DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant x                                 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))

 

x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material Pursuant to Section 240.14a-12

LINCOLN ELECTRIC HOLDINGS, INC.

 

(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):

 

x No fee required.

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

  

 

  (2) Aggregate number of securities to which transaction applies:

  

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

  

 

  (4) Proposed maximum aggregate value of transaction:

  

 

  (5) Total fee paid:

  

 

 

¨ 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.

 

  (1) Amount Previously Paid:

  

 

  (2) Form, Schedule or Registration Statement No.:

  

 

  (3) Filing Party:

 

 

  (4) Date Filed:

  

 

 


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LOGO


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LOGO

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of Lincoln Electric Holdings, Inc. (Lincoln), which will be held at 11:00 a.m., local time, on Thursday, April 23, 2015 at the Marriott Cleveland East, 26300 Harvard Road, Warrensville Heights, Ohio. A map showing the location of the Annual Meeting is printed on the outside back cover of the proxy statement.

Enclosed with this letter are the Annual Meeting notice, proxy statement, proxy card and an envelope in which to return the proxy card. Also enclosed is a copy of the Annual Report. The Annual Report and proxy statement contain important information about Lincoln, as well as our Board of Directors and executive officers. Please read these documents carefully.

If you are a registered holder of shares of Lincoln common stock or a participant in The Lincoln Electric Company Employee Savings Plan (401(k) plan), as a convenience to you and as a means of reducing costs, you may choose to vote your proxy electronically using the Internet or a touch-tone telephone instead of using the conventional method of completing and mailing the enclosed proxy card. Electronic proxy voting is permitted under Ohio law and our Amended and Restated Code of Regulations. You will find instructions on how to vote electronically in the proxy statement and on the proxy card. Having the freedom to vote by means of the Internet, telephone or mail does not limit your right to attend or vote in person at the Annual Meeting, if you prefer. If you plan to attend the Annual Meeting, please check the attendance box on the enclosed proxy card or when prompted if you cast your vote over the Internet or by telephone.

We look forward to seeing you at the Annual Meeting.

Sincerely,

 

LOGO

Christopher L. Mapes

Chairman, President and Chief Executive Officer

Lincoln Electric Holdings, Inc.

March 18, 2015


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TABLE OF CONTENTS

 

Notice of Annual Meeting of Shareholders

   1
  

General Information

   2
  

Election of Directors

   9

Election of Three Directors to Serve Until 2016 (Proposal 1)

   9

Director Nominees for Election (Proposal 1 continued)

   10

Continuing Directors

   12

Retiring Directors

   16

Director Committees and Meetings

   18

Corporate Governance

   21

Director Compensation

   24

Related Party Transactions

   28
  

Audit

   29

Audit Committee Report

   29

Ratification of Independent Auditors (Proposal 2)

   30

Audit Committee Pre-Approval Policies and Procedures (Proposal 2 continued)

   30

Executive Compensation

   32

Compensation Discussion and Analysis

   32

2014 Summary Compensation Table

   54

2014 Grants of Plan-Based Awards

   59

Holdings of Equity Related Interests

   61

2014 Stock Option Exercises and Stock Vested

   62

Retirement and Other Post-Employment Benefits

   63

2014 Pension Benefits Table

   65

2014 Deferred Compensation Plan Table

   67

Termination and Change in Control Arrangements

   68

Compensation Committee Report

   72

Advisory Vote on Executive Compensation (Proposal 3)

   73

Management Ownership of Shares

   76

Beneficial Ownership Table

   76

Section 16(a) Beneficial Ownership Reporting Compliance

   78

Other Ownership of Shares

   78

Compensation Committee Interlocks and Insider Participation

   80
  

2015 Equity and Incentive Compensation Plan (Proposal 4)

   81
  

2015 Stock Plan for Non-Employee Directors (Proposal 5)

   99
  

Other Matters

   111
  

Appendix A – Non-GAAP Financial Measures

   A-1
  

Appendix B – 2015 Equity and Incentive Compensation Plan

   B-1
  

Appendix C – 2015 Stock Plan for Non-Employee Directors

   C-1


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LOGO

Lincoln Electric Holdings, Inc.

22801 Saint Clair Avenue

Cleveland, Ohio 44117-1199

 

NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS

The Annual Meeting of Shareholders of Lincoln Electric Holdings, Inc. will be held at 11:00 a.m., local time, on Thursday, April 23, 2015, at the Marriott Cleveland East, 26300 Harvard Road, Warrensville Heights, Ohio.

Shareholders will be asked to vote on the following proposals:

 

  (1)

Election of three Directors to hold office until the 2016 Annual Meeting of Shareholders and until their successors are duly elected and qualified;

 

  (2)

Ratification of the appointment of Ernst & Young LLP as our independent auditors for the year ending December 31, 2015;

 

  (3)

To approve, on an advisory basis, the compensation of our named executive officers;

 

  (4)

Approval of 2015 Equity and Incentive Compensation Plan;

 

  (5)

Approval of 2015 Stock Plan for Non-Employee Directors; and

 

  (6)

Any other business properly brought before the meeting, or any postponement(s) or adjournment(s) of the meeting.

Shareholders of record as of the close of business on March 2, 2015, the record date, are entitled to vote at the Annual Meeting.

Frederick G. Stueber

Executive Vice President,

General Counsel and Secretary

March 18, 2015

 

Your Vote is Very Important – Please Vote Promptly

 

Whether or not you plan to attend the Annual Meeting, we recommend that you mark, date, sign and return promptly the enclosed proxy card in the envelope provided or vote your shares electronically either by telephone (1-800-690-6903) or over the Internet (www.proxyvote.com).

 

If your shares are not registered in your own name and you would like to attend the Annual Meeting, please bring evidence of your share ownership with you. You should be able to obtain evidence of your share ownership from the bank, broker, trustee or other nominee that holds the shares on your behalf.

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 23, 2015.

This proxy statement, along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and our Annual Report, are available free of charge on the following website: www.lincolnelectric.com/proxymaterials.

 

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LOGO

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON APRIL 23, 2015

 

GENERAL INFORMATION

 

 

Who is soliciting proxies and why? Who is paying for the cost of this proxy solicitation?

 

The enclosed proxy is being solicited by our Board of Directors and we will pay the cost of the solicitation. Certain of our officers and other employees may also solicit proxies by telephone, letter or personal interview but will not receive any additional compensation for these activities. In addition, we reimburse banks, brokers and other custodians, nominees and fiduciaries for reasonable expenses incurred in forwarding proxy materials to beneficial owners of our common stock and obtaining their proxies. We will begin mailing this proxy statement on or about March 18, 2015.

If your shares are held in your name, in order to vote your shares you must either attend the Annual Meeting and vote in person or appoint a proxy to vote on your behalf. Because it would be highly unlikely that all shareholders would be able to attend the Annual Meeting, the Board recommends that you appoint a proxy to vote on your behalf, as indicated on the accompanying proxy card, or appoint your proxy electronically via telephone or the Internet.

 

 

How do we distribute materials to shareholders sharing the same address?

 

To reduce the expense of delivering duplicate voting materials to shareholders who share the same address, we have taken advantage of the “householding” rules enacted by the Securities and Exchange Commission (SEC). As long as we provide proper notice to such shareholders, these rules permit us to deliver only one set of voting materials to shareholders who share the same address, meaning only one copy of the Annual Report, proxy statement and any other shareholder communication will be sent to those households. Each shareholder will, however, receive a separate proxy card.

 

 

How do I obtain a separate set of communications to shareholders?

 

If you share an address with another shareholder and have received only one copy of the Annual Report, proxy statement or any other shareholder communication, you may request that we send a separate copy of these materials to you at no cost to you. For this meeting and for future Annual Meetings, you may request separate copies of these materials. You may also request that we send only one set of these materials to you if you are receiving multiple copies. You may make these requests by sending a written notice to the Corporate Secretary at Lincoln Electric Holdings, Inc., 22801 St. Clair Avenue, Cleveland, Ohio 44117. You may also request separate copies of these materials for this meeting and for future Annual Meetings by calling Frederick G. Stueber, our Corporate Secretary, at 216-481-8100.

 

 

Who may vote?

 

Record holders of shares of common stock of Lincoln Electric Holdings, Inc. as of the close of business on March 2, 2015, the record date, are entitled to vote at the Annual Meeting. On that date, 76,068,411 shares of our common stock were outstanding. Each share is entitled to one vote on each proposal brought before the meeting.

 

 

What is required for there to be a quorum at the Annual Meeting?

 

Holders of at least a majority of the shares of our common stock issued and outstanding on the record date (March 2, 2015) must be present, in person or by proxy, for there to be a quorum in order to conduct business at the meeting. Abstentions and broker non-votes (described below) will count for purposes of determining if there is a quorum.

 

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What is the difference between holding shares as a shareholder of record and as a beneficial holder?

 

 

 

Shareholder of Record. If your shares are registered in your name with our transfer agent/registrar, Wells Fargo Bank, N.A., you are considered the shareholder of record and these proxy materials have been sent directly to you. You may vote in person at the meeting. You may also grant us your proxy to vote your shares by telephone, via the Internet or by mailing your signed proxy/voting instruction card in the postage-paid envelope provided. The card provides the voting instructions.

 

 

Beneficial Holder of Shares Held in “Street Name”. If your shares are held in a brokerage account, by a trustee, or by another nominee, then that other person/entity is considered the shareholder of record and the shares are considered held in “street name.” We sent these proxy materials to that other person/entity, and they have been forwarded to you with a voting instruction card. As the beneficial owner of the shares, you have the right to direct your broker, trustee or other nominee on how to vote and you are also invited to attend the meeting. However, if you are a beneficial holder, you are not the shareholder of record and you may not vote your street name shares in person at the meeting unless you obtain a legal proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote them at the meeting. Please refer to the information your broker, trustee or other nominee provided to see what voting options are available to you. If you have not heard from your broker or bank, please contact them as soon as possible.

 

 

What shares are included on the proxy card?

 

If you are both a registered shareholder of our common stock and a participant in The Lincoln Electric Company Employee Savings Plan (401(k) plan), you may have received one proxy card that shows all shares of our common stock registered in your name, including any dividend reinvestment plan shares, and all shares you have (based on the units credited to your account) under the 401(k) plan. Accordingly, your proxy card also serves as your voting directions to the 401(k) plan Trustee.

Please note, however, that unless the identical name(s) appeared on all your accounts, we were not able to consolidate your share information. If that was the case, you received more than one proxy card and must vote each one separately. If your shares are held through a bank, broker, trustee or some other nominee, you will receive either a voting form or a proxy card from them, instructing you on how to vote your shares. This may also include instructions on telephone and electronic voting. If you are both a record holder of shares and a beneficial holder of additional shares, you will receive a proxy card(s) directly from us as well as a voting instruction card from your bank, broker or other nominee.

 

 

What is a broker non-vote and what effect does it have?

 

Brokers or other nominees who hold our common stock for a beneficial owner have the discretion to vote on routine proposals when they have not received voting instructions from the beneficial owner. However, your broker or other nominee is not permitted to vote on your behalf on the election of directors (Proposal 1) and other non-routine matters (including Proposals 3, 4, and 5) unless you provide specific voting instructions to them by completing and returning the voting instruction card sent to you or by following the instructions provided to you by your broker, trustee or nominee to vote your shares via telephone or the Internet.

A broker non-vote occurs when a broker or other nominee does not receive voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares. Therefore, if you hold your shares beneficially through a broker, trustee or other nominee, you must communicate your voting instructions to them to have your shares voted.

Broker non-votes will be counted for purposes of calculating whether a quorum is present at the Annual Meeting, but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote (i.e., it will not be considered a vote “cast”) with respect to a particular proposal.

 

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What proposals am I being asked to vote on and what vote is required to approve each proposal?

 

You are being asked to vote on five proposals on the proxy card:

 

 

Proposal 1 (Election of Directors) requests the election of three Directors to a one-year term to the Class of 2016. You can specify whether your shares should be voted for all, some or none of the nominees. Under Ohio law and our Articles of Incorporation, if a quorum is present, the Director nominees receiving the greatest number of votes will be elected (plurality). However, we have adopted a majority voting policy that is applicable in uncontested elections of Directors. This means that the plurality standard will determine whether a Director nominee is elected, but our majority voting policy will further require that the number of votes cast “for” a Director must exceed the number of votes “withheld” from that Director or the Director must submit his or her resignation. The Nominating and Corporate Governance Committee would then consider whether to accept or reject the resignation. Broker non-votes and abstentions will have no effect on the election of Directors and are not counted under our majority voting policy. Holders of our common stock do not have cumulative voting rights with respect to the election of directors.

The election of the Director nominees to a one-year term ending in 2016 commences the declassification of our Board. As a result, beginning with the election of Directors at the 2016 Annual Meeting, 60% of the Board would stand for election annually, and, beginning with the 2017 Annual Meeting, all Directors would stand for election annually.

 

 

Proposal 2 (Ratification of Independent Auditors) requests that shareholders ratify the appointment of Ernst & Young LLP as our independent auditors. You can specify whether you want to vote “for” or “against,” or abstain from voting for this proposal. Proposal 2 requires the affirmative vote of a majority of the shares of Lincoln common stock present or represented by proxy and entitled to vote on the matter when a quorum is present. This means that the number of votes cast “for” the proposal must exceed the number of votes cast “against” the proposal. Votes that are marked “abstain” will have the same effect as votes “against” the proposal and broker non-votes will have no effect on the results (which is also the case for Proposals 3-5 below).

 

 

Proposal 3 (Advisory Vote on Executive Compensation) requests an advisory vote on our executive compensation. We make this request on an annual basis. You may vote “for” or “against,” or abstain from voting for this proposal. Although the vote is not binding on us, Proposal 3 requires the affirmative vote of a majority of the shares of Lincoln common stock present or represented by proxy and entitled to vote on the matter when a quorum is present.

The Board is asking for your vote on Proposal 3 pursuant to requirements under Section 14A of the Securities Exchange Act of 1934. Currently, advisory “Say on Pay” votes are scheduled to be held once every year, with the 2015 vote expected to occur at our 2015 Annual Meeting.

 

 

Proposal 4 (Vote to Approve 2015 Equity and Incentive Compensation Plan) requests that shareholders approve the 2015 Stock Equity and Incentive Compensation Plan (the “2015 Employee Plan”). The 2015 Employee Plan will replace the 2006 Equity and Performance Incentive Plan (the “2006 EPI Plan”). If the 2015 Employee Plan is approved by shareholders, no further awards will be made under the 2006 EPI Plan. You can specify whether you want to vote “for” or “against,” or abstain from voting on Proposal 4. This proposal requires the affirmative vote of a majority of the shares of Lincoln common stock present or represented by proxy and entitled to vote on the matter when a quorum is present. The complete text of the 2015 Employee Plan is attached as Appendix B.

 

 

Proposal 5 (Vote to Approve 2015 Stock Plan for Non-Employee Directors) requests that shareholders approve the 2015 Stock Plan for Non-Employee Directors (the “2015 Director Plan”). The 2015 Director Plan will replace the 2006 Stock Plan for Non-Employee Directors (the “2006 Director Plan”). If the 2015 Director Plan is approved by shareholders, no further awards will be made under the 2006 Director Plan. You can specify whether you want to vote “for” or “against,” or abstain from voting on Proposal 5. This proposal requires the affirmative vote of a majority of the shares of Lincoln common stock present or represented by proxy and entitled to vote on the matter when a quorum is present. The complete text of the 2015 Director Plan is attached as Appendix C.

 

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Our Directors do not know of any other matters that are to be presented at the meeting. If any other matters come before the meeting of which we failed to receive notice within the 30-day period from December 25, 2014 through January 24, 2015 (or that applicable laws otherwise would permit proxies to vote on a discretionary basis), it is intended that the persons authorized under solicited proxies will vote on the matters in accordance with their best judgment.

 

 

How do I vote?

 

Registered Holders

If your shares are registered in your name, you may vote in person or by proxy in any ONE of the following ways:

 

 

Using a Toll-Free Telephone Number. After reading the proxy materials and with your proxy card in front of you, you may call the toll-free number 1-800-690-6903 using a touch-tone telephone. Have the information that is printed on your proxy card, in the box marked by the arrow LOGO , available and follow the instructions.

