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 22, 2021

Dear Fellow Stockholders:

We are pleased to invite you to the 2021 Annual Meeting of Stockholders (“Annual Meeting”) of Fortune Brands Home & Security, Inc. on Tuesday, May 4, 2021 at 8:00 a.m. (CDT). Due to the public health impact of the coronavirus (COVID-19) pandemic, the Annual Meeting will be conducted exclusively online by virtual webcast at www.virtualshareholdermeeting.com/FBHS2021. The following matters will be considered at the Annual Meeting:

 

Proposal 1:    Election of the four director nominees identified in this Proxy Statement for a three year term expiring at the 2024 Annual Meeting of Stockholders (see pages 6-11);
Proposal 2:    Ratification of the appointment by the Company’s Audit Committee of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2021 (see page 48);
Proposal 3:    Advisory vote to approve the compensation paid to the Company’s named executive officers (see page 49); and

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

Stockholders of record at the close of business on March 5, 2021, the record date for the Annual Meeting, are entitled to vote. For information about attending our Annual Meeting online and for voting instructions, please see pages 52-56.

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.

This Notice of Annual Meeting and Proxy Statement and accompanying proxy are first being distributed on or about March 22, 2021.

 

LOGO

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

Important Notice Regarding the Availability of Proxy Materials

for the 2021 Annual Meeting of Stockholders to be Held on Tuesday, May 4, 2021.

This Notice of Annual Meeting and Proxy Statement and the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“Form 10-K”) are available at www.proxyvote.com.


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TABLE OF CONTENTS

 

PROXY SUMMARY

     1  

PROPOSAL 1 – ELECTION OF DIRECTORS

     6  

CORPORATE GOVERNANCE

     12  

Corporate Governance Principles

     12  

Director Independence

     12  

Policies with Respect to Transactions with Related Persons

     12  

Certain Relationships and Related Transactions

     13  

Anti-Hedging and Anti-Pledging Policy

     13  

Director Nomination Process

     13  

Communication with the Board

     14  

Board Leadership Structure

     14  

Executive Sessions

     14  

Risk Management

     15  

Compensation Risks

     15  

Meeting Attendance

     16  

Board Committees

     16  

Audit Committee

     17  

Compensation Committee

     17  

Compensation Committee Interlocks and Insider Participation

     17  

Compensation Committee Procedures

     17  

Compensation Committee Consultant

     18  

Executive Committee

     18  

Nominating, Environmental, Social and Governance Committee

     18  

Other Corporate Governance Resources

     19  

DIRECTOR COMPENSATION

     20  

Cash Retainers

     20  

Stock Awards

     20  

Director Stock Ownership Guidelines

     20  

2020 Director Compensation Table

     21  

COMPENSATION DISCUSSION AND ANALYSIS

     22  

Executive Summary

     22  

Business & Financial Highlights

     22  

2020 Compensation Highlights

     23  

Results of the 2020 Say-on-Pay Vote

     24  

Philosophy and Process for Awarding NEO Compensation

     25  

Types and Amounts of NEO Compensation Awarded in 2020

     27  

Compensation Committee Report

     35  

2020 EXECUTIVE COMPENSATION

     36  

2020 Summary Compensation Table

     36  

2020 Grants of Plan-Based Awards

     37  

Outstanding Equity Awards at 2020 Fiscal Year-End

     38  

2020 Option Exercises and Stock Vested

     39  

Retirement and Post-Retirement Benefits

     40  

2020 Nonqualified Deferred Compensation

     41  

2020 Potential Payments Upon Termination or Change in Control

     42  

CEO PAY RATIO

     44  

EQUITY COMPENSATION PLAN INFORMATION

     45  

AUDIT COMMITTEE MATTERS

     46  

Report of the Audit Committee

     46  

Fees of Independent Registered Public Accounting Firm

     47  

Approval of Audit and Non-Audit Services

     47  

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

     48  

PROPOSAL 3 – ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

     49  

CERTAIN INFORMATION REGARDING SECURITY HOLDINGS

     50  

Delinquent Section 16(a) Reports

     51  

FREQUENTLY ASKED QUESTIONS

     52  

APPENDIX A – RECONCILIATIONS

     A-1  


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PROXY SUMMARY

 

 

 

Annual Meeting Information

 

LOGO

   Time and Date   LOGO   

Virtual Location

  LOGO      Record Date  
  

Tuesday, May 4, 2021

at 8:00 a.m. (CDT)

     www.virtualshareholdermeeting.com/FBHS2021       
March 5, 2021   
 

 

*

To participate in the Annual Meeting online, visit the website shown above and enter the 16-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy card, or on the instructions that accompanied your proxy materials. See pages 52-56 for additional details on how to attend the meeting.

Agenda and Voting Recommendations

This Proxy Summary highlights selected information in this Proxy Statement 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 four Class I Directors

Ann F. Hackett, John G. Morikis, Jeffery S. Perry and Ronald V. Waters, III

 

 

FOR    

each Nominee

  6-11    
     

2    

 

Ratify the appointment of the independent auditor Pricewaterhouse Coopers

 

  FOR       48    
     

3    

 

 

Advisory vote to approve named executive officer compensation

 

 

FOR    

 

 

49     

 

See pages 52-56 for instructions on how to vote your shares.

2020 BUSINESS HIGHLIGHTS

 

                

  INCREASED NET SALES by 6% to $6.1 billion  

    

  RETURNED CASH TO SHAREHOLDERS $321 million through dividends and share repurchases
  GREW EARNINGS PER SHARE by 29% from $3.06 to $3.94 and 16% and from $3.60 to $4.19 on a before charges/gains basis     MAINTAINED STRONG BALANCE SHEET $419 million of cash with $865 million total liquidity available between our $1.25 billion revolver and the $400 million one-year revolver secured during the pandemic.

Impact of COVID-19 on our 2020 Business

In March 2020, the World Health Organization declared a global pandemic related to the novel coronavirus (“COVID-19” or the “pandemic”). Fortune Brands, like many other companies, faced unprecedented operational, financial and safety challenges.

 

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PROXY SUMMARY (CONTINUED)

 

 

 

In the first half of the year, we saw some reductions in demand, short-term closures of some of our facilities and increased inefficiencies at some of our plants and within parts of our supply chain due to the pandemic. Due to the proactive measures taken by our management teams throughout our organization, Fortune Brands was able to:

 

   

prioritize and ensure the safety of our employees;

 

   

keep our facilities operating so that we could meet accelerating demand; and

 

   

take market share from our competitors and deliver exceptional financial results.

We believe that the pandemic put renewed focus on the home, creating an increased consumer interest in investing in their homes and accelerated trends that we were experiencing prior to the pandemic, such as the shift towards value-priced cabinetry products and a focus on outdoor living. We saw increased volume, improved efficiencies and sales during the second half of the year.

Due to our safety practices, a stronger than expected home products market and the actions taken by our executive team to permanently reduce expenses and improve productivity across our businesses, we saw a material year-over-year improvement in sales and profits during 2020. We continue to believe that an improved market and actions taken by the Company to reduce costs and drive efficiencies, will enable us to compete effectively throughout the duration and after the COVID-19 pandemic.

BOARD OF DIRECTORS

Board Refreshment

In anticipation of Mr. Klein’s retirement from the Board, Amit Banati and Jeffery Perry were added to our Board in 2020.

 

   

Mr. Banati joined as a Class II member of the Board in September 2020. Mr. Banati brings strong financial expertise, along with executive and international leadership experience at Kellogg Company where he currently serves as Chief Financial Officer. Mr. Banati serves on our Audit and Compensation Committees.

 

   

Mr. Perry joined as a Class I member of the Board in December 2020. Mr. Perry brings experience as a mergers and acquisitions (M&A), integrations, business transformations and strategic business advisor at Ernst & Young. Mr. Perry serves on our Audit and Nominating, Environmental, Social and Governance Committees.

 

LOGO    LOGO

Successful Leadership Transition

In January 2020, Nicholas Fink became our new Chief Executive Officer (“CEO”) following Christopher Klein’s decision to retire after 8 years as the Company’s CEO. To ensure a smooth and successful transition, Mr. Klein served as Executive Chairman of the Board of Directors through the end of 2020. On December 31, 2020, Mr. Klein resigned as Executive Chairman and as a member of the Board and the Board appointed Susan S. Kilsby as the non-executive Chairman of the Board.

 

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PROXY SUMMARY (CONTINUED)

 

 

 

Mr. Fink’s appointment was the result of our Board’s active engagement in a thoughtful and comprehensive multi-year succession planning process 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 efficiency in our businesses, as well as his deep understanding of our markets, uniquely positioned him to lead our Company’s next phase of growth.

