may allow the optionee to elect, during the 60-day period from and after the change in control, to surrender the stock options or a portion thereof in exchange for a cash payment equal to the excess of the change in control price per share over the exercise price per share.

For purposes of our stock option plans (the 1997 LTIP and the 2010 Stock Option Plan), a change in control will be deemed to have occurred when any person, alone or together with such person’s affiliates or associates, has acquired or obtained the right to acquire the beneficial ownership of 25% or more of our outstanding common shares, unless such person is: (a) the Company; (b) any of our employee benefit plans or a trustee of or fiduciary with respect to any such plan when acting in that capacity; or (c) any person who, on the date the applicable plan became effective, was an affiliate of ours owning in excess of 10% of our outstanding common shares and the respective successors, executors, legal representatives, heirs and legal assigns of such person (an “Acquiring Person Event”).  

If a change in control followed by an actual or constructive termination of employment had occurred as of May 31, 2022, the value of the unvested stock options which would have vested upon the change in control (based upon (a) the difference, if any, between (i) the closing market price of the common shares on May 31, 2022 (the last business day of Fiscal 2022) ($46.64) and (ii) the per share exercise price of each such stock option, multiplied by (b) the number of common shares subject to the unvested portion of each such stock option), for each of the NEOs would have totaled:

Long-term cash performance awards and long-term performance share awards generally provide that, unless the Board or the Compensation Committee provides otherwise, upon a change in control of the Company followed by an actual or constructive termination of employment, all such awards would be considered earned and payable in full at the maximum amounts and would be immediately settled or distributed.  For purposes of the 1997 LTIP (under which the long-term cash performance awards and long-term performance share awards have been granted), a change in control will be deemed to have occurred when there is an Acquiring Person Event as defined above.

If a change in control followed by an actual or constructive termination of employment had occurred as of May 31, 2022, the aggregate value of the long-term cash performance awards and the number of common shares underlying long-term performance share awards, which would have been distributed to each of the NEOs would have totaled:

Each of the NEOs received time-vested restricted common share awards granted effective June 25, 2021, June 25, 2020, and June 27, 2019. In addition, Ms. Lyttle received an additional time-vested restricted common share award on June 25, 2021; Mr. Hayek received two additional time-vested restricted common share awards on September 25, 2019; and Mr. Gilmore received an additional time-vested restricted common share award on September 26, 2018. All of these restricted common share awards provide that upon a change in control followed by an actual or constructive termination of employment, the restricted common shares will vest and the restrictions will lapse.  If a change in control followed by an actual or constructive termination of employment had occurred as of May 31, 2022, the number of time-vested restricted common shares (and accrued dividends on those common shares) that would have vested and been distributable to each of the NEOs as of such date are set forth below. The closing price of the common shares on May 31, 2022, the last business day of Fiscal 2022, was $46.64.

The special performance-based/time-vested restricted common share awards granted to Mr. Rose on September 26, 2018, to Mr. Hayek on September 25, 2019 and to Mr. Gilmore on June 25, 2020 and September 26, 2018 also provide that upon a change in control followed by an actual or constructive termination of employment, the restricted common shares will vest and the restrictions will lapse.  If a change in control followed by an actual or constructive termination of employment had occurred as of May 31, 2022, the number of performance-based/time-vested restricted common shares, and accrued dividends on those common shares, that would have vested and been distributable as of such date are set forth below. The closing price of the common shares on May 31, 2022, the last business day of Fiscal 2022, was $46.64.

Annual cash incentive bonus awards provide that if during a performance period, (a) a change in control of the Company (as defined in the plan) occurs and (b) the participant’s employment with us actually or constructively terminates on or after the change in control, the participant’s award would be considered earned and payable as of the date of the participant’s actual or constructive termination of employment in the amount designated as target for such award and would be settled or distributed following the date of the participant’s actual or constructive termination of employment.  The target amounts for annual cash incentive bonus awards granted to the NEOs for the 12-month performance period ended May 31, 2022, are shown in the “Grants of Plan-Based Awards for Fiscal 2022” table in this Proxy Statement.

Under the Employee Deferral Plans, participants’ bookkeeping accounts will generally be paid out as of the date of the change in control.  See the “Non-Qualified Deferred Compensation for Fiscal 2022” table in this Proxy Statement for further information.

The Compensation Committee believes that these change in control provisions are appropriate, particularly because we have no formal employment contracts or other formal stand-alone change in control provisions relative to the NEOs or other executives.

Tax Deductibility

Section 162(m) of the Internal Revenue Code generally limits the deduction that we may take for certain remuneration paid in excess of $1,000,000 to any “covered employee” in any one taxable year.  Section 162(m) of the Internal Revenue Code applies to the CEO, the CFO and each of our three most highly compensated officers (not including the CEO and the CFO) and any person who has been the CEO, the CFO, or one of the other three most highly compensated officers in any year beginning after December 31, 2016.

The Compensation Committee intends to continue to examine the best method to pay incentive compensation to executive officers, which will include consideration of any changes to Section 162(m) of the Internal Revenue Code. In all cases, whether or not some portion of a covered employee’s compensation is tax deductible, the Compensation Committee will continue to carefully consider the net cost and value of our compensation policies to us.