 

 

Over the Internet. After reading the proxy materials and with your proxy card in front of you, you may use a computer to access the website www.proxyvote.com. Have the information that is printed on your proxy card, in the box marked by the arrow LOGO , available and follow the instructions.

 

 

By Mail. After reading the proxy materials, you may mark, sign and date your proxy card and return it in the enclosed prepaid and addressed envelope.

 

 

In Person at the Meeting. If you plan to attend the Annual Meeting in person, you must provide proof of your ownership of our common stock and a form of personal identification for admission to the meeting. If you hold your shares in street name, and you also wish to vote at the meeting, you must obtain a proxy, executed in your favor, from your bank or broker. NOTE: Because 401(k) plan shares are held in a qualified plan, you are not able to vote 401(k) plan shares in person at the Annual Meeting.

The Internet and telephone voting procedures have been set up for your convenience and have been designed to authenticate your identity, allow you to give voting instructions and confirm that those instructions have been recorded properly.

Participants in the 401(k) Plan

If you participate in the 401(k) plan, the plan’s independent Trustee, Fidelity Management Trust Company, will vote your 401(k) plan shares according to your voting directions. You may give your voting directions to the plan Trustee in any ONE of the three ways set forth above under “Registered Holders.” If you do not return your proxy card or do not vote over the Internet or by telephone, the Trustee will not vote your plan shares. Each participant who gives the Trustee voting directions acts as a named fiduciary for the 401(k) plan under the provisions of the Employee Retirement Income Security Act of 1974, as amended.

Beneficial Holders of Shares Held in “Street Name”

If your shares are held by a bank, broker, trustee or some other nominee (in street name), that entity will give you separate voting instructions. Brokers and other nominees are not entitled to vote on the election of any Directors, the advisory vote on executive compensation, the proposal to approve the 2015 Equity and Incentive Compensation Plan or the proposal to approve the 2015 Stock Plan for Non-Employee Directors, unless they receive voting instructions from the beneficial owner. Therefore, it is important that you instruct your bank, broker or other nominee on how you want your shares voted.

 

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What happens if I sign, date and return my proxy but do not specify how I want my shares voted on the proposals?

 

Registered Shareholders

If you sign, date and return your proxy card but do not specify how you want to vote your shares, your shares will be voted FOR the election of all of the Director nominees, FOR the ratification of the appointment of our independent auditors, FOR the approval of the compensation of our named executive officers, FOR the proposal to approve the 2015 Equity and Incentive Compensation Plan and FOR the proposal to approve the 2015 Stock Plan for Non-Employee Directors.

“Street Name” Shareholders

Your broker or nominee may vote your uninstructed shares only on those proposals on which it has discretion to vote. Your broker or nominee does not have discretion to vote your uninstructed shares on non-routine matters such as Proposal 1 (election of Directors), Proposal 3 (advisory vote on executive compensation), Proposal 4 (2015 Equity and Incentive Compensation Plan) and Proposal 5 (2015 Stock Plan for Non-Employee Directors). However, your broker or nominee does have discretion to vote your uninstructed shares on routine matters such as Proposal 2 (ratification of independent auditors).

 

 

May I revoke my proxy or change my vote?

 

Yes. You may change or revoke your proxy prior to the closing of the polls in any one of the following FOUR ways:

 

1.

by sending a written notice to our Corporate Secretary stating that you want to revoke your proxy;

 

2.

by submitting a properly completed and signed proxy card with a later date (which will automatically revoke the earlier proxy);

 

3.

by entering later-dated telephone or Internet voting instructions (which will automatically revoke the earlier proxy); or

 

4.

by voting in person at the Annual Meeting after requesting that the earlier proxy be revoked. NOTE: Because 401(k) plan shares are held in a qualified plan, you are not able to revoke or change your vote on 401(k) plan shares at the Annual Meeting.

If your shares are held by a bank, broker, trustee or some other nominee, you will have to check with your bank, broker, trustee or other nominee to determine how to change your vote. Also note that if you plan to attend the Annual Meeting, you will not be able to vote in person at the meeting any of your shares held by a nominee unless you have a valid proxy from the nominee. If you plan to attend the Annual Meeting, please check the attendance box on the enclosed proxy card or indicate so when prompted if you are voting by telephone or over the Internet.

 

 

Who counts the votes?

 

We have engaged Broadridge Financial Solutions, Inc. as our independent agent to receive and tabulate the votes. Broadridge will separately tabulate “for,” “against” and “withhold” votes, abstentions and broker non-votes. Broadridge will also act as our inspector of elections at the Annual Meeting. All properly signed proxy cards and all properly recorded Internet and telephone votes (including votes marked “abstain” and broker non-votes) will be counted to determine whether or not a quorum is present at the meeting.

 

 

May I receive future shareholder communications over the Internet?

 

If you are a registered shareholder, you may consent to receiving future shareholder communications (e.g., proxy materials, Annual Reports and interim communications) over the Internet instead of the mail. You give your

 

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consent by marking the appropriate box on your proxy card or following the prompts given you when you vote by telephone or over the Internet. If you choose electronic access, once there is sufficient interest in electronic delivery, we will discontinue mailing proxy statements and Annual Reports to you. However, you will still receive a proxy card, together with a formal notice of the meeting, in the mail.

Providing shareholder communications over the Internet will reduce our printing and postage costs and the number of paper documents that you would otherwise receive. If you give your consent, there is no cost to you for this service other than charges you may incur from your Internet provider, telephone and/or cable company. Once you give your consent, it will remain in effect until you inform us otherwise.

If your shares are held through a bank, broker, trustee or some other nominee, check the information provided by that entity for instructions on how to choose to access future shareholder communications over the Internet.

In addition, our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 Annual Report and this proxy statement are available free of charge on the following website: www.lincolnelectric.com/proxymaterials.

 

 

When are shareholder proposals due for next year’s Annual Meeting in 2016?

 

In order for proposals to be considered for inclusion in next year’s proxy statement for the 2016 Annual Meeting, a shareholder proposal submitted under Rule 14a-8 of the Securities Exchange Act of 1934 must be received in writing by the Corporate Secretary at Lincoln Electric Holdings, Inc., 22801 Saint Clair Avenue, Cleveland, Ohio 44117-1199 on or before November 18, 2015, and it must otherwise comply with Rule 14a-8. In addition, if shareholders want to present proposals at our 2015 Annual Meeting other than through the process set forth in Rule 14a-8, they must comply with the requirements set forth in our Amended and Restated Code of Regulations, which we refer to as our “Regulations.” Specifically, they must provide written notice containing certain information as described in our Regulations and such notice must be received no later than January 24, 2016 and no earlier than December 25, 2015. If notices delivered pursuant to the Regulations are not timely received, then we will not be required to present such proposals at the 2016 Annual Meeting. If the Board of Directors chooses to present any information submitted after the deadlines set forth in the Regulations at the 2016 Annual Meeting, then the persons named in proxies solicited by the Board for the 2016 Annual Meeting may exercise discretionary voting power with respect to such information.

 

 

May I submit a nomination for Director?

 

Our Regulations permit shareholders to nominate one or more persons for election as a Director but require that nominations be received in the Corporate Secretary’s Office at least 80 days before the date of the annual meeting at which the nomination is to be made, as long as we publicly announced the date of the annual meeting more than 90 days prior to the annual meeting date. Alternatively, shareholder nominations for Director must be received in the Corporate Secretary’s Office no later than the close of business on the tenth day following the day on which we publicly announced the date of the annual meeting in those instances when we have not publicly announced the date of the annual meeting more than 90 days prior to the annual meeting date. For complete details on the nomination process, contact our Corporate Secretary at the address below.

To nominate a candidate for election as Director, you must send a written notice to the Corporate Secretary at Lincoln Electric Holdings, Inc., 22801 Saint Clair Avenue, Cleveland, Ohio 44117-1199. The notice must include certain information about you as a shareholder of Lincoln and about the person you intend to nominate, including a statement about the person’s willingness to serve, if elected. Specifically, each notice must include: (1) the name and address of the shareholder who intends to make the nomination and of the person(s) to be nominated, (2) a representation that the shareholder is a holder of record of stock of Lincoln entitled to vote for the election of directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person(s) specified in the notice, (3) a description of all arrangements or understandings between the shareholder and each nominee and any other person(s) (naming such person(s)) pursuant to which the

 

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nomination(s) are to be made by the shareholder, (4) such other information regarding each nominee proposed by the shareholder as would be required to be included in the proxy statement filed pursuant to the proxy rules of the SEC, had the nominee been nominated, or intended to be nominated, by our Board of Directors, and (5) the consent of each nominee to serve as a director of Lincoln if so elected.

For this year’s Annual Meeting, we had to receive nominations not later than the close of business on February 2, 2015 as we publicly announced the date of this year’s Annual Meeting on January 14, 2015, which is more than 90 days prior to this year’s Annual Meeting date. Accordingly, no additional nominations can be made for this year’s Annual Meeting.

 

 

How do I contact Lincoln?

 

For general information, shareholders may contact Lincoln at the following address:

Lincoln Electric Holdings, Inc.

22801 Saint Clair Avenue

Cleveland, Ohio 44117-1199

Attention: Amanda Butler, Director, Investor Relations

Throughout the year, you may visit our website at www.lincolnelectric.com for information about current developments at Lincoln.

 

 

How do I contact the Directors?

 

Shareholders may send communications to any or all of our Directors through the Corporate Secretary at the following address:

Lincoln Electric Holdings, Inc.

22801 Saint Clair Avenue

Cleveland, Ohio 44117-1199

Attention: Corporate Secretary

The name of any specific intended Board recipient should be noted in the communication. The Corporate Secretary will forward such correspondence only to the intended recipients. Prior to forwarding any correspondence, the Corporate Secretary will review such correspondence and, in his discretion, not forward certain items if they are deemed of a frivolous nature or otherwise inappropriate for the Board’s consideration. In such cases, some of that correspondence may be forwarded elsewhere within Lincoln for review and possible response.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

Ohio’s General Corporation Law provides that, unless another voting standard is stipulated in the Articles of Incorporation, if a quorum is present, the Director nominees receiving the greatest number of votes will be elected as Directors of Lincoln (plurality standard). In addition, we have adopted a majority voting policy with respect to uncontested elections of Directors. The majority voting policy is described in detail below under “Corporate Governance.” Accordingly, for the 2015 Annual Meeting, the plurality standard will determine whether a Director nominee is elected but, under our majority voting policy, if any Director fails to receive a majority of the votes cast in his or her favor, the Director will be required to submit his or her resignation to the Board promptly after the certification of the election results. The Nominating and Corporate Governance Committee of the Board would then consider each resignation and recommend to the Board whether to accept or reject it.

At our 2014 Annual Meeting, the shareholders approved the declassification of our Board. Accordingly, the declassification process commences with the Directors scheduled for election at this year’s Annual Meeting. Beginning with the 2016 Annual Meeting, 60% of the Board would stand for election annually, and, beginning with the 2017 Annual Meeting, all Directors would stand for election annually.

In February 2015, Mr. Hanks and Mr. Mason agreed to stand for election in the one-year class ending in 2016, in order to balance out the Director classes as provided by our Code of Regulations and Ohio law. Mr. Hanks was previously in the three-year class ending in 2016 and Mr. Mason was previously in the three-year class ending in 2017. The reconfiguration of the Director classes is as a result of the retirement of Mr. Adams and Mr. Knoll at this year’s Annual Meeting.

 

 

Election of Three Directors to Serve Until 2016

 

At the 2015 Annual Meeting, three Directors will be elected to serve for a one-year term until the 2016 Annual Meeting and until their successors are duly elected and qualified. Unless otherwise directed, shares represented by proxy will be voted FOR the following:

Class of 2016. The class of Directors proposed for election to a one-year term ending in 2016 has been fixed at three. Curtis E. Espeland, Stephen G. Hanks and Phillip J. Mason are standing for election. All of the nominees have been elected previously by the shareholders.

Each of the nominees has agreed to stand for election and has agreed, in accordance with our majority voting policy, to tender his resignation in the event that he fails to receive a majority of the votes cast in his favor. If any of the nominees is unable to stand for election, the Board may provide for a lesser number of nominees or designate a substitute. In the latter event, shares represented by proxies solicited by the Directors may be voted for the substitute. We have no reason to believe that any of the nominees will be unable to stand for election.

 

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF

CURTIS E. ESPELAND, STEPHEN G. HANKS AND PHILLIP J. MASON

TO A ONE-YEAR TERM ENDING IN 2016.

 

 

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PROPOSAL 1 (CONTINUED)

 

 

Annual Meeting Attendance

 

Directors are expected to attend each annual meeting. The Director nominees, as well as the continuing Directors, plan to attend this year’s Annual Meeting. At the 2014 Annual Meeting, all of our Directors were in attendance.

The following table sets forth biographical information about the Director nominees and the Directors whose terms of office will continue after this Annual Meeting. Except as otherwise indicated, the Director nominees and continuing Directors have held the occupation listed below for more than five years.

Neither the Director nominees nor any continuing Director has any special arrangement or understanding with any other person pursuant to which the Director nominees or continuing Director was or is to be selected as a Director or nominee. There are no family relationships, as defined by SEC rules, among any of our Directors or executive officers. SEC rules define the term “family relationship” to mean any relationship by blood, marriage or adoption, not more remote than first cousin.

 

 

DIRECTOR NOMINEES FOR ELECTION TO A ONE-YEAR TERM ENDING IN 2016

 

 

 

LOGO  

 

Curtis E. Espeland, Age 50

 

Term Expires/Service: 2015 – Director since 2012.

 

Recent Business Experience: Mr. Espeland has been Executive Vice President and Chief Financial Officer of Eastman Chemical Company (a chemical, fiber and plastic manufacturer) since January 2014. Prior to his service as Executive Vice President and Chief Financial Officer, Mr. Espeland was Senior Vice President and Chief Financial Officer from 2008 to January 2014 and Vice President, Finance and Chief Accounting Officer of Eastman Chemical from 2005 to 2008.

 

Director Qualifications: Mr. Espeland has extensive experience in corporate finance and accounting, having served in various finance and accounting roles, and ultimately as the Chief Financial Officer, at a large publicly traded company (Eastman Chemical) for the past several years. Mr. Espeland also has significant experience in the areas of mergers and acquisitions, taxation and enterprise risk management. Mr. Espeland also served as an independent auditor at Arthur Andersen LLP having worked in both the United States and abroad (Europe and Australia). Mr. Espeland’s extensive accounting and finance experience, the Board has determined, qualifies him as an “audit committee financial expert.” This expertise makes Mr. Espeland an important member of the Audit Committee (where he is Chair) and the Finance Committee. In addition, Mr. Espeland’s international business experience is a valued asset for our global operations.

 

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PROPOSAL 1 (CONTINUED)

 

 

LOGO  

 

Stephen G. Hanks, Age 64

 

Term Expires/Service: 2015 – Director since 2006.

 

Recent Business Experience: Mr. Hanks spent 30 years with global engineering and construction company Morrison Knudsen Corporation and its successor Washington Group International, Inc., serving the last eight years as President, CEO and a member of its Board of Directors and retiring in January 2008.

 

Directorships: Mr. Hanks is a member of the Board of Directors of McDermott International, Inc. (since 2009) and The Babcock & Wilcox Company (since July 2010). Mr. Hanks is also a member of the Board of Directors of The Washington Companies, which is privately-owned.

 

Director Qualifications: Mr. Hanks’ executive leadership of a U.S. publicly-held company with international reach has provided him with extensive experience dealing with the issues that these companies confront. His diverse professional skill set, including finance (having served as CFO of Morrison Knudsen) and legal competencies (such as enterprise risk management, corporate compliance and legal strategy), make him a valuable member of the Board, the Finance Committee (where he is Chair) and the Compensation and Executive Development Committee. Mr. Hanks’ experience as a Chief Executive Officer and Chief Financial Officer of a publicly-held company qualifies him as an “audit committee financial expert.”

 

LOGO  

 

Phillip J. Mason, Age 64

 

Term Expires/Service: 2015 – Director since July 2013.

 

Recent Business Experience: Mr. Mason is the former President of the Europe, Middle East & Africa Sector (EMEA Sector) of Ecolab, Inc. (a leading provider of food safety, public health and infection prevention products and services), a position he held from 2010 until his retirement in 2012. Mr. Mason brings 35 years of international business experience to the Board and its Audit and Finance Committees, including starting, developing and growing businesses abroad in both mature and emerging markets. Prior to leading Ecolab’s EMEA Sector, Mr. Mason had responsibility for Ecolab’s Asia Pacific and Latin America businesses as President of Ecolab’s International Sector from 2005 to 2010 and as Senior Vice President, Strategic Planning in 2004.