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 12-19 of the Proxy Statement and highlighted below:

 

   
Independent Board (90%), except our CEO   

Independent Chair of the Board

 

 
Majority vote in uncontested director elections, with a resignation policy   

Annual Board and Committee evaluations

 

 
Regular executive sessions of non-management directors   

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

 

 
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 prohibition on hedging and pledging of Company stock   

Proxy Access bylaw allows for 3% holders to nominate the greater of 2 directors or 20% of the board

 

In early 2021, the Board adopted a by-law amendment providing stockholders with proxy access. This amendment allows stockholders who own 3% of our shares for 3 years to nominate the greater of 2 directors or 20% of board after meeting certain requirements. This action demonstrates the Board’s commitment to maintaining a strong corporate governance program.

 

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PROXY SUMMARY (CONTINUED)

 

 

 

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) HIGHLIGHTS

During a challenging year, we continued to focus on elevating our ESG programs and initiatives with oversight by the Board’s Nominating, Environmental, Social and Governance Committee (the “NESG” or “NESG Committee”):

 

LOGO

Social and environmental issues are important to our stockholders and the success of our business. Below are some examples of how we prioritize these issues:

 

   

We produce environmentally friendly faucets, showerheads and whole home water solutions that help conserve water, fiberglass doors that save energy and decking products that are made from nearly all recycled materials.

 

   

Employee safety is a critical element to our growth strategy and integral to Company culture. This has been demonstrated in total recordable incident rates over the last five years, as shown below:

 

LOGO

 

   

We enhanced our already-strong safety protocols to provide safer workplaces for our employees and continued to operate our businesses so we could meet consumer demand during the pandemic, by taking the following actions:

 

   

Established physical distancing procedures for our production employees by adding extra shifts, staggering start and finish times, increasing space or adding barriers between stations;

 

   

Implemented temperature screening and health checks and mandated face coverings at our manufacturing facilities; and

 

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PROXY SUMMARY (CONTINUED)

 

 

 

   

Adjusted attendance policies to encourage those who are sick to stay home and required associates to work remotely when possible.

 

   

In 2020, we took multiple actions to support a culture where diversity, equity and inclusion (“DEI”) continues to be a priority for the Company:

 

   

Headlined the importance of DEI efforts at our annual leadership meeting in early 2020;

 

   

Nicholas Fink joined the CEO Action for Diversity & Inclusion, a business leader pledge aimed at advancing diversity and inclusion in the workplace;

 

   

Implemented an unconscious bias learning program for our most senior leaders to help break bias in the decision making process;

 

   

Built an internal DEI team and initiated employee resource groups; and

 

   

Increased the diversity of the experience of the Board, adding two new Directors who are persons of color and appointing a woman as the Chair of the Board.

For more information about our ESG efforts, please view our latest ESG Report available at www.fbhs.com/global-citizenship/esg.

COMPENSATION HIGHLIGHTS

PAY FOR PERFORMANCE Our executive compensation program is designed to reward NEOs for the achievement of both 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 compensation paid to our NEOs is dependent upon Company performance and/or stock price. In 2020:

 

   

86.3% the CEO’s total target compensation was pay-at-risk;

 

   

76.4% of the other NEOs (on average and excluding Mr. Klein) total target compensation was pay-at-risk; and

 

   

50% of the annual equity awards granted to NEOs in 2020 were performance share awards based on three-year performance targets.

 

LOGO   

SAY ON PAY The Compensation Committee and Board value the input of our stockholders. The Compensation Committee recognized that the 92.9% approval of the 2020 Say on Pay vote reflects our shareholders’ support for the Company’s executive compensation program.

 

COMPENSATION PRACTICES The Compensation Discussion & Analysis (CD&A) section beginning on page 22 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

 

 
Robust stock ownership guidelines   

Prohibition on hedging and 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

 

 

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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 we look for in 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 qualifications, experience, skills and expertise to be represented by members of the Board:

 

   

Consumer products expertise

   

Financial and/or accounting expertise

   

Public company experience as a chief executive, chief operating or chief financial officer

   

Public company board experience

   

Diversity of skill, background and viewpoint

Election of Directors

The Board currently consists of ten members and is divided into three classes, each having three year terms that expire in successive years. Mr. Banati was appointed by the Board to serve as a Class II Director effective in September 2020 and Mr. Perry was elected by the Board to serve as a Class I Director effective in December 2020. The term of each director currently serving in Class I, Ms. Ann Fritz Hackett and Messrs. John G. Morikis, Jeffery S. Perry and Ronald V. Waters, III, expires at the 2021 Annual Meeting of Stockholders. The Board has nominated Ms. Hackett and Messrs. Morikis, Perry and Waters for a new term of three years expiring at the 2024 Annual Meeting of Stockholders and until their successors are duly elected and qualified.

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. Shares cannot be voted for more than the number of nominees proposed for re-election.

The names of the nominees and the current Class II and Class III 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)

 

 

 

 

2021 NOMINEES FOR ELECTION – CLASS I DIRECTORS

 

  Ann Fritz Hackett

 

LOGO

 

  

Director since: 2011

Independent Director

Age: 67

Committees: Compensation (Chair); NESG; Executive

 

Biography:

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.

 

Current Public Company Boards:

Currently also a director of Capital One Financial Corporation.

Skills & Qualifications:

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.

 

  John G. Morikis

 

LOGO

 

  

Director since: 2011

Independent Director

Age: 57

Committees: Audit; Compensation

 

Biography:

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 of The Sherwin-Williams Company prior thereto.

 

Current Public Company Boards:

Currently also a director of The Sherwin-Williams Company.

Skills & Qualifications:

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.

 

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PROPOSAL 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

 

  Jeffery S. Perry

 

LOGO

 

  

Director since: 2020

Independent Director

Age: 55

Committees: Audit; NESG

 

Biography:

Founder and CEO of Lead Mandates LLC, a business and leadership advisory firm; Retired since October 2020 from Ernst & Young LLP, a leading global professional services firm where he served as EY Global Client Service Partner for major consumer product accounts from April 2014 to October 2020 and as EY Americas Operational Transaction Service Practice Leader prior thereto.

Skills & Qualifications:

Mr. Perry has extensive experience as a strategic, operational and financial advisor helping boards of directors and management teams. He held several senior positions with Ernst & Young and A.T. Kearney Inc. Mr. Perry brings to our Board relevant experience and perspectives in mergers, acquisitions, integrations, divestitures, business transformations and consumer products.

 

  Ronald V. Waters, III

 

LOGO

 

  

Director since: 2011

Independent Director

Age: 69

Committees: Audit (Chair); NESG; Executive

 

Biography:

Retired since May 2010; President and Chief Executive Officer of LoJack Corporation, a provider of tracking and recovery systems, until his retirement.

 

Current Public Company Boards:

Currently also a director of HNI Corporation and Paylocity Holding Corporation.

Skills & Qualifications:

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.

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)

 

 

 

 

CLASS II DIRECTORS – TERM EXPIRING 2022

 

  Amit Banati

 

LOGO

 

  

Director since: 2020

Independent Director

Age: 52

Committees: Audit; Compensation

 

Biography:

Senior Vice President and Chief Financial Officer of Kellogg Company from July 2019 to Present; President – Asia Pacific, Middle East, Africa of Kellogg Company from March 2012 to July 2019).

Skills & Qualifications:

Mr. Banati has extensive executive leadership, operations and financial management experience in leading consumer products companies, both domestically and internationally. He brings to our Board the perspective of a leader with extensive international experience in the consumer products industry. As the Chief Financial Officer of Kellogg Company, he also brings significant financial and accounting expertise to our Board.

 

  Irial Finan

 

LOGO

 

  

Director since: 2019

Independent Director

Age: 63

Committees: Compensation; NESG

 

Biography:

Retired since April 2018; Consultant to the CEO of The Coca-Cola Company from January 2018 to March 2018; Executive Vice President of The Coca-Cola Company and President of Coca-Cola Bottling Investments Group from August 2004 to December 2017.

 

Current Public Company Boards:

Currently also a director of Coca-Cola European Partners plc, Coca-Cola Bottlers Japan Holdings, Inc. and Smurfit Kappa Group plc.

 

Former Public Company Boards:

Formerly a director of Coca-Cola HBC AG and Coca-Cola FEMSA

Skills & Qualifications:

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, including serving as Chair of Smurfit Kappa Group plc.

 

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PROPOSAL 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

 

  Susan S. Kilsby

 

LOGO

 

  

Director since: 2015

Independent Director

Non-Executive Chair

Age: 62

Committees: Compensation; NESG; Executive (Chair)

 

Biography:

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.

 

Current Public Company Boards:

Currently also a director of BHP Group plc, BHP Limited, Diageo plc and Unilever plc.

 

Former Public Company Boards:

Formerly a director of Shire plc (Chair from 2014-2019), Goldman Sachs International, Keurig Green Mountain, Inc., Coca-Cola HBC AG and BBA Aviation plc.

