ful20160215_def14a.htm

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

Filed by the Registrant    

 

Filed by a party other than the Registrant    

 

Check the appropriate box:

 

       Preliminary Proxy Statement

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

     

☒       Definitive Proxy Statement

   
     

☐       Definitive Additional Materials

 

 

     

       Soliciting Material Pursuant to § 240.14a-12

 

 

 

H.B. Fuller Company


(Name of Registrant as Specified In Its Charter)

 

 


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

No fee required

 

 

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(2)

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(3)

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Fee paid previously with preliminary materials.

 

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

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(2)

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(3)

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(4)

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Office:

1200 Willow Lake Boulevard

 

St. Paul, Minnesota 55110-5101

Mail:

P.O. Box 64683

 

St. Paul, Minnesota 55164-0683

Phone:

(651) 236-5062

 

 

 

Dear Shareholder:

 

Our 2016 Annual Meeting of Shareholders will be held on Thursday, April 7, 2016. We are pleased to inform you that this year’s meeting will be our first completely virtual meeting of shareholders. You may attend the meeting and vote your shares electronically during the meeting via the Internet by visiting www.virtualshareholdermeeting.com/FUL. The online meeting will begin promptly at 1:00 p.m. The Notice of Annual Meeting of Shareholders and the Proxy Statement describe the business to be conducted at the meeting.

 

We have elected to take advantage of the “notice and access” rules of the Securities and Exchange Commission to furnish most of our shareholders with proxy materials over the Internet. This method of delivery allows us to provide you with the information you need, while reducing printing and delivery expenses.

 

Your vote on the proposals is important. Whether or not you plan on attending the virtual meeting, we encourage you to vote your shares to make certain that you are represented at the meeting. You may vote via the Internet or, if you received a printed copy of the proxy materials, by telephone or by mailing a proxy or voting instruction card.

 

 

 

 

Sincerely,

     
   
 

James J. Owens

 

President and Chief Executive Officer

 

 

 

 

February 24, 2016

 

 
 

 

 

 

   

Office:

1200 Willow Lake Boulevard

 

St. Paul, Minnesota 55110-5101

Mail:

P.O. Box 64683

 

St. Paul, Minnesota 55164-0683

Phone:

(651) 236-5062

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time:

Thursday, April 7, 2016 at 1:00 p.m. Central Time. You may attend the online meeting and vote your shares electronically during the meeting via the Internet by visiting www.virtualshareholdermeeting.com/FUL. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice Regarding the Availability of Proxy Materials to enter the Annual Meeting. We recommend that you log in at least fifteen minutes before the meeting to ensure that you are logged in when the meeting starts.

   

Items of Business:

The election of three directors named in the attached Proxy Statement for a three-year term.

   

 

A non-binding advisory vote to approve the compensation of our named executive officers disclosed in the attached Proxy Statement.

   

 

The ratification of the appointment of KPMG LLP as H.B. Fuller’s independent registered public accounting firm for the fiscal year ending December 3, 2016.

   
  Approval of the H.B. Fuller Company 2016 Master Incentive Plan
   

 

Any other business that may properly be considered at the meeting or any adjournment thereof.

   

Record Date:

You may vote at the meeting if you were a shareholder of record at the close of business on February 10, 2016.

   

Voting by Proxy:

It is important that your shares be represented and voted at the meeting. Whether or not you plan to attend the meeting, we encourage you to submit your proxy as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail, the section entitled “Questions and Answers about the Meeting” beginning on page 4 of this Proxy Statement, or if you received printed proxy materials, the enclosed proxy or voting instruction card. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the accompanying Proxy Statement.

 

 

By Order of the Board of Directors

     
   
     
 

Timothy J. Keenan

 

Vice President, General Counsel and Corporate Secretary

 

February 24, 2016

 

 
 

 

 

TABLE OF CONTENTS

PROXY SUMMARY

     1

QUESTIONS AND ANSWERS ABOUT THE MEETING

4

What is the purpose of the meeting?

4

How does the Board recommend that I vote?

4

Who is entitled to vote at the meeting?

4

What is the difference between a shareholder of record and a street name holder?

4

What are the voting rights of the shareholders?

4

How many shares must be present to hold the meeting?

4

How do I vote my shares?

5

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials, proxy card or voting instructions card?

5

Can I vote my shares during the online meeting?

5

What vote is required for the proposals to be approved?

5

How are votes counted?

6

What if I do not specify how I want my shares voted?

6

Can I change my vote?

6

Who pays for the cost of proxy preparation and solicitation?

6

Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of paper copies?

7

Are the proxy and related materials available electronically?

7

Will any other business be considered at the meeting?

7

How can a shareholder present a proposal at the 2017 Annual Meeting?

7

How can a shareholder get a copy of the Company’s 2015 Annual Report on Form 10-K?

8

Who is the Corporate Secretary?

8

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

9

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

12

PROPOSAL 1—ELECTION OF DIRECTORS

12

Proposal

12

Who are the nominees?

12

How can a shareholder suggest a candidate for election to the Board?

14

Who are the remaining directors?

14

CORPORATE GOVERNANCE

19

Corporate Governance Guidelines

19

Code of Business Conduct

19

Communications with Directors

19

Director Independence

19

Meetings of the Board and Board Committees

19

What are the roles of the Board’s committees?

20

Board’s Role in Oversight of Risk

22

Board Leadership Structure

23

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

24

DIRECTOR COMPENSATION

25

2015 Review of Director Compensation

25

Cash Fees

26

Expense Reimbursement

26

Equity Awards

26

Directors’ Deferred Compensation Plan

26

2009 Director Stock Incentive Plan

27

Physical Examinations

27

 

 
 

 

 

Matching Gifts to Educational, Arts and Cultural Organizations Program

27

Director Compensation Table—Fiscal Year 2015

27

Stock Ownership Guidelines

29

EXECUTIVE COMPENSATION

30

Compensation Discussion and Analysis

30

Compensation Committee Report

48

Summary Compensation Table

49

Grants of Plan-Based Awards During Fiscal 2015

51

Outstanding Equity Awards at Fiscal 2015 Year-End

53

Option Exercises and Stock Vested – Fiscal Year 2015

54

Nonqualified Deferred Compensation – Fiscal Year 2015

55

Potential Payments Upon Termination or Change-in-Control

58

Executive Benefit and Payments Upon Termination – Fiscal Year 2015

60

Proposal 2 — Non-Binding Advisory Vote on Executive Compensation

62

AUDIT COMMITTEE REPORT

63

FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

63

PROPOSAL 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

64

PROPOSAL 4 – APPROVAL OF THE H.B. FULLER COMPANY 2016 MASTER INCENTIVE PLAN

64

EQUITY COMPENSATION PLAN INFORMATION

75

“HOUSEHOLDING” OF PROXY MATERIALS

76

ANNEX A – RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

A-1

ANNEX B – H.B. FULLER COMPANY 2016 MASTER INCENTIVE PLAN

B-1

 

 
 

 

 

 

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

APRIL 7, 2016

 

The Board of Directors of H.B. Fuller Company is soliciting proxies to be used at the Annual Meeting of Shareholders to be held on April 7, 2016, and at any adjournment and reconvening of the meeting. We first made this Proxy Statement and the Annual Report for the fiscal year ended November 28, 2015 available to our shareholders on or about February 24, 2016.

 

PROXY SUMMARY

 

Provided below are highlights of some of the information contained in this proxy statement. These highlights are only a summary. Please review the complete Proxy Statement and 2015 Annual Report to Shareholders before you vote.

 

ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time: Thursday, April 7, 2016 at 1:00 p.m.

Place:

Via the Internet. You may attend the online meeting by visiting www.virtualshareholdermeeting.com/FUL.

Record Date: Wednesday, February 10, 2016
Voting: You may vote at the meeting if you were a shareholder of record at the close of business on February 10, 2016 (see pages 4 - 8 for more information on voting)

          

 

PROPOSAL 1 – ELECTION OF DIRECTORS (see pages 12 - 14 for more information)

 

You are being asked to elect three directors. The Board of Directors (the “Board”) is currently composed of nine directors and divided into three classes. The Class II directors are standing for election for a three year term at the Annual Meeting. The term of office for these Class II directors will expire at the Annual Meeting or until their successors are duly elected and qualified. All of our directors other than Mr. Owens are independent under New York Stock Exchange rules. Only independent directors serve on our Audit, Compensation, and Corporate Governance and Nominating Committees.

 

Vote required: Each director is elected by a plurality of the votes cast. However, if a nominee for director receives a greater number of votes “withheld’ from his or her election than votes “for” such election, the director shall submit to the Board a letter of resignation for consideration. See the heading “Director Elections” in the “Corporate Governance” section of this Proxy Statement for more information.

 

Information about our director nominees:

 

Director

 

 

 

 

          Other Public   Committees

Name

 

Age

 

Occupation

 

Since

 

Independent?

 

Boards?

 

Served On

                         

Dante C. Parrini

 

51

 

Chairman & CEO,

P.H. Glatfelter Company

 

2012

 

Yes

 

Yes

 

C, CGN

John C. van Roden, Jr.

 

66

 

Independent Director

 

2003

 

Yes

 

Yes

  A, CGN

James J. Owens

 

51

 

Chairman & CEO,

H.B. Fuller Company

 

2010

 

No

 

Yes

 

None

 

A - Audit Committee

C - Compensation Committee

CGN - Corporate Governance and Nominating Committee

 

The Board of Directors recommends a vote FOR election of each of the nominees.  

 

 
1

 

 

PROPOSAL 2 – NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION (see page 62 for more information)

 

The Company provides shareholders with an annual advisory (non-binding) vote on the compensation of our named executive officers.

 

The Board of Directors recommends a vote FOR this proposal.

 

PROPOSAL 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (see page 64 for more information)

 

The Audit Committee has appointed KPMG LLP, as our independent registered public accounting firm for the fiscal year ending December 3, 2016. KPMG LLP has acted as our independent registered public accounting firm since 2004. Representatives of KPMG LLP will be present at the meeting and will have the opportunity to make a statement if they desire to do so and to respond to appropriate questions from shareholders.

 

The Board of Directors recommends a vote FOR this proposal.

 

PROPOSAL 4 –APPROVE THE H.B. FULLER COMPANY 2016 MASTER INCENTIVE PLAN (see pages 64 - 76 for more information)

 

On January 21, 2016, our Board of Directors adopted, upon recommendation of the Compensation Committee and subject to shareholder approval, the H.B. Fuller Company 2016 Master Incentive Plan (“2016 Master Incentive Plan”). The purpose of the 2016 Master Incentive Plan is to promote the interests of the Company and our shareholders by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors and non-employee directors capable of assuring the future success of the Company, to provide such persons with opportunities for stock ownership in the Company and to offer such persons other incentives to put forth maximum efforts for the success of the Company’s business.

 

The Board of Directors recommends a vote FOR this proposal.

 

2015 PERFORMANCE HIGHLIGHTS

 

Our overall Company net income results were down 7 percent versus the prior year due to a variety of factors, including lower revenue in the Americas, the adverse impact of foreign exchange rates, high operating costs in our EIMEA segment and a higher core tax rate. These negative factors were mostly offset by the successful integration of the TONSAN Adhesive Inc. business and effective price and raw material cost management. For similar reasons, adjusted total diluted earnings per share in the 2015 fiscal year were $2.17, down versus the prior year’s result of $2.33.

 

Net revenue for the 2015 fiscal year was $2,083.7 million, down 1.0 percent versus the 2014 fiscal year. Higher volume and higher average selling prices positively impacted net revenue growth. Constant currency revenue grew by 5.0 percent year-over-year. Foreign currency translation negatively impacted revenue growth during the fiscal year. Additional results include:

 

• Adjusted gross profit margin for the year was up 160 basis points to 27.7 percent

 

• Adjusted SG&A expense was up 5 percent versus the prior year, but down nearly 3 percent when adjusting for the additional SG&A expense added from the TONSAN Adhesive Inc. acquisition

 

• Adjusted EBITDA margin was 12.8 percent, up 100 basis points versus the 2014 fiscal year

 

For the 46th consecutive year, we implemented an increase in the amount of quarterly dividends we pay to shareholders, with an 11 percent increase this year.

 

 
2

 

 

More information on our 2015 performance can be found on pages 30 - 31.

 

EXECUTIVE COMPENSATION PROGRAM (for more information, see pages 30 - 48)

 

Our focus is to accelerate profitable growth and we motivate performance and measure our results in large part by the metrics in our short-term incentive plan. Overall, in fiscal year 2015, with regard to the metrics used in our short-term incentive plan, the Company performed as follows:

 

• For the Company organic revenue metric, we exceeded the threshold level, but did not meet our target, resulting in a less than target payout.

 

• For the Company adjusted operating income metric, we exceeded the threshold level, but did not meet our target, resulting in a less than target payout.

 

• For the adjusted earnings per share (“EPS”) metric, we did not meet our threshold level. Therefore, there was no payout with regard to this short-term incentive metric.

 

• Performance related to regional and business short-term incentive metrics for our executive officers listed in the Summary Compensation Table in this Proxy Statement (the “named executive officers” or “NEOs”) other than the CEO and CFO, was varied, resulting in a short-term incentive payment for all but one of the NEOs higher than in the previous year.

 

The achievements in our financial metrics resulted in short-term incentive payouts for our CEO of 42.3% of target and ranged from 25.0% to 52.3% of target for our other NEOs.

 

Our executive compensation program is also designed to provide a competitive compensation package that rewards executive officers for sustained financial and operating performance that creates long-term value for our shareholders. Highlights of our executive compensation program include:

 

 

A strong emphasis on paying for performance: Our short-term incentive program is a key way in which we pay for performance. As noted above, in fiscal 2015, we did not meet the threshold for the EPS metric, however, we achieved threshold levels for both the company-wide operating income and organic revenue metrics. Performance related to regional and business metrics was varied. This resulted in a short-term incentive payment for the CEO and all but one of the NEOs higher than in the previous year, where we only exceeded threshold for the organic revenue metric. In addition, our grant of long-term incentive (stock options and restricted stock units) to our CEO contains a performance condition that must be met prior to the restricted units vesting. This performance condition was met for fiscal 2015 and previous years. Therefore, the restricted units will vest as long as Mr. Owens is employed by the Company on the vesting dates. Finally, our long-term incentive plan ties a significant portion of NEO total compensation to shareholder value creation, which is measured by stock price performance.

 

 

o

See further discussion and detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.

 

 

A policy regarding “claw-backs” of executive and key manager incentive compensation;

 

 

A prohibition on hedging, pledging and certain other transactions in the Company stock by directors and certain executive officers;

 

 

An emphasis on long-term equity awards to align the executives’ interests with long-term goals and shareholder interests,

 

 

A prohibition on re-pricing of stock options; and

 

 

Stock ownership goals for our directors and executive officers.

 

For fiscal year 2016, our Compensation Committee approved the addition of a performance metric applicable to 50% of the restricted stock units granted under our long-term incentive plan for each of our NEOs. See the “Actions for 2016” section in the "Compensation Discussion and Analysis" section of this Proxy Statement.

 

 
3

 

 

QUESTIONS AND ANSWERS ABOUT THE MEETING

 

What is the purpose of the meeting?

 

At our annual meeting, shareholders will act upon the matters disclosed in the Notice of Annual Meeting of Shareholders that accompanies this Proxy Statement. These include the election of three directors, a non-binding advisory vote to approve the compensation of our named executive officers as disclosed in this Proxy Statement (the “Say on Pay Proposal”), the ratification of the appointment of our independent registered public accounting firm, and the approval of the H.B. Fuller Company 2016 Master Incentive Plan (“2016 Master Incentive Plan”).

 

We will also consider any other business that may properly be presented at the meeting and management will respond to questions from shareholders.

 

How does the Board recommend that I vote?

 

The Board of Directors recommends a vote “FOR” each of the nominees for director, “FOR” the Say on Pay Proposal, “FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 3, 2016, and “FOR” the 2016 Master Incentive Plan.

 

Who is entitled to vote at the meeting?

 

If you were a shareholder of record at the close of business on February 10, 2016, you are entitled to vote at the meeting.

 

As of the record date, 49,986,791 shares of Common Stock were outstanding and eligible to vote.

 

What is the difference between a shareholder of record and a street name holder?

 

If your shares are registered directly in your name, you are considered the “shareholder of record” with respect to those shares.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of those shares, and your shares are held in street name. If you are a “street name holder” you will receive a voting instruction card, which appears very similar to a proxy card. Please complete that card as directed in order to ensure your shares are voted at the meeting.

 

What are the voting rights of the shareholders?

