DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

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  Definitive Proxy Statement
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  Soliciting Material Pursuant to §240.14a-12
Fortune Brands Home & Security, Inc.
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LOGO

              520 Lake Cook Road, Deerfield, Illinois 60015

NOTICE OF ANNUAL MEETING

AND PROXY STATEMENT

March 19, 2020

Dear Fellow Stockholders:

We are pleased to invite you to the 2020 Annual Meeting of Stockholders (“Annual Meeting”) of Fortune Brands Home & Security, Inc. on Tuesday, April 28, 2020 at 8:00 a.m. (CDT) at the Renaissance Chicago North Shore Hotel, 933 Skokie Boulevard, Northbrook, Illinois. The following matters will be considered at the Annual Meeting:

 

Proposal 1:    Election of the three director nominees identified in this Proxy Statement for a three year term expiring at the 2023 Annual Meeting of Stockholders (see pages 4-7);
Proposal 2:    Ratification of the appointment by the Company’s Audit Committee of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2020 (see page 42);
Proposal 3:    Advisory vote to approve the compensation paid to the Company’s named executive officers (see page 43); and

such other business as may properly come before the Annual Meeting.

Stockholders of record at the close of business on March 2, 2020, the record date for the Annual Meeting, are entitled to vote. Stockholders who wish to attend the Annual Meeting in person should review the entrance requirements on pages 46-47.

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE. See pages 46-49 for voting instructions.

This Notice of Annual Meeting and Proxy Statement and accompanying proxy are first being distributed on or about March 19, 2020.

 

LOGO

Robert K. Biggart
Senior Vice President, General Counsel and Secretary

Important Notice Regarding the Availability of Proxy Materials

for the 2020 Annual Meeting of Stockholders to be Held on Tuesday, April 28, 2020.

This Notice of Annual Meeting and Proxy Statement and the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“Form 10-K”) are available at www.proxyvote.com.


Table of Contents

TABLE OF CONTENTS

 

PROXY SUMMARY

     1  

PROPOSAL 1 – ELECTION OF DIRECTORS

     4  

CORPORATE GOVERNANCE

     8  

Corporate Governance Principles

     8  

Director Independence

     8  

Policies with Respect to Transactions with Related Persons

     8  

Certain Relationships and Related Transactions

     9  

Anti-Hedging and Anti-Pledging

     9  

Director Nomination Process

     9  

Communication with the Board

     10  

Board Leadership Structure

     10  

Executive Sessions

     10  

Meeting Attendance

     10  

Risk Management

     11  

Compensation Risks

     11  

Board Committees

     12  

Audit Committee

     12  

Compensation Committee

     13  

Compensation Committee Interlocks and Insider Participation

     13  

Compensation Committee Procedures

     13  

Compensation Committee Consultant

     13  

Executive Committee

     14  

Nominating, Environmental, Social and Governance Committee

     14  

Other Corporate Governance Resources

     14  

DIRECTOR COMPENSATION

     15  

Cash Fees

     15  

Stock Awards

     15  

Director Stock Ownership Guidelines

     15  

2019 Director Compensation

     16  

COMPENSATION DISCUSSION AND ANALYSIS

     17  

Executive Summary

     17  

2019 Business & Financial Highlights

     17  

2019 Compensation Highlights

     18  

Results of the 2019 Say-on-Pay Vote

     20  

Philosophy and Process for Awarding NEO Compensation

     21  

Types and Amounts of NEO Compensation Awarded in 2019

     23  

Compensation Committee Report

     29  

2019 EXECUTIVE COMPENSATION

     30  

2019 Summary Compensation Table

     30  

2019 Grants of Plan-Based Awards

     31  

Outstanding Equity Awards at 2019 Fiscal Year-End

     32  

2019 Option Exercises and Stock Vested

     33  

Retirement and Post-Retirement Benefits

     34  

2019 Nonqualified Deferred Compensation

     35  

2019 Potential Payments Upon Termination or Change in Control

     36  

CEO PAY RATIO

     38  

EQUITY COMPENSATION PLAN INFORMATION

     39  

AUDIT COMMITTEE MATTERS

     40  

Report of the Audit Committee

     40  

Fees of Independent Registered Public Accounting Firm

     41  

Approval of Audit and Non-Audit Services

     41  

PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     42  

PROPOSAL 3 – ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

     43  

CERTAIN INFORMATION REGARDING SECURITY HOLDINGS

     44  

Delinquent Section 16(a) Reports

     45  

FREQUENTLY ASKED QUESTIONS

     46  

APPENDIX A – RECONCILIATIONS

     A-1  


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PROXY SUMMARY

 

 

 

Annual Meeting Information

 

LOGO

   Time and Date   LOGO    Location    LOGO    Record Date
  

Tuesday, April 28, 2020

at 8:00 a.m. (CDT)

    

Renaissance Chicago North Shore Hotel

933 Skokie Boulevard, Northbrook, Illinois

   March 2, 2020

These materials are provided in connection with the solicitation by the Board of Directors (the “Board”) of Fortune Brands Home & Security, Inc. (“Fortune Brands” or the “Company”) of proxies to be voted at our Annual Meeting or any adjournment or postponement of the Annual Meeting.

Agenda and Voting Recommendations

This summary highlights selected information in this Proxy Statement, as well as select business information, and does not contain all of the information that you should consider in deciding how to vote. Please read the complete Proxy Statement carefully before voting. The following table summarizes the items that will be voted on at our Annual Meeting of Stockholders, along with the Board’s voting recommendations.

 

Proposal    
Number    

 

  Description of Proposal  

Board    

Recommendation    

 

 

Page    
Number    

 

     

1    

 

Election of three Class III Directors

Nicholas I. Fink, A. D. David Mackay and David M. Thomas

 

 

FOR    

each Nominee

  4-7    
     

2    

 

Ratify the appointment of the independent auditor Pricewaterhouse Coopers

 

  FOR       42    
     

3    

 

 

Advisory vote to approve named executive officer compensation

 

 

FOR    

 

 

43    

 

See pages 46-49 for instructions on how to vote your shares.

2019 BUSINESS HIGHLIGHTS

 

                

  INCREASED NET SALES by 5% to $5.8 billion  

    

  RETURNED CASH TO SHAREHOLDERS $223 million through dividends and our share repurchase program
  GREW EARNINGS PER SHARE by 15% from $2.66 to $3.06 and by 8% from $3.34 to $3.60 on a before charges/gains basis.     RESTRUCTURED DEBT by issuing $700 million of bonds while maintaining our investment grade rating and extending our $1.25 billion credit facility.

 

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PROXY SUMMARY (CONTINUED)

 

 

 

CORPORATE GOVERNANCE HIGHLIGHTS

Our Board is committed to maintaining a strong corporate governance program designed to promote the long-term interests of our shareholders and strengthen Board and management accountability. As a company, we’re committed to core values that include integrity and accountability. These practices are reflected in our corporate governance policies, which are described in more detail on pages 8-14 of the Proxy Statement and highlighted below:

 

   
Independent Board, except our CEO and our Executive Chairman   

Lead Independent Director

 

   
Majority vote in uncontested director elections, with a resignation policy   

Annual Board and Committee evaluations, run by the Lead Director

 

   
Regular executive sessions of non-management directors   

Succession planning at all levels, including Board, CEO and executive team

 

   
22% of Directors are female   

78% of Directors have prior chief executive officer experience

 

   
Active engagement and oversight by Board of Company strategies and risks   

Board oversight of ESG programs and annual publication of ESG report

 

   
Robust stock ownership guidelines for Directors and executives   

Prohibition on hedging or pledging of Company stock

 

SUCCESSFUL LEADERSHIP TRANSITION In January 2020, Nicholas Fink became our new Chief Executive Officer (“CEO”) following Christopher Klein’s retirement after 8 years as the Company’s CEO. Mr. Klein continues to serve as Executive Chairman of the Board of Directors and Mr. David Thomas, former Chairman, now serves as the Board’s Lead Independent Director.

Mr. Fink’s appointment is the result of our Board’s active engagement in a thoughtful and comprehensive multi-year succession planning process led by our former Chairman (Mr. Thomas) and the Chair of our Compensation Committee (Ms. Hackett), who worked with Mr. Klein to identify and develop talented internal candidates. Our Board determined that Mr. Fink’s leadership with industry-leading consumer brands and his proven track record of driving continued growth and performance improvement in our businesses, as well as his deep understanding of our markets, uniquely positioned him to lead our businesses in our Company’s next phase of growth.

BOARD REFRESHMENT Our Board welcomed Irial Finan as a Class II director in February 2019 in anticipation of Norman Wesley’s retirement from the Board following our Annual Shareholder Meeting in May 2019. Mr. Finan’s international consumer products experience with The Coca-Cola Company and its worldwide bottling operations brings valuable perspective to our Board. Mr. Finan serves on our Compensation Committee and our Nominating Committee.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) Management continues to focus on operating our businesses responsibly. For information about our 2019 ESG efforts, see our annual ESG report at www.fbhs.com/global-citizenship/esg. Although the Board’s Nominating & Corporate Governance Committee has been responsible for the oversight of ESG related matters, in February 2020 the Nominating & Corporate Governance Committee refreshed its charter to clarify the committee’s oversight role in the Company’s ESG initiatives and changed its name to the Nominating, Environmental, Social and Governance Committee (the “Nominating Committee”).

 

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PROXY SUMMARY (CONTINUED)

 

 

 

COMPENSATION HIGHLIGHTS

COMPENSATION PRACTICES The Compensation Discussion & Analysis (CD&A) section beginning on page 17 includes additional detail on the following compensation highlights:

 

   
Long-term focus and stockholder alignment through equity compensation   

No problematic pay practices and historically strong stockholder support for say-on-pay (93% at our 2019 Annual Meeting)

 

   
Robust stock ownership guidelines   

Prohibition on hedging or pledging of Company stock

 

   
Executive compensation subject to a clawback policy   

No single trigger change in control severance arrangements

 

   
Limited perquisites   

No excise tax gross ups

 

PAY FOR PERFORMANCE Our executive compensation program is designed to reward NEOs for the achievement of both short-term and long-term strategic and operational goals that lead to the creation of long-term stockholder value. The vast majority of each NEO’s annual target compensation is at-risk because the compensation that is actually paid is dependent upon Company (or business segment) performance and/or the Company’s stock price. In 2019:

 

   

86.8% of the CEO’s total target compensation was pay-at-risk;

   

77.6% of the other NEOs (on average) total target compensation was pay-at-risk;

   

50% of annual equity awards granted to NEOs in 2019 were performance share awards based on three-year performance targets.

 

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PROPOSAL 1 – ELECTION OF DIRECTORS

 

 

 

Summary of Qualification of Directors

The Board believes that all directors must possess a considerable amount of education and business management experience. The Board also believes that it is necessary for each of the Company’s directors to possess certain general qualities, while there are other skills and experiences that should be represented on the Board as a whole, but not necessarily by each individual director.

General qualities for all directors:

 

   

Extensive executive leadership experience

   

Excellent business judgment

   

High level of integrity and ethics

   

Original thinking

   

Strong commitment to the Company’s goal of maximizing stockholder value

Specific experiences, qualifications, and backgrounds to be represented on the Board as a whole:

 

   

Consumer products expertise

   

Financial and/or accounting expertise

   

Knowledge of international markets

   

Chief executive officer/chief operating officer/chief financial officer experience

   

Extensive board experience

   

Diversity of skill, background and viewpoint

The process used by the Nominating Committee in recommending qualified director candidates is described below under Corporate Governance – Director Nomination Process (see page 9 of this Proxy Statement).

Election of Class III Directors

The Board consists of nine members and is divided into three classes, each having three year terms that expire in successive years. The term of Messrs. Nicholas I. Fink, A. D. David Mackay and David M. Thomas, each currently serving as Class III directors expires at the 2020 Annual Meeting of Stockholders. Mr. Fink was appointed by the Board to serve as a Class III Director in January 2020. The Board has nominated Messrs. Fink, Mackay and Thomas for a new term of three years expiring at the 2023 Annual Meeting of Stockholders and until their successors are duly elected and qualified. Shares cannot be voted for more than the number of nominees proposed for re-election.

Each of the nominees has consented to be named as a nominee and to serve as a director, if elected. If any of them should become unavailable to serve as a director (which is not now expected), the Board may designate a substitute nominee. In that case, the persons named in the enclosed proxy card will vote for the substitute nominee designated by the Board.

The names of the nominees and the current Class I and Class II directors, along with their present positions, their principal occupations and employment during the last five years, any directorships held with other public companies during the past five years, their ages and the year first elected as a director of the Company, are set forth below. Each director’s individual qualifications and experiences that contribute to the Board’s effectiveness as a whole are also described in the following paragraphs.

 

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PROPOSAL 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

 

Name

  

Present positions and offices

with the Company, principal

occupations and other directorships

during the past five years

       Age          Year
first
elected
        director        
 

 

2020 NOMINEES FOR ELECTION – CLASS III DIRECTORS

 

LOGO

 

Nicholas I. Fink

   Chief Executive Officer of Fortune Brands Home & Security, Inc. since January 2020; President & Chief Operating Officer of Fortune Brands from March 2019 to January 2020; President of Fortune Brands Global Plumbing Group from July 2016 to March 2019 and Senior Vice President, Global Growth & Corporate Development of Fortune Brands from June 2015 to July 2016. Senior Vice President and President of Asia-Pacific/South America of Beam Suntory, Inc., a global spirits company, prior thereto.      45        2020    
Mr. Fink’s leadership as Chief Executive Officer of the Company and his significant international and consumer brand and business operating experience, as well as his mergers and acquisitions and strategy expertise provide him with intimate knowledge of our operations, the opportunities for growth and the challenges faced by the Company. Prior to joining the Company, Mr. Fink held key leadership positions at Beam Suntory, Inc., including President of Beam’s Asia-Pacific/South America business unit.