 

Director Qualifications: Mr. Mason has over 35 years of international business experience with experience in establishing businesses in China, South Korea, Southeast Asia, Brazil, India, Russia, Africa and the Middle East. Mr. Mason’s executive leadership of an international business sector for a U.S. publicly-held company provides him with extensive international business expertise in a business-to-business environment, including industrial sectors. Additionally, he brings a strong finance and strategic planning background, including merger and acquisition experience, along with significant experience working with and advising boards on diverse issues confronting companies with international operations.

 

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CONTINUING DIRECTORS

Class of 2016

 

 

 

LOGO  

 

Kathryn Jo Lincoln, Age 60

 

Term Expires/Service: 2016 – Director since 1995.

 

Recent Business Experiences: Ms. Lincoln is Chair and Chief Investment Officer of the Lincoln Institute of Land Policy – a leading educational institution teaching land economics and taxation. She has held this position since 1996, and in her role as CIO currently manages and directs all aspects of the Institute’s $550 million endowment. In her role as Chair, she is responsible for all Board development and governance and takes a leadership position in strategic planning. From 1999 through 2006, Ms. Lincoln previously served as President of the Lincoln Foundation, the non-profit foundation that supported the Lincoln Institute until the two entities merged in 2006.

 

Directorships: Ms. Lincoln is an Advisory Board Member of the Johnson Bank, Arizona Region, a position she has held since 2006, before which she was a Board member of the Johnson Bank, Arizona, N.A., beginning in 2001.

 

Director Qualifications: Ms. Lincoln’s leadership experience with the Lincoln Institute, where she plays a crucial role in strategic planning and asset allocation, as well as her extensive experience with the Chautauqua Institution in New York, a major Arizona health care provider, and an international non-profit organization related to land use and policy, make Ms. Lincoln a valuable contributor to a well-rounded Board. Ms. Lincoln serves as a member of the Compensation and Executive Development Committee and Chairs the Nominating and Corporate Governance Committee. In addition, as a Lincoln family member and long-standing Director of Lincoln Electric, Ms. Lincoln has a keen sense of knowledge about Lincoln Electric, its culture and the founding principles.

 

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CONTINUING DIRECTORS (CONTINUED)

 

 

LOGO  

 

William E. MacDonald, III, Age 68

 

Term Expires/Service: 2016 – Director since 2007.

 

Recent Business Experiences: Mr. MacDonald is the former Vice Chairman of National City Corporation (a diversified financial holding company), a position he held from 2001 until his retirement in 2006, where he was responsible for its seven-state regional and national corporate banking businesses, the Risk Management and Credit Administration unit, Capital Markets and the Private Client Group. Mr. MacDonald joined National City in 1968 and, during his tenure, held a number of key management positions, including Senior Executive Vice President of National City Corporation and President and Chief Executive Officer of National City’s Ohio bank.

 

Directorships: Mr. MacDonald was a member of the Board of Directors of American Greetings Corporation from 2007 until September 2013 when the company was privatized. In addition, Mr. MacDonald served on the Board of Directors of MTC Technologies, Inc. from 2002 to 2008 and The Lamson & Sessions Co. from 2006 to 2007 when, in each case, the boards were dismantled as a result of divestitures.

 

Director Qualifications: Mr. MacDonald brings experience in leading a large corporate organization with over 35,000 employees and structuring complex financing solutions for large and middle-market businesses to the Board and its Compensation and Executive Development Committee (where he is Chair) and Finance Committee. In addition to his expertise in economic issues, Mr. MacDonald appreciates the human resources and development challenges facing a global, publicly-traded company.

 

LOGO  

 

George H. Walls, Jr., Age 72

 

Term Expires/Service: 2016 – Director since 2003.

 

Recent Business Experience: General Walls is the former Chief Deputy Auditor of the State of North Carolina, a position he held from 2001 through 2004. General Walls retired from the U.S. Marine Corps in 1993 with the rank of Brigadier General, after nearly 29 years of distinguished service.

 

Directorships: General Walls has served on the Board of Directors of The PNC Financial Services Group, Inc. since 2006. In addition, he was a member of the Board of Directors of Thomas Industries, Inc. from 2003 to 2005 when the board was dismantled as a result of a divestiture.

 

Director Qualifications: General Walls brings to the Board substantial financial acumen and experience supervising the audits of various government entities, including the Office of the Governor of North Carolina, all state agencies of North Carolina, all Clerks of Superior Court for North Carolina and all not-for-profit agencies that received state or federal funds during his tenure as Chief Deputy Auditor of the State of North Carolina, which serves him well as a member of the Audit Committee of the Board. General Walls also has significant experience in the leadership, management and ethics of large, complex organizations, aiding him in his services on the Nominating and Corporate Governance Committee of the Board. General Walls is also a National Association of Corporate Directors (NACD) Board Leadership Fellow. In addition, General Walls understands the welding industry and at one point in time had oversight responsibility for the Marine Corps welding school and development program.

 

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CONTINUING DIRECTORS (CONTINUED)

Class of 2017

 

 

 

LOGO  

 

David H. Gunning, Age 72

 

Term Expires/Service: 2017 – Director since 1987 and Lead Director since April 2013.

 

Recent Business Experience: Mr. Gunning is the former Vice Chairman of Cliffs Natural Resources, Inc. (an iron ore and coal mining company formerly known as Cleveland-Cliffs Inc), a position he held from 2001 until his retirement in 2007. Prior to that, Mr. Gunning served as Chairman, President and Chief Executive Officer of Capital American Financial Corp. Mr. Gunning is also a lawyer and practiced law for many years as a corporate partner with Jones Day.

 

Directorships: Mr. Gunning is a member of the Board of Directors of MFS Funds (since 2004), and is the Chair of the Board of the Funds. Mr. Gunning served on the Boards of Directors of Cliffs Natural Resources, Inc. (2001 to 2007), Portman Mining Ltd. (2005 to 2008), Southwest Gas Corporation (2000 to 2004) and Development Alternatives, Inc. (pre-1993 to May 2013).

 

Director Qualifications: Mr. Gunning brings to the Board (and its Compensation and Executive Development and Nominating and Corporate Governance Committees) chief executive officer and senior management experience (with public companies), public company board experience and corporate legal skills. Additionally, Mr. Gunning’s relatively long tenure as a Director provides the Board with a valuable perspective on Lincoln’s challenges within its industry.

 

LOGO  

 

G. Russell Lincoln, Age 68

 

Term Expires/Service: 2017 – Director since 1989.

 

Recent Business Experience: Mr. Lincoln is President of N.A.S.T. Inc. (a personal investment firm), a position he has held since 1996. Prior to joining N.A.S.T. Inc., Mr. Lincoln served as the Chairman and Chief Executive Officer of Algan, Inc.

 

Director Qualifications: As an entrepreneurial businessman with experience, including 25 years running a $50 million business, Mr. Lincoln understands business risk and the importance of hands-on management. Mr. Lincoln is the grandson of J. F. Lincoln, who pioneered the use of incentive management, and he appreciates our corporate culture. His leadership role and his investment experience serve Lincoln Electric well as a member of the Audit and Finance Committees of the Board.

 

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CONTINUING DIRECTORS (CONTINUED)

 

 

LOGO  

 

Christopher L. Mapes, Age 53

 

Term Expires/Service: 2017 – Director since 2010.

 

Recent Business Experience: Mr. Mapes is Chairman, President and Chief Executive Officer of Lincoln. Mr. Mapes has served as President and Chief Executive since December 31, 2012. On December 21, 2013, Mr. Mapes was appointed as Chairman of the Board in addition to his other responsibilities. From September 2011 to December 31, 2012, Mr. Mapes served as the Chief Operating Officer of Lincoln. From 2004 to August 2011, Mr. Mapes served as an Executive Vice President of A.O. Smith Corporation (a global manufacturer with a water heating and water treatment technologies business, which has residential, commercial, industrial and consumer applications) and the President of its former Electrical Products unit. Prior to joining A.O. Smith, he was the President, Motor Sales and Marketing of Regal Beloit Corporation (a manufacturer of electrical and mechanical motion control products) from 2003 to 2004.

 

Directorships: Mr. Mapes is a member of the Board of Directors of The Timken Company (since February 14, 2014).

 

Director Qualifications: As an experienced executive officer of Lincoln as well as other large, global public companies engaged in manufacturing operations, Mr. Mapes understands the manufacturing industry and the challenges of global growth. He is also familiar with the welding industry generally, given his service to Lincoln as Chief Executive Officer and Chief Operating Officer and that one of his former employers (Superior Essex) has been a supplier to Lincoln. In addition to his business management experience, Mr. Mapes has a law degree.

 

LOGO  

 

Hellene S. Runtagh, Age 66

 

Term Expires/Service: 2017 – Director since 2001.

 

Recent Business Experience: Ms. Runtagh is the former President and Chief Executive Officer of the Berwind Group (a diversified pharmaceutical services, industrial manufacturing and real estate company), a position she held in 2001. From 1997 through 2001, Ms. Runtagh was Executive Vice President of Universal Studios (a media and entertainment company). Prior to joining Universal Studios, Ms. Runtagh spent 27 years at General Electric Company (a diversified industrial company) in a variety of leadership positions.

 

Directorships: Ms. Runtagh has served on the Board of Directors of Harman International Industries, Inc. since 2008 and NeuStar, Inc. since 2006. In addition, Ms. Runtagh was a member of the Board of Directors of IKON Office Solutions Inc. from 2007 to 2008, Avaya Inc. from 2003 to 2007 and Covad Communications Group from 1999 to 2006.

 

Director Qualifications: Ms. Runtagh has over 30 years of experience in management positions with global companies. Ms. Runtagh’s responsibilities in management have ranged from marketing and sales to finance, as well as engineering and manufacturing. Ms. Runtagh’s diverse management experience, including growing those businesses while maintaining high corporate governance standards, and her extensive experience as a director of public companies, make her well-positioned for her role as a Director, member of the Compensation and Executive Development Committee and member of the Nominating and Corporate Governance Committee.

 

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RETIRING DIRECTORS

 

LOGO  

 

Harold L. Adams, Age 75

 

Term Expires/Service: 2015 – Director since 2002.

 

Recent Business Experience: Mr. Adams has been Chairman Emeritus of RTKL Associates Inc. (an architectural and engineering firm) since 2003, and is the former Chairman, President and Chief Executive Officer of RTKL, a position he held from 1967 to 2003.

 

Directorships: Mr. Adams has been a member of the Board of Directors of Commercial Metals Company since 2004 and previously served on the board of Legg Mason, Inc.

 

Director Qualifications: Mr. Adams served for 36 years as Chairman, President and Chief Executive Officer of an international architectural firm with 14 offices worldwide. Mr. Adams has also served as a leader on U.S. business advisory councils with Korea and China and the Services Policy Advisory Board to the U.S. Trade Negotiator, and is Chairman of the Governor’s International Advisory Council for the State of Maryland. In these roles, Mr. Adams worked in every major international market in a myriad of economic climates and cultures. He also supervised the Chief Financial Officer and accounting department, dealing with independent auditors on global financial issues. Mr. Adams has years of experience serving on public company Boards and is an accomplished businessman. Mr. Adams has strong familiarity with Lincoln’s history and operational performance having served as its Lead Director from 2004 to April 2013. He will serve until the expiration of his term as a member of the Nominating and Corporate Governance Committee and as a member of the Audit Committee.

 

LOGO  

 

Robert J. Knoll, Age 73

 

Term Expires/Service: 2015 – Director since 2003.

 

Recent Business Experience: Mr. Knoll is a former Partner of Deloitte & Touche LLP (an accounting firm), a position he held from 1978 to his retirement in 2000. From 1995 to 1999, Mr. Knoll served as National Director of the firm’s Accounting and Auditing Professional Practice with oversight responsibility for the firm’s accounting and auditing consultation process, SEC practice and risk management process.

 

Director Qualifications: Mr. Knoll brings a wealth of accounting and auditing experience, with 32 years as a certified public accountant and 22 years as a partner at Deloitte & Touche LLP. Mr. Knoll’s experience directing complex audit processes, and his understanding of the operations of international manufacturing companies similar to Lincoln, provides the Board with valuable expertise and, the Board has determined, qualifies Mr. Knoll as an “audit committee financial expert.” This experience also made Mr. Knoll a key member of the Audit Committee and the Finance Committee, on which committees he will serve until the expiration of his term.

 

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EXECUTIVE BIOGRAPHIES

The biographies of our executive officers are hereby incorporated by reference from our Form 10-K for the fiscal year ended December 31, 2014, filed on February 20, 2015, at page 9.

 

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DIRECTOR COMMITTEES AND MEETINGS

We have a separately designated standing Audit Committee established in accordance with SEC rules. We also have standing Compensation and Executive Development, Nominating and Corporate Governance and Finance Committees. Information on the current composition of each Committee, and the number of meetings held by each Committee during 2014, is set forth below.

 

Director    Audit   

Compensation

& Executive
Development

  

Nominating

& Corporate
Governance

   Finance

Harold L. Adams*

           

Curtis E. Espeland

   Chair         

David H. Gunning (Lead Director)

           

Stephen G. Hanks

            Chair

Robert J. Knoll*

           

G. Russell Lincoln

           

Kathryn Jo Lincoln

         Chair   

William E. MacDonald, III

      Chair      

Christopher L. Mapes (Chairman)

           

Phillip J. Mason

           

Helene S. Runtagh

           

George H. Walls, Jr.

           

Number of Meetings – 2014

   7    6    5    5

 

  *

Messrs. Adams and Knoll are retiring effective with completion of the 2015 Annual Meeting.

 

Audit Committee

 

Each of the Directors serving as members of our Audit Committee meets the independence standards set forth in the NASDAQ listing standards and have likewise been determined by the Board to have the financial competency required by the listing standards. In addition, because of the professional training and past employment experience of Messrs. Espeland and Knoll, the Board has determined that they are financially sophisticated Audit Committee Members under the NASDAQ listing standards and qualify as “audit committee financial experts” in accordance with SEC rules. Shareholders should understand that the designation of Messrs. Espeland and Knoll as “audit committee financial experts” is an SEC disclosure requirement and that it does not impose upon them any duties, obligations or liabilities that are greater than those generally imposed on them as members of the Audit Committee and the Board.

Principal Responsibilities:

   

appoints and determines whether to retain or terminate the independent auditors

   

approves all audit engagement fees, terms and services

 

   

approves any non-audit engagements

 

   

reviews and discusses the independent auditors’ quality control

 

   

reviews and discusses the independence of the auditors, the audit plan, the conduct of the audit and the results of the audit

 

   

reviews and discusses with management Lincoln’s financial statements and disclosures, its interim financial reports and its earnings press releases

 

   

reviews with Lincoln’s General Counsel legal matters that might have a significant impact on our financial statements

 

   

oversees compliance with our Code of Corporate Conduct and Ethics, including annual reports from compliance officers

 

 

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reviews with management the appointment, replacement, reassignment or dismissal of the Senior Vice President, Internal Audit, the internal audit charter, internal audit plans and reports

 

   

reviews with management the adequacy of internal control over financial reporting

A copy of this Committee’s Charter (i) may be found on our website at www.lincolnelectric.com and (ii) will be made available upon request to our Corporate Secretary.

Compensation and Executive

Development Committee

 

Each of the Directors serving as members of our Compensation and Executive Development Committee meets the independence standards set forth in the Nasdaq listing standards and each of whom is deemed to be (1) an outside Director within the meaning of Section 162(m) of the U.S. Internal Revenue Code, and (2) a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934.

As part of the independence evaluation under the NASDAQ listing standard, the Board of Directors must consider all factors relevant to whether the Director has a relationship to the Company which is material to his or her ability to be independent, including the Directors source of compensation and whether the Director is affiliated with the Company. None of the Company’s Directors serving on the Compensation and Executive Development Committee were determined to have any source of income which is material to his or her ability to be unable to be independent.