Skills & Qualifications:

Ms. Kilsby has 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, including serving as Chair of Shire plc for 5 years.

 

 

CLASS III DIRECTORS – TERM EXPIRING 2023

 

  Nicholas I. Fink

 

LOGO

 

  

Director since: 2020

Age: 46

Committees: Executive

 

Biography:

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 August 2016 to March 2019 and Senior Vice President, Global Growth & Corporate Development of Fortune Brands from June 2015 to August 2016. Senior Vice President and President of Asia-Pacific/South America of Beam Suntory, Inc., a global spirits company, prior thereto.

 

Current Public Company Boards:

Currently also a director of Constellation Brands, Inc.

Skills & Qualifications:

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.

 

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PROPOSAL 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

 

  A.D. David Mackay

 

LOGO

 

  

Director since: 2011

Independent Director

Age: 65

Committees: Audit; Compensation

 

Biography:

Retired since January 2011; President and Chief Executive Officer of Kellogg Company, a packaged foods manufacturer, prior thereto.

 

Current Public Company Boards:

Currently also a director of The Clorox Company.

 

Former Public Company Boards:

Formerly a director of Keurig Green Mountain, Inc. and McGrath Limited.

Skills & Qualifications:

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.

 

  David M. Thomas

 

LOGO

 

  

Director since: 2011

Independent Director

Age: 71

Committees: Audit; NESG (Chair); Executive

 

Biography:

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 Fidelity Investments Board of Trustees.

Skills & Qualifications:

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 Independent Chairman from 2011 through 2019 and as our Lead Independent Director during 2020.

 

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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 NESG 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.   

 

LOGO

Applying that definition, Messrs. Banati, Finan, Mackay, Morikis, Perry, Thomas, Waters and Mses. Hackett and Kilsby were affirmatively determined by the Board to be independent. Due to Mr. Fink’s employment with the Company, he is not considered independent. In addition, Christopher Klein, who served as Executive Chairman of the Board during 2020, was not considered independent due to his employment with the Company.

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 NESG Committee.

 

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The NESG 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.

Certain Relationships and Related Transactions

Since January 1, 2020, 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 Policy

The Company has a policy prohibiting directors and 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 NESG 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 NESG 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 NESG 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 NESG 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 NESG Committee considers the entirety of each candidate’s credentials in the context of these standards.

Following a multi-year comprehensive succession planning process, Mr. Fink was appointed as the Chief Executive Officer, as well as a Class III member of the Board of Directors effective in January 2020. During 2020, the NESG Committee retained a search firm to assist the Board in finding qualified candidates for new members of the Board. Mr. Banati was a candidate identified through this search and the Board appointed him as a Class II member of the Board of Directors effective September 2020. Mr. Perry was recommended as a potential candidate to join the Board by Mr. Fink. Mr. Perry was appointed as a Class I member of the Board of Directors in December 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 NESG Committee recommended the nomination of Ms. Hackett and Messrs. Morikis, Perry and Waters as Class I directors.

In connection with future director elections, or at any time there is a vacancy on the Board, the NESG 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 NESG 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 NESG 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 NESG Committee will consider the candidate and the candidate’s qualifications in the same manner in which it evaluates nominees identified by the NESG Committee. The NESG Committee may contact the

 

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stockholder making the nomination to discuss the qualifications of the candidate and the stockholder’s reasons for making the nomination. Members of the NESG Committee may then interview the candidate if the committee deems the candidate to be appropriate. The NESG 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.

The nomination process is designed to ensure that the NESG 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

To support an effective succession and transition of the Chief Executive Officer role to Mr. Fink during 2020, the Board determined that the appropriate Board leadership structure was for Mr. Klein, former Chief Executive Officer, to serve as Executive Chairman. We believe that this structure was appropriate for the Company to provide interim support to Mr. Fink during this time of transition.

Beginning in 2021, the Board determined that having an independent director serve as Chairman of the Board is in the best interests of our stockholders at this time. Following Mr. Klein’s retirement as Executive Chairman and as a member of the Board, Susan Kilsby was appointed to serve as the Company’s independent, non-executive Chair. This leadership structure aids the Board’s oversight of management and allows our Chief Executive Officer to focus primarily on his management responsibilities. The non-executive Chair has the responsibility of presiding at all meetings of the Board, consulting with the Chief Executive Officer on Board meeting agendas, acting as a liaison between management and the non-management directors, including maintaining frequent contact with the Chief Executive Officer and advising him or her on the efficiency of the Board meetings, facilitating teamwork and communication between the non-management directors and management, as well as additional responsibilities that are more fully described in the Company’s Corporate Governance Principles. In addition, the Company’s non-executive Chair facilitates the Board’s annual performance assessment of the Chief Executive Officer.

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 and are led by the Non-Executive Chairman or Lead Independent Director. During 2020, the Lead Director led these sessions. In addition, Board Committees also meet regularly in executive session without the presence of management.

 

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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. In particular, the Company has a comprehensive enterprise-wide cybersecurity program aligned to NIST Cybersecurity Framework (CSF) industry standard and maintains security risk insurance coverage to defray the costs of potential information security breaches. The Company conducts automated online training twice a year for its employees and mock phishing campaigns on a regular basis throughout the year. The Company’s cybersecurity team provides regular updates to our senior executives and at least twice a year to the Audit Committee on the status of the Company’s security posture and our efforts to identify and mitigate cybersecurity 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 2020, the compensation consultant conducted the broader review of all compensation arrangements. For more information about that assessment see “Compensation Risks” below.

The NESG Committee manages risks associated with the independence of the Board, potential conflicts of interest of Board members, and the Company’s corporate governance structure. In addition, the NESG Committee oversees the Company’s ESG programs and initiatives, which include the Company’s environmental, health and safety, diversity and inclusion, 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 Chair 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 2020, 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

 

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design of other companies of similar size and industry sector. The Company utilizes the following risk-mitigating design features:

 

   

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 and 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.

Meeting Attendance

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 2020. The Board and its committees held the following number of meetings during 2020:

 

LOGO

Pursuant to the Company’s Corporate Governance Principles, all directors are encouraged to attend the Annual Meeting of Shareholders. Due to local restrictions imposed due to the spread of COVID-19, our 2020 Annual Shareholder Meeting was held virtually, which all of the directors attended.

Board Committees

The Board established an Audit Committee, a Compensation Committee, an Executive Committee and a NESG 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          NESG         

 

   Amit Banati

 

X

 

X

 

   Irial Finan

 

X

 

X

 

   Nicholas I. Fink

 

X

 

   Ann F. Hackett

 

C

 

X

 

X

 

   Susan S. Kilsby

 

X

 

C

 

X

 

   A. D. David Mackay

 

X

 

X

 

   John G. Morikis

 

X

 

X

 

   Jeffery S. Perry

 

X

 

X

 

   David M. Thomas

 

X

 

X

 

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.

 

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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. Banati, Mackay, Morikis, Perry, Thomas and Waters), is financially literate. In addition, Messrs. Banati, Mackay, Perry, Thomas and Waters each have 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.

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. Banati, 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.

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 on 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 22-35 of this Proxy Statement for more information about how the Compensation Committee determined the executive officers’ compensation in 2020.

 

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Compensation Committee Consultant

The Compensation Committee engages an outside compensation consultant. Meridian Compensation Partners (“Meridian”) and Willis Towers Watson (“WTW”) each served as the Compensation Committee consultant for a portion of 2020. Meridian served as the Compensation Committee’s consultant since the Company was formed in 2011 through February 2020. After thoughtful consideration and interviews with Meridian and other compensation consulting firms, the Compensation Committee decided to change its consultant. In March 2020 the Compensation Committee engaged WTW as its compensation consultant. At the time that the Committee engaged WTW, it determined that other services provided to the Company did not create a conflict of interest and that WTW is independent. In 2020, WTW received fees of approximately $336,027 for executive compensation related services provided to the Compensation Committee. WTW also provided certain human capital, benefits and corporate risk and brokering services to the Company for which WTW received approximately $705,030. The Compensation Committee did not review or approve these additional services provided by WTW to the Company because they are of the type directly secured by management in the ordinary course of business.

Both Meridian and WTW reported directly to the Compensation Committee and 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;

 

   

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.

Executive Committee

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

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 “NESG Committee”). The NESG 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

 

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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 NESG 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 NESG Committee (Messrs. Finan, Perry, 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.

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

   LOGO
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 to 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 retainers and Company stock. Below is a description of the 2020 non-employee director compensation program.

Cash Retainers

During 2020, the annual cash retainer for services as a non-employee director of the Company was $90,000. The members of the Audit Committee (Messrs. Banati, Mackay, Morikis, Thomas and Waters) and the Compensation Committee (Mses. Hackett and Kilsby and Messrs. Banati, 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 NESG 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 retainer of $50,000 for his service as Lead Independent Director of the Board during 2020. Directors may elect to receive payment of their cash retainers in Company stock rather than cash.