 

 

LOGO

 

A.D. David Mackay

   Retired since January 2011; President and Chief Executive Officer of Kellogg Company, a packaged foods manufacturer, prior thereto. Currently also a director of The Clorox Company. Formerly a director of Keurig Green Mountain, Inc. McGrath Limited and Woolworths Limited.      64        2011    
Mr. Mackay held various key executive positions with Kellogg Company including Chief Executive Officer and Chief Operating Officer, bringing to our Board the perspective of a leader who faced a similar set of external economic, social and governance issues to those that face our Company. Mr. Mackay also has significant international business experience, as well as extensive board experience.

 

 

LOGO

 

David M. Thomas

   Retired since March 2006; Chairman of the Board and Chief Executive Officer of IMS Health Incorporated, a provider of information services to the pharmaceutical and healthcare industries, prior thereto. Currently also a director of The Interpublic Group of Companies, Inc. and a member of the Fidelity Investments Board of Trustees.      70        2011    
Mr. Thomas’ experience as a Chief Executive Officer of IMS Health Incorporated and his management experience at premier global technology companies, including as Senior Vice President and Group Executive of IBM, helps the Board address the challenges the Company faces due to rapid changes in IT capabilities and communications and global distribution strategies. Mr. Thomas also has extensive board experience, including serving as the Company’s Chairman from 2011 through 2019 and as our Lead Independent Director since January 2020.

 

The Board of Directors recommends that you vote FOR the election of each nominee named above.

 

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PROPOSAL 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

 

Name

  

Present positions and offices

with the Company, principal

occupations and other directorships

during the past five years

       Age          Year
first
elected
        director        
 

 

CLASS I DIRECTORS – TERM EXPIRING 2021

 

LOGO

 

Ann F. Hackett

   Retired since January 2020. Strategy Consulting Partner and Co-founder of Personal Pathways, LLC, a company providing web-based enterprise collaboration platforms, from 2015 through January 2020. Prior to her role at Personal Pathways, she was President of Horizon Consulting Group, LLC, a strategic and human resource consulting firm founded by Ms. Hackett in 1996. Currently also a director of Capital One Financial Corporation.      66        2011    
Ms. Hackett has extensive experience in leading companies that provide strategic, organizational and human resource consulting services to boards of directors and senior management teams. She has experience leading change initiatives, risk management, talent management and succession planning and in creating performance based compensation programs, as well as significant international experience and technology experience. Ms. Hackett also has extensive board experience and currently serves as the lead independent director of Capital One Financial Corporation.

 

LOGO

 

John G. Morikis

   Chairman since January 2017 and Chief Executive Officer since January 2016 of The Sherwin-Williams Company, a manufacturer of paint and coatings products. President and Chief Operating Officer from October 2006 to January 2016. Currently a director of The Sherwin-Williams Company.      56        2011    
Mr. Morikis’ experience as a Chief Executive Officer and a Chief Operating Officer of The Sherwin-Williams Company, and his more than 30 years of experience with a consumer home products company, brings to our Board the perspective of a leader who faces similar external economic issues that face our Company.

 

LOGO

 

Ronald V. Waters, III

   Retired since May 2010; President and Chief Executive Officer of LoJack Corporation, a provider of tracking and recovery systems, from January 2009 to May 2010. Currently also a director of HNI Corporation and Paylocity Holding Corporation.      68        2011    
Mr. Waters has considerable executive leadership and financial management experience. He served as Chief Executive Officer and Chief Operating Officer at LoJack Corporation, a premier technology company, and as Chief Operating Officer and Chief Financial Officer at Wm. Wrigley Jr. Company, a leading confectionary manufacturing company. Mr. Waters also has extensive board experience.

 

 

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PROPOSAL 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

 

Name

  

Present positions and offices

with the Company, principal

occupations and other directorships

during the past five years

       Age          Year
first
elected
        director        
 

 

CLASS II DIRECTORS – TERM EXPIRING 2022

 

LOGO

 

Irial Finan

   Retired since March 2018; Executive Vice President of The Coca-Cola Company and President of Coca-Cola Bottling Investments Group from August 2004 to December 2017. Currently also a director of Coca-Cola European Partners plc, Coca-Cola Bottlers Japan Holdings, Inc. and Smurfit Kappa Group plc. Formerly a director of Coca-Cola HBC AG, Coca-Cola FEMSA and G2G Trading.      62        2019    
Mr. Finan’s experience as an Executive Vice President of The Coca-Cola Company and President of its worldwide bottling operations, as well of his years of international consumer products experience, brings to our Board the perspective of a leader with extensive international experience in the consumer products industry. Mr. Finan has extensive board experience.

 

LOGO

 

Susan S. Kilsby

   Retired since May 2014; Senior Advisor at Credit Suisse AG, an investment banking firm, from 2009 to May 2014; Managing Director of European Mergers and Acquisitions of Credit Suisse prior thereto. Currently also a director of BHP Group plc, BHP Limited, Diageo plc, Unilever plc and Unilever N.V. Formerly a director of Shire plc, Goldman Sachs International, Keurig Green Mountain, Inc., Coca-Cola HBC AG and BBA Aviation plc.      61        2015    
Ms. Kilsby had a distinguished global career in investment banking and brings extensive mergers and acquisitions and international business experience to the Board. In addition to her experience at Credit Suisse, she held a variety of senior positions with The First Boston Corporation, Bankers Trust and Barclays de Zoete Wedd. Ms. Kilsby also has extensive board experience.

 

LOGO

 

Christopher J. Klein

   Executive Chairman of the Board of the Company since January 2020; Chief Executive Officer of the Company from January 2010 to January 2020. Currently also a director of Thor Industries, Inc.      56        2010    
Mr. Klein’s decade long leadership as Chief Executive Officer of the Company and his significant corporate strategy, business development and operational experience provide him with unique experience to lead the Board of Directors as Chairman while assisting the Company’s management team through a CEO transition. Mr. Klein led the Company through the spin-off from Fortune Brands, Inc. in 2011. Prior to the Company’s spin-off, he held several leadership positions at Fortune Brands, Inc., helping to reshape the business through acquisitions and divestitures. Prior to joining Fortune Brands, Mr. Klein held key strategy and operating positions at Bank One Corporation and also served as a partner at McKinsey & Company, a global management consulting firm.

 

 

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CORPORATE GOVERNANCE

 

 

 

Fortune Brands is committed to maintaining strong corporate governance practices that are good for our stockholders and our business. We are dedicated to maintaining these practices and upholding high standards of conduct.

Corporate Governance Principles

The Board adopted a set of Corporate Governance Principles which describe our corporate governance practices and address corporate governance issues such as Board composition and responsibilities, Board meeting procedures, the establishment of Board committees, management succession planning process and review of risks. The Corporate Governance Principles are available at https://ir.fbhs.com/governing-high-standards.

Director Independence

The Company’s Corporate Governance Principles provide that a majority of the members of the Board shall be independent directors. New York Stock Exchange requirements, as well as the Company’s committee charters, require that each member of the Audit, Compensation and Nominating Committees be independent. The Board applies the definition of independence found in the New York Stock Exchange Listed Company Manual in determining which directors are independent. When determining each director’s independence, the Board also considered charitable contributions made by the Company to organizations with which each director is affiliated.

Applying that definition, Messrs. Finan, Mackay, Morikis, Thomas, Waters and Mses. Hackett and Kilsby were affirmatively determined by the Board to be independent. Due to Messrs. Fink’s and Klein’s employment with the Company, they are not considered independent. In addition, Norman Wesley, who also served on the Board for a period of time during 2019, was determined to be independent.

None of the non-employee directors has any material relationship with the Company other than being a director and stockholder. Also, none of the non-employee directors have participated in any transaction or arrangement that interferes with such director’s independence.

Policies with Respect to Transactions with Related Persons

The Board adopted a Code of Business Conduct and Ethics which sets forth various policies and procedures intended to promote the ethical behavior of all of the Company’s employees, officers and directors (the “Code of Conduct”). The Board has established a Compliance Committee (comprised of management) which is responsible for administering and monitoring compliance with the Code of Conduct. The Compliance Committee periodically reports on the Company’s compliance efforts to the Audit Committee and the Board.

The Board has also established a Conflicts of Interest Committee (comprised of management) which is responsible for administering, interpreting and applying the Company’s Conflicts of Interest Policy, which describes the types of relationships that may constitute a conflict of interest with the Company. Under the Conflicts of Interest Policy, directors and executive officers are responsible for reporting any potential related person transaction (as defined in Item 404 of Regulation S-K) to the Conflicts of Interest Committee in advance of commencing a potential transaction. The Conflicts of Interest Committee will present to the Audit Committee any potential related party transaction. The Audit Committee will evaluate the transaction, determine whether the interest of the related person is material and approve or ratify, as the case may be, the transaction. In addition, the Company’s executive officers and directors annually complete a questionnaire on which they are required to disclose any related person transactions and potential conflicts of interest. The General Counsel reviews the responses to the questionnaires and, if a related person transaction is reported by a director or executive officer, submits the transaction for review by the Audit Committee. The Conflicts of Interest Committee also reviews potential conflicts of interest and reports findings involving any director of the Company to the Nominating Committee. The Nominating Committee will review any potential conflict of interest involving a member of the Board to determine whether such potential conflict would affect that director’s independence.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

 

Certain Relationships and Related Transactions

Since January 1, 2019, the Company did not participate in any transactions in which any of its directors, executive officers, any immediate family member of a director or executive officer or any beneficial owner of more than 5% of the Company’s common stock had a direct or indirect material interest.

Anti-Hedging and Anti-Pledging

The Company has a policy prohibiting directors, NEOs and other executives from hedging or pledging Company stock, including Company stock held indirectly, and from engaging in any derivative transactions designed to offset the decrease or increase in the market value of the Company’s stock.

Director Nomination Process

The Nominating Committee is responsible for, among other things, screening potential director candidates, recommending qualified candidates to the Board for nomination and assessing director independence.

When identifying director candidates, the Nominating Committee determines whether there are any evolving needs that require an expert in a particular field or other specific skills or experiences. When evaluating director candidates, the Nominating Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics and commitment to the goal of maximizing stockholder value. The Nominating Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. In considering candidates for the Board, the Nominating Committee considers the entirety of each candidate’s credentials in the context of these standards.

Mr. Fink was identified as successor to Mr. Klein through the Board’s CEO succession planning process. In September 2019, Mr. Klein announced his decision to retire as CEO. At that time, the Board appointed Mr. Klein as Executive Chairman of the Board and Nicholas Fink as the new Chief Executive Officer, as well as a Class III member of the Board of Directors, all effective in January 2020.

With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are considered. For the purpose of this Annual Meeting, the Nominating Committee recommended the nomination of Messrs. Fink, Mackay and Thomas as Class III directors.

In connection with future director elections, or at any time there is a vacancy on the Board, the Nominating Committee may retain a third-party search firm to assist in locating qualified candidates that meet the needs of the Board at that time.

It is the Nominating Committee’s policy to consider director candidates recommended by stockholders, if such recommendations are properly submitted to the Company. Stockholders that wish to recommend an individual as a director candidate for consideration by the Nominating Committee can do so by writing to the Secretary of Fortune Brands at 520 Lake Cook Road, Deerfield, Illinois 60015. Recommendations must include the proposed nominee’s name, biographical data and qualifications, as well as other information that would be required if the stockholder were actually nominating the recommended candidate pursuant to the procedures for such nominations provided in our Bylaws. The Nominating Committee will consider the candidate and the candidate’s qualifications in the same manner in which it evaluates nominees identified by the Nominating Committee. The Nominating Committee may contact the stockholder making the nomination to discuss the qualifications of the candidate and the stockholder’s reasons for making the nomination. Members of the Nominating Committee may then interview the candidate if the committee deems the candidate to be appropriate. The Nominating Committee may use the services of a third-party search firm to provide additional information about the candidate prior to making a recommendation to the Board.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

 

The nomination process is designed to ensure that the Nominating Committee fulfills its responsibility to recommend candidates that are properly qualified to serve the Company for the benefit of all of its stockholders, consistent with the standards established under the Company’s Corporate Governance Principles.

Communication with the Board

The Board and management encourage communication from the Company’s stockholders. Stockholders who wish to communicate with the Company’s management should direct their communication to the Chief Executive Officer or the Secretary of Fortune Brands at 520 Lake Cook Road, Deerfield, Illinois 60015. Stockholders, or other interested parties, who wish to communicate with the non-management directors or any individual director should direct their communication c/o the Secretary at the address above. The Secretary will forward communications intended for the Board to the Chairman of the Board, or, if intended for an individual director, to that director. If multiple communications are received on a similar topic, the Secretary may, in his or her discretion, forward only representative correspondence. Any communications that are abusive, in bad taste or present safety or security concerns may be handled differently.

Board Leadership Structure

Since the Company became an independent stand-alone company in 2011, the position of the Chairman and the Chief Executive Officer have been separate. To support an effective succession and transition of the Chief Executive Officer role to Mr. Fink, which took effect on January 6, 2020, the Board determined that the appropriate Board leadership structure is for Mr. Klein, formerly Chief Executive Officer, to serve as Executive Chairman. We believe that this structure is appropriate for the Company because it allows Mr. Klein, with his unique experience as the former Chief Executive Officer, to lead the Board and to support Mr. Fink during this time of transition.