Principal Responsibilities:

   

reviews and establishes total compensation of our Chief Executive Officer and other executive officers

 

   

annually assesses the performance of our Chief Executive Officer and other executive officers

 

   

monitors our key management resources, structure, succession planning, development and selection processes and the performance of key executives

   

reviews and recommends to the Board, in conjunction with the Nominating and Corporate Governance Committee, the appointment and removal of our elected officers

 

   

has oversight for our employee stock and incentive plans and reviews and makes recommendations to the Board concerning all employee benefit plans

 

   

reviews and recommends to the Board new or amended executive compensation plans

The Committee does not generally delegate any of its authority to other persons, although it has the power to delegate authority. Two exceptions to the foregoing are that the authority to delegate is not permitted with respect to awards under our 2006 EPI Plan to any executive officers or any person subject to Code Section 162(m) and the authority to delegate is limited by Section 162(m) under our 2007 MICP, a plan that relates to awards subject to Code Section 162(m). Should the shareholders approve Proposal 4 relating to the 2015 Employee Plan, the Committee’s delegation of authority of awards under that Plan would be limited in a similar manner as under the 2006 EPI Plan. See the Compensation Discussion and Analysis (CD&A) section below for more information on the Committee’s role with respect to executive compensation.

A copy of this Committee’s Charter (i) may be found on our website at www.lincolnelectric.com and (ii) will be made available upon request to our Corporate Secretary.

Nominating and Corporate

Governance Committee

 

Each of the Directors serving as members of our Nominating and Corporate Governance Committee meet the independence standards set forth in the Nasdaq listing standards.

Principal Responsibilities:

   

reviews external developments in corporate governance matters, and develops and recommends to the Board corporate governance principles for Lincoln

 

   

identifies and evaluates Board member candidates

 

   

reviews Director compensation, benefits and expense reimbursement programs

 

 

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reviews periodically the quality, sufficiency and currency of information furnished to the Board by Lincoln management

 

   

reviews and recommends, in conjunction with the Compensation and Executive Development Committee, the appointment and removal of our elected officers

In evaluating Director candidates, including persons nominated by shareholders, the Committee expects that any candidate for election as a Director of Lincoln must have these minimum qualifications:

 

   

demonstrated character, integrity and judgment

 

   

high-level managerial experience or experience dealing with complex problems

 

   

ability to work effectively with others

 

   

sufficient time to devote to the affairs of Lincoln and these specific qualifications

 

   

specialized experience and background that will add to the depth and breadth of the Board

 

   

independence as defined by the Nasdaq listing standards

 

   

financial literacy

In evaluating candidates to recommend to the Board of Directors, including continuing director candidates, in addition to the minimum qualifications discussed above and as stated in our Guidelines on Significant Corporate Governance Issues, the Committee considers whether the candidate enhances the diversity of the Board. Such diversity includes professional background and capabilities, knowledge of specific industries and geographic experience, as well as the more traditional diversity concepts of race, gender and national origin.

Lincoln is also committed to having director candidates that can provide perspective on the industry challenges that Lincoln faces and Lincoln’s long-term commitment to a pay for performance culture.

The Committee’s process for identifying and evaluating nominees for Director includes annually

preparing and discussing prospective Director specifications, which serve as the baseline to evaluate candidates. From time to time, we have retained an outside firm to help identify candidates, but no such firm was retained during 2014.

Shareholders may nominate one or more persons for election as Director of Lincoln. The process for doing so is set forth above under the caption “May I submit a nomination for Director?”

See the narrative following the Director compensation table below for specific information on the Committee’s involvement in determining Director compensation.

A copy of this Committee’s Charter (i) may be found on our website at www.lincolnelectric.com and (ii) will be made available upon request to our Corporate Secretary.

Finance Committee

 

Principal Responsibilities:

Considers and makes recommendations, as necessary, on matters related to the financial affairs and policies of Lincoln, including:

 

   

financial performance, including comparing our financial performance to budgets and goals

 

   

capital structure issues, including dividend and share repurchasing policies

 

   

financial operations

 

   

capital expenditures

 

   

strategic planning and financial policy matters, including merger and acquisition activity

 

   

pension plan funding and plan investment management performance

A copy of this Committee’s Charter (i) may be found on our website at www.lincolnelectric.com and (ii) will be made available upon request to our Corporate Secretary.

Board Meetings

 

Our Board held five meetings in 2014. During 2014, each of our Directors serving in 2014 attended at least 75% of the total number of full Board meetings as well as meetings of committees on which he or she served.

 

 

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CORPORATE GOVERNANCE

 

 

Director Independence

 

Each of the non-employee Director nominees and continuing Directors meets the independence standards set forth in the Nasdaq listing standards, which are reflected in our Director Independence Standards (discussed below). The Nasdaq independence standards include a series of objective tests, such as that the Director is not an employee of Lincoln and has not engaged in various types of business dealings with Lincoln, to determine whether there are any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of the Director. To be considered independent, the Board must affirmatively determine that the director has no material relationship with Lincoln. The Board has adopted Director Independence Standards, which outline the independence standards set forth in the Nasdaq listing standards and outline specific relationships that are deemed to be categorically immaterial for purposes of director independence. The Director Independence Standards are available on our website at www.lincolnelectric.com.

During 2014, the independent Directors met in Executive Session in conjunction with each of the meetings of the Board. The Lead Director was the presiding Director of these sessions.

 

 

Lead Director

 

The Lead Director is appointed each year by the independent Directors at the organizational meeting of the Board following the Annual Meeting. The Lead Director serves as a liaison between the Chairman of the Board and the independent Directors, presides as Chairman of the Board for all meetings at which the Chairman is not present and presides over Executive Sessions attended only by independent Directors. The Lead Director consults with the Chairman on the format and adequacy of information the Directors receive and the effectiveness of the Board meeting process and has independent authority to review and approve Board meeting agendas and schedules, as well as the authority to request from our officers any company information deemed desirable by the independent Directors. The Lead Director may call meetings of the independent Directors should he see fit. The Lead Director may also speak on behalf of Lincoln, from time to time, as the Board may decide.

In April 2014, David H. Gunning was re-appointed as the Lead Director for 2014-2015. Mr. Gunning was first appointed as Lead Director in April 2013.

 

 

Board Leadership

 

Since December 21, 2013, Mr. Mapes, the President and Chief Executive Officer, has served as Chairman in addition to his other responsibilities. Our Chairman, President and Chief Executive Officer is responsible for planning, formulating and coordinating the development and execution of our corporate strategy, policies, goals and objectives. He is accountable for Lincoln’s performance and reports directly to our Board. Our Chairman also:

 

 

works closely with our management to develop the company’s strategic plan;

 

 

works with our management on transactional matters by networking with strategic relationships;

 

 

ensures that our Board fulfills its oversight and governance responsibilities;

 

 

ensures that our Board sets and implements our goals and strategies;

 

 

establishes procedures to govern our Board’s work;

 

 

ensures that the financial and other decisions of our Board are fully, promptly and properly carried out;

 

 

ensures that all members of our Board have opportunities to acquire sufficient knowledge and understanding of our business to enable them to make informed judgments;

 

 

presides over meetings of our shareholders; and

 

 

provides leadership to our Board and sets the agenda for, and presides over, Board meetings.

Our Board believes having one individual serve as Chairman and Chief Executive Officer is beneficial to us, as well as consistent with good corporate practices when coupled with a Lead Director. Mr. Mapes’ dual role enhances his ability to provide direction and insight on strategic initiatives impacting us and our shareholders. The Board also

 

 

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believes the dual role is consistent with good corporate governance practices, noting statements made by some governance commentators (such as the NACD and Conference Board) who have found no reason for a split when a counterbalance, such as a Lead Director, is present.

As noted above, our Board officially designates a Lead Director. Our Lead Director performs several important functions, including the coordination of the activities of the independent directors, providing input on agendas for Board and committee meetings and facilitating communications between the Chairman and the other members of our Board. The Lead Director works with the Chairman, President and Chief Executive Officer and the other Board members to provide strong, independent oversight of our management and affairs.

 

 

Risk Oversight and Assessment

 

In the ordinary course of business, we face various strategic, operating, compliance and financial risks. Our risk management processes seek to identify and address significant risks. Our Board oversees this enterprise-wide approach, and the Lead Director promotes our Board’s engagement in enterprise risk management. Additionally, the Audit Committee reviews major financial risk exposure and the steps management has taken to monitor and control risk. Board oversight includes both leadership initiatives and structured follow up and review. Our Board has integrated its enterprise risk management process with its strategic planning process, refining the distinction between strategic risks and operational risks. Our Board reviews both regularly.

 

 

Compensation-Related Risks

 

We regularly assess risks related to our compensation and benefit programs, including our executive programs, and our Compensation and Executive Development Committee is actively involved in those assessments. In addition, Towers Watson & Co., compensation consultants engaged by management, has provided a risk assessment of our executive programs in the past. As a result of all these efforts, we do not believe the risks arising from our executive compensation policies and practices are reasonably likely to have a material adverse effect on Lincoln.

Although we have a long history of pay-for-performance and incentive-based compensation, the

programs contain many mitigating factors to ensure that our employees are not encouraged to take unnecessary risks. These factors include:

 

 

A mixture of programs that provide focus on both short- and long-term goals and that provide a mixture of cash and equity compensation;

 

 

Incentives focused primarily on the use of reportable and broad-based financial metrics (such as net income growth and ROIC), including a mixture of consolidated and business-specific goals, with no one factor receiving an excessive weighting;

 

 

Caps on the maximum payout for cash incentives (changed to 180% for the annual bonus and 200% for the cash long-term incentive program) as further explained below in the Compensation Discussion and Analysis section;

 

 

Stock ownership requirements for executives that encourage a longer-term view of performance;

 

 

Well-defined roles for oversight, review and approval of executive compensation, including the Compensation and Executive Development and Finance Committees of the Board and a broad-based group of functions within the organization (including Human Resources, Finance, Audit and Legal); and

 

 

A clawback policy that applies to all incentive compensation for officers from 2011 forward.

 

 

Guidelines on Significant Corporate Governance Issues

 

Our Board has adopted Guidelines on Significant Corporate Governance Issues, which we refer to as our “Governance Guidelines,” to assure good business practices, transparency in financial reporting and the highest level of professional and personal conduct. These guidelines address current developments in the area of corporate governance, including developments in federal securities law, developments related to the Sarbanes-Oxley Act of 2002 and changes in the Nasdaq listing standards. The Governance Guidelines also provide for the annual appointment of our Lead Director and contain our majority voting policy with respect to uncontested elections of Directors as discussed below. In addition, the Governance Guidelines specify through an express confidentiality provision that, unless otherwise authorized by the Board,

 

 

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Directors are not to discuss confidential corporate business with third parties, and instead are to refer all inquiries concerning confidential corporate business to the Chief Executive Officer or the Chief Financial Officer.

 

 

Majority Voting Policy

 

Our Governance Guidelines include a majority voting policy that applies in uncontested elections of Directors. The Board has the exclusive power and authority to administer the policy, as well as to repeal the policy, in whole or in part, or to adopt a new policy as it deems appropriate.

Under the policy, in uncontested elections of Directors, any Director who fails to receive a majority of the votes cast in his or her favor would be required to submit his or her resignation to the Board promptly after the certification of the election results. The Nominating and Corporate Governance Committee would then consider each resignation and recommend to the Board whether to accept or reject it. If a Director’s tendered resignation is rejected by the Board, the Director will continue to serve for the remainder of his or her term and until a successor is duly elected. If a Director’s tendered resignation is accepted by the Board, then the Board, in its sole

discretion, may fill any resulting vacancy or may decrease the size of the Board.

You can access our Governance Guidelines on our website at www.lincolnelectric.com.

 

 

Code of Corporate Conduct and Ethics

 

The Board also has adopted a Code of Corporate Conduct and Ethics to govern our Directors, officers and employees, including the principal executive officers and senior financial officers. We have satisfied, and in the future intend to satisfy, the disclosure requirements of Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, any provision of our Code of Corporate Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and relates to any element of the code of ethics definition as set forth in Item 406(b) of Regulation S-K of the Securities Exchange Act of 1934, by posting such information on our website. You can access the Code of Corporate Conduct and Ethics, and any such amendments or waivers thereto (to date, there have been no such amendments or waivers), on our website at www.lincolnelectric.com.

 

 

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DIRECTOR COMPENSATION

The following table details the cash retainers and fees, as well as stock-based compensation in the form of shares of restricted stock, received by our non-employee Directors during 2014.

 

Director    Fees Earned or
Paid in Cash
  

Stock

Awards1

     All Other
Compensation
   Total  

Harold L. Adams

   $82,363     $ 89,996       $ —    $ 172,359   

Curtis E. Espeland

     88,5632      89,996          —      178,559   

David H. Gunning

     95,000       89,996          —      184,996   

Stephen G. Hanks

     87,500       89,996          —      177,496   

Robert J. Knoll

     83,938       89,996          —      173,934   

G. Russell Lincoln

     80,000       89,996          —      169,996   

Kathryn Jo Lincoln

     85,138       89,996          —      175,134   

William E. MacDonald, III

     86,850       89,996          —      176,496   

Phillip J. Mason

     80,000       89,996          —      169,996   

Hellene S. Runtagh

     83,150       89,996          —      173,146   

George H. Walls, Jr.

     80,0003      89,996          —      169,996   

 

1 

On December 15, 2014, 1,357 shares of restricted stock were granted to each non-employee Director under our 2006 Stock Plan for Non-Employee Directors. The Stock Awards column represents the grant date fair value under Accounting Standards Codification (ASC) Topic No. 718 based on a closing price of $66.32 per share on December 15, 2014. See the discussion below entitled “2006 Stock Plan for Non-Employee Directors” for additional information regarding the plan. Assumptions used in the calculation of these amounts are included in footnote (9) to our audited financial statements for the fiscal year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on February 20, 2015.

As of December 31, 2014, the aggregate number of shares of restricted stock held by each non-employee Director was 4,497 shares, except for Mr. Espeland, who joined our Board during 2012, and Mr. Mason, who joined our Board during 2013. Messrs. Espeland and Mason hold 5,816 and 3,201 shares of restricted stock, respectively.

As of December 31, 2014, all of the outstanding stock options were exercisable. General Walls and Mr. Lincoln each continue to hold 7,000 stock options that are immediately exercisable. No additional stock options have been granted to the non-employee Directors since 2006. Accordingly, Messrs. Espeland, MacDonald and Mason never received any stock option awards as they were elected to the Board after 2006. During 2014, Mr. Gunning, Mr. Lincoln and General Walls exercised certain outstanding stock options. Mr. Gunning, Mr. Lincoln and General Walls exercised 11,000, 4,000, and 4,000 stock options during 2014, respectively.

 

2 

All of Mr. Espeland’s board fees were deferred under our Non-Employee Director’s Deferred Compensation Plan, which is detailed in the narrative below.

 

3 

All of General Walls’ board fees were deferred under our Non-Employee Directors’ Deferred Compensation Plan, which is detailed in the narrative below.

 

 

General

 

Based upon the recommendations of the Nominating and Corporate Governance Committee, the Board determines our non-employee Director compensation. The Committee periodically reviews the status of Board compensation in relation to other comparable companies, trends in Board compensation and other factors it deems appropriate. The objectives of our non-employee Director compensation programs are to attract highly qualified and diverse individuals to serve on our Board and to align their interests with those of our shareholders.

 

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An employee of Lincoln who also serves as a Director does not receive any additional compensation for serving as a Director, or as a member or chair of a Board committee. Mr. Mapes is an employee Director and, accordingly, he did not receive compensation for his service as a Director in 2014.

The Committee also administers our Director equity incentive plans, including approval of grants of equity-based awards (currently, restricted stock), and makes recommendations to the Board with respect to equity-based plans for Directors. The Committee does not generally delegate any of its authority to other persons, although it has the power to do so.

 

 

Director Compensation Package for 2014

 

All non-employee Directors receive cash retainers and an annual stock-based award for serving on our Board. Stock-based compensation is provided under our 2006 Director Stock Plan. Should Proposal 5 to approve the 2015 Stock Plan for Non-Employee Directors be approved at the Annual Meeting, stock-based compensation will be provided to our non-employee directors under the new plan and no further awards will be made under the 2006 Director Stock Plan. The details of our non-employee Director compensation program, which are unchanged from last year, are provided below.