Beginning in 2021 and after analyzing director compensation and receiving input from WTW, the Board approved an annual retainer for the non-executive Chair of $200,000, the addition of an annual cash fee of $7,500 for members of the Board serving on the NESG Committee and an increase in the annual cash retainer to $100,000.

Stock Awards

In April 2020, 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 ($46.82), rounded to the nearest share. Accordingly, 2,883 shares of Company stock were granted to each of the non-employee directors. The Board approved an increase in the dollar value of the 2021 annual stock grant to $145,000. 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 our 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 ($500,000 based on the 2021 annual fee of $100,000). 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 50-51.

 

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DIRECTOR COMPENSATION (CONTINUED)

 

 

 

2020 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     

($)     

Amit Banati

  

$  29,063     

  

$           0     

  

n/a     

 

n/a     

 

n/a     

 

$     114     

  

$  29,177     

Irial Finan

  

$  97,500     

  

$134,982     

  

n/a     

 

n/a     

 

n/a     

 

$     841     

  

$233,323     

Ann F. Hackett

  

$112,500     

  

$134,982     

  

n/a     

 

n/a     

 

n/a     

 

$     841     

  

$248,323     

Susan S. Kilsby

  

$  97,500     

  

$134,982     

  

n/a     

 

n/a     

 

n/a     

 

$39,928     

  

$272,410     

A.D. David Mackay

  

$105,000     

  

$134,982     

  

n/a     

 

n/a     

 

n/a     

 

$     841     

  

$240,823     

John G. Morikis

  

$105,000     

  

$134,982     

  

n/a     

 

n/a     

 

n/a     

 

$     841     

  

$240,823     

Jeffery S. Perry

  

$    5,870     

  

$           0     

  

n/a     

 

n/a     

 

n/a     

 

$  5,114     

  

$  10,984     

David M. Thomas

  

$164,481     

  

$134,982     

  

n/a     

 

n/a     

 

n/a     

 

$  5,841     

  

$305,304     

Ronald V. Waters

  

$114,375     

  

$134,982     

  

n/a     

 

n/a     

 

n/a     

 

$  5,841     

  

$255,198     

* Although Messrs. Fink and Klein served as members of the Board during 2020, they did not receive any additional compensation for such service. Mr. Banati joined the Board in September 2020 and Mr. Perry joined the Board in December 2020. Mr. Klein retired from the Board effective December 31, 2020.

 

  (1)

Messrs. Banati and Perry received a pro-rata portion of the cash retainers based on their respective Board and committee commencement dates.

 

  (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 $46.82 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, 2020, Ms. Hackett and Messrs. Morikis and Thomas had the following number of deferred shares outstanding: 34,815, 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 and director insurance programs. 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. In 2020, Ms. Kilsby was permitted to use the Company’s aircraft for a personal trip due to COVID-19 safety precautions. The Company’s incremental cost for personal use of Company aircraft by Ms. Kilsby was $39,087 which is reflected in this column. 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.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

This Compensation Discussion and Analysis (“CD&A”) describes the Fortune Brands’ executive compensation program and explains how the Compensation Committee made compensation decisions for the following Named Executive Officers (the “NEOs”) in 2020:

 

LOGO   LOGO   LOGO   LOGO   LOGO   LOGO
    Nicholas I. Fink           Christopher J. Klein           Patrick D. Hallinan           R. David Banyard, Jr.           Cheri M. Phyfer           Brett E. Finley    
Chief Executive Officer   Executive Chairman & Former Chief Executive Officer   Senior Vice President & Chief Financial Officer  

President

Cabinets

 

President

Global Plumbing Group

 

President

Outdoors & Security

 

*

Mr. Fink assumed the role of Chief Executive Officer and Mr. Klein assumed the role of Executive Chairman effective in January 2020.

This CD&A is divided into the following sections:

 

Section

  

Page
Number

Executive Summary

   22

Results of the 2020 Say on Pay Vote

   24

Philosophy and Process for Awarding NEO Compensation

   25

Types and Amounts of NEO Compensation Awarded in 2020

   27

EXECUTIVE SUMMARY1

Leadership Succession Planning

Every year the Board reviews executive succession, including the succession of the CEO. The Compensation Committee and the Board have spent a significant amount of time working on a CEO succession plan over the past several years. With Mr. Klein’s decision to retire as Chief Executive Officer in January 2020, the Board chose Mr. Fink to succeed him. At the same time, the Board evaluated the Company’s leadership structure and decided that Mr. Klein would be appointed Executive Chairman of the Company and Mr. Thomas would transition from non-executive Chairman to Lead Director. On December 31, 2020, Mr. Klein retired as Executive Chairman and as a member of the Board and the Board appointed Susan S. Kilsby as the new non-executive Chair of the Board.

Business and Financial Highlights

As the new CEO at the beginning of 2020, Mr. Fink introduced several strategic initiatives to continue driving growth and profitability for the Company. Despite the pandemic, the Company was able to execute on key strategies, while at the same time managing the impact of COVID-19 and keeping our employees safe. The agility demonstrated by the management team in light of the pandemic allowed the Company to deliver above market performance for shareholders while funding incremental investments to set the Company up for future success. We believe that the actions taken by the leadership team in 2020 have positioned the Company to continue to grow and create long-term value for our stockholders. See our Proxy Summary on page 1 and our COVID-19 Safety disclosures in our Annual Report on Form 10-K for more information about those actions. The Company continued to successfully operate its businesses during the pandemic, took significant actions to keep our employees safe,

 

1 

All metrics shown in this CD&A are from continuing operations and all references to earnings per share (EPS), operating income (OI), operating margin (OM) and earnings before interest, taxes, depreciation and amortization (EBITDA) 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)

 

 

 

permanently reduced expenses, improved efficiency and grew sales and profits in 2020. The following graphics highlight our 2020 growth and performance on key Company metrics used in our incentive program over the last five (5) years:

 

 

LOGO

 

  *

OI, EPS and EBITDA are shown above are on a before charges/gains basis. On a GAAP basis, the Company’s 2019 OI was $698.5 and 2020 OI was $801.4 resulting in a 15% increase; 2019 EPS was $3.06 and 2020 EPS was $3.94, resulting in a 29% increase; and 2019 Income from Continuing Operations, net of tax was $431.3 and 2020 Income from Continuing Operations, net of tax was $554.4, resulting in a 29% increase . See Appendix A for a reconciliation of these non-GAAP to GAAP OI, EPS and EBITDA measures.

2020 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 incentivizes high performance by providing a significant amount of compensation as equity, utilizing both short-term and long-term incentives tied to Company performance and balancing fixed (base salary) and variable (annual cash incentive and equity) compensation. Our incentive compensation programs are designed to align the pay of our executives with the value the executives deliver to our shareholders. Although COVID-19 presented a significant challenge to our business, the Compensation Committee did not make any adjustments to the performance metrics associated with our executive incentive plans (annual cash incentive or performance share awards) to account for the impact of COVID, relying solely on the metrics established prior to the Pandemic.

2020 was an extraordinary year for the Company given the CEO transition, acceleration of strategic priorities and COVID-19 pandemic. As shown in the charts above, our financial performance was excellent with Net Sales increasing 6% and Operating Income (before charges/gains) increasing 12%. These financial results were reflected in a significant increase in our stock price compared to our peers and the S&P 500. The Company’s one-year total shareholder return (including dividend reinvestment) was 33% as compared to the S&P 500 at 18% and our Peer Group at 21%. To reward our NEOs for this success in light of the challenges the Company faced as a result of COVID-19, the Compensation Committee granted 2020 outperformance equity awards, 50% of the award value in the form of restricted stock units and 50% of the award value in the form of stock options, to our NEOs (excluding Mr. Klein). For further details about these 2020 outperformance awards see pages 31-33.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

2020 NEO Annual Total Target Compensation

The following chart summarizes annual total target compensation awarded to each NEO in 2020:

 

Summary of 2020 NEO Annual Total Target Compensation
  Named Executive Officer(1)

2020 Annual

Base Salary(2)

2020 Annual

Incentive

Target Value

2020 Long-

Term Incentive

Award Target

Value(3)

2020 Total Target

Compensation

Nicholas I. Fink

 

$1,100,000

 

$1,375,000

 

$5,525,000

 

$8,000,000

Christopher J. Klein

 

$1,000,000

 

$1,000,000

 

$1,500,000

 

$3,500,000

Patrick D. Hallinan

 

$635,000

 

$508,000

 

$1,700,000

 

$2,843,000

R. David Banyard, Jr.

 

$720,000

 

$576,000

 

$2,000,000

 

$3,296,000

Cheri M. Phyfer

 

$590,000

 

$442,500

 

$1,350,000

 

$2,382,500

Brett E. Finley

 

$587,000

 

$440,250

 

$1,300,000

 

$2,327,250

 

  (1)

Mr. Fink was appointed Chief Executive Officer and Mr. Klein transitioned to the role of Executive Chairman of the Board effective January 6, 2020.