 

Holders of Common Stock are entitled to one vote per share. Therefore, a total of 49,986,791 votes are entitled to be cast at the meeting. There is no cumulative voting for the election of directors.

 

How many shares must be present to hold the meeting?

 

A quorum is necessary to hold the meeting and conduct business. The presence of shareholders who can direct the voting of at least a majority of the outstanding shares of Common Stock as of the record date is considered a quorum. A shareholder is counted as present at the meeting if the shareholder is present at the online meeting and votes at the meeting or the shareholder has properly submitted a proxy by mail, telephone or Internet.

 

 
4

 

 

How do I vote my shares?

 

If you are a shareholder of record, you may give a proxy to be voted at the meeting either:

 

 

electronically, by following the instructions provided in the Notice of Internet Availability of Proxy Materials or proxy card; or

 

 

if you received printed proxy materials, you may also vote by mail or telephone as instructed on the proxy card.

 

If you hold shares beneficially in street name, you may also vote by proxy over the Internet by following the instructions provided in the Notice of Internet Availability of Proxy Materials or, if you received printed proxy materials, you may also vote by mail or telephone by following the instructions provided in the voting instruction card provided to you by your broker, bank, trustee or nominee.

 

The telephone and Internet voting procedures have been set up for your convenience. The procedures have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. You may also vote at the online meeting as described in “Can I vote my shares at the meeting?” below.

 

If you hold any shares in the H.B. Fuller Company 401(k) & Retirement Plan (sometimes referred to as the “401(k) Plan” in this Proxy Statement), you are receiving or being provided access to, the same proxy materials as any other shareholder of record. However, your proxy vote will serve as voting instructions to the plan trustee. The shares held in the 401(k) Plan will be voted by the plan trustee.

 

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials, proxy card or voting instruction card?

 

It means you hold shares of H.B. Fuller stock in more than one account. To ensure that all of your shares are voted, sign and return each proxy card or voting instruction card or, if you vote by telephone or via the Internet, vote once for each proxy card, voting instruction card or Notice of Internet Availability of Proxy Materials you receive.

 

Can I vote my shares during the online meeting?

 

Yes. If you are a shareholder of record, you may attend the meeting and vote your shares electronically during the online meeting by visiting www.virtualshareholdermeeting.com/FUL. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice Regarding the Availability of Proxy Materials to enter the Annual Meeting. We recommend that you log in at least fifteen minutes before the meeting to ensure that you are logged in when the meeting starts. However, even if you currently plan to attend the online meeting, we recommend that you submit your proxy ahead of time so that your vote will be counted if, for whatever reason, you later decide to not attend the online meeting.

 

If you hold your shares in street name, you may vote your shares electronically during the online meeting only if you obtain a signed proxy from your broker, bank, trustee or other nominee giving you the right to vote such shares during the meeting.

 

If you are a participant in the 401(k) Plan, you may submit a proxy vote as described above, but you may not vote your 401(k) Plan shares during the online meeting.

 

 

What vote is required for the proposals to be approved?

 

Each director is elected by a plurality of the votes cast. However, if a nominee for director receives a greater number of votes “withheld’ from his or her election than votes “for” such election, the director shall submit to the Board a letter of resignation for consideration. See the heading “Director Elections” in the “Corporate Governance” section of this Proxy Statement for more information. With respect to the Say On Pay Proposal, the approval of the 2016 Master Incentive Plan and the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, the affirmative vote of a majority of the shares of Common Stock represented and entitled to vote on each proposal is required, provided that the total number of shares of Common Stock that vote in favor of the proposal represents more than 25% of the shares outstanding on the record date.

 

 
5

 

 

How are votes counted?

 

Shareholders may either vote “FOR” or “WITHHOLD” authority to vote for each nominee for election to the Board of Directors. Shareholders may vote “FOR,” “AGAINST” or “ABSTAIN” on the Say on Pay Proposal, the approval of the 2016 Master Incentive Plan and the ratification of the appointment of KPMG LLP.

 

If you vote ABSTAIN or WITHHOLD, your shares will be counted as present at the meeting for the purposes of determining a quorum. If you ABSTAIN from voting on a proposal, your abstention has the same effect as a vote against that proposal. If you WITHHOLD authority to vote for one or more of the nominees for director, this will have no effect on the election of any director from whom votes are withheld.

 

If you hold your shares in street name and do not provide voting instructions to your broker or nominee, your shares will be considered to be “broker non-votes” and will not be voted on any proposal on which your broker or nominee does not have discretionary authority to vote under the rules of the New York Stock Exchange. Shares that constitute broker non-votes will be present at the meeting for the purpose of determining a quorum, but are not considered entitled to vote on the proposal in question. Your broker or nominee has discretionary authority to vote your shares on the ratification of KPMG LLP as our independent registered public accounting firm even if your broker or nominee does not receive voting instructions from you. Your broker or nominee may not vote your shares on the election of directors, the Say on Pay Proposal or the 2016 Master Incentive Plan without instructions from you.

 

What if I do not specify how I want my shares voted?

 

If you do not specify on your returned proxy card or voting instruction card (or when giving your proxy by telephone or via the Internet) how you want to vote your shares, we will vote them:

 

 

FOR all of the nominees for director;

 

 

FOR the Say on Pay Proposal;

     
  FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year ending December 3, 2016;

 

 

FOR the approval of the 2016 Master Incentive Plan; and

 

 

with respect to such other matters that may properly come before the meeting, in accordance with the judgment of the persons named as proxies.

 

Can I change my vote?

 

Yes. If you are a shareholder of record, you may change your vote and revoke your proxy at any time before it is voted at the online meeting in any of the following ways:

 

 

by sending a written notice of revocation to our Corporate Secretary;

 

 

by submitting another properly signed proxy card at a later date to our Corporate Secretary;

 

 

by submitting another proxy by telephone or via the Internet at a later date; or

 

 

by voting electronically at the online meeting.

 

If you are a street name holder, please consult your broker, bank, trustee or nominee for instructions on how to change your vote.

 

Who pays for the cost of proxy preparation and solicitation?

 

We pay for the cost of proxy preparation and solicitation, including the charges and expenses of brokerage firms or other nominees for forwarding proxy materials to beneficial owners of shares held in street name. We have retained The Proxy Advisory Group, LLC to assist in the solicitation of proxies for a fee of approximately $12,000 plus associated costs and expenses.

 

 
6

 

 

We are soliciting proxies primarily by mail. In addition, proxies may be solicited by telephone or facsimile, or personally by our directors, officers and regular employees. These individuals will receive no compensation (other than their regular salaries) for these services.

 

Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of paper copies?

 

In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), we may furnish proxy materials to our shareholders by providing access to these documents on the Internet instead of mailing printed copies. In general, you will not receive printed copies of the materials unless you request them or you are a participant in the H.B. Fuller Company 401(k) & Retirement Plan. Instead, we mailed you the Notice of Internet Availability of Proxy Materials (unless you have previously consented to electronic delivery or already requested to receive paper copies), which instructs you as to how you may access and review all of the proxy materials on the Internet. The Notice of Internet Availability of Proxy Materials explains how to submit your proxy over the Internet. If you would like to receive a paper copy or e-mail copy of the proxy materials, please follow the instructions provided in the Notice of Internet Availability of Proxy Materials.

 

Are the proxy and related materials available electronically?

 

Yes.

 

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to be held on April 7, 2016

 

Our Proxy Statement and 2015 Annual Report, including our Annual Report on Form 10-K, are available at www.proxyvote.com.

 

Will any other business be considered at the meeting?

 

Our Bylaws provide that a shareholder may present a proposal at the annual meeting that is not included in this Proxy Statement only if proper written notice was received by us. No shareholder has given the timely notice required by our Bylaws in order to present a proposal at the annual meeting. Our Board of Directors does not intend to present any other matters for a vote at the annual meeting. If you wish to present a proposal at the 2017 Annual Meeting, please see “How can a shareholder present a proposal at the 2017 Annual Meeting?” As of the date of this Proxy Statement, we do not know of any other business to be presented for consideration at the annual meeting. If any other business does properly come before the meeting, the persons named as proxies will vote in accordance with their best judgment as to the best interests of H.B. Fuller and its shareholders.

 

 

How can a shareholder present a proposal at the 2017 Annual Meeting?

 

In order for a shareholder proposal to be considered for inclusion in our Proxy Statement for the 2017 Annual Meeting, the written proposal must be received at our principal executive offices by the close of business on October 27, 2016. The proposal must comply with SEC regulations regarding the inclusion of shareholder proposals in company-sponsored proxy materials and with the requirements set forth in our Bylaws. Please contact our Corporate Secretary for a copy of such regulations and for a description of the steps outlined in our Bylaws that must be taken to present such a proposal.

 

If a shareholder wishes to present a proposal at the 2017 Annual Meeting that would not be included in our Proxy Statement for such meeting, the shareholder must provide notice to us no later than January 9, 2017 and no earlier than December 8, 2016. Please contact the Corporate Secretary for a description of the steps to be taken to present such a proposal.

 

 
7

 

 

How can a shareholder get a copy of the Company’s 2015 Annual Report on Form 10-K?

 

Our 2015 Annual Report, including our Annual Report on Form 10-K for the year ended November 28, 2015, accompanies this Proxy Statement. The 2015 Annual Report, including our Annual Report on Form 10-K, is also available via the internet in the “Financial” section of our Investor Relations page of our website (www.hbfuller.com). If requested, we will provide you a paper copy of the 2015 Annual Report, including our Annual Report on Form 10-K without charge. We will also provide you with copies of any exhibits to the Form 10-K, upon written request and upon payment of a fee covering our reasonable expenses in furnishing the exhibits. You can request a paper copy of the 2015 Annual Report, or paper copies of exhibits to the Form 10-K by writing to the Corporate Secretary, H.B. Fuller Company, 1200 Willow Lake Boulevard, P.O. Box 64683, St. Paul, Minnesota 55164-0683.

 

Who is the Corporate Secretary?

 

The Corporate Secretary is Timothy J. Keenan. The mailing address is the Office of the Corporate Secretary, P.O. Box 64683, St. Paul, Minnesota 55164-0683.

 

 
8

 

 

SECURITY OWNERSHIP

OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table shows how much H.B. Fuller Common Stock each director and executive officer listed in the Summary Compensation Table in this Proxy Statement beneficially owned as of January 29, 2016. The table also shows the beneficial ownership of H.B. Fuller Common Stock of all directors and executive officers of H.B. Fuller as a group. In general, “beneficial ownership” includes those shares of our Common Stock which a director or executive officer has the power to vote or transfer, as well as stock options that are exercisable currently or within 60 days and stock underlying phantom stock units that may be acquired, in certain circumstances, within 60 days. The detail of beneficial ownership is set forth in the following table. In addition, the table shows all shareholders known to us to be the beneficial owners of more than 5% of H.B. Fuller Common Stock.

 

Unless otherwise noted, the shareholders listed in the table have sole voting and investment power with respect to the shares of Common Stock owned by them, and the shares beneficially owned by our directors and executive officers are not subject to any pledge.

 

 

   

Amount and

     

Percent of

   

Nature of

     

Common Stock

Name of Beneficial Owner

 

Beneficial Ownership

     

Outstanding

BlackRock, Inc.

 

4,758,401

 1      

9.52%

The Vanguard Group, Inc.

 

4,069,175

 2      

8.14%

Mairs and Power, Inc.

 

3,454,392

 3      

6.91%

State Street Corporation

 

3,347,103

 4      

6.70%

Fiduciary Management, Inc.

 

2,793,632

 5      

5.59%

Franklin Resources, Inc.

 

2,600,725

 6      

5.20%

               

Thomas W. Handley

 

17,677

 7      

*

Maria Teresa Hilado

 

7,401

 7,8      

*

J. Michael Losh

 

90,226

 7      

*

Lee R. Mitau

 

91,663

 7      

*

Dante C. Parrini

 

7,810

 7      

*

Ann W.H. Simonds

 

9,348

 7,8      

*

John C. van Roden, Jr.

 

42,779

 7      

*

R. William Van Sant

 

39,336

 7      

*

James J. Owens

 

540,524

 9      

1.07%

James R. Giertz

 

233,146

 10      

*

Traci L. Jensen

 

83,638

 11      

*

Patrick J. Trippel

 

122,246

 12      

*

Steven Kenny

 

225,643

 13  

 

 

*

All directors and executive officers as a group (19 people)

 

1,825,847

 14  

 

 

3.55%

 

 


*

Indicates less than 1%.

 

(1)

This information is based on a Schedule 13G/A filed with the SEC on January 26, 2016 reporting beneficial ownership as of December 31, 2015. BlackRock, Inc., a parent holding company, reported that it has sole voting power over 4,647,539 shares and sole dispositive power over all of the shares. The holder’s address is 55 East 52nd Street, New York, New York 10055.

  

 
9

 

 

(2)

This information is based on a Schedule 13G/A filed with the SEC on February 11, 2016 reporting beneficial ownership as of December 31, 2015. The Vanguard Group, Inc., an investment adviser, reported that it has sole voting power over 111,175 shares, shared dispositive power over 111,275 shares and sole dispositive power over 3,957,900 shares. The holder’s address is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

 

(3)

This information is based on a Schedule 13G/A filed by the holder with the SEC on February 12, 2016 reporting beneficial ownership as of December 31, 2015. Mairs and Power, Inc., an investment advisor, reported that it has sole voting power over 2,847,450 shares and sole dispositive power over all of the shares. The holder’s address is W-1520 First National Bank Building, 332 Minnesota Street, Saint Paul, Minnesota 55101.

 

(4)

This information is based on a Schedule 13G filed with the SEC on February 16, 2016 reporting beneficial ownership as of December 31, 2015. State Street Corporation, a holding company, reported that it has shared voting and shared dispositive power over all of the shares. The holder’s address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.

 

(5)

This information is based on a Schedule 13G filed with the SEC on February 16, 2016 reporting beneficial ownership as of December 31, 2015. Fiduciary Management, Inc., an investment adviser, reported that it has sole voting power over 2,366,492 shares and shared dispositive power over all of the shares. The holder’s address is 100 East Wisconsin Avenue, Suite 2200, Milwaukee, Wisconsin 53202.

 

(6)

This information is based on a Schedule 13G/A filed with the SEC on February 5, 2015 reporting beneficial ownership as of December 31, 2015 by Franklin Resources, Inc. (“FRI”), Charles B. Johnson, and Rupert H. Johnson, Jr. to the effect that (a) each (directly or indirectly) has dispositive and voting power over these shares to the extent disclosed therein and (b) these shares are held by investment companies or other managed accounts that are advised by subsidiaries of FRI pursuant to investment contracts which grant to such subsidiaries investment and voting power over the shares. Charles B. Johnson and Rupert H. Johnson, Jr., each own in excess of 10% of the outstanding common stock of FRI and are the principal stockholders of FRI. The business address for FRI, Charles B. Johnson and Rupert H. Johnson, Jr., is One Franklin Parkway, San Mateo, California 94403-1906.

 

(7)

Includes phantom stock units credited to the accounts of directors who participate in the Directors’ Deferred Compensation Plan, described under the heading “Director Compensation” that may be acquired, in certain circumstances, within 60 days. The number of units credited to each director participating in this plan that may be acquired within 60 days is as follows:

 

Thomas W. Handley

    16,330  

Dante C. Parrini.

    6,468  

Maria Teresa Hilado 

    6,068  

Ann W. H. Simonds

    8,016  

J. Michael Losh 

    86,629  

John C. van Roden, Jr.

    27,818  

Lee R. Mitau 

    48,847  

R. William Van Sant

    16,171  

 

  Excludes phantom stock units credited to the accounts of directors who participate in the Directors’ Deferred Compensation Plan, described under the heading “Director Compensation” that are not able to be acquired within 60 days. The number of units credited to each director participating in this plan that are excluded from the table is as follows:

 

Thomas W. Handley 

    11,612  

Lee R. Mitau

    88,700  

Maria Teresa Hilado 

    622  

Ann W.H. Simonds

    622  

J. Michael Losh  

    621  

R. William Van Sant 

    65,612  

 

 

None of the phantom stock units are entitled to vote at the meeting.