In connection with Mr. Klein’s transition to Executive Chairman, the Board also appointed Mr. Thomas as Lead Independent Director. As Lead Independent Director, Mr. Thomas serves as a liaison between senior management and the Company’s independent directors and presides at executive sessions of the Board. The role of the Lead Independent Director was created to provide effective oversight and reinforce the Board’s independence. We believe that the leadership structure currently utilized by the Board provides effective independent Board leadership and oversight.

The Board does not believe that a single leadership structure is right at all times, so the Board periodically reviews its leadership structure to determine, based on the circumstances at the time, whether other leadership structures might be appropriate for the Company. The Board has been and remains committed to maintaining strong corporate governance and appropriate independent oversight of management.

Executive Sessions

Pursuant to the Company’s Corporate Governance Principles, non-management directors of the Board are required to meet on a regularly scheduled basis without the presence of management. Prior to 2020, the non-executive Chairman of the Board led these sessions. Starting in 2020, the Lead Director leads these sessions. In addition, Board Committees also meet regularly in executive session without the presence of management.

Meeting Attendance

The Board of Directors met five times in 2019. Each director attended more than 75% of the total meetings of the Board and committees of the Board of which the director was a member during 2019 with one exception. Due to unexpected personal family circumstances, Mr. Finan was unable to attend our July Board and Committee meetings, resulting in his attendance dropping slightly below 75%. Pursuant to the Company’s Corporate Governance Principles, all directors are encouraged to attend the Annual Meeting of Shareholders. All of the directors attended the Company’s 2019 Annual Meeting of Stockholders.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

 

Risk Management

The responsibility for the day-to-day management of risks lies with the Company’s management team; however, the Board has an active role, as a whole and also at the committee level, in overseeing the strategy and process for managing the Company’s risks. The Board regularly reviews information regarding the Company’s business strategy, leadership development, resource allocation, succession planning, credit, liquidity and operations, as well as the risks associated with each. The Company’s overall risk management program consists of periodic management discussions analyzing and mitigating risks, an annual review of risks associated with each of the Company’s operating businesses and an annual review of risks related to the Company’s compensation programs and practices.

Annually, management identifies both external risks (i.e., economic) and internal risks (i.e., strategic, operational, financial and compliance), assesses the impact of these risks and determines how to mitigate such risks. The Audit Committee manages the Company’s risk management program and reviews the results of the annual assessment. Management also provides the Audit Committee with quarterly updates on the Company’s risks, which includes an update on cybersecurity related risks. In addition, the Audit Committee oversees management of the Company’s financial risks.

The Compensation Committee is responsible for overseeing the management of risks relating to the compensation paid to the Company’s executives and the Company’s compensation plans. Annually, the Compensation Committee’s independent compensation consultant conducts an assessment of the risks associated with the Company’s executive compensation policies and practices. The compensation consultant conducts a more extensive review of all of the Company’s broad-based compensation incentive arrangements every few years. In 2019, the compensation consultant conducted the broader review of all compensation arrangements. For more information about that assessment see “Compensation Risks” below.

The Nominating Committee manages risks associated with the independence of the Board, potential conflicts of interest of Board members, and the Company’s corporate governance structure, as well as management of risks associated with the environment, health and safety, diversity, philanthropy, global citizenship and other social and governance programs and policies.

While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about all of the risks described above. The Board’s assignment of responsibility for the oversight of specific risks to its committees enables the entire Board, under the leadership of the Executive Chairman and the Chief Executive Officer, to better monitor the risks of the Company and more effectively develop strategic direction, taking into account the magnitude of the various risks facing the Company.

Compensation Risks

The Compensation Committee’s compensation consultant conducts an annual assessment of the risks associated with the compensation policies and practices used to compensate the Company’s executives and reports on the assessment to the Compensation Committee. In 2019 the Company’s compensation consultant analyzed the elements of executive compensation to determine whether any portion of executive compensation encouraged excessive risk taking and whether incentive designs include appropriate risk-mitigation provisions. After reviewing the compensation consultant’s analysis, the Compensation Committee concluded that none of the Company’s executive compensation arrangements encourage excessive risk taking and are consistent with the structure and design of other companies of similar size and industry sector. The Company utilizes the following risk-mitigating design features:

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

 

   

The Company uses multiple and diverse performance metrics in incentive plans;

 

   

The upside on payout potential is capped for both short-term and long-term incentives;

 

   

The Company utilizes multiple long-term incentive vehicles, with performance share awards (“PSAs”) that have overlapping three-year performance cycles;

 

   

The majority of an individual’s total compensation mix is not derived from a single component of compensation; and

 

   

The Company maintains stock ownership guidelines, a policy prohibiting hedging or pledging of Company stock and a formal clawback policy.

As described in our Compensation Discussion and Analysis, compensation decisions are made using a combination of objective and subjective considerations designed to mitigate excessive risk taking by executives.

Board Committees

The Board established an Audit Committee, a Compensation Committee, an Executive Committee and a Nominating, Environmental, Social and Governance Committee. A list of current Committee memberships may be found on the Company’s website at https://ir.fbhs.com/committees-and-charters. The Committee memberships as of the date of this Proxy Statement are set forth below:

 

   Name          Audit          Compensation Executive Nominating,
Environmental, Social  
and Governance

 

   Irial Finan

 

X

 

X

 

   Nicholas I. Fink

 

X

 

   Ann F. Hackett

 

C

 

X

 

X

 

   Susan S. Kilsby

 

X

 

X

 

   Christopher J. Klein

 

X

 

   A. D. David Mackay

 

X

 

X

 

   John G. Morikis

 

X

 

X

 

   David M. Thomas

 

X

 

C

 

C

 

   Ronald V. Waters, III

 

C

 

X

 

X

 An “X” indicates membership on the committee.

 A “C” indicates that the director serves as the chair of the committee.

Audit Committee

The Audit Committee’s primary function is to assist the Board in overseeing the (i) integrity of the Company’s financial statements, the financial reporting process and the Company’s system of internal controls; (ii) Company’s compliance with legal and regulatory requirements; (iii) independence and qualifications of the Company’s external auditors; (iv) performance of the Company’s external and internal auditors; and (v) the Company’s enterprise risk management program, which includes oversight of cybersecurity related risks.

Each member of the Audit Committee (Messrs. Mackay, Morikis, Thomas and Waters), is financially literate. Each of Messrs. Mackay, Thomas and Waters has accounting or financial management expertise and is an audit committee financial expert as defined in Item 407(d)(5)(ii) and (iii) of Regulation S-K under the Exchange Act. As required by its charter, each Audit Committee member has also been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual. The Audit Committee met nine times in 2019.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

 

Compensation Committee

The Compensation Committee’s primary function is to assist the Board in attracting and retaining high quality leadership by (i) developing and critically reviewing the Company’s executive compensation program design and pay philosophy; and (ii) setting the compensation of the Company’s executive officers, which includes the presidents of the Company’s principal business segments, in a manner that is consistent with competitive practices and Company, business segment and individual performance.

As required by its charter, each member of the Compensation Committee (Messrs. Finan, Mackay and Morikis and Mses. Hackett and Kilsby) has been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual. The Compensation Committee met five times in 2019.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee has (i) served as one of the Company’s officers or employees, or (ii) had a relationship requiring disclosure under Item 404 of Regulation S-K.

Compensation Committee Procedures

The Compensation Committee directs management to prepare financial data to be used by the Compensation Committee in determining executive compensation. In addition, members of the Company’s human resources department assist in the preparation of executive compensation tally sheets and historical information describing compensation paid to executives, program design and plan provisions and the Compensation Committee’s independent consultant provides market data for use in determining executive compensation. The Compensation Committee is presented with recommendations from management and from the Committee’s independent compensation consultant as to the level and type of compensation and related program designs provided to the Company’s executive officers. Members of the Company’s legal department provide the Compensation Committee with general advice on laws applicable to executive compensation.

The Chief Executive Officer attends meetings of the Compensation Committee, except for portions of meetings where his performance or compensation is being discussed. The Chief Executive Officer’s feedback about each officer’s performance is essential in the Compensation Committee’s determination of the officer’s salary, target annual incentive and long-term equity compensation determinations. See pages 17-29 of this Proxy Statement for more information about how the Compensation Committee determined the executive officers’ compensation in 2019.

Compensation Committee Consultant

The Compensation Committee engages an outside compensation consultant. Meridian Compensation Partners, LLC (“Meridian”) was retained directly by and reports directly to the Compensation Committee. In 2019, Meridian provided the following services and information to the Compensation Committee:

 

   

Made recommendations as to best practices for structuring executive pay arrangements and executive compensation (including the amount and form of compensation) consistent with the Company’s business needs, pay philosophy, market trends and latest legal, regulatory and governance considerations;

 

   

Performed an assessment of the Company’s compensation peers;

 

   

Provided market data (including compiling compensation data and related performance data) as background for decisions regarding the compensation of the Chief Executive Officer and other executive officers;

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

 

   

Performed an assessment of risks associated with the Company’s compensation structure and design; and

 

   

Attended Compensation Committee meetings (including executive sessions without the presence of management) and summarized alternatives for compensation arrangements that may have been considered in formulating final recommendations, as well as the consultant’s rationale for supporting or opposing management’s proposals.

The Compensation Committee has authorized Meridian to interact with management in connection with advising the Compensation Committee. Meridian is included in discussions with management on matters being brought to the Compensation Committee for consideration. Meridian is prohibited from performing any services for management outside of services needed in connection with advising the Compensation and Nominating Committees. The Compensation Committee has assessed Meridian’s independence and concluded that Meridian’s work for the Compensation Committee does not raise any conflict of interest.

Executive Committee

The Executive Committee did not meet in 2019. The Executive Committee has all the authority of the full Board, except for specific powers that are required by law to be exercised by the full Board. The Executive Committee may not amend the Company’s charter, adopt an agreement of merger, recommend actions for stockholder approval, amend or repeal the Bylaws, elect or appoint any director or remove an officer or director, amend or repeal any resolutions of the Board, fix the Board’s compensation, and unless expressly authorized by the Board, declare a dividend, authorize the issuance of stock or adopt a certificate of merger.

Nominating, Environmental, Social and Governance Committee

Although the Board’s Nominating Committee has been responsible for oversight of environmental, global citizenship and related matters, in February 2020 the Nominating Committee refreshed its charter to clarify the committee’s oversight role in the Company’s ESG initiatives and changed its name to the Nominating, Environmental, Social and Governance Committee. The Nominating Committee’s primary functions are to (i) provide recommendations to the Board with respect to the organization and function of the Board and its committees; (ii) recruit, identify and recommend potential director candidates and nominees; (iii) review the qualifications and independence of directors and provide recommendations to the Board regarding composition of the committees; (iv) develop and recommend changes to the Company’s corporate governance framework including the Company’s corporate governance principles; (v) oversee the process of the evaluation of the Board and management; and (vi) oversee the Company’s environmental, social and governance programs, policies and related risks. The Nominating Committee also makes recommendations to the Board regarding the level and composition of compensation for non-employee directors and grants annual equity awards to non-employee directors.

As required by its charter, each member of the Nominating Committee (Messrs. Finan, Thomas and Waters and Mses. Hackett and Kilsby) has been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual. The Nominating Committee met five times in 2019.

Other Corporate Governance Resources

The Company’s Corporate Governance Principles, the Company’s Code of Business Conduct and Ethics and the Company’s Code of Ethics for Senior Financial Officers are available on the Company’s website at https://ir.fbhs.com/governing-high-standards. The charters of each committee are also available on the Company’s website at https://ir.fbhs.com/committees-and-charters. A copy of our ESG report is also available on the Company’s website at https://fbhs.com/global-citizenship/esg.

 

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DIRECTOR COMPENSATION

 

 

 

Fortune Brands is committed to attracting and retaining qualified and experienced directors that contribute to the Board’s effectiveness and the Company’s goal of maximizing stockholder value. To accomplish this, the Company maintains a non-employee director compensation program that consists of cash fees and Company stock. During 2019, the Board did not make any changes to the structure of or the amounts provided under the non-employee director compensation program. Below is a description of the non-employee director compensation program.

Cash Fees

During 2019, the annual cash fee for services as a non-employee director of the Company was $90,000. The members of the Audit Committee (Messrs. Mackay, Morikis, Thomas and Waters) and the Compensation Committee (Mses. Hackett and Kilsby and Messrs. Finan, Mackay and Morikis) received an additional annual cash fee of $7,500 for their service on each of these committees. In addition, the chairperson of each of the Audit, Compensation and Nominating Committees received an additional annual cash fee of $15,000 for such service (Mr. Waters, Ms. Hackett and Mr. Thomas, respectively). Mr. Thomas received an additional annual cash fee of $200,000 for his service as non-executive Chairman of the Board during 2019. Directors may elect to receive payment of their cash fees in Company stock rather than cash.

In January 2020, Mr. Klein assumed the role of Executive Chairman of the Board and Mr. Thomas assumed the role of Lead Independent Director. As a result of the change in the Board leadership structure, the Board eliminated the additional annual cash fee of $200,000 for service as the non-executive Chairman of the Board and approved an annual fee of $50,000 for service as the Lead Independent Director, effective January 2020.

Stock Awards

In May 2019, each non-employee director received an annual stock grant that was based on a set dollar value of $135,000. The number of shares granted was determined by dividing the dollar value of the annual stock grant ($135,000) by the closing price of the Company’s stock on the grant date ($55.16), rounded to the nearest share. Accordingly, 2,447 shares of Company stock were granted to each of the non-employee directors. Directors may elect to defer receipt of their annual stock awards until the January following the year in which the individual ceases serving as a director of the Company.