 

  (2)

The amounts listed in this column reflect annual base salary in effect as of December 31, 2020.

 

  (3)

Includes the value of the annual target incentive equity awards, expressed as the aggregate grant date fair value of PSAs (at target), stock options and RSUs, as determined using the assumptions found in note 12 to the consolidated financial statement contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”). This table summarizes total target compensation and does not include the value of Ms. Phyfer’s retention award or the 2020 outperformance awards granted to NEOs during 2020.

RESULTS OF THE 2020 SAY ON PAY VOTE

 

The Compensation Committee and Board value the input of our stockholders. 92.9% of the votes cast at our 2020 Annual Shareholder Meeting were in support of the Company’s executive compensation program. The Compensation Committee interpreted the high level of support as endorsement of the Company’s executive compensation program and did not make any changes to the Company’s executive compensation program in response to the 2020 Say on Pay vote.

   LOGO

 

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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:

 

LOGO

Compensation Peer Group and Market Data

The Compensation Committee uses compensation data from a group of similarly sized peer companies to evaluate our compensation arrangements (the “Peer Group”). With the help of the Compensation Committee’s consultant, each year the Committee reviews the Peer Group and decides whether any changes should be made. As recommended by Meridian (the Committee’s compensation consultant at the time), the Compensation Committee decided not to change the Peer Group for 2020. The 2020 Peer Group consisted of the following companies:

 

 
2020 Peer Group

• 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
 
FORTUNE BRANDS vs. PEER GROUP (1)
   
LOGO       LOGO

 

(1)  Reflects the fiscal year-end results as of December 31, 2019.

Meridian provided the Compensation Committee with market data to use in setting each element of compensation of the NEOs for 2020. This market data primarily consisted of peer group data received from Aon, supplemented with revenue size adjusted general industry data and proxy data.

The Compensation Committee believes that compensation decisions are complex and require a deliberate review of Company performance, peer compensation levels, experience and impact of individual executives, and individual performance. In determining executive compensation, the Compensation Committee considers all forms of compensation and uses tools – such as tally sheets and market data – to review the value delivered by each component of compensation. 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 for an NEO. The factors that might influence the amount of compensation awarded include market competition for a particular position, the strategic importance of the position, retention considerations, an individual’s performance, possession of a unique skill or knowledge set, proven leadership capabilities and internal pay equity.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

Evaluating NEO Performance

At the end of 2020, the Compensation Committee, in conjunction with the Lead Director and other non-management members of the Board, conducted a formal evaluation of the Company’s 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 sets the CEO’s annual total target compensation after reviewing recommendations and market data from the compensation consultant. 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 the compensation consultant and then independently sets each of the other NEO’s annual total target compensation.

Maintaining Best Practices

The Compensation Committee maintains policies to protect the interests of our stockholders and follow best practices in corporate governance. The chart below summarizes these policies.

 

 

What We Do

 

 

  Pay for Performance A vast majority of NEO annual total target compensation is tied to Company performance. In 2020, 86.3% of Mr. Fink’s and 76.4% (on average, excluding Mr. Klein) of our other NEOs’ annual total target compensation was pay-at-risk.

 

    

 

  Independent Compensation Consultant advises the Compensation Committee on executive compensation matters and regularly meets in executive session without the presence of management.

 

 

  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.

 

 

  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.

 

    

 

  Robust 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.

 

 

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

        

 

 

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).

 

 

✘ No Excessive 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 2020

Pay-at-Risk Compensation2

As part of 2020 annual target compensation, the Company provided both fixed (base salary) and variable (annual bonus, PSAs, RSUs and stock options) compensation to the NEOs. The vast majority of annual target compensation is at risk because the compensation that is actually paid is dependent upon the Company’s performance or stock price. As a result, the amount of compensation actually paid to an NEO may significantly vary from the NEO’s target compensation.

The following charts show each element of 2020 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. These charts illustrate annual target compensation and do not include any retention or 2020 outperformance awards granted to the NEOs during 2020.

 

LOGO

As shown in the charts above, a significant portion of the compensation granted to our NEOS was equity and pay-at-risk. Equity grants represented 69.2% of Mr. Fink’s annual total target compensation and 58.4% (on average) of the other NEOs’ annual total target compensation. 86.3% of Mr. Fink’s annual total target compensation was pay-at-risk and 76.4% (on average) of the other NEOs’ annual total target compensation was pay-at-risk.

2020 Compensation

Base Salary

Base salaries provide a fixed level of cash compensation 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.

 

2 

Mr. Klein retired from the Company in December 2020. In anticipation of his retirement, Mr. Klein’s 2020 annual equity grant was comprised entirely of RSUs. Due to this difference in the equity mix compared to the other NEOs, all references to NEOs in any pay-at-risk percentage shown throughout the CD&A exclude Mr. Klein.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

For 2020, the Compensation Committee increased the annual base salaries for each NEO (other than Messrs. Klein and Banyard) to better align with competitive market data and in recognition of each individual’s prior year performance, or to reflect a change in position. When Mr. Fink was promoted from Chief Operating Officer to Chief Executive Officer in January 2020, he received an increase to his base salary to bring his base salary in line with his new position as CEO. In addition, Ms. Phyfer’s base salary was increased to reflect her performance as President of the Global Plumbing Group in 2019. Since Mr. Banyard joined the Company in November 2019 his base salary was not increased in 2020. Mr. Klein’s base salary decreased in January 2020 to bring his base salary in line with market data for his new role as Executive Chair. Below are the 2020 and 2019 annual base salaries for each NEO:

 

Named Executive Officer

 

2020

   

2019

 

Nicholas I. Fink

 

 

$1,100,000

 

 

 

$850,000

 

Christopher J. Klein

 

 

$1,000,000

 

 

 

$1,225,000

 

Patrick D. Hallinan

 

 

$635,000

 

 

 

$610,000

 

R. David Banyard, Jr.

 

 

$720,000

 

 

 

$720,000

 

Cheri M. Phyfer

 

 

$590,000

 

 

 

$500,000

 

Brett E. Finley

 

 

$587,000

 

 

 

$570,000

 

Annual Cash Incentive

The Compensation Committee believes that annual cash incentive awards (“bonus”) reinforce a pay for performance culture because the payment is based on the Company’s financial and operational results. Each year, the Compensation Committee sets a percentage of base salary to determine each NEO’s bonus payout at 100% of target.

The Compensation Committee adjusted the percentage of base salary for Messrs. Fink, Klein, Hallinan and Ms. Phyfer to determine their 2020 bonus awards at 100% of target. The amounts were adjusted for changes in positions, market data or for internal pay equity purposes. The percentages in 2019 and 2020 for each NEO were:

 

Named Executive Officer  

Percentage of

Base Salary 2020

 

Percentage of

Base Salary 2019

Nicholas I. Fink

 

125%

 

95%

Christopher J. Klein

 

100%

 

130%

Patrick D. Hallinan

 

80%

 

75%

R. David Banyard, Jr.

 

80%

 

n/a(1)

Cheri M. Phyfer

 

75%

 

70%

Brett E. Finley

 

75%

 

75%

(1)   Mr. Banyard joined the Company in November 2019 and as a result was not eligible to participate in the Company’s annual cash incentive program during 2019.

The bonus 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 2019, and the 2020 expected growth rate in the home products market, the Company’s three year operating plan and key assumptions relating to share gains, pricing, material inflation and productivity. For 2020, the Compensation Committee approved the following performance metrics for bonus awards:

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

   

For Messrs. Fink, Klein and Hallinan, Fortune Brands’ earnings per share (“EPS”) (weighted 60%), return on net tangible assets (“RONTA”) (weighted 20%) and company-wide working capital efficiency (“WCE”) (weighted 20%);

 

   

For Mr. Banyard, Cabinets’ operating income (“OI”) (weighted 60%), operating margin (“OM”) (weighted 20%) and WCE (weighted 20%);

 

   

For Ms. Phyfer, Global Plumbing Group’s OI (weighted 60%), Sales Growth Above Market (weighted 20%) and WCE (weighted 20%); and

 

   

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

Although COVID-19 had presented a significant challenge to our business, these performance metrics for annual bonus awards were not adjusted to account for the impact of COVID. The NEO performance was measured against the metrics established prior to the pandemic.