  

 
10

 

 

(8)

Includes the following shares of restricted Common Stock awarded under the 2009 Director Stock Incentive Plan, including shares acquired upon reinvestment of dividends:


Maria Teresa Hilado 

1,333

Ann W.H. Simonds 

1,333

 

(9)

Includes shares of 38,153 restricted Common Stock subject to forfeiture, 338 shares held in trust under the H.B. Fuller Company 401(k) & Retirement Plan, 280 shares held jointly by Mr. Owens’ wife and son and over which Mr. Owens does not have voting control and 400,359 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 69,272 restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(10)

Includes 1,161 shares held in trust under the H.B. Fuller Company 401(k) & Retirement Plan and 151,946 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 15,812 restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(11)

Includes 56,098 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 12,480 restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(12)

Includes 98,726 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 12,480 restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(13)

Includes 193,145 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 12,480 restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(14)

Includes 38,153 shares of restricted Common Stock subject to forfeiture, 1,508 shares held in trust under the H.B. Fuller Company 401(k) & Retirement Plan, 1,160,603 shares that could be issued pursuant to stock options which are currently exercisable and 217,201 phantom stock units credited to directors’ and an executive officer's individual H.B. Fuller Common Stock accounts under the Directors’ Deferred Compensation Plan and the Key Employee Deferred Compensation Plan that may be acquired, in certain circumstances, within 60 days. Excludes phantom stock units credited to the individual accounts under the Directors’ Deferred Compensation Plan and the Key Employee Deferred Compensation Plan that may not be acquired within 60 days. Excludes 164,274 restricted stock units which are subject to forfeiture. Neither the restricted stock units nor any of the phantom stock units in the Directors’ Deferred Compensation Plan or the Key Employee Deferred Compensation Plan are entitled to vote at the meeting.

  

 
11

 

 

 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s directors and executive officers to file initial reports of ownership and reports of changes in ownership of H.B. Fuller’s securities with the SEC. These reports are available for review on our website (www.hbfuller.com) in the “Financial” section of the Investor Relations page. Directors and executive officers are required to furnish us with copies of these reports. Based solely on a review of these reports and written representations from the directors and executive officers, we believe that all directors and executive officers complied with all Section 16(a) filing requirements for fiscal year 2015, except that, due to administrative error, James Owens was one day late in filing a Form 4 reporting stock option and restricted stock unit grants.

 

PROPOSAL 1—ELECTION OF DIRECTORS

 

Proposal

 

The Board of Directors is currently composed of nine directors and is divided into three classes. Each year one class of directors stands for election for a three-year term. The term of office for Class II directors, consisting of Dante C. Parrini, John C. van Roden, Jr. and James J. Owens, will expire at the annual meeting.

 

At the annual meeting, three persons are to be elected as Class II directors to hold a three-year term of office from the date of their election until the 2019 annual meeting or until their successors are duly elected and qualified. The three nominees for election as Class II directors are Dante C. Parrini, John C. van Roden, Jr. and James J. Owens, all of whom are currently directors. Each of the nominees has agreed to serve as a director if elected. Following the annual meeting, the Board will be comprised of nine directors. Pursuant to our Company’s Bylaws, no more than 15 persons may serve on the Board. For information on how a shareholder may suggest a person to be a nominee to the Board, see “How can a shareholder suggest a candidate for election to the Board?”

 

Unless earlier terminated due to retirement or resignation, the term of office for Class III directors, consisting of J. Michael Losh, Lee R. Mitau and R. William Van Sant will expire at the annual meeting in 2017, and the term of office for Class I directors, consisting of Thomas W. Handley, Maria Teresa Hilado and Ann W.H. Simonds, will expire at the annual meeting in 2018. All of the directors were elected to the Board of Directors by the shareholders.

 

If, for any reason, any nominee becomes unable to serve before the election, the persons designated as proxies will vote your shares for a substitute nominee selected by the Board of Directors. Alternatively, the Board of Directors, at its option, may reduce the number of directors constituting Class II directors.

 

The Board of Directors recommends a vote FOR election of each of the nominees.

 

Who are the nominees?

 

The nominees provided the following information about themselves as of January 31, 2016.

 

 
12

 

 

Class II (Term Ending in 2016)

     

Dante C. Parrini

   

Age:

51

 

Director Since:

2012

 

Principal Occupation:

Chairman and Chief Executive Officer, P.H. Glatfelter Company, a global supplier of specialty papers and fiber-based engineered materials. 

 

Business Experience:

Mr. Parrini joined P.H. Glatfelter in 1997, and is currently serving as its Chairman and Chief Executive Officer. He has served as President and Chief Executive Officer since January 2011, and Chairman of the Board since May 2011. He was previously Glatfelter’s Executive Vice President and Chief Operating Officer from 2005 until 2010. As a result of his positions at Glatfelter, Mr. Parrini brings a broad range of management experience to our Board. In his different capacities at Glatfelter, he has had responsibility for worldwide operations (including global profit and loss), international and domestic sales, marketing, new product development, global supply chain management, information technology, human resources, and strategy and development.  

 
     

John C. van Roden, Jr.

 

 

Age:

66

 

Director Since:

2003

 

Principal Occupation:

Independent Director

 

Business Experience:

Mr. van Roden is a Director of Airgas, Inc., the largest U.S. distributor of industrial, medical and specialty gases, and hardgoods, such as welding equipment and supplies. He served as Presiding Director of Airgas, Inc. from 2010 to 2014 and was Chairman of the Board of Airgas, Inc. from September 2010 through August 2011. Prior to this appointment, Mr. van Roden was a private investor. In February 2003, Mr. van Roden was appointed Executive Vice President and Chief Financial Officer of P.H. Glatfelter Company, a global supplier of specialty papers and fiber-based engineered materials, and served in that capacity until January 2007, at which time he became a consultant to Glatfelter until 2009. Mr. van Roden brings a broad range of management and finance experience to our Board. During the course of his career, Mr. van Roden has held leadership roles in the finance area for a number of public companies, including as the Chief Financial Officer of P.H. Glatfelter Company, Conectiv, LLC (energy) and Lukens, Inc. (specialty steel manufacturer). This expertise, along with his extensive experience serving on the boards of several other public companies provides additional depth to our Board’s leadership and governance capabilities. During his thirteen years of service on our Board, Mr. van Roden has developed extensive knowledge of our Company and its businesses. He has been Chair of the Audit Committee since 2015.

 

The Board of Directors has determined that Mr. van Roden is an audit committee financial expert as that term is defined under the rules of the SEC.

 
     

Other Directorships:

Mr. van Roden is a Director of Airgas, Inc. and Horsehead Corporation.

 

 

 
13

 

 

     

James J. Owens

   

Age:

51

 

Director Since:

2010

 

Principal Occupation:

President and Chief Executive Officer, H.B. Fuller Company.

 

Business Experience:

Mr. Owens was appointed President and Chief Executive Officer of H.B. Fuller Company in November 2010. Prior to that appointment, he served as Senior Vice President, Americas from January to November 2010 and as Senior Vice President, North America from August 2008 to January 2010. Prior to joining H.B. Fuller Company, Owens served as Senior Vice President of Henkel Corporation, a global manufacturer of home care products, cosmetics, toiletries and adhesives products, from April to August 2008. Mr. Owens spent 22 years with National Starch’s adhesives business, a division of ICI (Imperial Chemical Industries Limited), in a variety of management positions, including serving as Corporate Vice President and General Manager (from December 2004 to April 2008), Vice President and General Manager of the Europe/Middle East and Africa adhesives business; Corporate Vice President and General Manager of the North American adhesives business; Business Director for the pressure sensitive and laminating adhesives businesses; Marketing Manager; and Technical Services Manager. As President and Chief Executive Officer of H.B. Fuller Company and through his career-long experience in the adhesives industry, Mr. Owens brings to Board discussions and deliberations his deep knowledge of the industry. In addition, Mr. Owens is the voice of management on the Board. 

 
     
Other Directorships: Mr. Owens is a Director of Donaldson Company, Inc.  
     

 

How can a shareholder suggest a candidate for election to the Board?

 

The Corporate Governance and Nominating Committee of the Board nominates all candidates for election to the Board. Generally, current directors or third party search firms engaged by the Corporate Governance and Nominating Committee identify candidates for consideration by the Committee. No third party search firm was engaged during fiscal 2015. The Corporate Governance and Nominating Committee will review all nominees to the Board of Directors, including an assessment of a nominee’s judgment, experience, independence and such other factors as the Corporate Governance and Nominating Committee concludes are pertinent in light of the Board’s needs. The Board of Directors believes that its membership should reflect a diversity of experience, skills, geography, gender and ethnicity. The Board of Directors considers each of these factors when evaluating director nominees and evaluates the makeup of the Board of Directors with regard to these factors on an ongoing basis as it searches for and asks director nominees to join the Board. The Corporate Governance and Nominating Committee will select qualified nominees and review its recommendations with the Board, which will decide whether to invite any nominee to join or stand for re-election to the Board. The Committee will consider candidates recommended by any shareholder using the same criteria set forth above. Recommendations may be sent to the Corporate Governance and Nominating Committee in care of the Corporate Secretary of H.B. Fuller. No shareholder recommended any candidate during fiscal year 2015.

 

Who are the remaining directors?

 

The directors not standing for election at the meeting and whose service will continue until the end of their respective terms provided the following information about themselves as of January 31, 2016.

 

 
14

 

 

Class III (Term Ending in 2017)

   

J. Michael Losh

 

Age:

69

Director Since:

2001

Principal Occupation:

Independent Director

Business Experience:

Mr. Losh has been the non-executive Chairman of MASCO Corporation, a global leader in the design, manufacture and distribution of branded home improvement and building products, since 2015. He was the interim Chief Financial Officer of Cardinal Health, Inc., a provider of products and services for the health care market, located in Dublin, Ohio, from July 2004 to May 2005. He was the Chairman of Metaldyne Corporation (now a wholly-owned subsidiary of Asahi Tec Corporation), a global designer and supplier of high quality, metal-formed components, assemblies and modules for the transportation industry headquartered in Plymouth, Michigan, from 2000 to 2002. Prior to that position, Mr. Losh was employed by General Motors Corporation from 1964 to 2000. Mr. Losh brings a wealth of global operating, financial and accounting experience through his 36-year career at General Motors, where he held a variety of roles in the United States, Brazil and Mexico, including Chief Financial Officer from 1994 to 2000. He also contributes extensive audit committee and corporate governance expertise, gained through his service on several other public company boards. During his fifteen years of service on our Board, Mr. Losh has developed an in-depth knowledge of our company and its businesses.

   

Other Directorships:

Prologis, Inc., Aon plc, and MASCO Corporation.

   

Lee R. Mitau

 

Age:

67

Director Since:

1996, Chairman of the Board since December 2006.

Principal Occupation:

Chairman of the Board, H.B. Fuller Company and Graco Inc.

Business Experience:

Mr. Mitau served as Executive Vice President and General Counsel of U.S. Bancorp from 1995 until March of 2013, when he retired. Mr. Mitau serves as Chairman of the H.B. Fuller Board, Chair of our Corporate Governance and Nominating Committee and as a member of our Compensation Committee, and has extensive public company legal and governance expertise. He is widely recognized as an expert in the area of corporate governance, and is a highly regarded and sought after speaker in this discipline. He has gained expertise in the areas of corporate governance, corporate finance and mergers and acquisitions through his career as a practicing attorney with a global law firm, where he headed the firm’s corporate and securities practice, and as the Executive Vice President, General Counsel and Secretary of U.S. Bancorp. In addition, since 1990, Mr. Mitau has served on the board of Graco Inc., where he is currently Chairman of the Board. During his twenty years of service on our Board, Mr. Mitau has developed an in-depth knowledge of our Company and its businesses. Mr. Mitau’s unique combination of experiences makes him particularly well-qualified to serve as our Chairman.

   

Other Directorships:

Mr. Mitau is Chairman of the Board of Graco Inc.

 

 
15

 

 

   

R. William Van Sant

 

Age:

77

Director Since:

2001, Vice Chairman of the Board since 2011.

Principal Occupation:

Senior Operating Partner, Tenex Capital Management, L.P., Special Advisor, Yukon Partners II, L.L.C.

Business Experience:

Mr. Van Sant has been a Senior Operating Partner at Tenex Capital Management, L.P., a private equity fund based in New York, NY, since September 2012. He also serves as the Chairman or as a director of several portfolio companies of Tenex. Mr. Van Sant has also been a Special Advisor at Yukon Partners II, L.L.C., a mezzanine fund based in Minneapolis, MN, since July 2014. In addition to actively advising private equity funds and their portfolio companies, Mr. Van Sant may from time to time take ownership interests in the funds and portfolio companies he advises. From January 2008 until February 2013, he was an operating partner of Stone Arch Capital, LLC, a private equity firm. From August 2006 through December 2007, he was President and Chief Executive Officer of Paladin Brands Holding, Inc., which manufactures attachments for construction equipment. From 2003 until August 2006, Mr. Van Sant was Chairman, and from 2003 until November 2005, Mr. Van Sant was Chairman and Chief Executive Officer, of Paladin Brands, LLC. He was an operating partner of Norwest Equity Partners, a private equity firm, from 2001 to August 2006. He also held roles of increasing responsibility over a nearly thirty year career at John Deere Company. Mr. Van Sant brings to our Board his expertise in management, finance and manufacturing operations, experience he has acquired over many years as a director, chairman or chief executive officer with a variety of manufacturing companies, including those listed above as well as Nortax Inc., Lukens, Inc., Blount Inc., Cessna Aircraft Company and Graco Inc. (where he serves on the Audit and Governance Committees). Mr. Van Sant also brings a wealth of merger and acquisition experience and governance experience to our Board. Mr. Van Sant was appointed Vice Chairman of our Board of Directors in July 2011. In addition, Mr. Van Sant has gained a detailed understanding of our company and its businesses through his service on our Board during the past fifteen years.

 

 

Other Directorships: Mr. Van Sant is a director of Graco Inc.

 

 
16

 

 

Class I (Term Ending in 2018)

   

Thomas W. Handley

 

Age:

61

Director Since:

2010

Principal Occupation:

President and Chief Operating Officer of Ecolab Inc., a global company providing businesses with solutions for clean water, safe food, abundant energy and healthy environments, headquartered in St. Paul, Minnesota.

Business Experience:

Mr. Handley has been with Ecolab since August 2003.  Prior to his appointment as President and Chief Operating Officer of Ecolab in September 2012, Mr. Handley served in a variety of senior management positions of increasing responsibility at the senior vice president, executive vice president and business president levels, including leading strategic planning for the company and leading a number of its domestic and global industrial, foodservice, healthcare and service businesses. Before joining Ecolab, he held various management positions with The Procter & Gamble Company (P&G) from 1981 to 2003, including serving as Vice President and General Manager for P&G’s paper products businesses in Japan and Korea and as a Vice President for Strategic Planning and Marketing of the Global Feminine Care business. Mr. Handley also managed various businesses in Mexico and Latin America for P&G. Mr. Handley brings a valuable operating perspective to our Board due to his broad experience in a variety of markets and businesses both domestically and internationally while at P&G and Ecolab. He also has experience with increasing Ecolab’s presence in new markets, something which is critical to H.B. Fuller’s growth strategy. In addition, Mr. Handley has governance experience in a variety of settings, both from a management perspective at Ecolab and as a board member of several non-profit organizations and foundations.

 

The Board of Directors has determined that Mr. Handley is an audit committee financial expert as that term is defined under the rules of the SEC.

 

 
17

 

 

   
Maria Teresa Hilado  

Age:

51

Director Since:

2013

Principal Occupation:

Chief Financial Officer, Allergan plc, a specialty pharmaceutical company focused on developing, manufacturing and commercializing high quality affordable generic and innovative branded pharmaceutical products for patients around the world.

Business Experience:

In December 2014, Ms. Hilado joined Allergan plc, where she leads the global finance and information technology teams and has oversight over Systems, Treasury, Control, Audit and Tax, to name a few. Prior to December 2014, Ms. Hilado served as Senior Vice President, Finance and Treasurer at PepsiCo, Inc., a position which she held since 2009. During her time at PepsiCo, Ms. Hilado had global operating responsibility for the treasury organization of PepsiCo, including capital markets, cash management, international treasury, pensions, insurance and global procurement finance. Ms. Hilado has over 23 years of finance, treasury and strategic experience in large global public corporations across a variety of industries. Prior to joining PepsiCo in 2009, she served as the Vice President and Treasurer at Schering-Plough Corp., a pharmaceutical company now known as Merck & Co., from 2008 to 2009. She was responsible for the strategic oversight and direction for the global Treasury function. Ms. Hilado joined General Motors (GM) Corporation in 1990, spending 17 years in a variety of senior finance roles including Assistant Treasurer. In addition, she held a variety of positions in M&A, labor negotiations, and treasury. She also served as Chief Financial Officer of General Motors Acceptance Corporation Commercial Finance from 2001 to 2005. From May 2013 until August 2013, Ms. Hilado served on the board of directors of Bausch + Lomb. Ms. Hilado brings strategic leadership experience to our Board, providing our Board with her broad and extensive experience in the areas of corporate finance and treasury operations, skills that will be particularly helpful in her service on our Board’s Audit Committee. She also has demonstrated business acumen, global experience and strategic insight, skills that greatly enhance our Board.