Director Stock Ownership Guidelines

To further align the Board’s interests with those of stockholders, the Board maintains Stock Ownership Guidelines for non-employee directors. The guidelines encourage non-employee directors to own Company stock with a fair market value equal to five times the annual cash fee ($450,000 based on the annual fee currently set at $90,000). The guidelines allow directors five years from the date of the director’s election to the Board to meet the guidelines. All of our directors currently meet the multiple or fall within the five year time period allowed to meet the multiple under the Stock Ownership Guidelines. For information about the beneficial ownership of the Company’s securities held by directors and executive officers, see “Certain Information Regarding Security Holdings” on pages 44-45.

 

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DIRECTOR COMPENSATION (CONTINUED)

 

 

 

2019 DIRECTOR COMPENSATION*
Name   

Fees     

Earned     

or Paid in     

Cash ($)(1)     

  

Stock     

Awards     

($)(2)     

  

Option     

Awards     

($)     

 

Non-Equity     

Incentive     

Plan     

Compensation     

($)     

 

Change in     

Pension     

Value and     

Nonqualified     
Deferred     
Compensation      

Earnings ($)     

 

All Other     

Compensation     

($)(3)     

  

Total     

($)     

Irial Finan

  

$  82,133     

  

$134,977     

  

n/a     

 

n/a     

 

n/a     

 

$   813     

  

$217,923     

Ann F. Hackett

  

$112,500     

  

$134,977     

  

n/a     

 

n/a     

 

n/a     

 

$5,841     

  

$253,318     

Susan S. Kilsby

  

$  97,500     

  

$134,977     

  

n/a     

 

n/a     

 

n/a     

 

$   841     

  

$233,318     

A.D. David Mackay

  

$105,000     

  

$134,977     

  

n/a     

 

n/a     

 

n/a     

 

$   841     

  

$240,818     

John G Morikis

  

$105,000     

  

$134,977     

  

n/a     

 

n/a     

 

n/a     

 

$5,841     

  

$245,818     

David M Thomas

  

$312,500     

  

$134,977     

  

n/a     

 

n/a     

 

n/a     

 

$5,841     

  

$453,318     

Ronald V Waters, III

  

$110,625     

  

$134,977     

  

n/a     

 

n/a     

 

n/a     

 

$5,841     

  

$251,443     

Norman H. Wesley

  

$  36,923     

  

$134,977     

  

n/a     

 

n/a     

 

n/a     

 

$   642     

  

$172,542     

* Although Messrs. Fink and Klein currently serve as members of the Board, they do not receive any additional compensation for such service. Mr. Finan joined the Board in February 2019 and Wesley retired from the Board in May 2019.

 

  (1)

Mr. Morikis elected to convert all of the cash fees he earned during 2019 to Company stock pursuant to the Non-Employee Director Stock Election Program. Mr. Finan received a pro-rata portion of the cash fees for his service based on his Board and committee commencement dates. As a result of his mid-year retirement, Mr. Wesley received a pro-rata portion of cash fees for his service through his retirement date.

 

  (2)

The amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”). The grant date fair value was $55.16 per share. Ms. Hackett elected to defer receipt of her stock award until the January following the year in which she ceases serving as a director pursuant to the Company’s Non-Employee Director Deferred Compensation Plan (as amended and restated January 1, 2013). As of December 31, 2019, Ms. Hackett and Messrs. Morikis and Thomas had the following number of deferred shares outstanding: 31,932, 5,742 and 2,914, respectively.

 

  (3)

Included in this column are premiums paid for group life insurance coverage and the Company’s match on gifts paid by the director to charitable organizations, both of which are generally available to Company employees, and costs associated with the Company’s executive health program. Under the Company’s matching gift program, the Company makes a 100% match of gifts totaling up to $5,000 annually made by the director to an eligible charitable institution.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

This Compensation Discussion and Analysis (“CD&A”) describes the Company’s executive compensation program and explains how the Compensation Committee made compensation decisions for the following Named Executive Officers (the “NEOs”) in 2019:

 

Named Executive Officer

  

Position with the Company during 2019

Christopher J. Klein    Chief Executive Officer
Patrick. D. Hallinan    Senior Vice President and Chief Financial Officer
Nicholas I. Fink*    President and Chief Operating Officer
R. David Banyard, Jr.**    President, Cabinets
Brett E. Finley    President, Doors and Security

 

*

As described below, in January 2020, Mr. Fink assumed the role of Chief Executive Officer and Mr. Klein assumed the role of Executive Chairman. During 2019, Mr. Klein served as the Company’s Chief Executive Officer and Mr. Fink served as President, Plumbing until March 5, 2019, when he was promoted to the position of President and Chief Operating Officer of Fortune Brands.

 

**

Mr. Banyard became President, Cabinets on November 18, 2019. Mr. Banyard did not participate in the Company’s 2019 annual compensation program for NEOS due to his employment commencing late in the year. Please see “New Hire Compensation Arrangements” later in this CD&A for a discussion of Mr. Banyard’s 2019 compensation arrangements.

This CD&A is divided into the following main sections:

 

Section

  

Page

Number

Executive Summary

   17-20

Results of the 2019 Say-on-Pay Vote

   20

Philosophy and Process for Awarding NEO Compensation

   21-22

Types and Amounts of NEO Compensation Awarded in 2019

   23-29

EXECUTIVE SUMMARY1

Leadership Succession Planning

The Compensation Committee and Board have spent a considerable amount of time working on a CEO succession plan over the past several years. On an annual basis, the Board reviews executive succession, including the succession of the Chief Executive Officer. With Mr. Klein’s decision to retire as Chief Executive Officer in January 2020, the Board determined that Mr. Fink would succeed him. The Board evaluated the Company’s leadership structure and decided that Mr. Klein would transition to the role of Executive Chairman and Mr. Thomas would transition from non-executive Chairman to Lead Director.

2019 Business and Financial Highlights

The Company executed on a number of important actions that drove growth in each of our business segments in 2019 despite softer growth in the housing market and industry challenges including tariffs. The Company delivered solid performance in spite of the headwinds it faced, growing Net Sales 5% and earnings per share 15% and 8% on a before charges/gains basis in 2019. We also returned $123 million to shareholders through dividends and repurchased $100 million of our shares, raised $700 million in new financing at an attractive fixed rate while affirming our investment grade rating and extended our $1.25 billion revolving credit facility. We believe that the actions taken in 2019 have positioned the Company to continue to grow and create value for stockholders in the future.

 

 

1

All metrics shown in this CD&A are from continuing operations and all references to operating income (OI) and earnings per share (EPS) are unaudited and on a before charges/gains basis. See Appendix A of this Proxy Statement for definitions and a description of the methodology of these non-GAAP measures, as well as a description of the non-GAAP measures used to determine incentive compensation.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

The following graphics highlight our performance on key Company metrics since 2012, the first year after the Company went public.*

 

 

LOGO

 

  *

OI and EPS shown above are on a before charges/gains basis. On a GAAP basis, the Company’s 2012 OI was $183.8 and 2019 OI was $698.5 resulting in a 280% increase and 2012 EPS was $0.65 and 2019 EPS was $3.06, resulting in a 371% increase. See Appendix A for a reconciliation of these non-GAAP to GAAP OI and EPS measures.

2019 Compensation Highlights

The Company’s compensation programs and practices are designed to pay for performance and to align management’s interests with those of the Company’s stockholders while attracting, motivating and retaining superior talent to lead our Company. The Compensation Committee believes that our compensation program helps drive Company performance by providing a significant amount of compensation in the form of equity, by utilizing both short-term and long-term incentives that are tied to Company performance, and by making efforts to balance fixed (base salary) and variable (annual cash incentive and equity) compensation. A significant portion of NEO compensation is dependent on Company performance, including stock price performance, business segment growth, improving operational efficiencies and other strategic initiatives. Our incentive compensation programs are designed to link the pay of our executives with the value delivered to shareholders.

After reviewing competitive market data and in recognition of market trends, the Compensation Committee changed the mix of annual equity award grants to be more heavily weighted towards equity tied to the achievement of long-term financial performance goals. Beginning with the 2019 annual equity grant, the mix of equity awarded was changed to 50% performance share awards (“PSAs”) and 25% each in restricted stock units (“RSUs”) and stock options compared to the equally weighted mix (1/3 of each) of PSAs, RSUs and stock options granted in prior years. In addition, the Compensation Committee adjusted the metrics used in the 2019 annual cash incentive plan and the 2019-2021 PSAs. For the annual cash incentive plan, return on net tangible assets (“RONTA”) replaced return on invested capital (“ROIC”) for Fortune Brands executives. For the 2019-2021 PSAs, ROIC replaced RONTA. The Committee approved these changes in the metrics as it believes that ROIC serves as a better long-term metric than RONTA. The Committee also increased the minimum payout percentage for the 2019-2021 PSAs from 0% to 50% to better align with market data. Under the 2019-2021 PSA design, PSAs will not vest (0% payout) if performance is below the minimum performance threshold.

The Board believes that the principles guiding our executive compensation program continue to link executive compensation with the Company’s long-term performance.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

Equity-based compensation aligns executives’ interests with stockholders, drives performance and facilitates retention

 

   

Annual equity grants represented 69.5% of Mr. Klein’s annual total target compensation and 60.0% (on average) of the other NEOs’ (excluding Mr. Banyard) annual total target compensation.

 

   

Annual equity awards for NEOs consisted of PSAs, RSUs and stock options:

 

   

PSAs, which represent the single largest element of executive pay, will vest in three years and settle in Company stock only if the minimum performance goals set for the cumulative three-year performance period are met;

 

   

RSUs will vest in three equal annual installments and settle in Company stock, assuming the NEO remains employed through each vesting date; and

 

   

Stock options allow an NEO to purchase a specific number of shares of Company stock at a fixed price (i.e., the share price set on the grant date), vest in three equal annual installments, assuming the NEO remains employed through each vesting date, and expire ten years from the grant date.

Equity and incentive compensation are strongly linked to increasing Company performance

 

   

The vast majority of 2019 annual total target compensation awarded to each NEO was linked to increasing Company performance.

 

   

86.8% of Mr. Klein’s annual total target compensation was pay-at-risk; and

 

   

77.6% (on average) of the other NEOs’ (excluding Mr. Banyard) annual total target compensation was pay-at-risk.

 

   

PSAs awarded in 2019 will vest based on earnings before interest, taxes, depreciation and amortization (“EBITDA”) (weighted 75%) and ROIC (weighted 25%) for the January 1, 2019 through December 31, 2021 performance period and will only be paid if minimum performance goals are attained.

 

   

Stock options only have value if the Company’s stock price increases after the date of grant.

 

   

Annual incentive award payouts were determined based on the following metrics:

 

   

For Messrs. Klein and Hallinan, the Company’s Earnings Per Share before charges/gains (“EPS”), RONTA and Working Capital Efficiency (“WCE”);

 

   

For Mr. Fink, GPG’s Operating Income (“OI”), Sales Growth Above Market (“Sales”) and WCE for a portion of the year and Fortune Brands’ EPS, RONTA, WCE for the remainder of the year; and

 

   

For Mr. Finley, Doors & Security’s OI, Operating Margin (“OM”) and WCE.

 

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2019 NEO Annual Total Target Compensation

The following chart summarizes annual total target compensation awarded to each NEO (other than Mr. Banyard) in 2019:

 

Summary of 2019 NEO Annual Total Target Compensation
    Named Executive Officer(1)

2019 Annual

Base Salary(2)

2019 Annual

Incentive

Target Value

2019 Long-

Term Incentive

Award Target

Value

2019 Total Target

Compensation

Christopher J. Klein

 

$1,225,000

 

$1,592,500

 

$6,400,000

 

$9,217,500

Patrick D. Hallinan

 

$610,000

 

$457,500

 

$1,600,000

 

$2,667,500

Nicholas I. Fink

 

$850,000

 

$744,792

 

$3,000,000

 

$4,594,792

Brett E. Finley(3)

 

$570,000

 

$427,500

 

$1,200,000

 

$2,197,500

 

  (1)

Mr. Banyard is excluded from this chart as his employment began in November 2019 and he did not receive an annual incentive award or an annual long-term incentive award during the year. Please see “New Hire Compensation Arrangements” later in this CD&A for a discussion of Mr. Banyard’s 2019 compensation arrangements.

 

  (2)

The amounts listed in this column reflect annual base salary in effect as of December 31, 2019.

 

  (3)

Mr. Finley received a retention equity award during 2019, which is excluded from his long-term incentive award target value shown above.

RESULTS OF THE 2019 SAY-ON-PAY VOTE

In 2019, we sought an advisory vote from our stockholders on NEO compensation (commonly referred to as “Say-on-Pay”). More than 93% of the votes cast were in support of the Company’s NEO compensation program as described in the 2019 Proxy Statement. The Compensation Committee did not make any changes to the design of the Company’s executive compensation program in response to the 2019 Say-on-Pay vote. The Compensation Committee did, however, increase the mix of equity awarded to consist of 50% PSAs to increase the focus on the achievement of long-term performance goals. The Compensation Committee believes the Company’s executive compensation program provides rewards that motivate our NEOs to maximize long-term stockholder value and encourage long-term retention.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

PHILOSOPHY AND PROCESS FOR AWARDING NEO COMPENSATION

Philosophy of the Executive Compensation Program

Our executive compensation program is designed to reward NEOs for the achievement of both short-term and long-term strategic and operational goals that lead to the creation of long-term stockholder value. The executive compensation program is designed to:

 

   

Attract, retain and motivate superior talent through competitive compensation

 

   

Align management’s interests with those of the Company’s stockholders

 

   

Create and reinforce a pay-for-performance culture by tying compensation to Company performance

 

   

Provide incentive compensation that promotes performance without encouraging excessive risk- taking

 

   

Recognize the cyclical nature of our business

Compensation Peer Group and Market Data

When setting annual NEO compensation, the Compensation Committee uses compensation data from a group of similarly sized peer companies to evaluate compensation arrangements against those of the Company (the “Peer Group”). Annually, the Committee reviews and assesses the appropriateness of the Peer Group. Meridian made recommendations to modify the composition of the Peer Group to be used for evaluating 2019 executive compensation decisions and the Compensation Committee approved the recommended modifications. Accordingly, the 2019 Peer Group excluded Armstrong World Industries, Inc. (due to revenue comparability) and USG Corporation (due to acquisition) and added two new companies, JELD-WEN Holding, Inc. and Whirlpool Corporation based on their classification as companies with similar revenue and market capitalization and operating in similar cyclical industries. Fortune Brands 2018 revenue was $5.48 billion and market capitalization was $5.37 billion compared to the 2019 Peer Group median 2018 revenue of $7.7 billion and market capitalization of $8.4 billion. The 2019 Peer Group consisted of the following companies:

 

Allegion plc

   JELD-WEN Holding, Inc.    Parker-Hannifin Corp.