The Compensation Committee believes that the performance measures chosen for the 2020 bonus awards focus executives on maximizing sales and profitability for the Company. The following table sets forth the minimum (0% payout), target (100% payout) and maximum (200% payout) financial performance measures, the actual performance results, the percentage payout and the amount paid to each NEO for the 2020 annual cash incentive awards:

 

2020 Annual Cash Incentive Performance Goals and Results

 

   
    

 

Performance and Goals(1)

  Results and Awards
             

    Named Executive

    Officer

 

    Performance    
    and Weighting     

    Metric    

 

Minimum     

Performance     

Measure     

 

Target    

Performance    

Measure    

 

Maximum    

Performance

Measure

 

Actual    

Performance(2)    

  % of Payout      

Amount    

Paid(3)    

               

    Nicholas I. Fink

  EPS(60%)

RONTA(20%)

WCE(20%)

 

  $3.24

40.4%

17.1%

 

  $3.93

47.9%

15.5%

 

  $4.61

55.4%

14.2%

 

  $4.19

50.8%

15.2%

 

  129.1%   $1,765,088
               

    Christopher J. Klein

  EPS(60%)

RONTA(20%)

WCE(20%)

 

  $3.24
40.4%
17.1%
  $3.93
47.9%
15.5%
  $4.61
55.4%
14.2%
  $4.19
50.8%
15.2%
  129.1%   $1,301,479
               

    Patrick D. Hallinan

  EPS(60%)

RONTA(20%)

WCE(20%)

 

  $3.24
40.4%
17.1%
  $3.93
47.9%
15.5%
  $4.61
55.4%
14.2%
  $4.19
50.8%
15.2%
  129.1%   $655,828
               

    R. David Banyard, Jr.

  OI(60%)

OM(20%)

WCE(20%)

 

  $209.0
9.3%
13.0%
  $261.5
10.5%
11.8%
  $314.0
11.5%
10.8%
  $255.5
10.3%
12.7%
  81.9%   $471,744
               

    Cheri M. Phyfer

  OI(60%)

SALES(20%)

WCE(20%)

 

  $402.1
-0.3%
18.4%
  $465.2
1.7%
16.7%
  $528.3
3.7%
15.3%
  $489.3
4.5%
15.8%
  152.2%   $673,485
               

    Brett E. Finley

  OI(60%)

OM(20%)

WCE(20%)

 

  $163.9
12.7%
21.8%
  $197.4
13.9%
19.8%
  $230.9
14.9%
18.1%
  $202.10
14.2%
18.3%
  127.6%   $561,759
  (1)

OI minimum, target and maximum performance measures and actual performance results are shown in millions. Goals for Messrs. Fink, Klein and Hallinan were based on Fortune Brands’ results, while goals for Messrs. Banyard and Finley and Ms. Phyfer were based on their respective business segments. For Ms. Phyfer, 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.

 

  (2)

EPS, OI and OM actual performance were adjusted to exclude the effect of currency fluctuations. See Use of Non-GAAP Financial Information in Connection with Incentive Compensation” included in Appendix A for a description of all adjustments.

 

  (3)

The amount paid to Messrs. Fink and Klein were pro-rated from January 6, 2020, the date of their change in position.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

Long-Term Equity Awards

The Compensation Committee believes that equity compensation reinforces a pay for performance culture and aligns the interests of management with those of our stockholders. Annually, the Compensation Committee sets a target equity award value and determines the types of equity to award.

The 2020 annual equity award for NEOs consisted of 50% performance share awards (“PSAs”), 25% restricted stock units (“RSUs”) and 25% stock options. In setting 2020 target long-term equity award values, the Compensation Committee considered competitive market data and the individual performance of each NEO. The Compensation Committee adjusted the target long-term equity award values granted to all NEOs, except for Mr. Banyard (due to his recent hire). The amounts were increased for Messrs. Fink, Hallinan and Finley and Ms. Phyfer due to promotion or 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.

To reflect Mr. Klein’s new role as Executive Chair, the value of his 2020 equity award was decreased to align with market data for his new role. In anticipation of his retirement and the likelihood that Mr. Klein would not continue as an employee of the Company for an additional three years, Mr. Klein’s equity award was granted solely in RSUs that were scheduled to vest on December 31, 2020, subject to his continued employment through such date.

Below are the target equity award values for 2020 and 2019 for each NEO:

 

Named Executive Officer   

2020 Target

Equity Award Value

  

2019 Target

Equity Award Value

Nicholas I. Fink

  

$5,525,000

  

$3,000,000

Christopher J. Klein

  

$1,500,000

  

$6,400,000

Patrick D. Hallinan

  

$1,700,000

  

$1,600,000

R. David Banyard, Jr.

  

$2,000,000

  

n/a(1)

Cheri M. Phyfer

  

$1,350,000

  

$1,000,000

Brett E. Finley

  

$1,300,000

  

$1,200,000

 

(1)  Mr. Banyard joined the Company in November 2019 and as a result did not participate in the Company’s annual equity award program during 2019. He did receive a new hire equity award in 2019 which is not reflected above.

Performance Share Awards: PSAs awarded to the NEOs in 2020 will be settled in shares of the Company’s common stock based on earnings before interest, taxes, depreciation and amortization (“EBITDA”) (weighted 75%) and return on invested capital (“ROIC”) (weighted 25%) for the three year performance period from January 1, 2020 to December 31, 2022. Payouts may range from 50% to 200% of the target award based on performance. If the Company fails to achieve the minimum performance threshold, none of the PSAs will vest. PSAs will be settled following completion of the performance period and certification of the performance results by the Compensation Committee (in early 2023).

The Compensation Committee based the performance goals on EBITDA and ROIC because it believes that these metrics incentivize management to grow earnings and aligns the interests of management with our stockholders. 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 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 NEO must remain employed with the

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

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.

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 2020 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 NEO only realizes value to the extent the Company’s stock price increases after the grant date.

Retention Award: In February 2020, the Compensation Committee granted RSUs to Ms. Phyfer, with a grant date fair value equal to approximately $300,000 (4,345 RSUs) as a retention award and in recognition of her prior year performance. This award will vest on the third anniversary of the grant date, subject to her remaining employed through the vesting date.

2018-2020 Performance Share Awards Payout

In 2018, the Compensation Committee awarded NEOs with PSAs to be settled in early 2021 if the Company achieved certain EBITDA and RONTA goals during the cumulative performance period from January 1, 2018 through December 31, 2020, with EBITDA weighted 75% and RONTA weighted 25%. No changes were made to the incentive goals or targets in 2020 due to the impact of COVID-19. The Compensation Committee certified a payout level of 26.3% of target. The threshold, target and maximum goals and the Company’s actual results were as follows:

 

2018-2020 PSA

Target EBITDA and RONTA Goals and Results

           
Metric(1)   Threshold     Target     Maximum     Actual
Performance  
  % of Payout  

EBITDA (75%)

  $2,690.0   $3,020.1   $3,182.7   $2,805.8   26.3%

RONTA (25%)

  53.8%   59.4%   62.2%   50.3%

 

  (1)

Dollar amounts in this row are reported in millions. See Use of Non-GAAP Financial Information in Connection with Incentive Compensation included in Appendix A for a description of all adjustments.

 

Based on the achievement of these results, the NEOs received the following number of shares of Company stock pursuant to the terms of the 2018-2020 PSAs:

 

Named Executive Officer

   Shares Earned

Nicholas I. Fink

  

1,656

Christopher J. Klein

  

8,280

Patrick D. Hallinan

  

1,863

Cheri Phyfer

  

517

Brett E. Finley

   1,311

2020 Outperformance Awards

We believe COVID-19 had an extraordinary impact on the Company and like many other companies, we faced both financial and operational challenges. Additionally, the onset of the pandemic coincided with the CEO transition and an accelerated business strategy. A decline in demand for our products and increased inefficiencies caused by COVID-19 resulted in a significant and unexpected negative impact on the Company’s financial results in the second quarter. Management quickly responded to these challenges and took actions in the second quarter of 2020 by reducing fixed costs to drive long term profitable growth while at the same time making significant investments and changes to our operations which focused on the safety of our employees during the pandemic. As a result, the Company was able to keep our plants open throughout 2020, take care of our employees, meet the demand for our products in the second half of 2020, take market share from our competitors and invest for future growth.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

These efforts resulted in material year over year improvement in sales and profits for 2020. Compared to 2019, the Company’s 2020 sales increased 6% and operating income (before charges/gains) increased 12%. Further, the Company’s operating margin increased 80 basis points from 13.3% in 2019 to 14.1% in 2020. While achieving these results, the Company focused on keeping our employees safe during the pandemic, making the necessary investments and changes to the operations of our plants. Below is the Company’s 2020 sales and operating income growth compared to the S&P 500 and the Company’s Peer Group:

 

 

LOGO

 

LOGO   LOGO

These financial results were reflected in a significant increase in our stock price compared to our peers and the S&P 500. Below is the Company’s one-year total shareholder return (including dividend reinvestment) compared to the S&P 500 and the Company’s Peer Group:

 

  LOGO    LOGO

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

The Compensation Committee recognized the extraordinary results that the management team delivered in 2020 and decided to grant a one-time equity award to each NEO (other than Mr. Klein). After receiving input from its compensation consultant, the Compensation Committee granted these one-time equity awards, consisting 50% of RSUs and 50% non-qualified stock options, 50% of which will vest in two years following the grant date and the remaining 50% will vest in three years following the grant date. The awards granted by the Compensation Committee in December 2020 were:

 

Named Executive Officer

   Equity Award Value      RSU
Award (#)
   Stock Option
Award (#)

Nicholas I. Fink

  

 

$1,000,000

 

  

6,065

  

21,844

Patrick D. Hallinan

  

 

$500,000

 

  

3,033

  

10,922

R. David Banyard, Jr.

  

 

$450,000

 

  

2,729

  

9,830

Cheri M. Phyfer

  

 

$400,000

 

  

2,426

  

8,737

Brett E. Finley

  

 

$300,000

 

  

1,820

  

6,553

Our outstanding results were not delivered solely by the NEOs. We are extremely proud of all of our employees’ contributions in 2020 and, as such, a number of recognition and rewards programs were implemented to recognize their efforts throughout 2020.