 

 

LOGO

 

  1 

We do not have separate meeting fees, except that if there are more than 8 full Board or Committee meetings in any given year, Directors will receive $1,500 for each full Board meeting in excess of 8 meetings and Committee members will receive $1,000 for each Committee meeting in excess of 8 meetings.

 

  2 

The restricted stock agreements contain pro-rata vesting of the award upon retirement. Accordingly, if a Director retires before the restricted stock award vests in full (3 years from the date of the grant), the Director will receive unrestricted shares equal to a portion of the original award calculated based on the Director’s length of service during the 3-year term.

 

  3 

The initial award will be pro-rated based on the Director’s length of service during the twelve-month period preceding the next regularly scheduled annual equity grant (which normally occurs in the fourth quarter of each year).

 

 

Other Arrangements

 

We reimburse Directors for reasonable out-of-pocket expenses incurred in connection with attendance at Board meetings, or when traveling in connection with the performance of their services for Lincoln. With respect to the use of private aircraft, we will reimburse the Director for the cost of a first-class ticket (which amount is increased proportionately should other Directors or executives travel on the same flight).

 

 

Continuing Education

 

Directors are reimbursed ($5,000 is used as a guideline) for continuing education expenses (inclusive of travel expenses) for programs each Director may elect.

 

 

Stock Ownership Guidelines

 

In keeping with the philosophy that Directors’ interests should be aligned with creating and sustaining shareholder value and as part of its continued focus on best practices with respect to corporate governance, all of

 

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our non-employee Directors must adhere to certain stock ownership guidelines. All non-employee Directors are required to accumulate over time a certain number of our common shares equal in value to at least four times the Board’s current annual cash retainer of $80,000 (or $320,000). Non-employee Directors have five years to satisfy the stock ownership guidelines, which can be satisfied by holding either (1) shares aggregating the specified dollar amount or (2) 8,179 shares, as set forth below in the table.

 

Retainer Multiple

   Number of Shares

4 x annual retainer ($320,000)

   8,179*

* Represents shares equal to $320,000 based on the closing price of $39.12 per share on December 30, 2011.

  

During 2014, the Committee reviewed the stock ownership guidelines and determined that no change was necessary. The Committee reviews the guidelines generally every two and a half years to ensure that the components and values are appropriate. The next review is anticipated for 2017.

Restricted stock awards count towards the stock ownership guidelines; common shares underlying stock options and shares held in another person’s name (including a relative) do not. As of December 31, 2014, all of our non-employee Directors had satisfied the above stock ownership guidelines.

 

 

2006 Stock Plan for Non-Employee Directors

 

The 2006 Stock Plan for Non-Employee Directors is the vehicle for the annual and initial grants of stock-based awards as discussed above. During 2014, non-employee Directors received an annual award of shares of restricted stock valued at approximately $90,000. In addition, upon initial election to the Board, non-employee Directors receive an award of restricted stock valued at approximately $90,000, which is pro-rated based on the length of service during the twelve-month period preceding the next regularly scheduled annual equity grant (which normally occurs in the fourth quarter each year).

Recipients of shares of restricted stock have all of the rights of a shareholder with respect to the restricted stock, including the right to vote the shares. Under the terms of the awards, shares of restricted stock vest in full three years after the date of grant with accelerated vesting upon a change in control of Lincoln or upon the death or disability of the Director, as well as accelerated vesting of a pro-rata portion of the award upon retirement based on the Director’s length of service during the 3-year term. During the period in which the shares remain forfeitable, dividends are paid to the Directors in cash.

No stock options have been granted under the plan since 2006 as the Committee has opted to award restricted stock instead of stock options. With respect to prior awards of stock options, an option becomes exercisable after the optionee has continuously served as a Director for one year from the date of grant, with accelerated vesting upon a change in control of Lincoln or upon the death, disability or retirement of the Director. Once the Director has vested in his or her options, the option may be exercised in whole or in part with respect to 100% of the underlying common shares. Options granted under the plan have a 10-year term.

 

 

Non-Employee Directors’ Deferred Compensation Plan

 

Adopted in 1995, this plan allows the non-employee Directors to defer payment of all or a portion of their annual cash compensation. This plan allows each participating non-employee Director to:

 

 

elect to defer a specified dollar amount or a percentage of his or her cash compensation;

 

 

have the deferred amount credited to the Director’s account and deemed invested in one or more of the options available under the plan; and

 

 

elect to begin payment of the deferred amounts as of the earlier of termination of services as a Director, death or a date not less than one full calendar year after the year the fees are initially deferred.

 

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The investment elections available under the plan are the same as those available to executives under our Top Hat Plan, which is discussed below in the narrative of the Nonqualified Deferred Compensation Table following the Compensation Discussion and Analysis section. Two Directors, General Walls and Mr. Espeland, elected to defer Board fees under the plan during 2014 as detailed above in the Director Compensation Table.

 

 

Directors’ Charitable Award Program

 

This program, in which Lincoln donates to charitable organizations recommended by the vested Directors upon their death, was terminated in 2003, other than for Directors already vested. During 2014, the program was terminated for vested Directors and payments were made to the charitable organizations during 2014 as opposed to upon the death of the vested Directors. The current non-employee Directors who were vested in the program were David H. Gunning, G. Russell Lincoln, and Kathryn Jo Lincoln. The payments were funded through insurance policies on the lives of the vested Directors. No premiums were paid during 2014 as the policies were fully funded as of the end of 2005.

 

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RELATED PARTY TRANSACTIONS

Any related party transactions concerning Lincoln and any of its directors or officers (or any of their immediate family members, defined as children, stepchildren, parents, stepparents, spouses, siblings, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law, brothers-in-law, sisters-in-law and any other persons sharing a household (other than a tenant or employee)), including those that are reportable under Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934, are to be disclosed to and approved by the Chief Compliance Officer and the Audit Committee of the Board. We define “related party transactions” generally as transactions in which the self-interest of the employee, officer or Director may be at odds or conflict with the interests of Lincoln, such as doing business with entities that are or may be controlled or significantly influenced by such persons or their immediate family members. It is our policy to avoid related party transactions; related party transactions involving our officers are generally prohibited. Our related party transaction policies can be found in our Code of Corporate Conduct and Ethics, as well as the Audit Committee Charter, both of which are available on our website.

In February 2015, the Audit Committee considered and approved a related party transaction involving P&R Specialty, Inc., a supplier to Lincoln. Greg D. Blankenship, the brother of George D. Blankenship, is the sole stockholder and President of P&R Specialty, Inc. During 2014, we purchased approximately $2.7 million worth of products from P&R Specialty in ordinary course of business transactions. George D. Blankenship has no ownership interest in or any involvement with P&R Specialty. We believe that the transactions with P&R Specialty were, and are, on terms no less favorable to us than those that could have been obtained from unaffiliated parties.

 

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AUDIT

AUDIT COMMITTEE REPORT

The Audit Committee consists solely of independent Directors within the meaning of the Nasdaq listing standards. The Audit Committee oversees our financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control over financial reporting. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management the audited financial statements in the Annual Report, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

The Committee discussed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the Committee under PCAOB Auditing Standard No. 16, Communications with Audit Committees. In addition, the Committee has received and discussed with the independent auditors written disclosures regarding their independence as required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence.

The Committee discussed with our internal and independent auditors the overall scope and plan for their respective audits. The Committee met with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls, and the overall quality of our financial reporting.

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2014 for filing with the SEC. The Committee and the Board have also recommended the selection of our independent auditors for the year ending December 31, 2015 and the ratification thereof by the shareholders.

By the Audit Committee:

Curtis E. Espeland, Chair

Harold L. Adams

Robert J. Knoll

G. Russell Lincoln

Phillip J. Mason

George H. Walls, Jr.

 

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PROPOSAL 2

RATIFICATION OF INDEPENDENT AUDITORS

A proposal will be presented at the Annual Meeting to ratify the appointment of the firm of Ernst & Young LLP as our independent auditors to examine our books of account and other records and our internal control over financial reporting for the fiscal year ending December 31, 2015.

Fees for professional services provided by Ernst & Young LLP as our independent auditors in each of the last two fiscal years, in each of the following categories are:

 

      2013      2014  

Audit Fees

   $ 3,059,000        $ 3,353,000     

Audit-Related Fees

     282,000          283,000     

Tax Fees

     131,000          151,000     

All Other Fees

     119,000          0     

Total Fees

   $ 3,591,000        $ 3,787,000     

 

Audit Fees include fees associated with the annual integrated audit of the financial statements and internal control over financial reporting in 2014 and 2013, the reviews of our quarterly reports on Form 10-Q, statutory audits required for our international subsidiaries and services provided in connection with regulatory filings with the Securities and Exchange Commission. Audit-Related Fees for 2014 and 2013 primarily relate to audit services associated with acquisitions and audits of employee benefit plans. Tax Fees include tax compliance and tax advisory services. All Other Fees include the fees billed for products and services provided other than the services reported under Audit Fees, Audit-Related Fees and Tax Fees; these include fees related to assistance with a conflict minerals review.

 

 

Audit Committee Pre-Approval Policies and Procedures

 

The Audit Committee has established a policy regarding pre-approval of all audit and non-audit services performed by our independent auditors, including the scope of and fees for such services. Requests for audit services, as defined in the policy, must be approved prior to the performance of such services. Generally, requests for audit-related services, tax services and permitted non-audit services, each as defined in the policy, must be

presented for approval prior to the performance of such services, to the extent known at that time. The Committee has resolved that four specific categories of services, namely audit services, tax advisory services, international tax compliance services and audit-related services related to acquisitions and new accounting pronouncements, are permissible without itemized pre-approval in an amount not to exceed $50,000 for each of the foregoing services (other than international tax compliance, international tax advisory and tax transaction advisory services for which the amount is $100,000). Itemized detail of all such services performed is subsequently provided to the Committee. In addition, our independent auditors are prohibited from providing certain services described in the policy as prohibited services. All of the fees included in Audit-Related Fees, Tax Fees and All Other Fees shown above were pre-approved by the Audit Committee (or included in the $50,000 limit or $100,000 limit, as applicable, for certain services as detailed above).

Generally, requests for independent auditor services are submitted to the Audit Committee by our Executive Vice President, Chief Financial Officer and Treasurer (or other member of our senior financial management) and our independent auditors for consideration at the Audit Committee’s regularly scheduled meetings. Requests for additional services

 

 

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PROPOSAL 2 (CONTINUED)

in the categories mentioned above may be approved at subsequent Audit Committee meetings to the extent that none of such services is performed prior to its approval (unless such services are included in the categories of services that fall within the dollar limits detailed above). The Chairman of the Audit Committee is also delegated the authority to approve independent auditor services requests under certain dollar thresholds provided that the pre-approval is reported at the next meeting of the Audit Committee. All requests for independent auditor services must include a description of the services to be provided and the fees for such services.

Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and are expected to be available to respond to appropriate shareholder questions. Although ratification of the appointment of the independent auditors is not required by law, the Audit Committee and the Board of Directors believe that shareholders should be

given the opportunity to express their views on the subject. While not binding on the Audit Committee or the Board of Directors, the failure of the shareholders to ratify the appointment of Ernst & Young LLP as our independent auditors would be considered by the Board of Directors in determining whether or not to continue the engagement of Ernst & Young LLP. Ultimately, the Audit Committee retains full discretion and will make all determinations with respect to the appointment of independent auditors, whether or not our shareholders ratify the appointment.

 

 

Majority Vote Needed

 

Ratification requires the affirmative vote of the majority of the shares of Lincoln common stock present or represented and entitled to vote on the matter at the Annual Meeting. Unless otherwise directed, shares represented by proxy will be voted FOR ratification of the appointment of Ernst & Young LLP.

 

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT AUDITORS

 

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

The following describes and analyzes our executive compensation programs and, specifically, how they apply to our “named executive officers.”

2014 Named Executive Officers

 

Name   Title                

Christopher L. Mapes

  Chairman, President and Chief Executive Officer

Vincent K. Petrella

  Executive Vice President, Chief Financial Officer and Treasurer

George D. Blankenship

  Executive Vice President, President, Lincoln Electric North America

Frederick G. Stueber

  Executive Vice President, General Counsel and Secretary

Steven B. Hedlund1

  Senior Vice President, President, Global Automation

This discussion and analysis contains statements regarding future performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements for other contexts.

 

 

Executive Summary

 

Our approach to executive compensation is generally the same as our approach to employee-wide compensation, with a strong belief in pay-for-performance and a long-standing commitment to incentive-based compensation. For example, virtually all core domestic welding business employees participate in a bonus program designed to reward both company financial performance and individual contributions.

 

To maintain our performance-driven culture, we:

 

LOGO

 

Expect our executives to deliver above-market financial results;

 

         

 

Provide systems that tie executive compensation to superior financial performance;

 

         

 

Take action when needed to address specific business challenges; and

 

 

  Maintain good governance practices in the design and operation of our executive compensation programs, including consideration of the risks associated with those practices.

 

1 

Mr. Hedlund was Senior Vice President, Strategy & Business Development during 2014. The above title reflects his title as of the date of this proxy statement.

 

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Financial Performance

 

We have a long track record of delivering increased value to our shareholders and we have typically delivered above-market performance, across various financial metrics over many cycles.

A critical component in assessing our financial results for compensation purposes is our comparison of our financial results to a peer group of companies, to the S&P 400 MidCap Index (in which we participate), to a subset that includes manufacturing companies in the S&P 400 MidCap Index (to obtain a more targeted understanding of performance) and, for certain metrics, to the S&P Composite 500 Stock Index (to obtain a broader understanding of performance). Within these groups, we consider various types of widely reported financial metrics, each of which is related to our executive compensation programs in some way. These include earnings before interest and taxes (EBIT) growth as adjusted, net income growth, return on invested

capital (ROIC), and 1-year, 3-year and 5-year total shareholder return (TSR). Some of these financial metrics directly impact our executive compensation programs, while others are the closest approximation to the metrics that we use in our programs.

The following tables illustrate Lincoln’s financial results for the most recent reporting periods and for the four prior reporting periods.1 They compare those results to our peer group, S&P 400 Midcap companies, S&P 400 Midcap manufacturing companies and, for TSR, S&P 500 companies. The percentile rankings show the position of Lincoln’s financial results compared to the particular group, with a 50th percentile ranking indicating median (or market) performance. Percentiles below 50 indicate below-market performance, while percentiles above 50 indicate above-market performance. Information is based on the most recently available public information (as accumulated by an independent third party), as of January 2015 when the analysis was performed.

 

 

 

1 

Definitions for certain financial ratios and non-GAAP financial measures utilized by the independent third party in the following table and throughout this proxy statement when we make comparisons of Lincoln’s financial performance to Lincoln’s peer group or market indexes differ from those used by Lincoln. Adjusted EBIT approximates Lincoln’s operating income adjusted for special items as determined by an independent third party. ROIC is defined as the rolling 12-month net income divided by the sum of long-term debt and shareholders’ equity as determined by an independent third party. TSR is defined as the net stock price change for Lincoln stock (LECO) plus dividends paid over the prescribed period of time.