 

The Board of Directors has determined that Ms. Hilado is an audit committee financial expert as that term is defined under the rules of the SEC.

   
Ann W. H. Simonds  

Age:

52

Director Since:

2013

Principal Occupation:

Senior Vice President, Chief Marketing Officer of General Mills, Inc., a global manufacturer and marketer of branded consumer foods sold through retail stores.

Business Experience:

Ms. Simonds was appointed Chief Marketing Officer and Senior Vice President of General Mills, Inc. on November 1, 2014. In this role, she oversees the Marketing Organization including Global Consumer Insights, Creative Excellence, Media and Connections Platforms, Licensing and Marketing Talent, Learning and Development. Ms. Simonds joined General Mills, Inc. in 1995 and, prior to her current appointment, served as Senior Vice President and President, Baking Products of General Mills, Inc., a role which she held since 2012. In this role, she oversaw General Mills’ Betty Crocker, Gold Medal, Bisquick and Pillsbury brands. Prior to this, Simonds was President of General Mills’ Pillsbury USA division from 2010 to 2012. From 2006 to 2010, she was president of the Baking Division and she was first named a corporate officer in 2002. Simonds’ career spans leadership roles of brands such as Betty Crocker, Cheerios, Wheaties and Yoplait as well as the role of general manager of the bakery and convenience store businesses. In addition, Simonds spent five years as a marketer for Johnson & Johnson in the U.S. and Europe before joining General Mills. Ms. Simonds brings with her a keen understanding of brand stewardship and global marketing. She is a seasoned leader who understands how to generate profitable growth and deliver value for customers and shareholders. Ms. Simonds’ ability to commercialize profitable new ideas will be an excellent asset to our Board. Her experience will support our ability to deliver our growth strategy.

 

 
18

 

 

 CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

The Board of Directors (the “Board”), upon recommendation of the Corporate Governance and Nominating Committee, has adopted Corporate Governance Guidelines, which summarize many of the corporate governance principles that the Board follows in governing H.B. Fuller. The guidelines are available for review on our website (www.hbfuller.com), in the “Governance” section of the Investor Relations page.

 

Code of Business Conduct

 

We have a Code of Business Conduct applicable to all of our directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. A copy of this Code of Business Conduct is available for review on our website (www.hbfuller.com), in the “Governance” section of the Investor Relations page.

 

Communications with Directors

 

Any shareholder may contact the Board, any Board committee or any independent director, by mailing a letter addressed to the attention of the Corporate Secretary. The Corporate Secretary reviews all communications, and after ascertaining whether such communications are appropriate to the duties and responsibilities of the Board, will forward such correspondence to the directors for their information and consideration. The Board has requested that the Corporate Secretary not forward the following types of communications to the Board: general solicitations for business or products; job applications or resumes; advertisements, junk mail and surveys; and any other communication that does not relate to the responsibilities of the Board.

 

Director Independence

 

Pursuant to our Corporate Governance Guidelines and the listing standards of the New York Stock Exchange (“NYSE”), the Board has determined that all Board members, other than Mr. Owens, are independent. No director is considered independent unless the Board affirmatively determines that such director has no material relationship with H.B. Fuller. In assessing the materiality of any person’s relationship with H.B. Fuller, the Board considers all relevant facts and circumstances, including not only direct relationships between H.B. Fuller and each director but also any relationships between H.B. Fuller and any entity with which a director is affiliated.

 

The Board reviewed certain transactions between H.B. Fuller and our directors and entities with which they are affiliated and determined that they were made or established in the ordinary course of business and that the directors had no direct or indirect material interest in the transactions. Mr. Handley and Ms. Simonds recused themselves from this review and determination as it related to the entities with which they are affiliated. The Board considered customer-supplier transactions between: (i) the Company and Ecolab Inc., of which Mr. Handley is President and Chief Operating Officer and (ii) the Company and General Mills, Inc. of which Ms. Simonds is a Senior Vice President. After consideration of these relationships, the Board of Directors determined that the directors had no direct or indirect material interest in the transactions. In addition, the dollar amounts involved in the transactions with Ecolab Inc. and General Mills, Inc. fall below the thresholds set by the NYSE for director independence.

 

Meetings of the Board and the Board’s Committees

 

Directors are expected to attend the Annual Meeting of Shareholders and all meetings (including teleconference meetings) of the Board and each committee on which they serve. During the 2015 fiscal year, the Board held five meetings. The directors attended greater than 75% of the meetings of the Board and Board committees on which the directors served during the 2015 fiscal year. In addition, all of the directors, with the exception of Maria Teresa Hilado, attended our Annual Meeting of Shareholders held on April 9, 2015.

 

 
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What are the roles of the Board’s committees?

 

The Board of Directors is responsible for the overall affairs of H.B. Fuller. The Board conducts its business through meetings of the Board and three standing committees: Audit; Compensation; and Corporate Governance and Nominating. The Board has adopted a written charter for each committee. The charters for each of these committees are available for review on our website (www.hbfuller.com) in the “Governance” section of the Investor Relations page. Information regarding the three standing committees is set forth below. When necessary, the Board may also establish ad hoc committees to address specific issues.

 

Audit Committee

 

John C. Van Roden, Jr. (Chair)

Maria Teresa Hilado

Thomas W. Handley

Ann W. Simonds

 

Number of Meetings in fiscal year 2015:    Nine

 

Functions:    The Audit Committee appoints the independent registered public accounting firm to audit our consolidated financial statements, oversees the audit and the independence and performance of our independent registered public accounting firm, determines and pre-approves the type and scope of all audit, audit-related and non-audit services provided by our independent registered public accounting firm, oversees our internal audit function, reviews the performance of our retirement plans and reviews the annual audited consolidated financial statements, accounting principles and practices and the adequacy of internal controls. In addition, the Audit Committee reviews the Company’s risk management policies and procedures to assess their adequacy and appropriateness in the context of the Company’s business and operating environment. This Committee also monitors compliance with our Code of Business Conduct and our Policy and Procedures Regarding Transactions with Related Persons.

 

All of the members of the Audit Committee are considered independent as that term is defined by our Corporate Governance Guidelines, the listing standards of the NYSE and the applicable rules and regulations of the SEC. The Board of Directors has also determined that John C. van Roden, Jr., Thomas W. Handley and Maria Teresa Hilado satisfy the requirements of an audit committee financial expert as such term is defined under the rules and regulations of the SEC. The Audit Committee Report for fiscal year 2015 is included in this Proxy Statement.

 

Compensation Committee

 

R. William Van Sant (Chair)

Lee R. Mitau

Thomas W. Handley

Dante C. Parrini

Maria Teresa Hilado

Ann W.H. Simonds

 

Number of Meetings in fiscal year 2015:    Five

 

Functions:    The Compensation Committee establishes overall compensation programs and practices for executives and reviews and approves compensation, including salary, incentive programs, stock-based awards, retirement plans, perquisites and other supplemental benefits, employment agreements, severance agreements, change in control provisions and other executive compensation items for our executive officers. The Compensation Committee monitors the competitiveness, fairness and equity of our retirement plans and administers our stock-based compensation plans and individual awards.

 

The Compensation Committee annually reviews and approves compensation for our non-employee directors including retainers, fees, stock-based awards, and other compensation and expense items.

 

The Compensation Committee may delegate its authority to the Chair of the Compensation Committee to accelerate vesting of outstanding awards. The Committee intends this delegation of authority to be for situations of retirement or termination, and where it is impractical to obtain participation by all Committee members.

 

 
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The Compensation Committee may use outside compensation consultants to provide compensation advice, competitive survey data and other reference market information related to trends and competitive practices in executive compensation. Since April 2010, the Compensation Committee has used Buck Consultants, LLC, a wholly owned subsidiary of Xerox Corporation, to provide ongoing advice and information regarding design and implementation of the Company’s executive compensation programs as requested by the Compensation Committee.

 

The Compensation Committee retained Buck Consultants to be its independent compensation consultant due to their independence and industry experience. Buck Consultants advises the Committee on director and executive compensation, but does no other work for the Company. The Company uses Towers Watson for actuarial, benefits, medical plan and employee engagement survey consulting services. During fiscal 2015, we purchased broad-based market compensation survey information from Towers Watson and Hewitt Associates. See discussion in the “Compensation Discussion and Analysis” section of this Proxy Statement.

 

The Compensation Committee believes that Buck Consultants provided candid, direct and objective advice to the Compensation Committee. To ensure independence:

 

 

The Compensation Committee directly hired and has the authority to terminate Buck Consultants

 

 

Buck Consultants is engaged by and reports directly to the Compensation Committee and its chairman

 

 

None of the members of the Compensation Committee have a business or personal relationship with the Buck Consulting consultant with whom the Committee works, outside of work he provides for the Compensation Committee. The consultant does not have any business or personal relationship with any executive officer of the Company and he does not own any stock in the Company.

 

 

The amount of fees that Buck Consultants receives for work performed for the Company is de minimis as a percentage of Buck Consultants’ annual revenue

 

 

Buck Consultants does only work for the Compensation Committee that falls within the scope of work of the service agreement. No other work will be initiated without the Committee’s approval.

 

 

Buck Consultants has direct access to all members of the Compensation Committee during and between meetings

 

 

No employee of Buck Consultants works for the Company

 

 

The Compensation Committee has approved direct interaction between Buck Consultants and management; however; these interactions are generally limited to discussions on behalf of the Compensation Committee and information that is presented to the Compensation Committee for approval

 

In addition, the Compensation Committee has assessed the independence of Buck Consultants pursuant to SEC rules and concluded that no conflict of interest exists that would prevent Buck Consultants, or the individual advisor employed by Buck Consultants with whom we work, from independently representing the Compensation Committee.

 

A representative of Buck Consultants generally attends Compensation Committee meetings to serve as a resource for the Compensation Committee. In order to encourage independent review and discussion of executive compensation matters, the Compensation Committee and the committee chair may request meetings with the independent compensation consultant in executive session without management present.

 

 
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During fiscal 2015, the Compensation Committee asked Buck Consultants to conduct a review and analysis of non-employee director compensation. Buck Consultants presented information regarding director compensation to the Compensation Committee, provided a market data report on director compensation and presented its findings and recommendations for discussion. Buck Consultants provided these services and reported directly to the Compensation Committee Chair.

 

All of the members of the Compensation Committee are considered independent as that term is defined by our Corporate Governance Guidelines and the listing standards of the NYSE. The Compensation Committee Report for fiscal year 2015 is included in this Proxy Statement.

 

Corporate Governance and Nominating Committee

 

Lee R. Mitau (Chair)

John C. van Roden, Jr.

J. Michael Losh

R. William Van Sant

Dante C. Parrini

 

 

Number of Meetings in fiscal year 2015:   Three

 

Functions:    The Corporate Governance and Nominating Committee reviews matters of corporate governance, including our organizational structure and succession planning. This Committee evaluates and recommends new director nominees and evaluates each current director prior to nominating such person for re-election. The Corporate Governance and Nominating Committee reviews a director’s continued service if a director’s occupation changes during his or her term. This Committee also evaluates the performance of the Chairman of the Board, the President and Chief Executive Officer, and the directors, and makes recommendations to the Board regarding any shareholder proposals.

 

The Corporate Governance and Nominating Committee considers shareholder recommendations for potential director nominees. See “How can a shareholder suggest a candidate for election to the Board?”

 

All of the members of the Corporate Governance and Nominating Committee are considered independent as that term is defined by our Corporate Governance Guidelines and the listing standards of the NYSE.

 

Board’s Role in Oversight of Risk

 

In General

 

The Board believes that effective enterprise risk management must be an integral part of Board and Committee deliberations and activities throughout the year. As part of the enterprise risk management, the Board engages in the following activities throughout the fiscal year:

 

 

The full Board of Directors reviews the Company’s enterprise risk management process and a comprehensive assessment of key financial, operational and strategy risks identified by management, as well as mitigating practices.

 

 

The full Board of Directors discusses risks related to the Company’s annual financial plan and budget each fiscal year and risks related to the Company’s strategy at meetings where the strategy is presented and reviewed.

 

 

The Board of Directors also encourages management to promote a corporate culture that integrates risk management into the Company’s strategy and day-to-day business operations in a way that is consistent with the Company’s targeted risk profile.

 

 

Each committee conducts its own risk assessment and management activities throughout the year (some of which are highlighted in the section on Board committees above), and reports its conclusions to the Board.

 

Through these processes, the Board oversees a system to identify, assess and address material risks to the Company on a timely basis. In addition, the Board’s leadership structure, as described below in the section titled “Board Leadership Structure” supports its role in risk oversight. The Company presently has a separate Chairman of the Board and Chief Executive Officer. When those positions are combined, we have an independent Presiding Director. We have strong independent directors chairing each of our Board Committees, all of which are involved in risk oversight, and there is open communication between management and the non-employee directors.

 

 
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Risk Assessment of Compensation Programs

 

Management conducted a risk assessment of the Company’s policies and programs relating to the compensation of employees, including those that apply to our executive officers, with a focus on those programs that had changed from the prior fiscal year review. The format of this review was similar to that conducted in the prior fiscal year which was discussed with and approved by the Compensation Committee.

 

Management discussed the findings of the risk assessment review with the Compensation Committee. Based on the assessment, the Company believes that its compensation policies and practices create an appropriate balance among our base salary compensation, short-term incentive compensation and long-term incentive compensation, thereby reducing the possibility of imprudent risk-taking and that its compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

Board Leadership Structure

 

Our Corporate Governance Guidelines provide that the Board of Directors has no policy with respect to the separation of the offices of Chairman and Chief Executive Officer. Separation of these offices is an issue that is to be addressed as part of the Company’s succession planning. When the Chairman and Chief Executive Officer are separate offices, the Chairman will serve as the Presiding Director. However, when the Chief Executive Officer also holds the position of Chairman, a Presiding Director will be appointed by the Board to further the achievement of a strong, independent Board with an appropriate balance between the Board and the Chief Executive Officer. In such cases, the Chair of the Corporate Governance and Nominating Committee shall serve as the Presiding Director.

 

Mr. Mitau has served as our independent Chairman of the Board since December 2006 and, in this capacity, has acted as the Presiding Director at Board of Director meetings and during executive sessions of the non-management directors. Our Board has separated the roles of Chairman of the Board and Chief Executive Officer since 2006 because our current Chief Executive Officer and our previous Chief Executive Officer both had limited public company chief executive officer experience at the time of each of their elections to the Board. Mr. Mitau serves as the Chairman of the Board of Graco Inc. and has significant public company experience. The Chief Executive Officer, in consultation with the Chairman, establishes the agenda for each Board meeting. At the beginning of each fiscal year, the Chairman also publishes a schedule of topics to be discussed. In addition, Mr. Van Sant has served as Vice Chairman of the Board since fiscal 2011 and in this role he provides special assistance, oversight and guidance to the Chairman of the Board in performing the duties of the Chairman, and he provides counsel to the Chief Executive Officer.

 

Director Elections

 

With respect to the election of directors, during fiscal 2014, our Board adopted a so-called “plurality-plus” standard. In accordance with procedures set forth in our Corporate Governance Guidelines, at any shareholder meeting at which directors are subject to an uncontested election (i.e., an election where the only nominees are those recommended by the Board), any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall submit to the Board a letter of resignation for consideration by the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee shall promptly consider the resignation offer and recommend to the full Board whether to accept it. In considering whether to accept or reject the resignation offer, the Corporate Governance and Nominating Committee will consider all factors deemed relevant by members of the Corporate Governance and Nominating Committee, including, without limitation, (i) the perceived reasons why shareholders withheld votes “for” election from the director, (ii) the length of service and qualifications of the director, (iii) the director’s contributions to the Company, (iv) compliance with listing standards, (v)  the purpose and provisions of these guidelines, and (vi) the best interests of the Company and its shareholders. To the extent that one or more directors’ resignations are accepted by the Board, the Corporate Governance and Nominating Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board. Any director who tenders his or her offer to resign from the Board pursuant to this provision shall not participate in the Corporate Governance and Nominating Committee or Board deliberations regarding whether to accept the offer of resignation. The Board will act on the Corporate Governance and Nominating Committee’s recommendation within 90 days following the certification of the shareholder vote by the Inspector of Elections, which action may include, without limitation, acceptance of the offer of resignation, adoption of measures intended to address the perceived issues underlying the vote, or rejection of the resignation offer. Thereafter, the Board will publicly disclose its decision whether to accept the director’s resignation offer.