A.O. Smith Corporation

   Leggett & Platt, Incorporated    Pentair plc

Ball Corp.

   Lennox International Inc.    RPM International Inc.

Borgwarner Inc.

   Masco Corporation    The Sherwin-Williams Company

Dover Corp.

   Mohawk Industries, Inc.    Snap-On Inc.

Ingersoll-Rand Plc

   Newell Brands Inc.    Stanley Black & Decker, Inc.
   Owens Corning Inc.    Whirlpool Corporation

Meridian provided the Compensation Committee with competitive data for use in evaluating and setting 2019 NEO base salary, annual cash incentive awards and annual long-term incentive awards (“market data”). The market data primarily consisted of peer group data from Aon, with revenue size adjusted general industry and proxy data providing a supplemental viewpoint.

The Compensation Committee believes that compensation decisions are complex and require a deliberate review of Company performance, peer compensation levels, responsibilities of the role, experience and impact of individual executives, and individual performance. In determining executive compensation, the Compensation Committee considers all forms of compensation and uses appropriate tools – such as tally sheets and market data – to review the value delivered by each component of compensation to each executive. When evaluating total target compensation, the Compensation Committee generally strives to set NEO compensation around the 50th percentile of the market data. The Compensation Committee may, however, determine that it is appropriate for total target compensation or any particular element of compensation to exceed or fall below the 50th percentile of the market data with respect to any individual. The factors that might influence the amount of compensation awarded include market competition for a particular position, retention considerations, an individual’s performance, possession of a unique skill or knowledge set, proven leadership capabilities or other business experience and internal pay equity.

 

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Evaluating NEO Performance

At the end of 2019, the Compensation Committee, in conjunction with the non-executive Chairman and other non-management members of the Board, conducted a formal evaluation of the Company’s Chief Executive Officer (the “CEO”) to analyze his performance against strategic, financial and operational goals established at the beginning of the year. Following the annual performance review, the Compensation Committee then sets the CEO’s annual total target compensation after reviewing related recommendations and market data from Meridian. The CEO reviews and evaluates each of the other NEOs performance against strategic, financial and operational goals established at the beginning of the year and then presents his evaluations to the Compensation Committee. The Compensation Committee reviews the CEO’s recommendations and market data from Meridian and then independently sets each of the other NEO’s annual total target compensation.

Maintaining Best Practices Regarding Executive Compensation

The Compensation Committee maintains policies and procedures that it believes represent best practices in corporate governance that effectively protect the interests of our stockholders. The chart below summarizes these policies and procedures.

 

 

What We Do

 

 

  Pay-for-Performance A vast majority of NEO annual total target compensation is tied to Company performance. In 2019, 86.8% of Mr. Klein’s and 77.6% (on average, excluding Mr. Banyard) of our other NEOs’ annual total target compensation was pay-at-risk.

 

    

 

  Clawback Policy The Company may recover all or part of annual cash incentives and equity incentive compensation under certain circumstances.

 

 

  Annual Assessment and Mitigation of Risks The Compensation Committee annually assesses whether our compensation programs, plans and awards are designed and working in a way that discourages excessive risk taking.

 

      

 

  Double-Trigger in Change in Control Severance benefits are payable upon a change in control only if there is also a qualifying termination of employment. Our equity award agreements also include double-trigger provisions.

 

 

  Maximum Payouts on Incentives Annual cash incentive awards and PSA payouts are capped at 200% of target.

 

    

 

  Tally Sheets Tally sheets and wealth accumulation analyses are reviewed annually before making compensation decisions.

 

 

  Stock Ownership Guidelines We maintain rigorous stock ownership guidelines for NEOs. Executives are required to hold 50% of net shares from the vesting of PSAs and RSUs until the ownership requirement is met.

      

 

  Independent Compensation Consultant Meridian advises the Compensation Committee on executive compensation matters and regularly meets with the Compensation Committee in executive session without the presence of management. Meridian is prohibited from performing services for management.

 

 

 

What We Don’t Do

 

 

✘ No Employment Contracts NEOs and other executive officers are employees “at will”. The Company does not have employment contracts with any of its NEOs or other executive officers.

 

    

 

✘ No Hedging or Pledging Directors, NEOs and other executives are prohibited from hedging, pledging or otherwise engaging in derivative transactions designed to offset a decrease or increase in the market value of the Company’s stock.

 

 

✘ No Tax Gross Ups NEOs and other executive officers are not entitled to tax gross ups in the event of a change in control and related termination or for perquisites (other than relocation expenses).

 

      

 

✘ No Backdating or Repricing of Stock Options Stock options are never backdated or issued with below-market prices. Repricing of underwater stock options without stockholder approval is prohibited (except in the event of certain extraordinary corporate events).

 

 

✘ Limited Perquisites Perquisites are limited to the executive health program and other benefits generally available to employees, such as company product purchase programs. Certain executives have limited personal use of Company aircraft, subject to reimbursement obligations.

        

 

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TYPES AND AMOUNTS OF NEO COMPENSATION AWARDED IN 2019

Pay-at-Risk Compensation

As part of 2019 annual target compensation, the Company provided both fixed (base salary) and variable (annual cash incentive and equity) compensation to the NEOs. The vast majority of annual target compensation is at risk because the compensation that is actually paid is dependent upon Company (or business segment) performance and/or the Company’s stock price. As a result, the amount of compensation actually paid to an NEO may vary from the NEO’s target compensation that was awarded by the Compensation Committee. The following charts show each element of 2019 annual target compensation, including the mix of short-term and long- term incentives, as well as the amount of pay-at-risk for the CEO and the average for the other NEOs (excluding Mr. Banyard as he did not participate in the Company’s 2019 annual compensation program because his employment commenced in November 2019).

 

 

LOGO

2019 Compensation

Base Salary

Base salaries provide a fixed level of cash compensation for each NEO and are paid in order to attract and retain our NEOs. The Compensation Committee sets each NEO’s base salary to be appropriate and commensurate with the NEO’s position, experience and performance.

 

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For 2019, the Compensation Committee increased the annual base salaries for each NEO to better align with competitive market data and in recognition of each individual’s prior year performance (with Mr. Klein’s input on the performance of each NEO other than himself) or to reflect a change in position. When Mr. Fink was promoted from President of the Global Plumbing Group to President and Chief Operating Officer of Fortune Brands in March 2019, he received an additional increase to his base salary to bring his compensation in line with market data for a position of similar scope. Below is the 2019 and 2018 annual base salary for each NEO (other than Mr. Banyard):

 

Named Executive Officer

 

2019

   

2018

 

Christopher J. Klein

 

 

$1,225,000

 

 

 

$1,185,000

 

Patrick D. Hallinan

 

 

$610,000

 

 

 

$580,000

 

Nicholas I. Fink

 

 

$850,000

 

 

 

$575,000

 

Brett E. Finley

 

 

$570,000

 

 

 

$550,000

 

Annual Cash Incentive

The Compensation Committee believes that annual cash incentive awards reinforce a pay-for-performance culture because the payment is based on the financial and operational results of the Company, (or applicable business segments), and helps the Company maintain a competitive compensation program. Annually, the Compensation Committee sets a target percentage of base salary used to determine each NEO’s cash incentive.

In 2019 the Compensation Committee did not make any adjustments to the target percentage of base salary used to determine each NEO’s annual incentive award, except for Mr. Fink. When Mr. Fink was promoted to the role of President and Chief Operating Officer in March 2019, his target percentage was increased from 75% to 95% for the period of March to December. The increase in Mr. Fink’s target percentage was made to bring his compensation in line with market data for a position of similar scope. As a result, Mr. Fink’s 2019 annual cash incentive award was prorated to reflect the portion of the year in which his target was set at 75% and 95%, respectively. The target percentage for each NEO (other than Mr. Banyard) for 2019 was:

 

Named Executive Officer

  

Target Percentage of

Base Salary 2019

Christopher J. Klein

  

130%

Patrick D. Hallinan

  

75%

Nicholas I. Fink

  

95%

Brett E. Finley

  

75%

Annually, the Compensation Committee also sets the minimum, target and maximum annual performance metrics and goals used to determine each NEO’s annual cash incentive award. The annual incentive payouts are based on the achievement of the performance goals and can range from 0% to 200% of target. To establish challenging performance goals under the annual incentive program, the Compensation Committee reviewed the target performance goals and actual results for awards paid in 2018, and the 2019 expected growth rate in the home products market, as well as key assumptions relating to share gains, pricing, material inflation and productivity.

For 2019, the Compensation Committee approved the following performance metrics for annual incentive awards:

 

   

For Messrs. Klein and Hallinan, Fortune Brands’ EPS (weighted 60%), RONTA (weighted 20%) and company-wide WCE (weighted 20%);

 

   

For Mr. Fink, GPG’s OI (weighted 60%), Sales Growth Above Market (weighted 20%) and WCE (weighted 20%) through March 4, 2019 and the Fortune Brands’ corporate metrics stated above for March 5, 2019 to December 31, 2019; and

 

   

For Mr. Finley, Doors & Security’s OI (weighted 60%), OM (weighted 20%) and WCE (weighted 20%).

 

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The Compensation Committee changed the operational efficiency metric used to determine Messrs. Klein’s, Hallinan’s and Fink’s 2019 annual incentive awards from ROIC to RONTA as RONTA was viewed by the Compensation Committee as a better metric to measure short-term, or annual, Company performance.

The Compensation Committee believes that the performance measures chosen for the 2019 annual incentive awards focus executives on maximizing long-term stockholder value (EPS), operational efficiency (RONTA, OM and WCE) and profitability (OI, OM and Sales). The following table sets forth the minimum, target and maximum financial performance measures, the actual performance results, the percentage payout and the amount paid to each NEO for the 2019 annual cash incentive awards:

 

 

2019 Annual Cash Incentive Performance Goals and Results

 

   
    

 

Performance and Goals(1)

  Results and Awards
             

Named Executive

Officer

 

Performance     

Metric     

 

Minimum     

Performance     

Measure     

 

Target    

Performance    

Measure    

 

Maximum    

Performance

Measure

 

Actual    

Performance(2)    

  % of Payout      

Amount    

Paid    

               

Christopher J. Klein

  EPS        $3.00        $3.65       $4.29   $3.62       93.5%       $1,488,988    
  RONTA     

WCE     

 

  43.1%     
17.0%     
  51.2%    
15.4%    
  59.3%
14.2%
  48.4%    

15.9%    

       
               

Patrick D. Hallinan

  EPS     

RONTA     

WCE     

 

  $3.00     

43.1%     

17.0%     

  $3.65    

51.2%    

15.4%    

  $4.29

59.3%

14.2%

  $3.62    

48.4%    

15.9%    

  93.5%       $427,763    
               

Nicholas I. Fink(3)

                           

 

Plumbing

 

 

OI     

SALES(4)     

WCE     

 

 

 

$374.9     

0.0%     

18.6%     

 

 

$430.0    

2.0%    

16.9%    

 

 

$485.1

4.0%

15.5%

 

 

$440.2    

6.4%    

17.1%    

 

 

122.8%    

  $717,440    

 

Fortune Brands

 

 

EPS     

RONTA     

WCE     

 

 

 

$3.00     

43.1%     

17.0%     

 

 

$3.65    

51.2%    

15.4%    

 

 

$4.29

59.3%

14.2%

 

 

$3.62    

48.4%    

15.9%    

 

 

93.5%    

               

Brett E. Finley

  OI     

OM     

WCE     

 

  $166.3     

12.8%     

21.7%     

  $200.0    

14.1%    

19.8%    

  $233.7

15.1%

18.1%

  $178.8    

13.3%    

20.5%    

  79.1%       $338,153    
  (1)

OI minimum, target and maximum performance measures and actual performance results are shown in millions.

 

  (2)

EPS, RONTA, OI and OM actual performance were adjusted to exclude the effect of currency fluctuations.

 

  (3)

Mr. Fink’s award was prorated based on 75% of his base salary and GPG results for the period January 1 – March 4, 2019 and 95% of his base salary and Fortune Brands results for the period March 5, 2019 – December 31, 2019.

 

  (4)

Sales Growth Above Market was determined by calculating the percentage change in GPG’s annual sales in excess of the percentage change in the plumbing market’s prior year sales.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

Long-Term Equity Awards

The Compensation Committee believes that equity compensation aligns management’s interests with those of stockholders, reinforces a pay-for-performance culture and helps the Company maintain a competitive compensation program. Annually, the Compensation Committee sets a target equity award value and determines the types of equity to award.