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 “2020 Nonqualified Deferred Compensation” table on page 41 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 2020.

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. See the “2020 Potential Payments Upon Termination or Change in Control” table on page 42 below.

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 practices and attract and retain superior talent. The Compensation Committee also believes that these Severance Agreements promote management independence and keep management focused on the Company’s business in the face of any potential change in control events.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

In connection with the 2020 CEO transition, the Compensation Committee authorized the Company to enter into a new Severance Agreement with each of Messrs. Fink and Klein. For Mr. Fink, the severance benefit under the Severance Agreement was increased to a multiple of two (2) years of specified compensation and three (3) years in the event of a qualifying termination following a change in control, while the severance benefit for Mr. Klein was decreased to one (1) year of specified compensation. In connection with his retirement from the Company, Mr. Klein did not receive any severance benefits under his Severance Agreement.

All of the Severance 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.

Perquisites

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 match on charitable contributions and company product purchase programs. In 2020, the Company provided a limited number of perquisites to the NEOs, which included limited use of Company aircraft by Messrs. Fink, Klein and Hallinan (the costs of which were reimbursed to the Company based on the cost of a first class airplane ticket for each passenger on a personal flight).

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: (1) a significant or material restatement of the Company’s financial statements covering any of the three fiscal years preceding the grant or payment; or (2) a 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 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.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

 

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, 2020.

Compensation Committee

Ann F. Hackett, Chair

Amit Banati

Irial Finan

Susan S. Kilsby

A.D. David Mackay

John G. Morikis

 

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2020 EXECUTIVE COMPENSATION

 

 

 

 

 

2020 SUMMARY COMPENSATION TABLE

 

 
                   

Name and Principal

Position

   Year    

Salary

($)(1)

   

Bonus

($)

   

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

 

Nicholas I. Fink*

  

 

2020

 

 

 

1,097,138

 

 

 

0

 

 

 

4,643,703

 

 

 

1,881,263

 

 

 

1,765,088

 

 

 

0

 

 

 

228,782

 

 

 

9,615,974

 

Chief Executive Officer

  

 

2019

 

 

 

804,569

 

 

 

0

 

 

 

2,249,988

 

 

 

749,997

 

 

 

717,440

 

 

 

0

 

 

 

143,684

 

 

 

4,665,678

 

    

 

2018

 

 

 

568,371

 

 

 

0

 

 

 

799,970

 

 

 

400,006

 

 

 

431,681

 

 

 

0

 

 

 

377,903

 

 

 

2,577,931

 

Christopher J. Klein*

  

 

2020

 

 

 

1,002,577

 

 

 

0

 

 

 

1,500,003

 

 

 

0

 

 

 

1,301,479

 

 

 

674,000

 

 

 

216,451

 

 

 

4,694,510

 

Non-Executive Chair, Former

  

 

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

 

Patrick D. Hallinan

  

 

2020

 

 

 

630,897

 

 

 

0

 

 

 

1,525,010

 

 

 

675,011

 

 

 

655,828

 

 

 

18,000

 

 

 

116,932

 

 

 

3,621,678

 

Senior Vice President and

  

 

2019

 

 

 

605,000

 

 

 

0

 

 

 

1,200,007

 

 

 

400,005

 

 

 

427,763

 

 

 

24,000

 

 

 

81,060

 

 

 

2,737,835

 

Chief Financial Officer

  

 

2018

 

 

 

575,000

 

 

 

0

 

 

 

899,952

 

 

 

449,998

 

 

 

281,445

 

 

 

0

 

 

 

82,634

 

 

 

2,289,029

 

R. David Banyard, Jr.

  

 

2020

 

 

 

720,000

 

 

 

0

 

 

 

1,724,968

 

 

 

725,011

 

 

 

471,744

 

 

 

0

 

 

 

17,142

 

 

 

3,658,865

 

President, Cabinets

  

 

2019

 

 

 

69,231

 

 

 

725,000

 

 

 

2,749,989

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

124

 

 

 

3,544,344

 

Cheri M. Phyfer

 

President, Global Plumbing Group

  

 

2020

 

 

 

575,229

 

 

 

0

 

 

 

1,512,464

 

 

 

537,486

 

 

 

673,485

 

 

 

0

 

 

 

53,862

 

 

 

3,352,526

 

Brett E. Finley

  

 

2020

 

 

 

555,856

 

 

 

0

 

 

 

1,125,017

 

 

 

474,995

 

 

 

561,759

 

 

 

0

 

 

 

68,663

 

 

 

2,786,290

 

President, Outdoors & Security

  

 

2019

 

 

 

566,154

 

 

 

0

 

 

 

1,399,960

 

 

 

300,001

 

 

 

338,153

 

 

 

0

 

 

 

29,740

 

 

 

2,634,008

 

    

 

2018

 

 

 

530,154

 

 

 

0

 

 

 

1,133,271

 

 

 

316,663

 

 

 

306,904

 

 

 

0

 

 

 

52,977

 

 

 

2,339,969

 

  *

Mr. Klein served as Chief Executive Officer of the Company until January 6, 2020. Mr. Fink served as Chief Executive Officer of the Company beginning January 6, 2020.

 

(1)

Salary: Base salaries shown for all NEOs represent the actual amount paid during the year. Due to COVID-19 related cost saving initiatives taken by our management teams, Mr. Finley voluntarily took a small reduction in his base salary for a portion of the year. The amount reported in this column reflects the application of Mr. Finley’s voluntary reduction in base salary.

 

(2)

Stock Awards: The amounts listed in column D for 2020 represent the aggregate grant date fair values calculated in accordance with FASB ASC Topic 718 for RSUs and PSAs granted in 2020. For assumptions used in determining these values, see note 12 to the consolidated financial statements contained in the Company’s Form 10-K.

 

    

The amounts included in this column for the PSAs granted during 2020 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 2020 is: $5,524,980 for Mr. Fink; $1,700,026 for Mr. Hallinan; $1,999,958 for Mr. Banyard; $1,349,968 for Ms. Phyfer and $1,299,980 for Mr. Finley.

 

(3)

Option Awards: The amounts listed in column E for 2020 reflect the aggregate grant date fair values calculated in accordance with FASB ASC Topic 718 for stock options granted in 2020. For assumptions used in determining these values, see note 12 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 2020 Pension Benefits table on pages 40-41 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 2020 to the Savings Plan were made by Fortune Brands in the amount of $12,825 for Messrs. Fink, Klein, and Hallinan and by MasterBrand Cabinets for Mr. Banyard in the amount of $13,962. A Qualified Non-Elective contribution was made by Therma-Tru in the amount of $8,550 for Mr. Finley.

 

  (b)

Profit Sharing Contributions to the Savings Plan. Profit sharing contributions for 2020 to the Savings Plan were made by Fortune Brands in the amount of $19,310 for Messrs. Fink, Klein and Hallinan, by Global Plumbing Group in the amount of $14,250 for Ms. Phyfer and by Therma-Tru in the amount of $11,400 for Mr. Finley.

 

  (c)

Profit Sharing Contributions to Supplemental Plans. The following contributions were made to the Fortune Brands Home & Security, Inc. Supplemental Retirement Plan for 2020: $112,287 for Mr. Fink; $163,279 for Mr. Klein and $56,615 for Mr. Hallinan. A contribution was made to the Global Plumbing Group Supplemental Retirement Plan for Ms. Phyfer in the amount of $34,750. A contribution was made to the Therma-Tru Supplemental Executive Retirement Plan for Mr. Finley in the amount of $44,898. 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 the executives’ Supplemental Plan accounts in early 2021.