 

 
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The Board of Directors has a written policy and procedures for the review, approval or ratification of transactions with executive officers, directors and nominees for director and their immediate family members. In general, the policy provides that certain transactions with these related persons and their immediate family members and certain transactions with any person who is a security holder known to us to be the beneficial owner of more than five percent of any class of our stock, are subject to the review, approval and/or ratification of the disinterested members of the Audit Committee. If ratification of a transaction is not forthcoming, management must make all reasonable efforts to cancel or annul that transaction. If a transaction with a related party is entered into without the pre-approval of the Audit Committee, it shall not be deemed to violate these policies and procedures, or be invalid or unenforceable, so long as the transaction is brought to the Audit Committee for ratification as promptly as reasonably practical after it is entered into or brought to the Company’s attention. All executive officers and directors of H.B. Fuller are informed in writing on an annual basis of these policies and procedures. The Audit Committee may use any process and review any information that it determines is reasonable in order to determine if a transaction is fair and reasonable and on terms no less favorable to H.B. Fuller than could be obtained in a comparable arm’s length transaction with a third party unrelated to H.B. Fuller.

 

In addition, on an annual basis, each of our directors and executive officers completes a questionnaire and discloses information regarding entities with which they and their immediate family members are affiliated. Any person nominated for election as a director must complete a questionnaire no later than the date he or she becomes a member of the Board of Directors. Any person who becomes an executive officer must complete a questionnaire as soon as reasonably practicable thereafter.

 

Our Audit Committee annually reviews all transactions and relationships disclosed in the director and officer questionnaires and approves or ratifies, as applicable, any transactions with related persons. The Board of Directors makes a formal determination regarding each director’s independence.

 

During fiscal year 2015, we had transactions, arrangements and relationships with entities with which some of our related persons, specifically certain of our directors, are affiliated. However, in accordance with the procedures in the Company’s policy, the Audit Committee determined that those related persons had no direct or indirect material interest in those transactions, arrangements and relationships.

 

 
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DIRECTOR COMPENSATION

 

The form and amount of compensation for each director is determined and reviewed at least annually by the Compensation Committee. Such compensation reflects the practices of boards of similar public companies and is comprised of cash and H.B. Fuller Common Stock (or its equivalents). Similar to our executive compensation policy, the practice of generally aligning to the market median/50th percentile also applies to our director compensation.

 

2015 Review of Director Compensation

 

The Compensation Committee uses Buck Consultants, LLC, a wholly owned subsidiary of Xerox Corporation, to provide ongoing advice and information regarding design and implementation of the Company’s executive and director compensation programs as requested by the Compensation Committee. See further discussion regarding the Compensation Committee’s independent consultant under the heading “Compensation Committee” in the Corporate Governance section in this Proxy Statement. At its July 2015 meeting, the Compensation Committee reviewed a market analysis conducted by Buck Consultants relating to director compensation, including annual board retainers, committee chair retainers and annual stock-based awards. The market analysis included our peer group (see section titled “Executive Compensation – Compensation Discussion and Analysis – Competitive Market - Peer Group Data” in this Proxy Statement), a subset of our peer group with revenues under $4.2 billion and the Frederic W. Cook & Company 2014 Survey on Non-Employee Director Compensation Across Industry and Size (which includes 300 companies: 100 Small Cap (Less than $1B), 100 Mid Cap ($1B - $5B) and 100 Large Cap (Greater than $5B)).  The mid cap company information was the primary point of reference.

 

After a review of the market comparison data, the Compensation Committee determined the Directors’ current stock compensation program was slightly below the market median and decided to increase the annual equity-based award value from $90,000 to $100,000. In addition, the Compensation Committee Chair annual cash retainer was increased from $12,000 to $15,000 to better align with market median. These changes position total compensation for a typical director competitively with peer companies with annual revenues less than $4.2 billion. The change to the annual cash retainer for the Compensation Committee Chair was effective for the fourth quarter of fiscal 2015 and the change to the value of the equity-based award was effective for the grant made in July 2015. All other forms of compensation remain unchanged.

 

 
25

 

 

Cash Fees

 

The fees paid to our non-employee directors are set forth in the table below. Mr. Owens, our President and Chief Executive Officer, does not receive separate compensation for serving as a director or for attendance at any meeting.

 

The following fees are paid to our non-employee directors:

 

Annual Cash Retainers

       
         

Board Member

  $ 90,000  

Non-Executive Chairman

  $ 70,000  

Non-Executive Vice Chairman

  $ 30,000  

Audit Committee Chair

  $ 20,000  

Compensation Committee Chair

  $ 15,000  

Corporate Governance and Nominating Committee Chair

  $ 12,000  
         

Equity Awards

       
         

Annual Award of Restricted Common Stock or Common Stock units

 

Valued at $100,000

 

One-time Initial Award of Restricted Stock

 

1,300 shares

 

 

Expense Reimbursement

 

We also reimburse each director for any out-of-pocket expenses related to attendance at any meeting or arising from other H.B. Fuller business.

 

Equity Awards

 

In addition to the board and chair retainers described above, the Board believes it is important that each director have an economic stake in our Common Stock. As a result, the Compensation Committee typically makes an annual grant of shares of restricted Common Stock or an award of Common Stock units to each non-employee director. On July 9, 2015, the Compensation Committee made a discretionary award of 2,500.63 Common Stock units to each non-employee director under the H.B. Fuller Company Directors’ Deferred Compensation Plan (“DDCP”). This plan is described below. For this award, the Committee approved an award value of $100,000 per director (based on a review of market data), which was divided by the fair market value of our Common Stock on the date of grant to determine the number of units awarded.

 

In addition, each non-employee director typically receives a one-time grant of restricted H.B. Fuller Common Stock (or its equivalent) upon his or her initial election to the Board. These Common Stock (or its equivalent) awards are granted under our 2009 Director Stock Incentive Plan, which is described below. In general, these shares vest three years from the date of grant subject to continued service during that period.

 

Directors’ Deferred Compensation Plan

 

Under this plan, directors may elect to defer all or a percentage of their board and chair retainers. Deferred amounts are credited with gains and losses based on the performance of certain mutual funds or H.B. Fuller Common Stock as elected by the director prior to deferring any fees. Directors who elect their retainers to be deferred into H.B. Fuller Common Stock units as an investment are credited with phantom stock units that will be paid out in shares of Common Stock. Phantom stock units are credited with dividend equivalents equal to the amount of dividends, if any, paid on an equal number of shares of H.B. Fuller Common Stock. The dividend equivalents are converted into additional phantom stock units based on the fair market value of H.B. Fuller Common Stock on the dividend payment date. If a participant elects to defer retainers into the H.B. Fuller Common Stock account in this plan, we make a 10% matching contribution of additional phantom stock units to the amount invested in H.B. Fuller Common Stock by the director. The phantom stock units credited to the directors’ accounts do not have voting rights. In addition, the Compensation Committee may make discretionary contributions to a participant’s H.B. Fuller Common Stock account under this plan. As described above, during fiscal year 2015, the Committee exercised this discretion and awarded each non-employee director 2,500.63 Common Stock units under this plan.

 

 
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Any amounts deferred under this plan are paid in shares of Common Stock or cash (depending on the election made by the director) at the earliest to occur of:

 

 

The later of the date of the director’s retirement (that is, the date of resignation or removal from the Board or the end of the director’s elected term) or such other date as elected and specified by the director, which is subject to approval by the Compensation Committee and is made only at the time of the director’s initial elections and is irrevocable;

 

 

disability;

 

 

death;

 

 

the date of a change in control of H.B. Fuller; or

 

 

the date of termination of the plan.

 

2009 Director Stock Incentive Plan

 

Under this plan, we may issue to non-employee directors restricted stock, restricted stock units, options, stock appreciation rights, performance awards or other stock-based awards. In addition, shares of H.B. Fuller Common Stock are issued under this plan to satisfy any requirements under the DDCP. The Compensation Committee determines the type, amount and other terms and conditions of any awards under this plan.

 

Physical Examinations

 

Non-employee directors are reimbursed for a preventative/diagnostic annual physical examination and local travel expenses. In fiscal year 2015, Mr. Losh and Mr. Mitau received reimbursement for a physical examination.

 

Matching Gifts to Educational, Arts and Cultural Organizations Program 

 

Under this program, we match a non-employee director’s contributions (up to $1,000) to eligible educational, arts and cultural institutions. These amounts are shown in the “All Other Compensation” column of the “Director Compensation Table” in this Proxy Statement.

 

Director Compensation Table – Fiscal Year 2015

 

Name

 

Fees Earned or Paid

in Cash

($)

 

Stock Awards

($) 1

 

All Other

Compensation ($) 2

 

Total ($)

Thomas W. Handley 3

 

90,000

    100,000    

9,000

   

199,000

 

Maria Teresa Hilado4

 

90,000

    100,000    

8,883

   

198,883

 

J. Michael Losh 5

 

97,100

   

100,000

   

13,436

   

210,536

 

Lee R. Mitau 6

 

172,000

   

100,000

   

20,919

   

292,919

 

Dante C. Parrini

 

90,000

   

100,000

   

507

   

190,507

 

Ann W.H. Simonds7

 

90,000

   

100,000

   

9,674

   

199,674

 

John C. van Roden, Jr.

 

102,900

   

100,000

   

-

   

202,900

 

R. William Van Sant8

 

132,750

   

100,000

   

13,275

   

246,025

 

 


(1)

The amounts in this column are calculated based on the fair market value of our Common Stock on the date the award was made in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”). Each non-employee director received an award of 2,500.63 Common Stock units on July 9, 2015 with a grant date fair value of $100,000.

 

 
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The aggregate number of shares of restricted H.B. Fuller Common Stock and deferred stock units held by each non-employee director as of November 28, 2015 were as follows:

 

Name

 

Shares of
Restricted

Stock
(#)

   

Deferred
Common stock
Units

(#)

 
                     

Thomas W. Handley

    0         27,941    

Maria Teresa Hilado

    1,333         6,690    

J. Michael Losh

    0         87,250    

Lee R. Mitau

    0         137,547    

Dante C. Parrini

    0         6,468    

Ann W.H. Simonds

    1,333         8,637    

John C. van Roden, Jr.

    0         27,820    

R. William Van Sant

    0         81,784    

 

No non-employee director held any stock options as of November 28, 2015.

 

(2)

These amounts represent the following: for Mr. Handley, a 10% company match pursuant to the DDCP in the amount of $9,000; for Ms. Hilado, dividends paid on unvested restricted stock in the amount of $674 and a 10% company match pursuant to the DDCP in the amount of 8,209; for Mr. Losh, a 10% company match pursuant to the DDCP, in the amount of $9,710, a matching gift by H.B. Fuller to a qualified educational institution of $1,000 and a director physical of $1,299 and related gross up of $1,427; for Mr. Mitau, a 10% company match pursuant to the DDCP in the amount of $17,200 and a director physical of $1,772 and related gross up of $1,947; for Mr. Parrini, dividends paid on unvested restricted stock; for Ms. Simonds, dividends paid on unvested restricted stock in the amount of $674 and a 10% company match pursuant to the DDCP in the amount of $9,000; and for Mr. Van Sant, a 10% company match pursuant to the DDCP in the amount of $13,275.

 

(3)

Mr. Handley elected to receive 100% of his annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $90,000 into 2,224 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

(4)

Ms. Hilado elected to receive 100% of her annual retainer in Common Stock units in lieu of cash during the 2015 calendar year (she elected to receive 100% of her annual retainer in cash for the 2014 calendar year). That election resulted in the conversion of $82,088 into 2,047 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

(5)

Mr. Losh elected to receive 100% of his annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $97,100 into 2,385 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

(6)

Mr. Mitau elected to receive 100% of his annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $172,000 into 4,250 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

 
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(7)

Ms. Simonds elected to receive 100% of her annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $90,000 in to 2,224 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

(8)

Mr. Van Sant elected to receive 100% of his annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $132,750 into 3,280 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

Stock Ownership Guidelines

 

We have goals for stock ownership by all non-employee directors. Our goal for director stock ownership is five times the annual board retainer within five years of becoming a director. A review of director stock ownership was conducted using June 30, 2015 stock values. At the time of this review, all directors, except Mr. Parrini (who joined the board in 2012) and Ms. Hilado and Ms. Simonds (who both joined the board in 2013), had met or exceeded this goal.

 

 
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EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Executive Summary

 

This Compensation Discussion and Analysis describes the material elements of compensation awarded to each of our executive officers listed in the Summary Compensation Table in this Proxy Statement (the “named executive officers” or “NEOs”). This discussion and analysis focuses on the information contained in the tables and accompanying footnotes and narrative for fiscal year 2015 which follows. We discuss compensation actions taken during fiscal years 2014 and 2016 to the extent they enhance the understanding of our executive compensation program for fiscal year 2015.

 

Elements of Executive Compensation. We use base salary, a short-term incentive plan and a long-term incentive plan with equity grants to attract and motivate our executive officers to achieve results that are in the best long-term interests of our shareholders. We generally align with the market median for the three main elements of compensation, and we review these elements each year. The emphasis on short-term and long-term incentive compensation reflects our pay-for-performance philosophy.

 

Fiscal 2015 Business Results. Our overall Company net income results were down 7 percent versus the prior year due to a variety of factors, including lower revenue in the Americas, the adverse impact of foreign exchange rates, high operating costs in our EIMEA segment and a higher core tax rateThese negative factors were mostly offset by the successful integration of the TONSAN Adhesive Inc. business and effective price and raw material cost management. For similar reasons, adjusted total diluted earnings per share in the 2015 fiscal year were $2.17, down versus the prior year’s result of $2.33.

 

Net revenue for the 2015 fiscal year was $2,083.7 million, down 1.0 percent versus the 2014 fiscal year. Higher volume and higher average selling prices positively impacted net revenue growth. Constant currency revenue grew by 5.0 percent year-over-year. Foreign currency translation negatively impacted revenue growth during the fiscal year. Additional results include:

 

• Adjusted gross profit margin for the year was up 160 basis points to 27.7 percent

 

• Adjusted SG&A expense was up 5 percent versus the prior year, but down nearly 3 percent when adjusting for the additional SG&A expense added from the TONSAN Adhesive Inc. acquisition

 

• Adjusted EBITDA margin was 12.8 percent, up 100 basis points versus the 2014 fiscal year

 

For the 46th consecutive year, we implemented an increase in the amount of quarterly dividends we pay to shareholders, with an 11 percent increase this year.

 

We measure our success in large part by the metrics used in our short-term incentive plan. As it relates to our short-term incentive plan, organic revenue is a measure that focuses on our growth without taking into account acquisitions or foreign currency fluctuations. Operating income is a measure of operational effectiveness and profitability, and earnings per share is an overall measurement of profitability and of the effectiveness of the three profitable growth strategies we follow:

 

• to grow organically by targeting our growth efforts on specific segments where we see opportunity for competitive strength;

 

• to manage margins by effectively executing operational excellence; and

 

• to efficiently deploy cash generated that returns additional value to shareholders.

 

 
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Overall, in fiscal year 2015, with regard to the metrics used in our short-term incentive plan, the Company performed as follows:

 

• For the Company organic revenue metric, we exceeded the threshold level, but did not meet our target, resulting in a less than target payout.

 

• For the Company adjusted operating income metric, we exceeded the threshold level, but did not meet our target, resulting in a less than target payout.

 

• For the adjusted earnings per share (“EPS”) metric, we did not meet our threshold level. Therefore, there was no payout with regard to this short-term incentive metric.

 

• Performance related to regional and business short-term incentive metrics for NEOs other than the CEO and CFO, was varied, resulting in a short-term incentive payment for all but one of the NEOs higher than in the previous year.

 

The achievements in the financial metrics discussed above resulted in short-term incentive payouts for our CEO of 42.3% of target and ranged from 25.0% to 52.3% of target for our other NEOs.  Our short-term incentive plan is a key way we link pay for performance to compensation for our NEOs.

 

Please also see “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” section in our Annual Report on Form 10-K for more information on our fiscal 2015 financial performance.

 

The above discussion contains non-GAAP financial measures. See "Non-GAAP Financial Measures" in Annex A to this Proxy Statement for a reconciliation of these non-GAAP financial measures to GAAP results.

 

Fiscal 2015 Compensation Actions. In setting the financial metrics for our short-term incentive plan for fiscal year 2015, our Compensation Committee reviewed company performance expectations and budgeted targets. The annual short-term incentive award targets were set based on predetermined ranges for the achievement of EPS, organic revenue and operating income targets. The targets that were set were considered to be challenging, but achievable. See section below titled “Analysis of Fiscal 2015 Short-Term Incentive Awards” for a description of the targets and actual results.