In setting 2019 target long-term equity award values, the Compensation Committee (together with Mr. Klein for NEOs other than himself) considered competitive market data, the individual performance and the competitiveness of total compensation of each of the NEOs. The target long-term equity award values granted to the NEOs were increased to align award values with market data, in recognition of their prior year performance and to provide an increased value to enhance long-term retention. Mr. Hallinan received a larger equity grant to bring his total compensation in line with the market data for his position. Messrs. Fink and Finley each received more significant increases in their long-term equity award target value, commensurate with their respective promotions and to align with the market data for their new roles (Mr. Fink as Chief Operating Officer and Mr. Finley as President of Doors & Security). Below is the 2019 target equity award value and the 2018 target award value for each NEO (other than Mr. Banyard):

 

Named Executive Officer  

2019 Target

Equity Award Value

   

2018 Target

Equity Award Value

 

Christopher J. Klein

 

 

$6,400,000

 

 

 

$6,000,000

 

Patrick D. Hallinan

 

 

$1,600,000

 

 

 

$1,350,000

 

Nicholas I. Fink

 

 

$3,000,000

 

 

 

$1,200,000

 

Brett E. Finley

 

 

$1,200,000

 

 

 

$950,000

 

Prior to 2019, the mix of annual equity awards was one-third each of PSAs, RSUs and stock options. For 2019, the Compensation Committee changed the mix of annual equity awards to reflect market practice and to increase the focus on performance-based equity awards that are achieved based on long-term financial performance goals. Accordingly, the 2019 annual equity grants made to our NEOs consisted of 50% PSAs, 25% RSUs and 25% stock options.

Performance Share Awards: PSAs awarded to the NEOs in 2019 will be settled in shares of the Company’s common stock only if the Company exceeds specified EBITDA (weighted 75%) and ROIC (weighted 25%), performance goals during the cumulative performance period from January 1, 2019 through December 31, 2021. Payouts may range from 50% to 200% of the target award based on performance. PSAs will be settled following completion of the performance period and certification of the performance results by the Compensation Committee (in early 2022).

In 2019, the Compensation Committee changed the minimum payout range from 0% to 50% to be more in line with market practice. If the Company fails to achieve the minimum performance threshold, none of the PSAs will vest.

The Compensation Committee based the performance goals on EBITDA and ROIC because it believes that these metrics incentivize management to grow earnings in a focused and efficient way that rewards operating excellence and aligns the interests of management with our stockholders. The operational efficiency metric used to determine the 2019-2021 PSAs was changed from RONTA to ROIC as the Compensation Committee believes that ROIC is a better measure of long-term Company performance. The Compensation Committee believes that awarding PSAs with a cumulative three year performance goal drives long-term sustained growth and, as a result, management is rewarded if the long-term growth goals are exceeded. In establishing performance goals for PSAs, the Compensation Committee considered the Company’s strategic operating plan, the expected three year compound market growth rate, as well as key assumptions relating to share gains, pricing, material inflation and productivity.

RSUs and Stock Options: The Compensation Committee believes that both RSUs and stock options incent NEOs to increase stockholder returns and align the interests of NEOs with stockholders. RSUs granted to the NEOs

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

vest in three equal annual installments, assuming the NEO remains employed through each annual vesting date. RSUs serve as a long-term retention tool in a cyclical business because the NEOs must remain employed with the Company through each of the three annual vesting dates to receive all of the shares. The Compensation Committee believes that RSUs represent at-risk compensation since their value is linked directly to share price, which may increase or reduce the value of the RSUs over the vesting period.

Stock options allow an NEO to purchase a specific number of shares of Company stock at a fixed price (i.e., the share price set on the grant date). The 2019 stock options vest in three equal annual installments, assuming the NEO remains employed through each vesting date, and expire ten years from the grant date. The Compensation Committee believes that stock options are performance-based and at-risk because the NEOs only realize value to the extent the Company’s stock price increases after the grant date.

2017-2019 Performance Share Awards Payout

In 2017, the Compensation Committee awarded all of the NEOs PSAs to be settled in early 2020 if the Company achieved certain EBITDA and RONTA goals during the cumulative performance period from January 1, 2017 through December 31, 2019, with EBITDA weighted 75% and RONTA weighted 25%. The Compensation Committee certified a payout level of 49.4%. The threshold, target and maximum goals for cumulative EBITDA and average RONTA from January 1, 2017 through December 31, 2019 and the Company’s actual results were as follows:

 

 

2017-2019 PSA

Target EBITDA and RONTA Goals and Results (shown in millions)

           
Metric   Threshold      Target      Maximum      Actual   
Performance   
  % of Payout   

EBITDA (75%)

  $2,330   $2,805   $3,000   $2,642.9   49.4%

RONTA (25%)

  54.0%   61.1%   64.8%   51.9%

Based on the achievement of the 2017-2019 EBITDA and RONTA performance goals, the NEOs received the following number of shares of Company stock pursuant to the terms of the award agreements:

 

Named Executive Officer

   Shares Granted  

Christopher J. Klein

  

 

15,671

 

Patrick D. Hallinan

  

 

3,361

 

Nicholas I. Fink

  

 

3,134

 

Brett E. Finley

  

 

2,279

 

Retention Award

In February 2019, the Compensation Committee granted RSUs to Mr. Finley, with a grant date fair value equal to $499,979 (10,462 RSUs) as a retention award and in recognition of his prior year performance. This award will vest on the second anniversary of the grant date, subject to Mr. Finley remaining employed through the vesting date.

New Hire Compensation Arrangement

Mr. Banyard commenced employment with the Company as President of Cabinets in November 2019 and did not participate in the Company’s annual executive compensation program in 2019. In setting Mr. Banyard’s initial compensation terms, the Compensation Committee considered market data, the breadth of experience that Mr. Banyard brings to the role, the amount of compensation received by Mr. Banyard from his prior employer and the amount of compensation that Mr. Banyard was forfeiting from his prior employer. After considering those factors, the Compensation Committee established an initial base salary of $720,000 and awarded him a sign-on cash award in the amount of $725,000 and an RSU grant with a fair market value equal to $2,749,989 (43,497 RSUs). The RSUs will vest in three equal annual installments, assuming that Mr. Banyard remains employed through each of the vesting dates.

 

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Benefits

Retirement

All of the NEOs are eligible for retirement benefits through the Fortune Brands Home & Security Retirement Savings Plan (the “Qualified Savings Plan”), a tax-qualified defined contribution 401(k) plan. The Compensation Committee believes that the Qualified Savings Plan benefits are consistent with competitive pay practices and are an important element in attracting and retaining talent in a competitive market.

In addition to the Qualified Savings Plan, the Company provides non-qualified retirement benefits for contributions that would have been made under the tax-qualified plan but for limitations imposed by the Internal Revenue Code (the “Code”). Please see the narratives and the “2019 Nonqualified Deferred Compensation” table on page 35 of this Proxy Statement for further information regarding these retirement benefits.

The Company maintains frozen tax-qualified defined benefit pension plans and non-qualified defined benefit pension plans. Messrs. Klein and Hallinan are the only NEOs entitled to a benefit under these plans. Benefit accruals were frozen in 2016, which means that Messrs. Klein and Hallinan did not accrue any additional benefits in 2019.

Severance

The Company has Agreements for the Payment of Benefits Following Termination of Employment (the “Severance Agreements”) with each NEO. Under the terms of the Severance Agreements, each NEO is entitled to severance benefits upon a “qualifying termination of employment” (i.e., termination by the Company without “cause” or by the NEO for “good reason”) or in the event of a qualifying termination of employment following a change in control.

The Compensation Committee believes that it is appropriate to provide NEOs with the protections afforded under these Severance Agreements and that doing so helps the Company remain competitive with market practice and attract and retain superior talent. The Compensation Committee also believes that these Severance Agreements promote management independence and keeps management focused on the Company’s business in the face of any potential change in control events.

All of the Agreements contain “double-trigger” change in control provisions, which means that there must be both a change in control of the Company (or applicable business) and a qualifying termination of employment (i.e., termination by the Company without “cause” or by the NEO for “good reason”) before any enhanced benefits can be paid following a change in control.

The NEOs are not entitled to any tax gross ups under the Severance Agreements, including those related to the change-in-control related excise taxes imposed under the Code. Please see the “2019 Potential Payments Upon Termination or Change in Control” table, as well as the narratives that follow for further information regarding the Severance Agreements and the treatment of outstanding equity upon a qualifying termination of employment or a change in control on pages 36-37.

Perquisites

In 2019, the Company provided a limited number of perquisites to the NEOs, which included limited annual use of Company aircraft by Mr. Klein (the cost of which he reimbursed to the Company based on the cost of a first class airplane ticket for each personal flight). All NEOs were provided with an executive health program that provides all NEOs with annual medical examinations. The Company also provides broad-based plans, which are generally available to employees such as reimbursement of certain relocation expenses incurred when the Company requires an employee to relocate, a match on charitable contributions and company product purchase programs.

 

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Policies

Clawback Policy

The Company has a policy that allows it to recoup all or part of annual cash incentives or PSAs if there is a: (1) significant or material restatement of the Company’s financial statements covering any of the three fiscal years preceding the grant or payment; or (2) restatement of the Company’s financial statements for any year which results from fraud or willful misconduct committed by an award holder. The Company also has the right to recoup all or part of an executive’s other equity awards under the terms and conditions of these awards.

Stock Ownership Guidelines

The Company maintains stock ownership guidelines for NEOs and other Company executives, which require them to hold a number of shares equal to a multiple of their annual base salary. The ownership guidelines are as follows:

 

Position

   Stock Ownership Level as a Multiple
of Base Salary

Chief Executive Officer

  

6

Chief Operating Officer

  

3

Chief Financial Officer

  

3

Division Presidents

  

3

Senior Vice Presidents

  

3

Vice Presidents

  

1

Executives have five years from the date of hire or date of promotion to acquire the requisite amount of stock and are required to hold 50% of net shares acquired from the vesting of PSAs and RSUs until the ownership guidelines are met. All of the NEOs currently meet the multiple or fall within the time period allowed to meet the multiple under the stock ownership guidelines. The Compensation Committee periodically reviews the guidelines against Peer Group practices.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Compensation Committee

Ann F. Hackett, Chair

Irial Finan

Susan S. Kilsby

A.D. David Mackay

John G. Morikis

 

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Table of Contents

 

 

2019 EXECUTIVE COMPENSATION

 

 

 

 

 

2019 SUMMARY COMPENSATION TABLE

 

 
                   

Name and Principal

Position

   Year    

Salary

($)

   

Bonus

($)(1)

   

Stock

Awards

($)(2)

   

Option

Awards

($)(3)

   

Non-

Equity

Incentive

Plan

Compen-
sation

($)(4)

   

Change in

Pension

Value &

Nonqualified

Deferred

Compen-
sation

Earnings

($)(5)

   

All
Other

Compen-
sation

($)(6)

   

Total

($)

 
    

A

   

B

   

C

   

D

   

E

   

F

   

G

   

H

   

I

 

Christopher J. Klein

  

 

2019

 

 

 

1,218,333

 

 

 

0

 

 

 

4,800,027

 

 

 

1,599,999

 

 

 

1,488,988

 

 

 

1,110,000

 

 

 

476,540

 

 

 

10,693,887

 

Chief Executive Officer

  

 

2018

 

 

 

1,176,667

 

 

 

0

 

 

 

3,999,982

 

 

 

2,000,003

 

 

 

996,704

 

 

 

0

 

 

 

437,975

 

 

 

8,611,331

 

    

 

2017

 

 

 

1,129,167

 

 

 

0

 

 

 

3,666,714

 

 

 

1,833,329

 

 

 

1,606,820

 

 

 

704,000

 

 

 

432,402

 

 

 

9,372,432

 

Patrick D. Hallinan

  

 

2019

 

 

 

605,000

 

 

 

0

 

 

 

1,200,007

 

 

 

400,005

 

 

 

427,763

 

 

 

24,000

 

 

 

81,060

 

 

 

2,737,835

 

Senior Vice President and

  

 

2018

 

 

 

575,000

 

 

 

0

 

 

 

899,952

 

 

 

449,998

 

 

 

281,445

 

 

 

0

 

 

 

82,634

 

 

 

2,289,029

 

Chief Financial Officer

  

 

2017

 

 

 

500,000

 

 

 

0

 

 

 

833,348

 

 

 

416,671

 

 

 

347,119

 

 

 

13,000

 

 

 

265,888

 

 

 

2,376,026

 

Nicholas I. Fink*

  

 

2019

 

 

 

804,569

 

 

 

0

 

 

 

2,249,988

 

 

 

749,997

 

 

 

717,440

 

 

 

0

 

 

 

143,684

 

 

 

4,665,678

 

President and

  

 

2018

 

 

 

568,371

 

 

 

0

 

 

 

799,970

 

 

 

400,006

 

 

 

431,681

 

 

 

0

 

 

 

377,903

 

 

 

2,577,931

 

Chief Operating Officer

  

 

2017

 

 

 

530,871

 

 

 

0

 

 

 

733,388

 

 

 

366,660

 

 

 

404,460

 

 

 

0

 

 

 

344,039

 

 

 

2,379,418

 

R. David Banyard*

  

 

2019

 

 

 

69,231

 

 

 

725,000

 

 

 

2,749,989

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

124

 

 

 

3,544,344

 

President, Cabinets

                                                                        

Brett E. Finley

  

 

2019

 

 

 

566,154

 

 

 

0

 

 

 

1,399,960

 

 

 

300,001

 

 

 

338,153

 

 

 

0

 

 

 

29,740

 

 

 

2,634,008

 

President, Doors & Security

  

 

2018

 

 

 

530,154

 

 

 

0

 

 

 

1,133,271

 

 

 

316,663

 

 

 

306,904

 

 

 

0

 

 

 

52,977

 

 

 

2,339,969

 

  *

Mr. Fink served as President, Plumbing until March 5, 2019, when he was promoted to President and Chief Operating Officer of the Company. Mr. Banyard began serving as President, Cabinets on November 18, 2019.