 

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Lincoln Peer Comparison

 

    Trailing 12 months
(for Lincoln ending):
  September
2010
  September
2011
  September
2012
  September
2013
 

September

2014

  Calendar
2014

Lincoln’s Adjusted EBIT Growth

  34%   51%   37%   8%   13%   (1)%
 

Percentile Rank to the:

                       
 

Peer Group

  63rd   75th   81st   58th   61st   n/a2
 

S&P Midcap 400

  76th   83rd   84th   57th   55th   n/a
 

S&P Midcap 400 Manufacturing

  74th   77th   82nd   59th   54th   n/a
             
   

Trailing 12 months

(for Lincoln ending):

  September
2010
  September
2011
  September
2012
  September
2013
 

September

2014

  Calendar
2014

Lincoln’s Net Income Growth

  159%   78%   26%   6%   0%   (13)%
 

Percentile Rank to the:

                       
 

Peer Group

  96th   65th   75th   49th   27th   n/a
 

S&P Midcap 400

  92nd   86th   74th   52nd   38th   n/a
 

S&P Midcap 400 Manufacturing

  93rd   83rd   75th   55th   49th   n/a
             
    Most recently reported calendar year   2010   2011   2012   2013  

TTM

(for Lincoln
ending
Sept. 2014)

  Calendar
2014

Lincoln’s ROIC

  11%   18%   19%   19%   19%   20%
 

Percentile Rank to the:

                       
 

Peer Group

  55th   71st   79th   81st   90th   n/a
 

S&P Midcap 400

  69th   88th   90th   92nd   93rd   n/a
 

S&P Midcap 400 Manufacturing

  64th   87th   89th   91st   95th   n/a
             
    Most recently reported calendar year   2010   2011   2012   2013   2014   Trailing
12-months

Lincoln’s 1-Year TSR

  25%   22%   26%   49%   (2)%   2%
 

Percentile Rank to the:

                       
 

Peer Group

  9th   86th   55th   75th   27th   49th
 

S&P Midcap 400

  51st   78th   69th   72nd   29th   37th
 

S&P Midcap 400 Manufacturing

  40th   75th   62nd   69th   34th   42nd
 

S&P 500

  51st   76th   70th   73rd   17th   22nd
             
    Most recently reported calendar year   2008-2010   2009-2011   2010-2012   2011-2013   2012-2014   Trailing
36-months

Lincoln’s 3-Year TSR1

  (1%)   18%   24%   32%   23%   18%
 

Percentile Rank to the:

                       
 

Peer Group

  22nd   43rd   76th   96th   65th   76th
 

S&P Midcap 400

  40th   55th   77th   87th   63rd   59th
 

S&P Midcap 400 Manufacturing

  39th   51st   70th   82nd   62nd   62nd
 

S&P 500

  48th   57th   78th   89th   56th   49th
             
    Most recently reported calendar year   2006-2010   2007-2011   2008-2012   2009-2013   2010-2014   Trailing
60-months

Lincoln’s 5-Year TSR1

  12%   7%   9%   25%   23%   25%
 

Percentile Rank to the:

                       
 

Peer Group

  60th   50th   61st   48th   65th   84th
 

S&P Midcap 400

  79th   66th   68th   72nd   77th   83rd
 

S&P Midcap 400 Manufacturing

  66th   62nd   64th   63rd   71st   80th
 

S&P 500

  78th   67th   70th   72nd   70th   80th

 

1 

Compounded annual growth rate.

2 

Not available.

 

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Pay-for-Performance, Objectives and Process

 

In designing our executive compensation programs, a core philosophy is that our executives should be rewarded when they deliver financial results for the benefit of our shareholders. Therefore, we provide systems that tie executive compensation to superior financial performance. While we have typically delivered above-market financial performance (as described above), our executive compensation has generally been below the competitive market (as described below) – this means we have delivered financial results that are superior to the compensation we have paid to executives.

To assess pay-for-performance, we evaluate the relationship between “total direct realizable pay” for the named executive officers and our financial performance. This allows us to understand the degree of alignment between total compensation delivered for the prior three fiscal years and our financial performance, both relative to peers. Because we believe that trend information is an important component of our analysis, we have relied both on current and historical comparisons to assess pay-for-performance for 2014. This analysis is performed by management’s compensation consultant, Towers Watson & Co., with review and comment provided to the Compensation and Executive Development Committee (the “Committee”) by its independent consultant, Hay Group, Inc.

“Financial performance” is a composite of reported adjusted EBIT growth, net income growth, ROIC and TSR (the “composite”). To better understand a key financial metric, however, we also consider “financial performance” by exclusively looking at TSR. “Total direct realizable pay” is the sum of the following components (using comparable components from the peer group):

 

 

Base pay for the applicable three-year period;

 

 

Actual annual bonus paid during the three-year period;

 

 

The value of any in-the-money stock options granted over the relevant three-year period (for Lincoln, this is based on the closing price of Lincoln common stock as of the prior fiscal year-end);

 

 

The value of restricted stock units (“RSUs”) granted over the three-year period (for Lincoln, this is based on the closing price of Lincoln common stock as of the prior fiscal year-end); and

 

 

The value of long-term performance units/shares over the relevant three-year period (for Lincoln, this includes payments under our cash long-term incentive program (“Cash LTIP”) during the three-year cycle and pro-rata amounts, at target, for awards that are mid-cycle).

 

 

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As the charts below demonstrate, our financial performance results were above peer group results between 2011 and 2013, the most recent period available, with our overall composite financial performance at the 84th percentile and our TSR at the 96th percentile. However, for the same period, total direct realizable compensation was below this benchmark at the 51st percentile for the named executive officers. While there has been closer alignment in the most recent earlier period (2010 to 2012), the same disparity of high financial performance and lower total directed realizable compensation also existed. Therefore, we have generally paid below our compensation targets for well above market financial performance. Information for the charts below is based on the most recently available data as of December 2014 when the analysis was performed.

 

Lincoln Electric Pay for Performance

Composite Financial Comparison

 

Lincoln Electric Pay for Performance

3-Year TSR Comparison

LOGO   LOGO

We believe the above charts indicate some ongoing misalignment between our executive compensation programs and Lincoln’s financial performance. Accordingly, in an effort to lessen this gap and incent our executives to continue to deliver strong financial results, the Committee revised the EMIP (annual bonus) matrix for 2015, as discussed below.

 

2014 Executive Compensation Actions

 

During 2014, financial results across the broad array of metrics were similar to those delivered during 2013. This allowed us to maintain our core philosophies on executive compensation. Key 2014 actions approved by the Committee include:

 

 

2014 base pay increases for officers that were 5% on average.

 

 

Annual bonuses for officers that were, on average, 17% above target amounts as result of the strong financial and individual results relative to objectives delivered for 2014.

 

 

Cash LTIP payments made to the current officers for the 2012 to 2014 cycle that were

   

59% above target amounts (versus 71% above target amounts for the 2011-2013 cycle).

 

 

A modification to the annual bonus (EMIP) matrix for 2015 to improve the alignment of pay and performance, as discussed above.

 

 

Changing the time for determining base pay, annual bonus (EMIP) and long-term incentive awards (stock options, RSUs and Cash LTIP) to the first quarter of each calendar year (as opposed to the fourth quarter) to allow for consideration of final year-end results.

 

 

Determination of accelerated vesting of RSUs granted to officers at the end of 2011.

 

 

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Good Governance Practices

 

In addition to our emphasis on above-market financial performance and pay-for-performance, we design our executive compensation programs to be current with best practices and good corporate governance. We also consider the risks associated with any particular program, design or compensation decision. We believe these assessments result in sustained, long-term shareholder value. Some of those governance practices are described in the Compensation-Related Risks section above. Other such practices include:

 

 

Annual reviews of market competitiveness and the relationship of compensation to financial performance;

 

 

Independent compensation consultants and legal advisors, retained directly by the Committee, to provide input and recommendations on our executive compensation programs;

 

 

No multi-year guarantees for compensation increases, including base pay, and no guaranteed bonuses;

 

 

The elimination of full vesting of equity awards upon retirement (vesting was changed to pro-rata) – this change also applied to Board equity awards;

 

 

No repricing or replacement of underwater stock options without prior shareholder approval;

 

 

No dividend or dividend equivalents paid while executive RSUs are unvested;

 

 

No equity awards and other long-term incentive compensation included in the pension calculation of our SERP;

 

 

No new participants added to our SERP since 2005;

 

No new grants of prior (or additional) years of service under our SERP (Mr. Stueber is the only current executive who has received a grant of prior service, which was awarded to him over nineteen years ago);

 

 

Change in control arrangements that do not provide for tax gross-ups, do not provide for additional retirement service in the SERP, are limited to three times base pay and bonus (for the Chairman, President and CEO, but only two or one times base pay and bonus for other executives) and mainly provide for payments only upon a double (not single) trigger;

 

 

No tax gross-up payments or tax reimbursements on compensation and benefits, other than tax equalization benefits that are available to all employees who are on international assignment and modest gross-up payments on employee relocation benefits (and which are a standard component of a U.S. company’s relocation benefits);

 

 

Modest perquisites, consisting of financial planning (for which imputed income is charged), an annual physical examination and reimbursement of club dues (for which, if not used exclusively for business purposes, imputed income is charged);

 

 

A broad clawback policy that applies to all recent incentive awards for officers;

 

 

Stock ownership requirements for our officers and Board of Directors, with a mid-cycle review to ensure they remain appropriate; and

 

 

The prohibition on hedging activities, such as cashless collars, forward sales, equity swaps and other similar arrangements. In addition, our insider trading policy prohibits the pledging of Lincoln stock on a going-forward basis.

 

 

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Our Compensation Philosophy

 

 

Core Principles

 

Our executive compensation programs consist of four main components: (1) base pay, (2) annual bonus (EMIP), (3) long-term incentives and (4) benefits/perquisites, all of which are discussed in more detail below. Base pay is targeted at the 45th percentile of the competitive market (below market), while target total cash compensation (which includes an annual bonus that incorporates aggressive financial targets) is set at the 65th percentile of the market (above market). Long-term incentive compensation is set at the 50th percentile (at market), and is generally divided equally among three programs: (1) stock options (for U.S. and Canadian-payrolled employees), (2) RSUs, and (3) a Cash LTIP. Although not targeted to a specific competitive level, we believe our benefits, taken as a whole, are at the market median and our executive perquisites are below the market median.

We place the greatest emphasis on programs that reward financial and individual performance while striking a balance between different programs that reward both short-term and long-term financial performance. We believe that this structure is the most effective way to attract, motivate and retain exceptional employees. We use a variety of financial

metrics in the operation of our programs (namely earnings before interest, taxes and bonus (EBITB), adjusted net income growth, average operating working capital to sales (AOWC/Sales), return on invested capital (ROIC) and share price appreciation) and we use a mixture of consolidated and business-specific financial goals, with no one factor receiving an excessive weighting.*

We use base pay and benefits to deliver a level of predictable compensation since our compensation programs are heavily weighted toward variable compensation. Therefore, fixed components, such as base pay, are generally set at or below the competitive market for each position, while incentive-based compensation, such as annual bonuses, are set at or above the competitive market and require above market financial performance. However, because annual bonuses (EMIP) reward short-term operating performance and are paid in cash, our long-term incentive compensation programs are weighted more heavily toward rewards for share price appreciation. In addition, individual performance plays a key role in determining the amount of compensation delivered to an individual in many of our programs, with our philosophy being that the best performers should receive the greatest rewards.

 

 

The following is a summary of our executive compensation and how each component fits within our core principles:

 

 

LOGO

 

*

Please refer to Appendix A for definitions of certain financial metrics.

 

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The Roles of the Committee, External Advisors and Management

The Committee, which consists solely of non-employee Directors, has primary responsibility for reviewing, establishing and monitoring all elements of our executive compensation programs. The Committee is advised by independent executive compensation consultants and independent legal counsel. Management provides recommendations and analysis to the Committee, and is supported in those efforts by its own executive compensation consultant.

 

The Committee

 

To set the levels of compensation for executive management, the Committee conducts an annual review of competitive market compensation, executive compensation trends, business needs, individual performance and our financial performance to peers. Based on these factors and, with input from its independent, executive compensation consultant, Hay Group, the Committee approves the design of our executive compensation programs.

 

 

LOGO

The Committee regularly involves the full Board in its responsibilities. It establishes and then conducts a full Board review, in executive session, of the annual performance for the Chairman, President and CEO and his goals and objectives for the upcoming year. It relies on the full Board’s input when establishing annual compensation amounts for the Chairman, President and CEO. In addition, the Committee, with Board involvement, establishes procedures and conducts succession planning for the Chief Executive Officer and other executive management positions.

Chief Executive Officer and Management

Our management (particularly the Chief Executive Officer, the Chief Financial Officer and the Chief Human Resources Officer) provides recommendations to the Committee relative to the philosophies underlying our compensation programs, components of these programs and levels of compensation. Specifically, the Chief Executive Officer recommends the compensation for the other executive management positions and provides the Committee with assessments of their individual performance, both of which are subject to Committee review. Relative to compensation setting, the Committee reviews the Chief Executive Officer’s recommendations and discusses them with their independent, executive compensation consultant to ensure the compensation recommendations are in line with our program’s stated philosophies and are reasonable when compared to our competitive market. Relative to individual performance assessments, which are based on achievement of various financial and leadership objectives set by the Chief Executive Officer, the Committee reviews specific performance components and makes suggestions for modifications where warranted.

External Advisors

The Committee receives assistance and advice from its independent executive compensation consultants at Hay Group, which has been retained by the Committee since the end of 2009. Hay Group advises on matters including competitive compensation analysis, executive compensation trends and plan design, peer group company configuration, competitive financial performance and financial target setting. The Committee, however, is not bound by the input, advice or recommendations of its consultant. While some of the analysis and data collection may be prepared initially by management (or its consultant), all work is reviewed by Hay Group, who discusses their findings directly with the Committee.

 

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Hay Group reports directly to the Chairperson of the Committee and meets with the Committee in executive session without the participation of management. Considering all relevant factors, as required by the compensation consultant independence standards set forth in applicable SEC rules and Nasdaq listing standards, we are not aware of any conflict of interest that has been raised by the work performed by Hay Group.

In addition, since 2010, the Committee has retained the services of independent legal counsel to provide input on various matters. We are not aware of any conflict of interest related to the work performed by independent legal counsel, considering all factors required by Nasdaq listing standards.

Towers Watson & Co. provides executive compensation and other services directly to management. For executive compensation, Towers Watson performs the data analysis on competitive compensation, competitive financial performance and financial target setting. That analysis is provided to the Committee’s consultant in advance to allow them to comment upon the findings and any recommendations being made by management.

 

Our Methodologies

 

Selection of Compensation Elements

As part of its annual review, the Committee evaluates whether changes in the philosophy or structure are warranted in light of emerging trends, business needs and/or financial performance. The Committee then uses competitive market data, performance assessments and management recommendations to set the pay components along the targets described above (for example, 45th percentile for base pay). Actual pay for the executive management will generally fall within a range of these targets (plus or minus 20%). Absent significant increases due to promotion, increases for break-through individual performance or significant changes in the competitive market data, pay increases are generally in line with national trends.

Market Comparison Data

We collect competitive market compensation data from multiple, nationally published surveys, from proxy data for a peer group of companies and from proxy data for companies in the S&P Midcap 400 Index. All competitive market compensation data is statistically determined (through regression analysis) to approximate our revenue size. Survey data is also aged to approximate more current data.

Peer Group

We use a peer group of companies that consists of 29 publicly traded industrial corporations that are headquartered in the U.S., as well as non-U.S. headquartered companies that are listed on a U.S. exchange (new in 2014), that serve a number of different market segments and that have significant foreign operations. These are companies for which Lincoln competes for talent and for shareholder investment.

In addition, we only select companies with solid historical financial results and we remove companies from the peer group when their financial performance has consistently fallen below an acceptable level. The Committee conducts an annual review of our peer group.

 

 

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For 2014, our peer group was comprised of the following companies (which is the same as last year’s peer group):

 

AGCO Corp

  Deere & Co   IDEX Corp.   Regal Beloit Corporation

Ametek Inc

  Donaldson Co   Illinois Tool Works   Rockwell Automation

Carlisle Companies Inc.

  Dover Corp   ITT Corp   Roper Industries

Caterpillar Inc

  Dresser-Rand Group Inc.   Kennametal Inc   SPX Corp

CLARCOR Inc

  Eaton Corp   Nordson Corporation   The Toro Company

Colfax Corporation

  Emerson Electric   Paccar Inc    

Crane Company

  Flowserve Corporation   Pall Corp    

Cummins Inc

  Graco Inc   Parker-Hannifin Corp    

Compensation Structure

Business Needs.    The Committee’s independent, compensation consultant assists in presenting information about emerging trends in executive compensation, along with Committee members’ own reading and study. These trends are considered in light of our compensation philosophies and various business needs. Business needs that are evaluated can include: talent attraction or retention strategies, growth expectations, strategic programs, cost-containment initiatives, management development needs and our company culture. No single factor guides whether changes will be made. Instead, the Committee uses a holistic approach, considering a variety of factors.

Individual Performance.    Individual performance is a significant factor in determining annual changes (up or down) to pay components. In addition, the annual bonus includes an individual performance component in determining the percentage of target to be paid (described below and as noted in the annual bonus (EMIP) matrix on page 43). Individual performance is measured against how well an executive achieves objectives established for him or her at the beginning of the year. For the past three years, individual performance ratings for the annual bonus have ranged from 100 to 130.

Pay-for-Performance Review.    In determining whether changes will be made to the existing philosophy or structure and before setting compensation levels for the upcoming year, the Committee conducts its annual assessment of Lincoln’s financial performance and pay-for-performance (both of which are described above). These reviews are used to evaluate whether executive pay levels are properly aligned with our financial performance.