 

Executive Compensation “Best Practices.” The Company’s compensation program includes several best practices, such as:

 

• a policy regarding “clawbacks” of executive and key manager incentive compensation which allows the Compensation Committee the discretion to claw back incentive-based compensation in the event that there is a material restatement of the Company’s financial statements or in the event of misconduct by an executive officer or key manager;

 

• a prohibition on hedging, pledging and certain other transactions in the Company stock by directors and certain executive officers, including all of the NEOs;

 

• an emphasis on long-term equity awards to align the executives’ interests with long-term goals and shareholder interests, with the CEO’s long-term equity grant including a performance-based vesting restriction;

 

• a prohibition on repricing of stock options; and

 

• stock ownership goals for our directors and executive officers, which are reviewed annually.

 

For fiscal 2016, the Compensation Committee approved the addition of a financial performance metric to 50% of the restricted stock units granted under our long-term incentive plan for all of our NEOs.

 

 
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Philosophy

 

The philosophy of our executive compensation program is to provide a competitive compensation package that rewards executive officers for sustained financial and operating performance that creates long-term value for our shareholders. We have designed and implemented our compensation programs for our executive officers to meet three principal goals:

 

 

Attract and retain qualified executive officers;

 

 

Motivate these individuals to achieve short-term and long-term corporate goals, without undue risk-taking; and

 

 

Promote equity among executive officer positions, while considering external competitiveness and differences in job responsibilities.

 

To meet these goals, H.B. Fuller has the following guidelines:

 

 

Pay compensation that is competitive with the practices of companies in a broad number of industries, as well as in the chemical industry, with revenues comparable to our revenues;

 

 

Pay for performance by setting challenging performance goals for our executive officers and providing a short-term incentive plan that is based upon achievement of these goals; and

 

 

Provide long-term incentives in the form of stock options and restricted stock units that are designed to increase long-term shareholder value by aligning the interests of our executive officers with those of our shareholders.

 

We strive to keep the target value of each individual element of compensation at or near the market median/50th percentile.

 

Competitive Market

 

We use several surveys and data points when we review executive compensation as described below.

 

General Survey Data. We define our market as a broad range of companies across various industries in the $1-3 billion revenue category. We chose this revenue category because revenue from our prior fiscal year was in this range and revenue from fiscal 2015 was expected to be in this range. The Compensation Committee uses published survey data from the following sources for our executive compensation analysis:

 

• Aon Hewitt ($1—2.49 billion revenue category for corporate positions and relevant revenue categories for non-corporate positions)

 

• Towers Watson ($1—3 billion revenue category for corporate positions and relevant revenue categories for non-corporate positions)

 

H.B. Fuller participates in both of these surveys. The Aon Hewitt survey includes 480 companies and is titled “Total Compensation MeasurementTM (TCMTM) Executive Total Compensation by Industry – United States 2014”; and the Towers Watson survey includes 446 companies and is titled “2014 Compensation Data Bank (CDB™) General Industry Executive Compensation Survey Report – U.S.”

 

In the case of Mr. Kenny, our Senior Vice President, Emerging Markets, the Compensation Committee reviews his total compensation relative to the market approximately every other year. In 2014, market data was provided by Towers Watson for a profit center head for the EIMEA region, his position at that time. Therefore, no review was conducted for fiscal 2015 and no changes were made.

 

 
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Peer Group Data.  Our peer group consists of the following companies:

 

Albemarle Corp.

FMC Corp.

Polyone Corp.

Ashland Inc.

Graco Inc.

RPM International Inc.

Avery Dennison Corporation

Hexcel Corp.

A. Schulman, Inc.

Axiall Corporation

International Flavors & Fragrances Inc.

Sensient Technologies Corp.

Cabot Corp.

Nordson Corporation

Sigma-Aldrich Corp.

Cytec Industries Inc.

Olin Corp.

Valspar Corp.

Ferro Corp.

OM Group, Inc.

 

 

These companies represent global, publicly-traded chemical and allied products companies in the 2800 Standard Industrial Classification Code with revenues between $1.104 billion to $6.140 billion (for the most recent fiscal year). During 2014, we removed Celanese Corp., Eastman Chemical Co. and Ecolab Inc. from our peer group because their revenues were at the high end of the group. We added Graco Inc. and Nordson Corporation as these two companies share common characteristics with the Company and serve as good comparators for compensation purposes. These changes also moved the Company to the 33rd percentile (for annual revenue) of the peer group. Prior to this change, we were below the 25th percentile in annual revenue.

 

Use of Market Data in Fiscal 2015

 

When analyzing compensation paid to NEOs, the Compensation Committee uses specific data that matches revenue and job responsibilities from the published surveys named above, based on availability, by position. For fiscal 2015, the above-referenced survey data used by the Compensation Committee to review total compensation (base salary, short-term incentive compensation and long-term incentive compensation) for our executive officers showed that our total compensation was generally in line with the market data matched according to revenue and job responsibilities.

 

In addition, for the NEOs, management and the Compensation Committee used the peer group data, in conjunction with the general surveys, as a reference point for compensation design considerations. This data was derived from the most recent proxy statement available for each peer company. However, the primary data sources for pay level information for all of our executive officers are the survey sources listed in the section titled “General Survey Data”.

 

The Compensation Committee uses survey data and peer group data because these sources of data are considered reliable market information. When we refer to market data in the rest of this Compensation Discussion and Analysis, unless otherwise noted, we are referring to the “General Survey Data” and the “Peer Group Data” discussed above.

 

Compensation Process

 

The Compensation Committee reviews and approves all elements of compensation for our CEO, taking into account the Board of Directors’ review and assessment of the performance of the CEO as well as competitive market data and information from our human resources personnel and the Compensation Committee’s independent compensation consultant. The Compensation Committee also reviews and approves all elements of compensation for our other executive officers using the same sources noted above and taking into account the recommendations of the CEO.

 

In determining the particular elements of compensation that will be used to implement our overall compensation policies, the Compensation Committee takes into consideration factors related to our performance, such as our earnings and revenue growth, and business-unit-specific operational and financial performance. Other considerations include our business objectives, corporate responsibilities (including equity among executive officer positions and affordability), competitive practices and trends, and local legal requirements. In deciding on the type and amount of compensation for each executive officer, the Compensation Committee focuses on both the current pay and the opportunity for future pay, and combines the compensation elements for each executive officer in a manner that optimizes the executive officer’s contribution to the Company.

 

 
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The Compensation Committee on occasion meets with the CEO and/or certain other executive officers to obtain recommendations with respect to our compensation program, practices and packages for executive officers and directors. The Compensation Committee considers, but is not bound to and does not always accept, management’s recommendations with respect to executive compensation. The CEO typically attends the Compensation Committee’s meetings, except when his compensation package is discussed. In addition, the Compensation Committee also holds executive sessions not attended by any members of management, including the CEO.

 

The Role of Shareholder Say on Pay Votes. The Company provides its shareholders with the opportunity to cast an annual advisory vote on executive compensation (a “Say on Pay Proposal”). At the Company’s annual meeting of shareholders held in April 2015, 97.4% of the votes cast on the Say on Pay Proposal were voted in favor of the proposal. The Compensation Committee believes this is an overall endorsement by the shareholders of support of the Company’s approach to executive compensation, and did not change its approach materially in fiscal year 2015. The Compensation Committee will continue to take into account the outcome of the Company’s Say on Pay Proposal votes when making future compensation decisions for the NEOs.

 

Compensation Consultant

 

The Compensation Committee uses Buck Consultants, LLC, a wholly owned subsidiary of Xerox Corporation, to provide ongoing advice and information regarding design and implementation of the Company’s executive compensation programs as requested by the Compensation Committee. See further discussion regarding the Compensation Committee’s independent consultant under the heading “Compensation Committee” in the Corporate Governance Section in this Proxy Statement. In this Proxy Statement, we discuss the use of compensation consultants when the Compensation Committee utilized its independent consultant for a specific project. In addition, from time to time, management receives information from the compensation consultant in preparation for Compensation Committee meetings.

 

 
34

 

 

Key Elements of the Executive Compensation Program

 

The key elements of the executive compensation program are:

 

Purpose 

 

Considerations 

Base salary

 

 

     
Attract and retain high caliber executive talent with competitive fixed compensation. Base salary is not performance based.   Each NEO’s job is positioned in a salary grade based upon market data and an analysis of the related job responsibilities. Salary ranges are established to generally reflect competitiveness at the market median/50th percentile. Within these salary ranges, base salaries are set considering the experience and skills each NEO brings to the position. Salary increases are determined considering individual performance.
     

Short-term incentive (cash bonus)

   
     

Aligns executive performance with achievement of annual company strategic goals and objectives and provides financial reward for meeting or exceeding specific metrics. Payouts are dependent on achievement of predetermined annual financial performance goals, which are aligned with long-term targets.

 

Short-term incentive awards are set for each executive officer so that the expected payout at target performance levels would result in competitive market levels of such compensation. Payments under the short-term incentive plan can range from no payment to a payment higher than the target, based upon actual results.

The annual short-term incentive plan is designed to achieve several goals, including emphasizing the Company’s commitment to competitive compensation practices, driving a high performance culture and ensuring accountability. The short-term incentive plan places emphasis on achievement of financial metrics and focuses attention on business results. It also reinforces the importance of measurable and aligned goals and objectives.

Long-term incentive (stock options and restricted stock units)

   
     

Stock options and restricted stock units attract, retain and reward high caliber executive talent; ownership of common stock encourages long-term strategic decision making that is aligned with shareholder interests.

 

Our long-term incentive plan ties a significant portion of our executive officers’ total compensation to shareholder value creation, as measured by stock price performance. The combination of stock options and restricted stock units provides an appropriate balance between performance-based rewards and retention. Prior to fiscal 2014, the long-term incentive awards were made in either restricted stock or restricted stock units, depending on location and retirement eligibility. The Compensation Committee decided to move to awards of restricted stock units only beginning in fiscal 2014 to better match market practice and to ensure consistency of awards.

Stock options and restricted stock units reward for performance and promote stock ownership.

 

Increase in H.B. Fuller Common Stock price increases value of options and restricted stock unit awards (and restricted stock awards for grants prior to fiscal 2014). CEO annual grant contains a performance goal which must be achieved before restricted stock and restricted stock units may vest.

 

 
35

 

 

Purpose   Considerations

Other Benefits (includes supplemental retirement and deferred compensation plans, severance, change-in-control and other perquisites)

   
     

Attract and retain high caliber executive talent. These benefits are not performance-based.

 

In order to attract and retain high caliber executive talent, we provide NEOs market competitive perquisite and other benefit programs. We also provide some of these benefits to assist our executive officers so that they may efficiently use their time on H.B. Fuller business. Our U.S.-based NEOs participate in the same health and welfare programs as all other U.S.-based H.B. Fuller employees.

 

The graph below shows the percentage of each of the main elements of total compensation (base salary, short-term incentive, long-term incentive (stock options and restricted stock units)) as measured by actual amounts paid in fiscal 2015 for the CEO and the other NEOs as set forth in the “Summary Compensation Table” in this Proxy Statement.  

 

  

Additional information regarding base salary, short-term incentive compensation and long-term incentive compensation follows.

 

Fiscal 2015 Base Salaries

 

In General.    In January of each year, the Compensation Committee reviews and considers the annual performance of the CEO and the other NEOs. The effective date of annual merit increases is February 1st. In April, the Compensation Committee reviews the overall compensation (base salary, short-term incentive, long-term incentive and high-level review of perquisites) of all of the executive officers (including the NEOs) for market competitiveness.

 

The amount of annual base salary and year-over-year increase for each of the NEOs in fiscal year 2015 is set forth in the following table.

 

Named Executive Officer

 

Base Salary as of
12/1/2014 ($)
1

   

Base Salary as of
2/1/2015 ($)

   

Percent
Increase from 12/1/2014
to 2/1/2015 (%)

 

James J. Owens

    968,000       989,296       2.20%  

James R. Giertz

    576,000       588,672       2.20%  

Traci L. Jensen

    447,000       455,940       2.00%  

Patrick J. Trippel

    447,000       469,350       5.00%  

Steven Kenny2

    414,261       420,475       1.50%  

 


(1)

The base salaries for U.S. based NEOs differ from the base salary reported in the proxy statement in fiscal 2014 due to the elimination of the car allowance effective June 1, 2014. At that time, the amount paid for car allowance was added to each NEO’s salary. Market practice in the EIMEA region supports a car allowance for Mr. Kenny therefore this perquisite was not eliminated in that region.

 

 
36

 

 

(2)

Non U.S.-based compensation paid to Mr. Kenny is denominated in British Pounds Sterling and has been converted to U.S. dollars at the same exchange rate used for financial reporting purposes. Mr. Kenny’s base salary as of December 1, 2014 differs from the base salary reported for fiscal year 2015 reported in last year’s proxy statement due to different exchange rates used for financial reporting purposes in fiscal 2014 and fiscal 2015.

 

Analysis of Fiscal 2015 Base Salaries. In January 2015, the Compensation Committee reviewed Mr. Owens’ base salary, short-term incentive target and long-term incentive target amount. The review included the following market data: Mercer 2014 U.S. Executive Benchmark Database (All Industries with data regressed to $2.1 billion in revenue); Towers Watson 2014 Top Management Report (All Industries For Profit with annual revenues between $1—5 billion and median revenues of 2.08 billion); and Hewitt Total Compensation MeasurementTM (TCMTM) Executive Total Compensation by Industry – United States 2014 (all industries, companies with revenues $1-2.5 billion and median revenue of 1.7 billion). The Compensation Committee also reviewed market data relating to our peer group.

 

Mr. Owens is in the fourth quartile of the CEO salary range.  For fiscal 2015, Mr. Owens received a 2.2% merit increase.  The range of increases provided to NEOs was 1.5% to 5.0%.

 

Mr. Giertz’s fiscal 2015 base salary was in the fourth quartile of his salary range. His salary has historically been higher than the midpoint in this salary range to reflect Mr. Giertz’s extensive experience in both finance (as a CFO) and in operations with prior employers, where he held key leadership positions in several companies. For fiscal 2015, Mr. Giertz received a merit increase of 2.2% effective February 1, 2015 and he remains in the fourth quartile of his salary range. Ms. Jensen received a merit increase of 2.00% effective February 1, 2015. Mr. Trippel received a merit increase of 5.0% due to several successful initiatives including the progress on the Tonsan Adhesive, Inc. acquisition (which closed in early fiscal 2015) and building the foundation for our electronics business. Ms. Jensen’s and Mr. Trippel’s fiscal 2015 base salaries were in the third quartile of their salary range. Mr. Kenny received a merit increase of 1.5%. Mr. Kenny’s fiscal 2015 base salary was in the second quartile of his salary range on February 1, 2015. On June 1, 2015, Mr. Kenny changed job responsibilities from Sr. Vice President, Europe, India, Middle East and Africa to Sr. Vice President, Emerging Markets.

 

For fiscal 2015, all merit increases for the NEOs fell within the Company’s general merit increase guidelines for our general employee population.

 

Fiscal 2015 Short-Term Incentive Compensation

 

In General.  Each year, the Compensation Committee establishes the annual cash incentive target opportunities as a percentage of base salary. Under the short-term incentive plan, the Compensation Committee may also consider extraordinary circumstances that may positively or negatively impact the achievement of the total Company performance objectives.

 

For fiscal 2015, based on market data, the annual cash incentive target opportunity for our executive officers ranged from 65% to 100% of base salary at a target level of performance. Potential payouts range from 0% to 200% of the target award based on attainment of operating unit and/or Company predetermined financial goals. The threshold level for the annual cash incentive was set at 80% of each financial target goal, except the organic revenue metrics had a threshold amount of 90%. At these levels, the annual cash incentive would pay out at 50% of the target incentive. Higher payouts are possible if performance is above threshold levels. For example, at the “superior” level, payout is 150% of target and at the “superior stretch” level, payout is 200% of target.

 

 
37

 

 

The Compensation Committee, in its discretion, has the right at any time to enhance, diminish or terminate all or any portion of any compensation plan or program, on a collective or individual basis for the NEOs.

 

All performance measures for the NEOs, and the percentage of short-term incentive compensation based on these measures as established by the Compensation Committee, are set forth in the table below:

 

Performance Measure   CEO     CFO    

Regional

Operating

Unit1

    SVP, Market
Development
2
    SVP, Emerging
Markets
3
 

EPS4

  30%     30%     30%     30%     30%  

Company Organic Revenue5

  30%     30%                    

Company Operating Income6

  40%     40%           20%        

Region or Business Organic Revenue

              20%              

Region or Business Operating Income

              20%              

Global Key Market Organic Revenue

              15%     25%     15%  

Global Key Market Gross Margin7

              15%     25%     15%  

Emerging Markets Organic Revenue

                          20%  

Emerging Markets Contribution Margin8

                          20%  

 


(1)

Includes Ms. Jensen and Mr. Kenny for the first half of the fiscal year.