 

(1)

Bonus: The amount listed in column C represents a cash sign on bonus paid to Mr. Banyard in connection with his November 2019 commencement of employment with the Company.

 

(2)

Stock Awards: The amounts listed in column D for 2019 represent the aggregate grant date fair values calculated in accordance with FASB ASC Topic 718 for RSUs and PSAs granted in 2019. For assumptions used in determining these values, see note 14 to the consolidated financial statements contained in the Company’s Form 10-K.

 

    

The amounts included in this column for the PSAs granted during 2019 are calculated based on the probable outcome that the target performance level will be achieved. Assuming the highest level of performance is achieved, the maximum grant date fair value for the PSAs granted during 2019 is: $6,400,036 for Mr. Klein; $1,600,010 for Mr. Hallinan; $3,000,016 for Mr. Fink; and $1,200,006 for Mr. Finley.

 

(3)

Option Awards: The amounts listed in column E for 2019 reflect the aggregate grant date fair values calculated in accordance with FASB ASC Topic 718 for stock options granted in 2019. For assumptions used in determining these values, see note 14 to the consolidated financial statements contained in the Company’s Form 10-K.

 

(4)

Non-Equity Incentive Plans: Column F lists amounts earned as annual cash incentives.

 

(5)

Change in Actuarial Value of Pension Benefits: Column G includes the change in actuarial value of the tax-qualified and non-qualified defined benefit pension plan benefits. The increase in present value of Mr. Klein’s and Mr. Hallinan’s accrued pension benefits is due to a decrease in the discount rate, a new mortality assumption and the passage of time. The narrative and footnotes following the 2019 Pension Benefits table on pages 33-34 provide additional detail about the pension plans.

 

(6)

Perquisites and All Other Compensation: The amounts in column H include the following:

 

  (a)

Matching Contributions and Qualified Non-Elective Contributions to the Savings Plan. Matching contributions for 2019 to the Savings Plan were made by Fortune Brands in the amount of $12,600 for Messrs. Klein and Hallinan and by Global Plumbing Group for Mr. Fink in the amount of $8,400. A Qualified Non-Elective contribution was made by Therma-Tru in the amount of $8,400 for Mr. Finley. Mr. Banyard did not receive any matching contributions from the Company in 2019 due to limitations imposed by the Code.

 

  (b)

Profit Sharing Contributions to the Savings Plan. Profit sharing contributions for 2019 to the Savings Plan were made by Fortune Brands in the amount of $19,007 for Messrs. Klein and Hallinan, by Global Plumbing Group in the amount of $14,000 for Mr. Fink and by Therma-Tru in the amount of $5,600 for Mr. Finley.

 

  (c)

Profit Sharing Contributions to Supplemental Plans. The following contributions were made to the Fortune Brands Home & Security, Inc. Supplemental Plan for 2019: $145,128 for Mr. Klein; $45,483 for Mr. Hallinan. A contribution was made to the Global Plumbing Group Supplemental Plan for Mr. Fink in the amount of $103,421. A contribution was made to the Therma-Tru Supplemental Plan for Mr. Finley in the amount of $11,861. These contributions would have been made under the Qualified Savings Plan but for the limitations on compensation imposed by the Code. These amounts were credited to executives’ Supplemental Plan accounts in early 2020.

 

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2019 EXECUTIVE COMPENSATION (CONTINUED)

 

 

 

  (d)

Other: Included in column H for each NEO are costs associated with the Company’s executive health program. In 2019, limited use of the Company’s aircraft was provided to Mr. Klein, who reimbursed the Company for his personal use in an amount equivalent to the cost of a first class ticket for each passenger on these flights. The calculation of incremental cost of personal aircraft usage is based on variable costs to the Company, including fuel costs, crew expenses, landing fees and other miscellaneous variable costs. In 2019, the Company’s incremental cost for personal use of Company aircraft not reimbursed by Mr. Klein was $283,529, which is reflected in column H.

In connection with Mr. Fink’s relocation of his personal residence in 2018, column H includes primarily moving and storage fees in the amount of $4,299 and reimbursement for taxes in the amount of $1,979 which were made to make Mr. Fink whole for expenses incurred.

 

2019 GRANTS OF PLAN-BASED AWARDS

 

       

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards

    Estimated Future Payouts
Under Equity Incentive Plan
Awards
   

All Other

Stock

Awards:

Number

of Shares

of Stock

or Units

(#)

   

All Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)

   

Exercise

or Base

Price of

Option

Awards

($/Sh)

   

Grant

Date

Value of

Stock and

Option

Awards

($)(2)

 

    Name and

    Grant Date

  Approval 
Date (1)
 

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

 

Christopher J. Klein

                                                                                   

2/21/19(3)

     

$

0

 

 

$

1,592,500

 

 

$

3,185,000

 

                                                       

2/21/19(4)

                                                             

 

140,474

 

 

$

47.99

 

 

$

1,599,999

 

2/21/19(5)

                                                     

 

33,480

 

                 

$

1,600,009

 

2/21/19(6)

                 

 

33,480

 

 

 

66,960

 

 

 

133,920

 

             

$

3,200,018

 

Patrick D. Hallinan

                                                                                   

2/21/19(3)

     

$

0

 

 

$

457,500

 

 

$

915,000

 

                                                       

2/21/19(4)

                                                             

 

35,119

 

 

$

47.99

 

 

$

400,005

 

2/21/19(5)

                                                     

 

8,370

 

                 

$

400,002

 

2/21/19(6)

                             

 

8,370

 

 

 

16,740

 

 

 

33,480

 

                         

$

800,005

 

Nicholas I. Fink

                                                                                   

3/5/19(3)

     

$

0

 

 

$

744,792

 

 

$

1,489,584

 

                                                       

3/5/19(4)

                                                             

 

66,964

 

 

$

46.99

 

 

$

749,997

 

3/5/19(5)

                                                     

 

15,741

 

                 

$

749,980

 

3/5/19(6)

                 

 

15,742

 

 

 

31,483

 

 

 

62,966

 

             

$

1,500,008

 

R. David Banyard

                                                                                   

11/18/19 (5)

 

10/1/19

                         

 

43,497

 

         

$

2,749,989

 

Brett E. Finley

                                                                                   

2/21/19(3)

     

$

0

 

 

$

427,500

 

 

$

855,000

 

                                                       

2/21/19(4)

                                                             

 

26,339

 

 

$

47.99

 

 

$

300,001

 

2/21/19(5)

                                                     

 

6,277

 

                 

$

299,978

 

2/21/19(5)

                                                     

 

10,462

 

                 

$

499,979

 

2/21/19(6)

                             

 

6,278

 

 

 

12,555

 

 

 

25,110

 

                         

$

600,003

 

 

(1)

The grant date of all awards made in 2019 was the same date that the Compensation Committee approved the grants, except for Mr. Banyard’s sign-on grant, which was approved by the Compensation Committee in advance.

 

(2)

For stock options awarded on February 21, 2019 and March 5, 2019, the grant date fair value is based on the Black-Scholes value of $11.39 and $11.20, respectively. The grant date fair value of PSAs and RSUs was determined based upon the average of the high and low prices of the Company’s common stock on the grant date: $47.79 for February 21, 2019 awards, $47.645 for Mr. Fink’s March 5, 2019 awards and $63.2225 for Mr. Banyard’s November 18, 2019 RSU award. Grant date fair values of PSAs and RSUs are computed in accordance with FASB ASC Topic 718. For assumptions used in determining these values, see note 14 to the consolidated financial statements contained in the Company’s Form 10-K.

 

(3)

Amounts in this row reflect the range of potential payments under the Fortune Brands Home & Security, Inc. Annual Executive Incentive Compensation Plan (the “AIP”). The target payout for Messrs. Klein, Hallinan and Finley is based on target awards of 130%, 75% and 75%, respectively, of base salary as of December 31, 2019. The target payout for Mr. Fink is based on target award of 75% for January to March 4, 2019 and 95% from March 5 to December 31, 2019. See pages 24-25 of the CD&A for further information regarding Annual Cash Incentives.

 

(4)

This row reflects the number of stock options granted under the Company’s 2013 Long-Term Incentive Plan (the “LTIP”) and the grant date fair value of the stock options on the grant date. These stock options vest ratably in three equal annual installments, subject to continued employment through the applicable vesting dates.

 

(5)

The amounts in this row reflect the number of RSUs that were granted under the LTIP and will vest in three equal annual installments, subject to continued employment through the applicable vesting dates, except with respect to Mr. Finley’s retention award of 10,462 RSUs which vest on the second anniversary of the grant date, subject to continued employment through the vesting date.

 

(6)

The amounts in this row reflect the range of potential payouts for PSAs that were granted under the LTIP for the 2019-2021 performance period. The performance goals for the 2019-2021 PSAs are EBITDA (weighted 75%) and average ROIC (weighted 25%).

 

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2019 EXECUTIVE COMPENSATION (CONTINUED)

 

 

 

 

OUTSTANDING EQUITY AWARDS AT 2019 FISCAL YEAR-END

 

     
     Option Awards   Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

(1)

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

(2)

   

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options (#)

   

Option

Exercise

Price ($)

   

Option  

Expiration  

Date  

 

Number

of Shares

or Units
of

Stock

Held

that

Have

Not

Vested

(#)(3)

   

Market

Value of

Shares or

Units of

Stock

Held that

Have Not

Vested ($)(4)

   

Equity

Incentive

Plan

Awards:

Number

of

Unearned

Shares,

Units or

Other

Rights

That

Have Not

Vested

(#)(5)

   

Equity

Incentive

Plan

Awards:

Market or
Payout

Value of

Unearned

Shares,

Units or

Other

Rights That

Have Not

Vested (#)(6)

 

Christopher J. Klein

 

 

0

 

 

 

140,474

 

         

 

$47.99

 

 

2/21/29  

 

 

65,039

 

 

 

$4,249,648

 

 

 

98,446

 

 

 

$6,432,462

 

   

 

47,115

 

 

 

94,228

 

         

 

$63.51

 

 

2/26/28  

                               
   

 

90,871

 

 

 

45,436

 

         

 

$58.21

 

 

2/27/27  

                               
   

 

131,200

 

 

 

0

 

         

 

$50.22

 

 

2/28/26  

                               
   

 

132,500

 

 

 

0

 

         

 

$47.87

 

 

2/23/25  

                               
   

 

108,200

 

 

 

0

 

         

 

$44.73

 

 

2/24/24  

                               
   

 

135,600

 

 

 

0

 

         

 

$33.10

 

 

2/25/23  

                               
   

 

89,700

 

 

 

0

 

         

 

$19.46

 

 

2/21/22  

                               

Patrick D. Hallinan

 

 

0

 

 

 

35,119

 

         

 

$47.99

 

 

2/21/29  

 

 

15,359

 

 

 

$1,003,557

 

 

 

23,824

 

 

 

$1,556,660

 

   

 

10,601

 

 

 

21,201

 

         

 

$63.51

 

 

2/26/28  

                               
   

 

9,177

 

 

 

4,588

 

         

 

$65.41

 

 

  7/3/27  

                               
   

 

10,739

 

 

 

5,370

 

         

 

$58.21

 

 

2/27/27  

                               
   

 

8,500

 

 

 

0

 

         

 

$50.22

 

 

2/28/26  

                               
   

 

8,600

 

 

 

0

 

         

 

$47.87

 

 

2/23/25  

                               
   

 

6,100

 

 

 

0

 

         

 

$44.73

 

 

2/24/24  

                               

Nicholas I. Fink

 

 

0

 

 

 

66,964

 

         

 

$46.99

 

 

  3/5/29  

 

 

22,053

 

 

 

$1,440,943

 

 

 

37,780

 

 

 

$2,468,545

 

   

 

9,423

 

 

 

18,846

 

         

 

$63.51

 

 

2/26/28  

                               
   

 

18,174

 

 

 

9,087

 

         

 

$58.21

 

 

2/27/27  

                               
   

 

27,600

 

 

 

0

 

         

 

$50.22

 

 

2/28/26  

                               
   

 

30,000

 

 

 

0

 

         

 

$45.65

 

 

7/27/25  

                               

R. David Banyard

 

 

N/A

 

 

 

N/A

 

         

 

N/A

 

 

      N/A  

 

 

43,497

 

 

 

$2,842,094

 

 

 

        0

 

 

 

$              0

 

Brett E. Finley

 

 

0

 

 

 

26,339

 

         

 

$47.99

 

 

2/21/29  

 

 

27,680

 

 

 

$1,808,611

 

 

 

17,540

 

 

 

$1,146,064

 

   

 

7,460

 

 

 

14,919

 

         

 

$63.51

 

 

2/26/28  

                               
   

 

13,218

 

 

 

6,609

 

         

 

$58.21

 

 

2/27/27  

                               
   

 

19,700

 

 

 

0

 

         

 

$50.22

 

 

2/28/26  

                               

 

  (1)

Each outstanding stock option that was exercisable on December 31, 2019 is listed in this column.

 

  (2)

Each outstanding stock option that was not yet exercisable on December 31, 2019 is listed in this column. All stock options vest in three equal annual installments. The chart below reflects the number of outstanding stock options that will vest during each of 2020, 2021 and 2022 (assuming each NEO’s continued employment).