 

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2020 EXECUTIVE COMPENSATION (CONTINUED)

 

 

 

  (d)

Other: Included in column H for each NEO are costs associated with the Company’s executive health program. In 2020, limited use of the Company’s aircraft was provided to Messrs. Fink, Klein and Hallinan, who each 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 2020, the Company’s incremental cost for personal use of Company aircraft not reimbursed by Mr. Fink was $75,603, by Mr. Klein was $4,878 and by Mr. Hallinan was $22,070, which is reflected in column H.

 

2020 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

($)(1)

    Name and

    Grant Date

 

Threshold

($)

 

Target

($)

 

Maximum

($)

 

Threshold

(#)

 

Target

(#)

 

Maximum

(#)

Nicholas I. Fink

                                                                                                   

2/24/20(2)

    $ 0     $ 1,375,000     $ 2,750,000                                                                      

2/24/20(3)

                                                                            98,240     $ 69.34     $ 1,381,254

2/24/20(4)

                                                                  20,005                         $ 1,381,245

2/24/20(5)

                                    20,005       40,010       80,020                                   $ 2,762,490

12/07/20(4)

                                                                  6,065                         $ 499,968

12/07/20(3)

                                                                            21,844     $ 83.07     $ 500,009

Christopher J. Klein

                                                                                                   

2/24/20(2)

   

$

0

   

$

1,000,000

   

$

2,000,000

                                                                     

2/24/20(4)

                                                               

 

21,725

                       

$

1,500,003

Patrick D. Hallinan

                                                                                                   

2/24/20(2)

    $ 0     $ 508,000     $ 1,016,000                                                                      

2/24/20(3)

                                                                            30,228     $ 69.34     $ 425,006

2/24/20(4)

                                                                  6,155                         $ 424,972

2/24/20(5)

                                    6,156       12,311       24,622                                   $ 850,013

12/07/20(4)

                                                                  3,033                         $ 250,025

12/07/20(3)

                                                                            10,922     $ 83.07     $ 250,005

R. David Banyard, Jr.

                                                                                                   

2/24/20(2)

   

$

0

   

$

576,000

   

$

1,152,000

                                                                     

2/24/20(3)

                                                                         

 

35,562

   

$

69.34

   

$

500,002

2/24/20(4)

                                                               

 

7,242

                       

$

500,024

2/24/20(5)

                                 

 

7,242

   

 

14,483

   

 

28,966

                                 

$

999,979

12/07/20(4)

                                                               

 

2,729

                       

$

224,965

12/07/20(3)

                                                                         

 

9,830

   

$

83.07

   

$

225,009

Cheri M. Phyfer

                                                                                                   

2/24/20(2)

    $ 0     $ 442,500     $ 885,000                                                                      

2/24/20(3)

                                                                            24,004     $ 69.34     $ 337,496

2/24/20(4)

                                                                  4,888                         $ 337,492

2/24/20(4)

                                                                  4,345                         $ 300,001

2/24/20(5)

                                    4,888       9,776       19,552                                   $ 674,984

12/07/20(4)

                                                                  2,426                         $ 199,987

12/07/20(3)

                                                                            8,737     $ 83.07     $ 199,990

Brett E. Finley

                                                                                                   

2/24/20(2)

   

$

0

   

$

440,250

   

$

880,500

                                                                     

2/24/20(3)

                                                                         

 

23,115

   

$

69.34

   

$

324,997

2/24/20(4)

                                                               

 

4,707

                       

$

324,995

2/24/20(5)

                                 

 

4,707

   

 

9,414

   

 

18,828

                                 

$

649,990

12/07/20(4)

                                                               

 

1,820

                       

$

150,032

12/07/20(3)

                                                                         

 

6,553

   

$

83.07

   

$

149,998

 

(1)

For stock options awarded on February 24, 2020 and December 7, 2020, the grant date fair value is based on the Black-Scholes value of $14.06 and $22.89, 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: $69.045 for the February 24, 2020 awards and $82.435 for the December 7, 2020 awards. 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 12 to the consolidated financial statements contained in the Company’s Form 10-K.

 

37


Table of Contents

 

 

2020 EXECUTIVE COMPENSATION (CONTINUED)

 

 

 

(2)

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. Fink, Klein, Hallinan, Banyard, Finley and Ms. Phyfer is based on target awards of 125%, 100%, 80%, 80%, 75% and 75%, respectively, of base salary as of December 31, 2020. See pages 28-29 of the CD&A for further information regarding Annual Cash Incentives.

 

(3)

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. Stock options granted on February 24, 2020 vest ratably in three equal annual installments, subject to continued employment through the applicable vesting dates. Stock options granted on December 7, 2020 vest 50% in two years following the grant date and 50% in three years following the grant date, subject to continued employment through the applicable vesting dates.

 

(4)

The amounts in this row reflect the number of RSUs that were granted under the LTIP and the grant date fair value of the RSUs on the grant date. RSUs granted on February 24, 2020 will vest in three equal annual installments, subject to continued employment through the applicable vesting dates, except with respect to Mr. Klein’s award which vested on December 31, 2020 and Ms. Phyfer’s retention award of 4,345 RSUs which fully vests on the third anniversary of the grant date, subject to continued employment through the vesting date. RSUs granted on December 7, 2020, vest 50% in two years following the grant date and 50% in three years following the grant date, subject to continued employment through the applicable vesting dates.

 

(5)

The amounts in this row reflect the range of potential payouts for PSAs that were granted under the LTIP for the 2020-2022 performance period. The performance goals for the 2020-2022 PSAs are EBITDA (weighted 75%) and average ROIC (weighted 25%).

 

OUTSTANDING EQUITY AWARDS AT 2020 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)

 

Nicholas I. Fink

 

 

0

 

 

 

21,844

 

         

 

$83.07

 

 

12/7/30  

 

 

38,663

 

 

 

$3,314,192

 

 

71,493

 

 

$6,128,380

 

   

 

0

 

 

 

98,240

 

         

 

$69.34

 

 

2/24/30  

                           
   

 

22,322

 

 

 

44,642

 

         

 

$46.99

 

 

  3/5/29  

                           
   

 

18,846

 

 

 

9,423

 

         

 

$63.51

 

 

2/26/28  

                           
   

 

27,261

 

 

 

0

 

         

 

$58.21

 

 

2/27/27  

                           
   

 

27,600

 

 

 

0

 

         

 

$50.22

 

 

2/28/26  

                           

Christopher J. Klein

 

 

140,474

 

 

 

0

 

         

 

$47.99

 

 

2/21/29  

 

 

0

 

 

 

$0

 

 

66,960

 

 

$5,739,811

 

   

 

141,343

 

 

 

0

 

         

 

$63.51

 

 

2/26/28  

                           
   

 

136,307

 

 

 

0

 

         

 

$58.21

 

 

2/27/27  

                           
   

 

131,200

 

 

 

0

 

         

 

$50.22

 

 

2/28/26  

                           
   

 

132,500

 

 

 

0

 

         

 

$47.87

 

 

2/23/25  

                           

Patrick D. Hallinan

 

 

0

 

 

 

10,922

 

         

 

$83.07

 

 

12/7/30  

 

 

17,129

 

 

 

$1,468,298

 

 

29,051

 

 

$2,490,252

 

   

 

0

 

 

 

30,228

 

         

 

$69.34

 

 

2/24/30  

                           
   

 

11,707

 

 

 

23,412

 

         

 

$47.99

 

 

2/21/29  

                           
   

 

21,201

 

 

 

10,601

 

         

 

$63.51

 

 

2/26/28  

                           
   

 

5,165

 

 

 

0

 

         

 

$65.41

 

 

  7/3/27  

                           
   

 

16,109

 

 

 

0

 

         

 

$58.21

 

 

2/27/27  

                           
   

 

8,500

 

 

 

0

 

         

 

$50.22

 

 

2/28/26  

                           
   

 

7,850

 

 

 

0

 

         

 

$47.87

 

 

2/23/25  

                           

R. David Banyard, Jr.

 

 

0

 

 

 

9,830

 

         

 

$83.07

 

 

12/7/30  

 

 

38,969

 

 

 

$3,340,423

 

 

14,483

 

 

$1,241,483

 

   

 

0

 

 

 

35,562

 

         

 

$69.34

 

 

2/24/30  

                           

Cheri M. Phyfer

 

 

0

 

 

 

8,737

 

         

 

$83.07

 

 

12/7/30  

 

 

17,387

 

 

 

$1,490,414

 

 

20,270

 

 

$1,737,544

 

   

 

0

 

 

 

24,004

 

         

 

$69.34

 

 

2/24/30  

                           
   

 

7,441

 

 

 

14,880

 

         

 

$46.99

 

 

  3/5/29  

                           
   

 

5,889

 

 

 

2,945

 

         

 

$63.51

 

 

2/26/28  

                           

Brett E. Finley

 

 

0

 

 

 

6,553