   
(2) Includes Mr. Trippel.
   
(3) Includes Mr. Kenny for the second half of the fiscal year.
   
(4) EPS is defined as net income divided by weighted average common stock shares outstanding (diluted).
   
(5) Organic revenue is defined as revenue, excluding the effects of changes due to foreign currency exchange rates and acquisitions/divestitures.
   
(6) Operating income (“OI”) is defined as gross profit less selling, general and administrative expenses.
   
(7) Gross Margin (in dollars) is defined as Net Revenue less Cost of Sales
   
(8) Contribution Margin (in dollars) is defined as Net Revenue less Raw Material/Container Cost – Delivery Costs

 

 
38

 

 

Analysis of Fiscal 2015 Short-Term Incentive Awards.  The financial performance measures approved by the Compensation Committee in early fiscal 2015 were selected because management believed they were the most representative measurements of our financial results and were key financial measures that linked to our long-term strategic plan. In establishing these goals for fiscal year 2015, we considered our prior year results, economic conditions and expected business opportunities. The specific performance goals for the target level are considered to be challenging but achievable. In addition, we set superior and superior stretch goals which pay amounts for performance exceeding the target. These are noted in the table on page 40 below. The following chart shows the percentage increase in fiscal year 2015 performance targets over fiscal year 2014 actual results for each measure used to determine the short-term incentive bonuses:

 

Performance Measure

 

FY 2015 Target to FY
2014 Actual Increase

 

EPS

    11.59%  

Company Organic Revenue

    3.99%  

Company Operating Income

    13.39%  

EIMEA Region Organic Revenue

    2.73%  

EIMEA Region Operating Income

    41.20%  

Americas Adhesives Region and

       

Construction Products Organic Revenue

    7.57%  

Americas Adhesives Region and

       

Construction Products Operating Income

    31.29%  

Key and Emerging Market Metrics

    *1  

 


(1)

We consider our Key and Emerging Market Metrics to be confidential.

 

 
39

 

 

For fiscal 2015, the financial performance measures for the target, superior and superior stretch performance and the actual performance were as set forth below. Amounts shown in the table below may differ from reported results due to adjustments which are allowed under the short-term incentive plan as set forth in footnote 1 in the table below.

 

Performance Measure

($ amounts in thousands as noted,

except EPS)

 

CEO, CFO, and SVP, Market Development

   


SVP, Americas Adhesives and SVP, Emerging Markets/SVP, EIMEA
1

 

EPS

               

Target

  $ 2.60     $ 2.60  

Superior/Superior Stretch

 

$

2.99/3.25    

$

2.99/3.25  

Actual2

  $ 1.70     $ 1.70  

Company Organic Revenue

               

Target

  $ 2,188,412          

Superior/Superior Stretch

 

$

2,407,250/2,516,670          

Actual2

  $ 2,067,014          

Company Operating Income

               

Target

  $ 207,318          

Superior/Superior Stretch

 

$

238,420/259,150          

Actual2

  $ 167,124          

EIMEA Region Organic Revenue

               

Target

          $ 583,060 3

Superior/Superior Stretch

         

$

641,367/$670,519 3

Actual2

          $ 565,342 3

EIMEA Region Operating Income

               

Target

          $ 34,031 3

Superior/Superior Stretch

         

$39,135/42,538

3

Actual2

          $ 13,076 3

Americas Adhesives Region and Construction Products Organic Revenue

               

Target

          $ 1,190,294  

Superior/Superior Stretch

         

$

1,309,320/$1,368,840  

Actual2

          $ 1,107,542  

Americas Adhesives Region and Construction Products Operating Income

               

Target

          $ 144,423  

Superior/Superior Stretch

         

$

166,090/$180,530  

Actual2

          $ 137,641  

Key and Emerging Market Metrics 4

    *       *  

 


(1)

On June 1, 2015, Mr. Kenny changed job responsibilities from Sr. Vice President, Europe, India, Middle East and Africa (EIMEA) to Sr. Vice President, Emerging Markets.

 

 
40

 

  

(2)

Actual results differ from reported results due to adjustments or exclusions which are allowed under our short-term incentive plan, including but not limited to, (a) individual legal settlements (payments or receipts) with a value (net of insurance) of $3 million or greater will not be included in metric calculations, (b) unbudgeted reorganization or restructuring related items which cannot be offset by related benefits in the fiscal year will not be included in metric calculations, (c) unbudgeted acquisitions and divestitures are excluded from all actual and target metric calculations, as applicable, (d) any unbudgeted asset write-downs in excess of $2 million will not be included in metric calculations, and (e) adjustments needed to (1) correct any inadvertent errors or miscalculations made in setting a performance target for our key markets (such as Hygiene, Packaging, or Durable Assembly) or (2) account for changes resulting from new accounting definitions, requirements or pronouncements. Calculations showing reconciliations from our audited financial statement numbers to the actual results used for our short-term incentive plan may be found in Annex A to this Proxy Statement.

(3)

The amounts in U.S. dollars have been converted from Euros at the same exchange rate used for financial reporting purposes as follows (€ amounts in thousands): (a) Region Organic Revenue Target: €550,409, Region Organic Revenue Superior/Superior Stretch: €605,450/632,970, (b) Region Organic Revenue Actual: €533,683, (c) Region Operating Income Target: €32,125, Region Operating Income Superior/Superior Stretch; €36,943/40,156 and (d) Region Operating Income Actual: €12,344. The Company does not calculate these target and actual numbers in U.S. dollars in determining whether the metric has been met. Local currency is used for these calculations.

(4)

We consider the targets for our Key and Emerging Market Metrics to be confidential.

 

The short-term incentive target and actual payment as a percent of base salary for fiscal 2015 for each of our NEOs is set forth in the table below:

 

Named Executive Officer

 

Target Payment
as a % of Base
Salary

   

Actual Payment
as a % of Fiscal
Year Base
Salary

   

Actual Payment ($)1

 

James J. Owens

    100%       42.3%       416,872    

James R. Giertz

    70%       29.6%       173,639    

Traci L. Jensen

    65%       34.0%       154,538    

Patrick J. Trippel

    65%       16.2%       75,619    

Steven Kenny

    65%       31.0%       130,202 2

 


(1)

The actual total payment that was made for the fiscal year is also found in the Non-Equity Incentive Plan Compensation column of the “Summary Compensation Table” in this Proxy Statement. The short-term incentive award payment opportunity at each level of performance for our NEOs for fiscal 2015 is shown in the “Grants of Plan-Based Awards During Fiscal Year 2015” table in this Proxy Statement.

(2)

Non U.S.-based compensation paid to Mr. Kenny is denominated in British Pounds Sterling and has been converted to U.S. dollars at the same exchange rate used for financial reporting purposes.

 

Bonus Multiplier Program

 

Beginning in fiscal 2015, the Compensation Committee approved a program that is intended to incentivize and reward individual performance. The plan pays plus or minus 5% of an individual’s Short-Term Incentive Plan (STIP) payout based on performance related to an individual metric. Each NEO (excluding the CEO and CFO) have an individual metric and target. Due to Mr. Kenny’s mid-year change in position, he had two metrics for the year. If the eligible NEO achieves his/her performance target as of fiscal year-end, he/she will receive an additional 5% of their annual STIP bonus payout. If the eligible NEO does not achieve their performance target as of fiscal year end, the NEO will receive a 5% reduction to their annual STIP bonus payout. The CEO has the authority to change the minus 5% adjustment to zero in situations where the ability to obtain the metric is outside of the eligible NEO’s control. In such cases, the ability to obtain the plus 5% is not available. Amounts paid or deducted under this program are included in the amount reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The NEOs’ individual metrics are key financial measures for the specific businesses for which they are responsible. We consider the metrics and targets to be confidential. Ms. Jensen met her target resulting in a bonus adjustment of plus 5% of her short-term incentive. Mr. Kenny met one of his two targets, resulting in a bonus adjustment of plus 0.8% of his short-term incentive. Mr. Trippel did not meet his target, which resulted in an adjustment of negative 5% of his short-term incentive.

 

 
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Special 2015 Performance Acceleration Bonus Plan

 

For fiscal 2015 only, the Compensation Committee approved a program to pay an amount up to 50% of an eligible individual’s (including all NEOs) short-term incentive program target if:

 

 

a)

Performance is above the threshold for earnings per share established for this program for the first half of the 2015 fiscal year; and

     
 

b)

An NEO’s applicable operating profit budget for the first of the 2015 fiscal year is achieved or exceeded.

 

The threshold level for earnings per share under this program was not met for the first half of fiscal 2015. Therefore, no payment was made to any NEO under this program.

 

Fiscal 2015 Long-Term Incentive Compensation

 

In General.  The fiscal 2015 long-term incentive plan design includes grants with a mix of 50% nonqualified stock options and 50% restricted stock units based on the grant value. The Compensation Committee decided to move to the sole use of awards of restricted stock units beginning in fiscal 2014 to better align with market practice and to ensure consistency of awards among all participants.

 

Stock Options.  The standard nonqualified stock options typically vest in three equal installments on each anniversary date of the grant date, which enhances retention. Vested stock options provide a benefit to an executive officer only if the market value of the stock increases over the term of the option and if the executive officer remains employed at H.B. Fuller. Stock options are granted for a 10 year term. Stock options are granted at their fair market value on the date of grant.

 

Restricted Stock Units.    Restricted stock unit grants typically vest in three equal annual installments from the grant date, which enhances retention. Restricted stock unit awards provide a benefit to an employee only if the employee remains employed until the award vests. Dividends are accrued on restricted stock units during the period prior to vesting and are subject to the same vesting requirements, with payment in the form of additional shares once vesting has occurred. Only restricted stock (for grants prior to fiscal 2014) has voting rights during the period prior to vesting. In addition, if the market value of the stock increases over the grant date price of the award, the employee further benefits from that appreciation in value. For our CEO, recent annual restricted stock and restricted stock unit grants include a performance goal which must be achieved or the restricted stock/restricted stock units will not vest and all rights will be forfeited.

 

The value of an individual’s target award is established to generally reflect competitiveness at the market median/50th percentile for the applicable position and grade level. The CEO recommends to the Compensation Committee the number of stock options and restricted stock units to be granted to each executive officer. The Compensation Committee retains full authority to accept, modify or reject these recommendations and to increase or decrease the value of the award. The Compensation Committee also reviews total Company performance and the CEO’s individual performance to determine the award for the CEO. The number of options is determined based on a Black-Scholes valuation, and a 30-day stock price average is applied. To determine the number of restricted stock/restricted stock units to be awarded, a 30-day stock price average is applied.

 

The Compensation Committee reviews and approves long-term incentives for our CEO and the other executive officers in January of each year. This long-term incentive grant date in January aligns with the annual individual performance review process and allows the grants to occur during the open trading period (after our fiscal year end annual earnings release) for H.B. Fuller stock as provided under Company policy. The grants of stock options are made with an exercise price determined as of the close of trading on the applicable grant day. We do not allow backdating of options, nor do we have a program, plan or practice to time stock option grants to executive officers in coordination with the release of material non-public information.

 

 
42

 

 

The target values for each named executive officer’s long-term incentive award are set forth in the table below. It is the general practice of the Compensation Committee to make awards to executive officers in a range of 80% to 120% of the target value below.

 

Named Executive Officer

 

Target Value of
Long-Term Incentive
for FY 2015 ($)

   

Actual Value of
Long-Term Incentive
for FY 2015 ($)

 

James J. Owens

    2,375,000       2,375,000  

James R. Giertz

    625,000       687,500  

Traci L. Jensen

    500,000       500,000  

Patrick J. Trippel

    500,000       500,000  

Steven Kenny

    500,000       500,000  

 

Analysis of Fiscal 2015 Long-Term Incentive Awards.   The January 2015 grant of restricted stock units to Mr. Owens contains a requirement that the restricted stock units will vest in three equal installments on January 22, 2016, January 22, 2017 and January 22, 2018 only if (1) one or more of the performance measures in the CEO’s short-term incentive plan are met at the threshold level for fiscal 2015 as determined by the Compensation Committee and (2) Mr. Owens continues to be employed by the Company on the respective vesting date. Both of these requirements were met as of January 22, 2016. Therefore, the first installment has vested, and the remaining two will vest according to the vesting schedule as long as Mr. Owens remains employed by the Company.

 

During fiscal year 2015, all long-term incentive awards to the NEOs fell within 100% to 110% of the target value above. Fiscal year 2015 long-term incentive awards of stock options and restricted stock units are set forth in the “Grants of Plan-Based Awards During Fiscal Year 2015 table in this Proxy Statement.

 

 
43

 

 

Other Executive Benefits and Perquisites

 

In General. 

 

We provide the following perquisites and benefits to our executive officers who are based in the United States or who are U.S. expatriates:

 

Perquisites and Benefits 

   

Description

         

Defined Contribution Restoration Plan

 

Defined contribution restoration plan, non-qualified retirement plan:

         
      3% non-elective (retirement) contribution restoration for compensation in excess of IRS limits for eligible U.S. employees,
         
      4% 401(k) match restoration for compensation match in excess of IRS limits, and
         
      Additional credit equal to 7% of eligible earnings.
         

Key Employee Deferred Compensation Plan

 

Allows deferral of a portion of annual base salary and/or any annual incentive payment. If an executive defers a portion of his or her salary or incentive payment into the Company stock account, the Company credits units of Common Stock and matches 10% of the amount credited with units of Common Stock. None of the NEOs participated in this plan during fiscal year 2015.

         

Financial Counseling

 

Up to $7,500 annually in financial planning and tax preparation.

         

Executive Health Exams

 

Annual preventive/diagnostic physical examination and local travel related expenses.

         

Excess Liability Insurance

 

Group personal excess liability insurance policy provides individual coverage up to $5,000,000. The Company pays the policy premium and the premium is included in the named executive officer’s income and is grossed up to pay the tax withholding (except where such payments are not taxable).

         

Relocation Expense

 

Assistance with relocation, sale and purchase of home, temporary living assistance, and movement of property, including a tax gross up for certain assistance that is taxable.

 


 

 
44

 

 

Of the perquisites and benefits set forth above, only the financial counseling, executive health exam and the excess liability insurance are provided to Mr. Kenny, who is not based in the United States and is not an expatriate. Other benefits provided to Mr. Kenny include:

 

Perquisites and Benefits 

   

Description

Retirement Plan

 

For Mr. Kenny, who is based in England, our stakeholder pension plan is a defined contribution plan. Eligibility for the stakeholder pension plan is immediate upon hire. The contribution consists of a 4% non-elective credit and a matching credit on a 1 to 1 basis for the first 4% of employee contributions. Benefit payout is based on the employee decision. The employee may choose between an annuity of the retirement saving or a partial lump sum and annuity pay-out at retirement at age of 55 or later. Employees who leave the company before retirement age can choose to leave their account where it is or to transfer the value of their account to another personal or stakeholder plan.

       

Auto Allowance

 

Monthly allowance

 


 

Analysis of Fiscal 2015 Executive Benefits and Perquisites. We provide perquisites to our executive officers to generally reflect competitiveness at the market median/50th percentile.

 

In conjunction with the annual review of executive officer total compensation, the Compensation Committee reviews executive officer benefits and perquisites for market prevalence. In fiscal 2015, the Compensation Committee reviewed market data on the prevalence of the following benefits and perquisites provided by the Company: the Key Employee Deferred Compensation Plan, executive health programs, financial counseling, and Defined Contribution Restoration Plan. The survey data used to review the market prevalence of all of these benefits was provided by the Aon Hewitt TCM Executive Compensation Policies and Programs: U.S. 2014 survey (537 participating companies). As a result of the Compensation Committee’s review of these perquisite and benefit programs, no changes were made because of the general market prevalence of these programs. This survey data did not cover the prevalence of personal excess liability insurance coverage and relocation programs. No changes were made to these programs.

 

All perquisites paid to our NEOs are disclosed in the “Summary Compensation Table” under the “Other Compensation” column and the footnotes thereto.

 

Severance, Change-in-Control and other Employment-Related Agreements

 

In General. H.B. Fuller does not have employment agreements with any of the NEOs that provide for a specified term of employment. The Company does have an employment agreement with Mr. Kenny as discussed below. The Company also has change-in-control agreements discussed under the heading “Change-in-Control Agreements” and executive severance agreements discussed under the heading “Severance”.