 

     

Number of Options Vesting by Year

 

 

Name

         2020                  2021                  2022        

Christopher J. Klein

  

 

139,375    

 

  

 

93,938    

 

  

 

46,825    

 

Patrick D. Hallinan

  

 

32,265    

 

  

 

22,307    

 

  

 

11,706    

 

Nicholas I. Fink

  

 

40,832    

 

  

 

31,744    

 

  

 

22,321    

 

Brett E. Finley

  

 

22,848    

 

  

 

16,239    

 

  

 

8,780    

 

 

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Table of Contents

 

 

2019 EXECUTIVE COMPENSATION (CONTINUED)

 

 

 

  (3)

Each outstanding RSU that had not yet vested as of December 31, 2019 is listed in this column. Other than Mr. Finley’s 2019 retention award, all of the RSUs listed in the column vest in three equal annual installments. Mr. Finley’s 2019 retention award vests on the second anniversary of the grant date. The chart below reflects the number of outstanding RSUs that will vest during 2020, 2021 and 2022 (assuming each NEO’s continued employment).

 

     

Number of RSUs Vesting by Year

 

 

Name

         2020                  2021                  2022        

Christopher J. Klein

  

 

32,224    

 

  

 

21,655    

 

  

 

11,160    

 

Patrick D. Hallinan

  

 

7,418    

 

  

 

5,151    

 

  

 

2,790    

 

Nicholas I. Fink

  

 

9,460    

 

  

 

7,346    

 

  

 

5,247    

 

R. David Banyard

  

 

14,499    

 

  

 

14,499    

 

  

 

14,499    

 

Brett E. Finley

  

 

8,331    

 

  

 

17,257    

 

  

 

2,092    

 

 

  (4)

This column reflects the value of the outstanding RSUs that have not yet vested (using the December 31, 2019 closing price of the Company’s common stock of $65.34).

 

  (5)

The amounts reported in this column are based on achieving target performance goals for PSAs granted in 2018 and 2019, as the performance for each performance period is measured on a cumulative basis and is not determinable until the end of the three year performance period. The PSAs vest based on the Company’s performance over the three year performance period and are subject to the executive’s continued employment through the end of the performance period. The CD&A on pages 17-29 and the footnotes to the table titled “2019 Grants of Plan-Based Awards” on page 31 provide additional detail on the PSAs granted in 2019. The chart below reflects the target number of outstanding PSAs as of December 31, 2019 (assuming each NEO’s continued employment).

 

   
 

Number of PSA Outstanding By Performance Period

 

 

Name

2018-2020

2019-2021

Christopher J. Klein

  31,486               66,960            

Patrick D. Hallinan

  7,084               16,740            

Nicholas I. Fink

  6,297               31,483            

Brett E. Finley

  4,985               12,555            

 

  (6)

This column reflects the value of the PSAs (using the December 31, 2019 closing price of the Company’s common stock of $65.34).

 

2019 OPTION EXERCISES AND STOCK VESTED  
     

Option Awards

 

    

Stock Awards

 

 
Name   

Number of Shares

Acquired on

Exercise (#)(1)

    

Value

Realized Upon

Exercise ($)(2)

    

Number of Shares

Acquired on

Vesting (#)(3)

    

Value

Realized Upon

Vesting ($)(4)

 

Christopher J. Klein

  

 

160,530

 

  

 

$7,304,544

 

  

 

47,669

 

  

 

$2,628,849

 

Patrick D. Hallinan

  

 

0

 

  

 

$               0

 

  

 

8,690

 

  

 

$   501,464

 

Nicholas I. Fink

  

 

0

 

  

 

$              0

 

  

 

9,647

 

  

 

$   531,099

 

Brett E. Finley

  

 

0

 

  

 

$              0

 

  

 

10,152

 

  

 

$   552,930

 

 

  (1)

This column reflects the number of stock options that exercised during 2019.

 

  (2)

This column reflects the difference between the market value of the shares on the date of exercise and the exercise price of the stock options.

 

  (3)

This column reflects the number of RSUs that vested in 2019 which were granted in 2016, 2017 and 2018. This column also reflects the number of shares acquired upon the vesting of PSAs for the 2017-2019 performance period.

 

  (4)

This column reflects the value of RSUs calculated using the market value of the shares on the applicable vesting dates. This column also reflects the value of PSAs which were calculated using the market value of the shares on the vesting date.

Frozen Tax-Qualified and Non-Qualified Pension Benefits

Effective December 31, 2016, the Company froze all future benefit accruals to all participating employees, including Mr. Klein, under the Moen Incorporated Pension Plan (“Moen Plan”) and the Fortune Brands Home & Security, Inc. Supplemental Retirement Plan (“FBHS SERP”). While Mr. Hallinan was employed by MasterBrand Cabinets from 2005 through 2008, he accumulated a pension benefit under the MasterBrand Cabinets, Inc. Pension Plan (“MBCI Plan”) and a supplemental pension benefit under the MasterBrand Cabinets, Inc. Supplemental

 

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2019 EXECUTIVE COMPENSATION (CONTINUED)

 

 

 

Retirement Plan (“MBCI SERP”). The supplemental plans each paid the difference between the benefits payable under the qualified plans and the amount that would have been paid if the Code did not have a limitation on the amount of compensation permitted for inclusion of the calculation of benefits. The present value of the accumulated benefits under the qualified and non-qualified plans will continue to fluctuate in the future based on changes in discount rates and actuarial assumptions.

Payment of Mr. Klein’s tax-qualified pension benefit would be unreduced after attaining age 62. Because Mr. Klein satisfies the age for early retirement, he could commence payment of his benefit with a reduction rate of 6% per year prior to attainment of age 62. Under the FBHS SERP, payment of benefits commences at termination of employment following attainment of age 55, subject to any delay required under Section 409A of the Code. Additionally, early commencement of benefits would be calculated using a reduction of 6% per year prior to the attainment of age 65.

Payment of Mr. Hallinan’s tax-qualified pension benefit would be unreduced after attaining age 62. He could commence payment of his benefits as early as age 55 at a reduction rate of 0.5% per month for the first 60 months and 0.3333% per month thereafter until the attainment of age 62. Under the MBCI SERP, payment of the benefit commences at termination of employment following attainment of age 65, subject to any delay required under Section 409A of the Code.

Messrs. Fink, Banyard and Finley are not eligible to participate in a tax-qualified defined benefit pension plans because their hire or transfer dates, as applicable, occurred after the date the plans were frozen with respect to new participants.

 

RETIREMENT AND POST-RETIREMENT BENEFITS

2019 PENSION BENEFITS

Name   Plan Name(1)  

Number of    

Years    

Credited    

Service (#)    

 

Present    

Value of    

Accumulated    

Benefit ($)    

(2)(3)    

 

Payments    

During    

Last    

Fiscal    

Year    

 

Christopher J. Klein  

 

 

Moen Plan

   

 

 

 

13.75    

 

   

 

$

 

575,000    

 

   

 

 

 

0    

 

   

FBHS SERP

 

     

 

13.75    

 

 

    $

 

4,909,000    

 

 

     

 

0    

 

 

 

Patrick D. Hallinan

 

 

MBCI Plan

   

 

 

 

3.08    

 

   

 

$

 

75,000    

 

   

 

 

 

0    

 

   

MBCI SERP

 

     

 

3.08    

 

 

    $

 

22,000    

 

 

     

 

0    

 

 

 

  (1)

Mr. Klein accrued benefits under the Moen Plan, a tax-qualified defined benefit pension plan, and the FBHS SERP, a non-qualified defined benefit supplemental pension plan, through December 31, 2016 when benefit accruals were frozen. Mr. Hallinan accrued benefits under the MBCI Plan, a tax-qualified defined benefit pension plan, and the MBCI SERP, a non-qualified defined benefit supplemental pension plan, while he was employed with MasterBrand Cabinets from 2005 through 2008.

 

  (2)

The benefit amounts listed reflect the present value of the accumulated benefit payable in the form of a single life annuity where payments continue for the life of the NEO but cease upon his death. All of the tax-qualified and supplemental non-qualified pension plans provide for payment to be made in a single-life annuity to unmarried participants and in a qualified joint and survivor annuity for married participants. At the time of retirement, participants may elect, among other forms of payment, a reduced annuity in the joint and survivor form, which provides payments over the life of the participant and a named beneficiary.

 

      

For Mr. Klein, the amounts listed are based on compensation and years of service as of December 31, 2016, the last year that he accrued a benefit before the plans were frozen. The present value of Mr. Klein’s accumulated plan benefit was calculated based on assumptions in accordance with FASB ASC 715, which reflects the updated mortality table to the 2019 Static Mortality Table for Annuitants per 1.430(h)(3)-1(e) and a discount rate of 3.35% for the Moen Plan and a discount rate of 3.35% for the FBHS SERP. For Mr. Hallinan, the amounts listed are based on compensation and years of service with MasterBrand Cabinets from 2005 through 2008. The present value of Mr. Hallinan’s accumulated plan benefits is calculated based on the same assumptions used to calculate Mr. Klein’s accumulated plan benefits and a discount rate of 3.30% for the MBCI Plan and the MBCI SERP.

 

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2019 EXECUTIVE COMPENSATION (CONTINUED)

 

 

 

Tax Qualified and Non-Qualified Defined Contribution Benefits

Fortune Brands maintains a tax-qualified defined contribution plan (the “Savings Plan”) and each of our businesses makes either a matching contribution or a qualified non-elective contribution (“QNEC”) under the Savings Plan. In addition, Fortune Brands, GPG and Therma-Tru make profit sharing contributions to eligible employees. In 2019, the eligible profit sharing contribution amount was equal to 6% of adjusted compensation, plus 7.5% for amounts above the Social Security wage base limit, for Messrs. Klein and Hallinan, 5% for Mr. Fink and 2% for Mr. Finley. A portion of the amount of the profit sharing contribution, up to the limitation imposed by the Code, was made to the Savings Plan. Profit sharing contributions in excess of the limitation imposed by the Code were contributed to the FBHS SERP on behalf of Messrs. Klein, Hallinan, to the Global Plumbing Group Supplemental Plan (the “GPG SERP”) on behalf of Mr. Fink and to the Therma-Tru Corp. Supplemental Executive Retirement Plan (the “Therma-Tru SERP”) on behalf of Mr. Finley. Mr. Banyard does not receive profit sharing contributions under the Savings Plan. Mr. Hallinan maintains an account holding prior supplemental non-qualified profit sharing contributions under the GPG SERP.

FBHS SERP and GPG SERP profit sharing accounts are credited with interest monthly, using the Citigroup US Broad Investment-Grade (USBIG) Bond Index. The FBHS SERP and the GPG SERP pay any defined contribution amounts, in a lump sum following termination of employment, subject to any delay required under Section 409A of the Code. Participants in the Therma-Tru SERP have the option to invest in a number of mutual funds, which are valued on a daily basis. Any interest, dividends, gains or losses received by the mutual fund investment are allocated across the participants’ accounts in that fund. The Therma-Tru SERP pays any supplement profit sharing contributions in a lump sum or in substantially equal annual installments following termination of employment, subject to any delay required under Section 409A of the Code.

 

2019 NONQUALIFIED DEFERRED COMPENSATION  
Name   Plan Name  

Executive

Contributions

in Last FY ($)

   

Registrant

Contributions

in Last FY

($)(1)

   

Aggregate

Earnings

in Last FY

($)(2)

   

Aggregate

Withdrawals/

Distributions

($)

   

Aggregate

Balance at

Last FYE

($)

 

Christopher J. Klein  

 

FBHS SERP

 

 

$0

 

 

 

$145,128

 

 

 

$165,916

 

 

 

$0

 

 

 

$2,071,644

 

Patrick D. Hallinan

 

FBHS SERP

 

 

$0

 

 

 

$45,483

 

 

 

$6,292

 

 

 

$0

 

 

 

$83,654

 

 

GPG SERP

 

 

$0

 

 

 

$0

 

 

 

$3,774

 

 

 

$0

 

 

 

$46,602

 

Nicholas I. Fink

 

GPG SERP

 

 

$0

 

 

 

$12,696

 

 

 

$5,459

 

 

 

$0

 

 

 

$71,693

 

 

FBHS SERP

 

 

$0

 

 

 

$90,725

 

 

 

$4,019

 

 

 

$0

 

 

 

$49,626

 

Brett E. Finley

 

Therma-Tru SERP

 

 

$0

 

 

 

$11,861

 

 

 

$9,269

 

 

 

$0

 

 

 

$118,861

 

(1)   Amounts listed in this column were reported as compensation in the last fiscal year in the “All Other Compensation” column of the 2019 Summary Compensation Table.

(2)   No amounts listed in the Aggregate Earnings column were reported in the 2019 Summary Compensation Table.

 

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2019 EXECUTIVE COMPENSATION (CONTINUED)

 

 

 

 

2019 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL(1)

 

Voluntary

 

Involuntary

 

     

Involuntary

Termination
(without Cause)
or Termination
for Good

Reason

After

Change in

Control

 

 

 

For

Good

Reason

Without

Good

Reason

For

Cause

Without

Cause

Death Disability(2) Retirement(3)

 

Cash Severance

 

 

                 

Klein

$ 5,988,468     $0     $0   $ 5,988,468   $ 0   $ 0   $ 0   $ 8,982,702  
                 

Hallinan

$ 1,716,885     $0     $0   $ 1,716,885   $ 0   $ 0   $ 0   $ 2,289,180  
                 

Fink

$ 2,674,982     $0     $0   $ 2,674,982   $ 0   $ 0   $ 0   $ 3,566,642  
                 

Banyard

$ 1,944,000     $0     $0   $ 1,944,000   $ 0   $ 0   $ 0   $ 2,592,000  
                 

Finley

$ 1,535,042     $0     $0   $ 1,535,042   $ 0   $ 0   $ 0   $ 2,046,722  

 

Health and Related Benefits(4)

 

 

                 

Klein

$ 37,212     $0     $0   $ 37,212   $ 2,060,000