In setting 2014 compensation (which was done in the fourth quarter of 2013), the Committee reviewed the composite financial performance for Lincoln (which included Adjusted EBIT growth, net income growth, ROIC and 3-year TSR) versus those same metrics for the peer group companies, and it compared the level of total direct realizable pay for our named executive officers versus similar individuals in the peer group companies. The period used for this analysis was 2010 to 2012, the most recent full fiscal years available. The Committee also reviewed reported Adjusted EBIT growth, net income growth, ROIC and 1-year and 3-year TSR for Lincoln, the peer group and companies in the S&P Midcap 400 Index. Given the unavailability of certain metrics that we use in our incentive programs, we have selected publicly available financial metrics that are a close approximation to the ones we use.

Overall, the Committee noted that in both longer historical periods and the most recently completed fiscal year, pay levels were generally at or lower than the financial performance delivered. Taken as a whole, the Committee used this information to conclude that no significant changes were needed to our overall executive compensation philosophies for 2014. However, as discussed above, the Committee did make a change to the 2015 EMIP (annual bonus) matrix as a result of the continuing misalignment found in the more current study covering the 2011 to 2013 period.

 

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Timing of Compensation Determinations and Payouts

Base pay, annual bonus targets and long-term incentive awards are set at a regularly scheduled Committee meeting held in the first quarter of the year (this change was made during 2014). Payout amounts for the annual bonus and the cash long-term incentive plan are determined after year-end, at the first available Committee meeting of the following year (normally in February) or a subsequent special meeting (normally in March), once final financial results are available.

 

 

Elements of Executive Compensation

 

Each compensation component for our named executive officers is described below, with specific actions noted that were taken during 2014. For 2014 compensation amounts, please refer to the Summary Compensation Table and other accompanying tables below.

 

Base Pay

  

 

LOGO

Base compensation is provided to our executives to compensate them for their time and proficiency in their positions, as well as the value of their job relative to other positions at Lincoln. Base salaries are set based on the executive’s experience, expertise, level of responsibility, leadership qualities, individual accomplishments and other factors. That being said, we aim to set

  

base salaries at approximately the 45th percentile of the market (slightly below market) in keeping with our philosophy that greater emphasis should be placed on variable compensation.

2014 and 2015 Base Pay

Base salary increases have been moderate for the past several years. On average, for 2014, base salaries for the named executive officers were slightly below the 45th percentile target, with an average increase of 6%.

For 2015, the average base pay increase for the named executive officers was 6%.

 

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Annual Bonus (EMIP)

and Total Cash Compensation

 

The Executive Management Incentive
Plan (EMIP) provides executive officers,
including the named executive officers,
with an opportunity to receive an annual
cash bonus. We believe that, given base
pay is below market, annual cash bonus
opportunities should be above average to
balance some of the risk associated with
greater variable compensation. However,
we also believe that above-market pay
should only be available for superior
individual and financial performance.
Therefore, we target total cash
compensation (base and bonus target) at

  

 

LOGO

  

the 65th percentile of the market, but use a structure that provides payments of above-average bonuses only where
the individual’s performance, that of the entire company and that of his or her particular business unit warrant it.
Financial performance goals are also set above market.

Annual Bonus (EMIP) Matrix

The percentage of target bonus actually paid is based upon a matrix that takes into account financial performance and an executive’s individual performance. If either of these factors is not met, the percentage of target bonus paid is reduced, with the potential that no bonus will be paid. If either of these factors exceeds expectations, the percentage paid can be above the target amount. The 2014 EMIP matrix is as follows (which is the same as last year’s matrix):

 

2014 EMIP Matrix
Financial Performance

Individual

Performance

Rating

  50%   60%   70%   80%   90%   100%   110%   120%   130%   140%   150%
  Percentage Payout                        

130

  0   60%   80%   100%   115%   120%   125%   135%   140%   150%   160%

120

  0   45%   70%   90%   110%   115%   120%   130%   135%   145%   150%

110

  0   30%   55%   80%   105%   110%   115%   125%   130%   135%   140%

100

  0   15%   40%   65%   95%   100%   110%   120%   125%   130%   135%

95

  0   0   25%   45%   75%   90%   100%   110%   115%   120%   125%

90

  0   0   0   25%   40%   70%   85%   90%   100%   105%   110%

85

  0   0   0   0   25%   40%   65%   70%   80%   90%   95%

80

  0   0   0   0   0   25%   40%   50%   60%   70%   80%

75

  0   0   0   0   0   0   25%   30%   40%   50%   60%

70

  0   0   0   0   0   0   5%   10%   25%   30%   40%

65

  0   0   0   0   0   0   0   0   0   0   0

 

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As mentioned earlier, the 2015 annual bonus (EMIP) matrix was modified as noted below, such that the potential maximum payout increased from 160% to 180% of target, and the performance hurdles at the low end of the matrix were adjusted to reduce payouts for lower levels of performance:

 

2015 EMIP Matrix
Financial Performance

Individual

Performance

Rating

  50%   60%   70%   80%   90%   100%   110%   120%
      Percentage Payout            

130

  0   50%   80%   100%   130%   150%   160%   180%

120

  0   40%   70%   90%   120%   135%   150%   160%

110

  0   30%   60%   80%   110%   120%   140%   150%

100

  0   20%   50%   60%   90%   100%   135%   145%

95

  0   0   20%   50%   80%   90%   115%   125%

90

  0   0   0   20%   50%   80%   100%   110%

85

  0   0   0   0   20%   50%   60%   70%

80

  0   0   0   0   0   20%   30%   50%

75

  0   0   0   0   0   0   0   0

Occasionally, the Committee approves EMIP payments outside of the strict application of this matrix, either through positive or negative discretion. There were no such adjustments made for the 2014 EMIP payments for any named executive officer. EMIP payout determinations for the 2014 performance period were made in the first quarter of 2015.

Annual Bonus (EMIP) Financial Metrics

A portion of the EMIP financial component is based upon achievement of company consolidated financial results and another portion may be attributable to regional/business unit financial results, depending upon the individual’s span of responsibility. The following is a summary of the financial components used for 2014 for the named executive officers:

 

2014 Annual Bonus (EMIP) – Financial Metrics Used

 

  Consolidated Results   Business Unit Results

Christopher L. Mapes - Corporate role

  100%   -

Vincent K. Petrella - Corporate role

  100%   -

George D. Blankenship - Business unit leader

  50%   50% North America

Frederick G. Stueber - Corporate role

  100%   -

Steven B. Hedlund - Corporate role

  100%   -

By varying the financial metrics used based upon areas of responsibility, it is possible that certain participants will receive a higher percentage of target bonus while others will receive a lower percentage of target where the business unit performance for one participant is better than the business unit performance for the other. This is a key component of our pay-for-performance and incentive-based philosophies. For 2014, consolidated and most business units’ results were nearly at or above budgets. 2014 EMIP payouts for all officers ranged from 4% to 21% above targets, with an average payout of 17% above the target amounts.

 

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EBITB.    One of the EMIP financial metrics is the achievement of earnings before interest, taxes and the bonus referred to above (EBITB) as compared to budget. Since 2011, this metric accounts for 75% of the EMIP financial component. EBITB to budget has been used as the financial metric for the annual bonus since its inception in 1997 because it is an important indicator of profitability. Budgets for the consolidated company and the various business units are set aggressively (based on the local and global economic climate), at the beginning of the year, are reviewed by the Finance Committee of the Board and are approved by the full Board. The following is a summary of historical results:

 

Historical EBITB to Budget1
     Consolidated Results   Business Unit Results

Average

  101%   100%

Highest Level

  141%2   130%2

Lowest Level

  67%   68%

1 This analysis includes results for the business units of the named executive officers.

2 Capped, at the time (2004), at 120%.

When performance goals are set, we believe that there is an equal probability of achieving EBITB to budget in any year, although the cyclical nature of our business may increase the probability in some years and decrease it in others. For 2014, the consolidated EBITB budget was set at $538.6 million (2013 performance was $527.6 million) and actual performance for 2014, as adjusted, measured at budgeted exchange rates, was $549.9 million.

AOWC/Sales.    Since 2007, a second EMIP financial metric, namely the achievement of budget for average operating working capital (AOWC) as compared to sales (AOWC/Sales), has been used as a reflection of our commitment to improving cash flow. Since 2011, AOWC/Sales has accounted for 25% of the EMIP financial component. The following is a summary of historical results:

 

Historical AOWC/Sales to Budget1
      Consolidated Results    Business Unit Results

Average

   102%    100%

Highest Level

   111%    112%

Lowest Level

   88%    86%

1 For the 8-year period ending 2014. Includes results for the business units of the named executive officers.

Like EBITB, we believe that there is an equal probability of achieving AOWC/Sales to budget in any given year, although the cyclical nature of our business may increase the probability in some years and decrease it in others. For 2014, the consolidated AOWC/Sales budget was set at 24% (2013 performance was 23.3%) and actual performance for 2014, excluding businesses acquired during the year, was 22.9% demonstrating improvement over 2013.

2014 Annual Bonus (EMIP) and Total Cash Compensation

The 2014 EMIP annual bonus targets for the named executive officers were established according to the principles discussed above. For 2014, target bonuses increased for the named executive officers by 2%. The 2014 EMIP targets for the named executive officers placed their total cash compensation (base and bonus targets), on average, slightly below the 65th percentile of market.

For 2014, actual EMIP payments (as reported in the Summary Compensation Table) were above the amounts paid in 2013 and above 2014 target amounts for all of the named executive officers. On average, 2014 EMIP payments for the named executive officers were 4% higher than the 2013 payments and 19% above their 2014 target amounts. These bonus payments resulted in total cash compensation (base and actual EMIP (annual bonus)) for the group that was, on average, above the 65th percentile of the market.

In approving the 2014 EMIP payments, the Committee assessed our Adjusted EBIT growth for the most recent trailing twelve-month period and the four prior periods (Adjusted EBIT growth being the closest publicly available financial comparison relative to our EBITB to budget performance). The Committee also evaluated our ROIC for the first three quarters of 2014 and the four prior fiscal years (ROIC being the closest publicly

 

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available financial comparison relative to our AOWC/Sales performance), all as reported above. The Committee noted that our financial performance compared to our peer group and companies in the S&P Midcap 400 Index was, in general, above those groups for Adjusted EBIT growth and substantially above those groups for ROIC in the most recent period, which resulted in an improvement in 2014 EMIP payouts relative to 2013.

2015 Annual Bonus (EMIP) and Total Cash Compensation

2015 EMIP targets for the named executive officers, established in the first quarter of 2015, are set forth in the supplemental Grants of Plan-Based Awards Table below (as the awards were made in 2015 and not 2014). The 2015 bonus targets reflect an increase from the 2014 target amounts of, on average, 6%, for the named executive officers. The Committee established these bonus targets, in consultation with Hay Group, based on our compensation philosophies, as well as competitive market data.

 

Long-Term Incentives

 

We believe that long-term incentive
opportunities should be provided to
focus rewards on factors that deliver
long-term sustainability for us and
should be established at the median (or
50
th percentile) of the market. We have
targeted the median of the market, in
keeping with our pay-for-performance
philosophy, because we believe that
superior long-term financial growth itself
should be the main driver of above-
market long-term incentive
compensation. We also believe that
different financial metrics help drive
long-term performance. Therefore, we
have established a structure for long-
term incentives that combines several
different long-term metrics, with the

  LOGO

greatest emphasis placed on share appreciation and non-cash awards.

Our long-term incentive program is made up of three components: (1) stock options (for U.S. and Canadian-payrolled employees), (2) RSUs (before 2011, restricted stock) and (3) a cash long-term incentive program. The value of each is weighted equally. This provides an even balance with respect to the different attributes and timing associated with each type of award. Annual awards of all three components are made to EMIP participants, including the named executive officers.

During 2014, the Committee decided to alter the timing of the award of long-term incentives to allow for consideration of final year-end results. Accordingly, there were no stock option or RSU awards made to the named executive officers during 2014, as the awards were made in the first quarter of 2015. Additionally, Cash LTIP targets for the named executive officers were not set during 2014, as those were also established in the first quarter of 2015. Going forward, stock option and RSU awards will be made, and Cash LTIP targets set, in the first quarter of the fiscal year.

Included in the “2014 Summary Compensation Table” section is an additional chart detailing 2014 compensation information and the 2015 stock option and RSU awards to allow shareholders to better understand our named executive officers’ overall compensation, with all components being considered. Included in the Grants of Plan-Based Awards Table is a supplemental table that details the 2015 to 2017 Cash LTIP targets made to our named executive officers to allow shareholders to compare this information with prior proxy statements. The 2015 stock option and RSU awards and the 2015 to 2017 Cash LTIP targets will be formally reported in the applicable tables in our proxy statement for the 2016 Annual Meeting.

 

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Equity Incentives

Stock Options.    Recognizing that equity awards are a valuable compensation tool, we extend stock options to senior managers and also make available certain one-time stock option grants to significant contributors, regardless of their position within Lincoln. As noted above, the Committee determined to alter the timing of the award of stock option and RSU grants to the first quarter (from the fourth quarter) to allow for consideration of final year-end financial results. As a result, none of our named executive officers received stock options during 2014 (nor were broad-based awards made during 2014). A total of 208 employees (including our named executive officers) received stock options in February 2015. Recipients of stock options for 2015 were U.S. and Canadian-payrolled employees. Previously, under our program, stock options were awarded to employees worldwide regardless of location. During 2011, the Committee determined that RSUs would replace stock option awards for most non-U.S- payrolled employees in order to provide Lincoln with the ability to deduct the compensation for tax purposes (as stock option compensation outside of the U.S. is generally not deductible). Stock options for senior managers (including the named executive officers) vest ratably over a three-year period. Stock options for significant contributors vest after two years of service.

Restricted Stock Units. All EMIP participants (including the named executive officers) receive an annual RSU award. As is the case with respect to stock options, the Committee may award RSUs throughout the year, at regularly scheduled meetings, to non-executive employees. Like stock options, the Committee determined to alter the timing of the award of RSU grants to the first quarter (from the fourth quarter) to allow for consideration of final year-end financial results. As a result, none of our named executive officers received an RSU award during 2014 (nor were broad-based awards made during 2014). A total of 128 employees (including our named executive officers) received RSUs in February 2015. The RSU awards for officers vest after five years of service. However, vesting may be accelerated (to three years) if we meet or exceed the pre-determined financial targets under the Cash LTIP for the applicable period (if the payout percentage relative to each financial metric is 100% or higher).

Our RSU agreements also provide for the potential of full accelerated vesting of the one award that falls closest to an EMIP participant’s retirement date (as opposed to the normal pro-rata vesting). If the individual retires on or after July 1st of the third year of the 3-year performance cycle applicable to the particular RSU award and if it is determined by the Committee that the performance objectives have been met to provide for full accelerated vesting for active employees, the retired participant will also participate in that full vesting.

The RSU awards for non-EMIP and non-MIP participants vest after either three or five years of service, based upon their position within the organization, but are not eligible for accelerated vesting under the Cash LTIP.

Valuation of Equity Awards. Stock option and RSU awards are based on assumed values. These assumed values consider a historical average of the stock price for RSUs and Black-Scholes valuations for options, and are calculated approximately one week before the actual award. This allows us to recommend specific share awards at the time of grant, which is required under the terms of the 2006 EPI Plan. These valuations are different from the values shown in the Summary Compensation Table, which are calculated based on a grant date fair value (not a historical average).

Normal Cycle and Out-of-Cycle Equity Awards. The Committee has sole discretion in awarding stock options and RSU awards and does not delegate its authority to management, nor does management select or influence the award dates. The date used for awards is the date of a regularly scheduled Committee meeting which is fixed well in advance and generally occurs at the same time each year. As noted above, during 2014, the Committee determined that the annual award date should be set in the first quarter of the following calendar year (as opposed to the fourth quarter of the current year) so that full final year financial results are available in advance of the grants.

Occasionally, the Committee may approve limited, out-of-cycle special awards for specific business purposes or in connection with employee promotions or the hiring of new employees. In addition, the Committee has set aside a pool of equity awards to make quarterly grants to non-executive employees from time to time.