 

Severance. The executive severance agreements provide for payment of the following severance benefits if the eligible executive officer’s employment is terminated involuntarily by the Company without cause (as defined in the agreement) or voluntarily by the executive officer for good reason (as defined in the agreement):

 

 

Severance pay equal to one times (two times for the CEO) base salary plus target annual bonus, payable over the 12 months (24 months for the CEO) following termination;

 

 

Continued group medical and dental insurance over 12 months (18 months for the CEO); and

 

 

Outplacement services with a value of up to $20,000.

 

 
45

 

 

Except as indicated above with respect to the CEO, the same form of agreement was provided to all NEOs other than for Mr. Kenny. The severance agreement with Mr. Kenny provides for a reduction in any severance pay due to him for any severance pay required by local law.

 

Change-in-Control Agreements. All NEOs have entered into change-in-control agreements with H.B. Fuller. The agreements are a critical and effective tool to attract and retain executives, especially during times of uncertainty. These agreements provide for payments under certain circumstances following a change-in-control of the Company. The Compensation Committee believes that one of the purposes of providing change-in-control agreements is to provide financial security to the executive officer in the event the executive officer’s employment is terminated in connection with a change-in-control. The agreement is intended to ensure the executive officer remains focused on activities related to a change-in-control that could be in the best interest of the Company and its shareholders, and that the executive officer is not distracted by compensation implications as a result of a change-in-control. The Compensation Committee also believes that change-in-control agreements assist in the retention of executive officers at a time when their departure might be detrimental to the Company and shareholders.

 

The change-in-control agreements contain a “double trigger” for receipt of change-in-control payments. This means that there must be a change in control of the Company and a termination of employment (or a material change to employment) during the covered period for the provisions to apply and benefits to be paid. The Compensation Committee believes that a “double trigger” is more appropriate than a “single trigger”, because a double-trigger prevents the unnecessary payment of benefits to an executive officer in the event that the change in control does not result in the executive officer’s termination of employment or a material change in the terms of the executive officer’s employment (such as demotion, pay cut or relocation).

 

Our change-in-control arrangements have been structured to ensure that executives receive the full intended benefits of these arrangements in the event that a transaction should take place, particularly when their short tenure creates an imbalance between intended benefit and potential tax liability. Our approach has been to provide our executives with arrangements that include a modified tax gross-up. These arrangements eliminate de minimis or inefficient gross up payments, only providing tax gross up in cases of significant imbalance. The Compensation Committee reviews all change-in-control packages periodically to ensure their continued effectiveness.

 

An explanation of any payments to be made under the change-in-control agreements is found under the heading “Involuntary (Not for Cause) Termination or Good Reason Termination after a Change-in-Control” in the section of this Proxy Statement titled “Potential Payments Made Upon Termination or Change-In-Control”.

 

Other.  The Company has an employment agreement with Mr. Kenny, because employment agreements are customary in England where Mr. Kenny is based. The agreement with Mr. Kenny sets forth his salary, job functions and benefits, and contains intellectual property ownership rights, termination, non-competition and confidentiality provisions. The agreement does not provide for any minimum term of employment. See the section titled “Potential Payments made upon Termination or Change-in-Control” later in this Proxy Statement for contractual payments that the Company may owe Mr. Kenny under his employment agreement.

 

Stock Ownership

 

We believe that ownership of H.B. Fuller Common Stock by executive officers encourages long-term, strategic decision making that helps to reduce undue short-term risk-taking and is aligned with the best interests of H.B. Fuller’s shareholders and other constituents. Goals for recommended levels of executive stock ownership were established in 2003 and are reviewed annually by the Compensation Committee. An executive officer’s stock ownership goal (which includes directly held H.B. Fuller stock, H.B. Fuller stock held in the H.B. Fuller Company 401(k) & Retirement Plan, restricted stock, restricted stock units and stock units held in the Key Employee Deferred Compensation Plan) ranges in dollar amount from one to five times the executive officer’s annual base salary.

 

 
46

 

 

The guideline for the CEO is ownership of at least five times his base salary in H.B. Fuller Common Stock, and the guideline for other NEOs is ownership of at least three times their base salaries. The guideline provides that an executive should strive to reach and then maintain the applicable stock ownership goal within five years of appointment to their position. The review was based on job grades and stock values in effect as of June 30, 2015. At that point in time, the CEO and all other NEOs have met the applicable stock ownership goal.

 

If after five years in his or her position, a named executive officer has not met his/her stock ownership goal, the named executive officer must retain 100% of all after-tax profit shares from any exercise, vesting or payout of equity awards until the stock ownership guideline is met, unless a hardship exception is granted.

 

Named Executive Officer

Stock Ownership

Guideline as of

June 30, 2015

  2015 % of Target as
of June 30, 2015
  Years at Grade/Target
as of June 30, 2015

James J. Owens

5 times base salary

 

>100%

 

4

James R. Giertz

3 times base salary

 

>100%

 

7

Traci L. Jensen

3 times base salary

 

100%

 

2

Patrick J. Trippel

3 times base salary

 

94%

 

4

Steven Kenny

3 times base salary

 

>100%

 

5

 

Tax Considerations

 

Under Section 162(m) of the U.S. Internal Revenue Code, we must meet specified requirements related to our performance and must obtain shareholder approval of certain compensation arrangements in order for the Company to fully deduct compensation in excess of $1,000,000 paid to a named executive officer other than the CFO. The H.B. Fuller Company 2013 Master Incentive Plan (the “2013 Master Incentive Plan”) was approved by our shareholders and includes specific performance criteria to be used by the Compensation Committee when establishing performance awards that are intended to be fully deductible under Section 162(m). The Committee believes that performance-based cash and stock incentive awards and stock options granted under the 2013 Master Incentive Plan will be deductible. However, there can be no assurance that incentive awards intended to qualify for tax deductibility will ultimately be determined by the Internal Revenue Service to so qualify. Cash compensation voluntarily deferred by our executive officers under our Key Employee Deferred Compensation Plan is not subject to the Section 162(m) cap until the year paid.

 

The Compensation Committee intends to continue its practice of paying competitive compensation consistent with our philosophy to attract, retain and motivate executive officers to manage our business in the best interests of H.B. Fuller and our shareholders. The Compensation Committee, therefore, may choose to provide non-deductible compensation to our executive officers if it deems such compensation to be in the best interests of H.B. Fuller and our shareholders. In fiscal 2015, the compensation subject to Section 162(m) did not exceed the $1,000,000 cap for any of our NEOs.

 

Various programs, including our benefit plans that provide for deferrals of compensation are subject to Section 409A of the Internal Revenue Code. We have reviewed such plans for compliance with Section 409A and believe that they are in compliance.

 

Actions for Fiscal 2016

 

    In January 2016, the Compensation Committee approved the addition of a performance metric to 50% of the restricted stock units (RSUs) granted under our long-term incentive plan. For the CEO, who already had a performance metric as part of his RSU grant, his RSU grant will continue to have a performance element related to EPS, Operating Income and Organic Revenue which applies to half of his RSU grant. The other half of the RSU grant will be subject to a return on invested capital (“ROIC”) target, which will not vest unless at least a threshold level of performance is met in each year of vesting. For all other NEOs, half of their RSU grant will be subject to ROIC performance and will not vest unless at least a threshold level of performance is met in each year of vesting. For all NEOs, higher levels of ROIC performance will result in increased stock vesting amounts.

 

 
47

 

 

Total Compensation for Named Executive Officers

 

We believe that the policies and programs described in the Compensation Discussion and Analysis maintain an appropriate balance between motivating achievement of short-term goals and strategically leading H.B. Fuller in a direction to provide long-term success, and therefore serve the interests of H.B. Fuller and its shareholders.

 

Non-GAAP Financial Measures

 

The Compensation Discussion and Analysisdiscussion in this Proxy Statement contains non-GAAP financial measures. See “Non-GAAP Financial Measures” in Annex A to this Proxy Statement for a reconciliation of these non-GAAP financial measures to GAAP results.

 

Compensation Committee Report

 

The Compensation Committee of the Board of Directors has reviewed and discussed with H.B. Fuller management the Compensation Discussion and Analysis. Based on this review and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Annual Report on Form 10-K for the year ended November 28, 2015.

 

Compensation Committee of the Board of Directors of H.B. Fuller Company

 

R. William Van Sant, Chair

Lee R. Mitau

 

 

Thomas W. Handley

Dante C. Parrini

 

 

Maria Theresa Hilado

Ann W.H. Simonds

 

 

 

 
48

 

 

 Summary Compensation Table

 

The following table shows the cash and non-cash compensation for the last three fiscal years awarded to or earned by individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal year 2015 and each of the other three most highly compensated executive officers who were serving as executive officers at the end of fiscal year 2015.

 

Name and Principal Position

 

Year

 

Salary ($)1

   

Stock

Awards ($)2

   

Option

Awards ($)3

   

Non-Equity Incentive Plan Compensation ($)1,4

   

Change in Pension Value and Non-qualified Deferred Compensation Earnings ($)5

   

All Other Compen-

sation ($)6

   

Total ($)

 
                                                                 

James J. Owens

 

2015

    985,610       1,180,472       1,187,917       416,872         2,211         263,392       4,036,474  

President and

 

2014

    960,428       1,138,368       1,123,931       221,401                   326,367       3,770,495  

Chief Executive Officer

 

2013

    839,135       4,150,348       1,220,461       783,682                   348,306       7,341,932  
                                                                 

James R. Giertz

 

2015

    586,479       298,275       300,185       173,639         1,407         136,153       1,496,138  

Exec. Vice President &

 

2014

    563,677       329,525       325,347       92,750                   174,535       1,485,834  

Chief Financial Officer

 

2013

    519,236       339,636       339,609       305,457                   173,796       1,677,734  
                                                                 

Traci L. Jensen

 

2015

    454,393       238,620       240,150       154,538         677         89,677       1,178,055  

Sr. Vice President,

 

2014

    436,581       239,659       236,611       96,863                   115,805       1,125,519  

Americas Adhesives

 

2013

    404,423       283,030       283,000       253,716                   113,298       1,337,467  
                                                                 

Patrick J. Trippel7

 

2015

    474,078       238,620       240,150       75,619         492         90,808       1,119,767  

Sr. Vice President,

 

2014

    452,722       239,659       236,611       130,017                   113,996       1,173,005  

Market Development

 

2013

    426,250       283,030       283,000       217,762                   125,696       1,335,738  
                                                                 

Steven Kenny

 

2015

    419,439       238,620       240,150       130,202                   62,733       1,091,144  

Sr. Vice President,

 

2014

    428,954       239,659       236,611       87,660                   67,275       1,060,159  

Emerging Markets

 

2013

    433,104       283,030       283,000       162,379                   69,670       1,231,183  

 


(1)

Includes cash compensation deferred at the election of the executive under the H.B. Fuller Company 401(k) & Retirement Plan. For Mr. Kenny only, includes cash compensation deferred at his election into the H.B. Fuller Stakeholder Pension Plan. For accounting and payroll purposes, fiscal years 2015, 2014 and 2013 all contained 52 weeks. Amounts for Mr. Trippel include amounts paid for accrued but unused vacation pay.

 

(2)

The amounts in this column represent the grant date fair value of time-based and performance-based restricted stock awards made in fiscal 2015, 2014 and 2013 calculated in accordance with FASB ASC Topic 718 based on the closing price of our Common Stock on the date of grant and based on the assumptions set forth in Note 3 to the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended November 28, 2015, except that the assumption related to forfeitures is not included in the calculations for these purposes.

 

(3)

The amounts in this column represent the grant date fair values of stock option awards. In accordance with FASB ASC Topic 718, the grant date fair value of these awards has been determined using the Black-Scholes method and based on the assumptions set forth in Note 3 to the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended November 28, 2015, except that the assumption related to forfeitures is not included in the calculations for these purposes.

 

(4)

As described in the “Compensation Discussion and Analysis” section of this Proxy Statement, the amounts in this column represent cash bonuses paid out under our short-term incentive plan and the fiscal 2015 bonus multiplier program.

 

(5)

Amounts reported in this column for Mr. Owens, Mr. Giertz, Ms. Jensen and Mr. Trippel include the amount of interest accrued during the applicable fiscal year on the officer’s account in the Defined Contribution Restoration Plan that exceeded 120% of the applicable federal long-term rate in fiscal 2015. For fiscal 2015, we changed our methodology of calculating above market interest to a monthly calculation from an annual calculation, which was used for fiscal 2014 and 2013. In fiscal 2014 and 2013, no named executive officers had any interest accrued that exceeded 120% of the applicable federal long term rate.

 

 
49

 

 

(6)

The table below shows the components of this column for fiscal 2015, which include Company matching contributions to H.B. Fuller’s defined contribution plans, dividends on restricted stock, charitable contribution matches and donations and perquisites paid by the Company for the benefit of the executive officer. The amounts represent the amount paid by, or the incremental cost to, the Company.

 

All Other Compensation -- Fiscal Year 2015

 
                                                             

Name

 

Defined

Contribution Plan

Company Match

& Contributions

($)

   

Defined

Contribution

Restoration Plan

Contributions

($)

   

Dividends on

Unvested

Restricted Stock

($)

   

Charitable

Matching

Contributions

and Donations

($)a

   

Perquisites (see

table below)

($)

   

Total

($)

 
                                                             

James J. Owens

    18,521         150,461         67,093         16,000         11,317         263,392    

James R. Giertz

    18,521         76,571         7,557         18,000         15,504         136,153    

Traci L. Jensen

    18,521         58,655         5,931         -         6,570         89,677    

Patrick J. Trippel

    18,521         64,849         5,935         -         1,503         90,808    

Steven Kenny

    33,555         -         6,589         -         22,589         62,733    

 

 

(a)

Amounts in this column represent matching contributions by the Company under a broad based plan for all U.S. employees to match charitable contributions between $50 and $1,000 made to qualifying 501(c)(3) nonprofit organizations.  Also includes amounts under the Company’s Executive Charitable Board Support program under which key managers (including all the NEOs in this Proxy Statement) are eligible to direct H.B. Fuller Company Foundation charitable contributions to qualifying 501(c)(3) nonprofits organizations where they are serving as board members.

 

Perquisites - Fiscal Year 2015

 
                                                             

Name

 

Auto

Allowance

($)a

   

Personal

Excess

Liability

Insurance

($) b

   

Health Exam

($)

   

Spousal

Airfare

($)c

   

Financial

Counseling

($)

   

Total

Perquisites

($)

 
                                                             

James J. Owens

    -         1,811         3,192                   6,314         11,317    

James R. Giertz

    -         1,811         10,293                   3,400         15,504    

Traci L. Jensen

    -         1,413         2,913         1,244         1,000         6,570    

Patrick J. Trippel

    -         1,503         -                   -         1,503    

Steven Kenny

    16,238         938         -                   5,413         22,589    

 

 

(a)

The monthly auto allowance for U.S. based executives was discontinued June 1, 2014 and added to the salary of each U.S. based executive. Mr. Kenny, who does not work in the U.S., receives an auto allowance.

 

 

(b)

Includes premiums paid on a tax-protected basis on personal excess liability insurance of $938 and a related tax gross-up of $873 for Mr. Owens and Mr. Giertz, $475 for Ms. Jensen and $565 for Mr. Trippel. The amount for Mr. Kenny does not include a related tax gross-up.

 

 

(c)

Amount for spousal airfare was paid in accordance with company policy requiring a valid business purpose for payment of spouse travel expenses. This amount is treated as income to the employee and includes a tax gross up in the amount of $418.

 

(7)

Mr. Trippel resigned from H.B. Fuller Company effective February 22, 2016.

 

 
50

 

 

Grants of Plan-Based Awards During Fiscal 2015

 

The following table summarizes the grants of plan-based awards in fiscal year 2015 for each of the named executive officers in the Summary Compensation Table.

 

     

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards 1

   

Estimated Future Payouts Under

Equity Incentive Plan Awards

    All Other Stock Awards: Number of Shares of     All Other Option Awards: Number of Securities Underlying     Exercise or Base Price of Option     Grant Date Fair Value of Stock and Options  

Name and

Award Type

Grant

Date

 

Threshold ($)

   

Target

($)

   

Maximum

($)

   

Threshold (#)

   

Target

(#)

   

Maximum

(#)

   

Stock or

Units (#) 2

   

 Options

(#)3

   

 Awards

($/Sh)

   

 Awards

($)4

 

James J. Owens

                                                                                 

Short-Term Incentive

    492,873       985,747       1,971,493                                                          

LTI Award

1/22/2015

                                    28,792 5                                     1,180,472  

LTI Award

1/22/2015

                                                            112,727       41.00       1,187,917