 

 

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Cash Incentives

A cash long-term incentive plan, or Cash LTIP, has been in place for officers (EMIP participants) since 1997. The plan is designed to offer reward opportunities leveraged to the long-term performance of Lincoln and to provide line-of-sight for plan participants by tying rewards to operating performance. Target amounts for the plan are set each year at the beginning of a three-year performance cycle. Because awards are made each year and because each award relates to a three-year performance cycle, three different cycles will be running at any point in time. The percentage of the target amount actually paid at the end of the applicable three-year cycle will be based upon achievement of three-year company performance against pre-established performance thresholds. Each plan has six to seven performance thresholds with percentage payouts attributable to those thresholds ranging from 0% to 200% of target. The Committee retains discretion to modify payments to any participant, to modify targets and/or to modify the performance thresholds (up or down).

Performance Measures.    Since its inception, the Cash LTIP has used a performance measure of growth in adjusted net income over the three-year cycle. Beginning in 2009, the Committee added a second metric of ROIC and gave these two financial metrics a 50/50 weighting. The adjusted net income

metric is an absolute metric. For the 2012 to 2014 performance cycle, the growth in adjusted net income over the three-year cycle is based on growth above $204,204,000 (which was the adjusted net income for 2011 when the 2012 to 2014 performance cycle was set). As the table below demonstrates, to pay 100% of target, adjusted net income growth over the three-year cycle must be at or above 35% of $204,204,000.

From time to time, the Committee has considered and approved certain limited adjustments to reported net income (both positive and negative) in determining achievement of the performance measured against the thresholds. Each adjustment is reviewed in detail before it is made. The types of adjustments the Committee has considered include: rationalization charges, certain asset impairment charges, the gains and losses on certain transactions including the disposal of certain assets and other special items. To the extent an adjustment relates to restructuring or rationalization charges that are intended to improve organizational efficiency, a corresponding charge (equal to the adjustment) is amortized against future years’ adjusted net income until that adjustment is fully offset against the intended savings (generally this amortization occurs over a three-year period).

The ROIC metric for the 2012 to 2014 performance cycle is a relative value that is derived based on our performance as compared to our proxy peer group (as opposed to an absolute value).

 

 

Performance Thresholds.    In setting the performance thresholds for a new three-year period, the factors that the Committee may consider include, but are not limited to, internal, external and macro-economic factors. Performance thresholds are set aggressively (based on the economic climate). For the 2012 to 2014 cycle, because the performance thresholds were exceeded, payouts were made at 159% of target. Payments under the plan have been made in ten out of the fifteen completed three-year cycles. The following is a summary of all prior fifteen full cycles and the most recently completed cycle (2012 to 2014):

 

    2012 Cash LTIP (2012 to 2014 Cycle)       Summary for All Prior 3-Year Cycles
    % of Target Paid
after 3-Year Cycle
 

Growth in Net Income
over

3-Year Cycle

  3-Year Average ROIC       Average
Growth in Net
Income over
3-Year Cycle
 

Average

% of Target
Paid after
3-Year Cycle

 

ROIC over

3-Year Cycle

 

Average

% of Target
Paid after
3-Year Cycle

  0%   Less than 10%   Less than 40th     Less than 8%   0%   Less than 40th   0%
Threshold   25%   10%   40th Percentile     8%   36%   40th Percentile   25%
  50%   20%   50th Percentile     14%   62%   50th Percentile   50%
Target   100%   35%   65th Percentile     22%   100%   61st Percentile   100%
  150%   50%   75th Percentile     27%   129%   75th Percentile   150%
Maximum   200%   70%   90th Percentile     40%   165%   90th Percentile   200%
               
Payment History   Actual 2012 – 2014 Cash LTIP = 159.4% of Target 1     Average % of Net Income Target in all Prior Cycles = 99.4%   Average % of ROIC Target in all Prior Cycles 2 = 135.5%

 

  1 

Calculated using the 50-50 Net Income to ROIC weighting.

  2 

As the ROIC component was first used in the 2009 Cash LTIP Cycle, there have only been four prior cycles of data for analysis.

 

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     Ranges for All Prior 3-Year Cycles
     Range of Growth in Net Income   Range of ROIC Thresholds
    Less than 0%   to   Less than 15%   Less than 40th   to   Less than 40th

Threshold

  0%   to   15%   40th Percentile   to   40th Percentile
    3%   to   21%   50th Percentile   to   50th Percentile

Target

  6%   to   35%   60th Percentile   to   65th Percentile
    9%   to   50%   75th Percentile   to   75th Percentile

Maximum

  15%   to   70%   90th Percentile   to   90th Percentile
           

Payment History

  Range of Prior Cash LTIP Net Income Component = 0% to 200% of Target   Range of Prior Cash LTIP ROIC

Component = 87.6% to 176.3% of Target

 

Comparing the historical performance thresholds to past net income performance, we believe there is a 50-55% probability of achieving the adjusted net income growth thresholds for a 100% payout when initially determining the target growth for any cycle. For the 2012 to 2014 plan cycle, ROIC is measured based on our performance compared to our peer group. In other words, this metric is based on a relative value (to the peer group), instead of an absolute target (as is the case with the growth in adjusted net income).

Timing for Setting Performance Measure and Performance Thresholds.    Cash LTIP performance targets are set at the beginning of the first fiscal year. This timing allows the Committee to see our final financial results for the prior year and allows for more current macro-economic projections to be used.

2014 Long-Term Incentives

In evaluating 2014 long-term incentive compensation (at the end of 2013), the Committee reviewed 2012 and 2013 pay levels versus the competitive targets. Overall, the Committee concluded that long-term incentives for the named executive officers were generally below our 50th percentile target when compared to both survey and proxy data. Named executive officers received, on average, an 8% increase in the assumed value of their 2014 long-term incentive awards over 2013 levels, placing their awards at the 50th percentile of market. All of these awards are subject to our Recovery of Funds Policy, which is discussed below.

Restricted Stock Units (RSUs) – Additional Activity.    Since 2011, we have awarded RSUs to officers as opposed to restricted stock. The last batch of legacy restricted stock vested during 2014. During

2014, a portion of the RSU awards granted to Mr. Mapes during 2011 and 2012 vested in accordance with their terms. In addition, RSUs granted to officers at the end of 2011 vested in March 2015 (3-year accelerated vesting) as the performance objectives were achieved.

Cash LTIP.    Payouts were made for the 2012 to 2014 Cash LTIP. The current plan cycle contains two metrics, each with 50% weighting. Lincoln’s adjusted net income growth over the three-year period was 47.7%, which generated a 71% payout for this metric (after applying a 50% weighting). Lincoln’s three-year average return on invested capital (ROIC) as compared to its peer group was at the 83rd percentile, which generated an 88% payout for this metric (after applying a 50% weighting). With both metrics combined, the payout for the 2012 to 2014 Cash LTIP was at 159% of the target amounts.

2015 Long-Term Incentives (Stock Options, RSUs and Cash LTIP)

In setting 2015 compensation (at the beginning of 2015), the Committee reviewed 2013 and 2014 pay levels versus the competitive targets. Overall, the Committee concluded that long-term incentives for the named executive officers were generally below our 50th percentile target when compared to both survey and proxy data. Therefore, each named executive officer received an increase in the value of their 2015 stock option, RSU and Cash LTIP target awards (amounts for each are reported in the 2014 Summary Compensation Table Information Augmented by 2015 Equity Awards and the supplemental 2015 Grants of Plan-Based Awards Table). Named executive officers received, on average, an 18% increase in the assumed value of their 2015 long-term incentive awards over 2014 levels.

 

 

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Other Arrangements, Policies or Practices

 

 

Overview of Benefits   

We intend to provide a competitive group of benefits for all of our employees targeted at the 50th percentile of the market. Some aspects of our benefit programs are considered non-traditional due to their relationship with our pay-for-performance and incentive-based philosophies. For example, the premiums for Lincoln-provided medical coverage are 100% paid by employees, including the named executive officers, on a pre-tax basis. Premiums for dental coverage, which is a voluntary benefit, are also 100% paid by employees. Life insurance coverage paid fully by Lincoln is set at $10,000 per employee, including the named executive officers, although employees may purchase additional insurance at their own cost. The named executive officers participate in this same cost-sharing approach.

 

   LOGO

We attempt to balance our various non-traditional programs (such as those with a significant portion of the cost borne by the employee) with more traditional programs. As a result, we place the greatest emphasis with our benefit programs on the delivery of retirement benefits to our employees. This allows us to reward long-term service which, we believe, is not addressed in our other compensation and benefit programs.

The value our retirement benefits are intended to deliver a retirement benefits package that is, when viewed in isolation, above the market median.

We also provide accidental death and dismemberment benefits to officers, due to the significant amount of travel required in their jobs. Under this program, the premiums of which are paid by Lincoln, a participant’s beneficiary would receive a payment of five times annual total cash compensation up to a maximum of $3,000,000 for executive officers and $2,000,000 for other officers upon an officer’s accidental death. The policy also provides dismemberment benefits of up to 100% of the death benefit in the event an officer is permanently and totally disabled as a result of an accident, and it provides for medical evacuation coverage as a result of an accident.

Retirement Programs

 

Retirement benefits are provided to our named executive officers through the following programs:

 

 

The Lincoln Electric Company Retirement Annuity Program, or RAP, has been in effect since 1936 and applies to all eligible domestic core welding business employees hired before 2006. Effective January 1, 2006, new employees are no longer eligible to participate in the RAP but became eligible for Financial Security Plan Plus (FSP Plus) benefits described below. The retirement benefits under the RAP for the named executive officers are estimated in the Pension Benefits Table below. Effective July 1, 2012, the RAP was amended to add a lump-sum distribution option where participants can elect to receive a lump-sum distribution paid out either in full upon retirement or paid out over five years. Mr. Mapes is not a participant in the RAP but became a participant in the FSP Plus benefits as of September 1, 2012 upon meeting the eligibility requirements. Similarly, Mr. Hedlund is not a participant in the RAP but became a participant in our FSP Plus benefits as of October 1, 2009 upon meeting eligibility requirements.

 

 

The Supplemental Executive Retirement Plan, or SERP, has been in effect since 1994 but has been closed to new participants since 2005. The purpose of the SERP is, in part, to make up for limitations imposed by

 

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the U.S. Internal Revenue Code on payments under tax-qualified retirement plans, and, primarily, to provide an aggregate competitive retirement benefit for SERP participants in line with our overall 50th percentile objective. Participation in the SERP is limited to individuals approved by the Committee. As of December 31, 2014, there were 6 active participants in the SERP. Compensation covered by the SERP is the same as shown in the salary and bonus columns of the Summary Compensation Table below. Certain terms of the SERP may be modified as to individual participants, upon action by the Committee. Except with respect to the award of additional prior service to Mr. Stueber (in 1995), as described below, there have been no modifications to the terms of the SERP for the named executive officers. Mr. Mapes and Mr. Hedlund do not participate in the SERP as they were hired after 2005.

 

 

A qualified 401(k) savings plan, formally known as The Lincoln Electric Company Employee Savings 401(k) Plan, was established in 1994 and applies to all eligible domestic core welding business employees. For 2014, all of the named executive officers deferred amounts under the 401(k) plan. Historically, we have matched participant contributions (other than catch-up contributions) at 35% up to the first 6% of pay (base and bonus) contributed.

We also provide additional 401(k) plan contributions under a program we refer to as the Financial Security Plan (FSP) for those participants, including the named executive officers, who made an election to adopt this program in 1997 (in which case they receive an annual FSP contribution of 2% of base pay) or who made an election to adopt a revised program in 2006, which we refer to as the FSP Plus program, in which case they receive an annual FSP Plus contribution as follows:

 

After service of...    Lincoln will contribute...
1 year    4% of base pay
5 years    5% of base pay
10 years    6% of base pay
15 years    7% of base pay
20 years    8% of base pay
25 years    10% of base pay

In exchange for the FSP or FSP Plus benefits, participants elected to forfeit certain future benefits under the RAP.

 

 

A supplemental deferred compensation plan, or Top Hat Plan, is designed to allow participants to defer their current income on a pre-tax basis and to receive a tax-deferred return on those deferrals. There are no company contributions or match. Participation in the Top Hat Plan is limited to individuals approved by the Committee. As of December 31, 2014, there were 14 active employee participants in the Top Hat Plan.

More information on these programs can be found below in the Retirement and Other Post-Employment Benefits section.

 

Perquisites

 

We offer limited perquisites. Occasionally, we will provide perquisites to officers or EMIP participants to meet specific business needs. For example, because we believe in the importance of maintaining the health of all of our employees, including the named executive officers, we pay for an annual physical for EMIP participants who are age 45 and for certain participants below that age on an ad hoc basis. We grandfathered certain non-EMIP

participants in the executive physical program but no new participants are added. We also make available financial planning services to certain officers. However, the cost of these financial planning services is included in the income of the participants. The physical and financial planning programs are optional programs.

To assist us in conducting business meetings and/or entertainment, we pay the cost of certain club dues for some officers. Although these officers may derive

 

 

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some personal benefit from their use, club memberships are used extensively for business purposes, all personal expenses are borne entirely by the executive and the club dues are included in the income of the participants. Initiation fees for club memberships are paid by the executive. Different perquisites are provided from time to time to non-U.S. based executives; however, they are customary and reasonable in nature and amount (for example, a car lease).

Change in Control Arrangements

 

We have entered into change in control agreements with all of our named executive officers. The agreements are designed generally to assure continued management in the event of a change in control of Lincoln.

The change in control arrangements are operative only if a change in control occurs and payments are only made if the officer’s employment is terminated (or if the officer terminates employment due to certain adverse employment changes). The agreements provide our named executive officers with the potential for continued employment following a change in control, which help retain these executives and provide for management continuity in the event of an actual or threatened change in control of Lincoln. They also help ensure that our executives’ interests remain aligned with shareholders’ interests during a time when their continued employment may be in jeopardy. For a more detailed discussion of our change in control agreements, see Termination and Change in Control Arrangements below. Outside of these change in control agreements, we do not maintain written employment or other severance agreements for U.S.-based employees.

Recovery of Funds Policy

 

We have adopted a Recovery of Funds Policy (clawback policy) consistent with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Our policy is more extensive than what Dodd-Frank requires and is applicable to all of our officers (currently, 15 individuals), including our named executive officers. The policy will apply in the event that there is an accounting restatement involving our financial statements due to material noncompliance with the financial reporting requirements under the U.S. federal securities laws. The policy applies to both current and former officers and covers incentive compensation received by the officers in the 3-year period prior to the restatement. Awards of incentive compensation would include annual bonus payments, stock option awards, restricted stock awards, RSUs and Cash LTIP awards beginning in 2011, unless Dodd-Frank regulations provide otherwise. Under the policy, in the event of an accounting restatement of our financial statements, the Committee would review all incentive compensation received during the 3-year covered period and would seek recovery of the amount of incentive compensation paid in excess of what would have been paid if the accounts had been properly stated. We believe that this policy is in the best interests of Lincoln and its shareholders.

Anti-Hedging/Pledging Policy

 

Consistent with our philosophy to encourage long-term investment in our common stock, our directors and executive officers are prohibited from engaging in any speculative or hedging transactions involving our common stock, including buying or selling puts or calls, short sales or margin purchases. In addition, our insider trading policy prohibits future pledging of Lincoln securities by our executive officers and directors. There are no pledges of Lincoln common stock in place for any of our directors or executive officers.

 

 

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Share Ownership

 

As with the Directors, in keeping with our philosophy that officers should maintain an equity interest in Lincoln and based on our view that such ownership is a component of good corporate governance, we initially adopted stock ownership guidelines for officers in 2006 and increased the guidelines in 2012. The revised guidelines were proposed based on a review of our peer group and corporate governance best practices. Under the current guidelines, officers of Lincoln are required to own and hold a certain number of our common shares, currently at the levels set forth in the table below:

 

Executive Group   Ownership Guideline

Chief Executive Officer1

  5 times base salary

Management Committee Members2

  3 times base salary

Other Officers3

  2 times base salary
  1 

Mr. Mapes.

 

 

  2 

Includes Messrs. Petrella, Blankenship, Stueber and Hedlund, as well as six other officers at 12/31/14.

 

 

  3 

Includes other EMIP participants.

 

Officers have five years to satisfy the stock ownership guidelines, which can be satisfied either by holding (1) shares aggregating the dollar amount specified above (valued at the then current stock price), or (2) that number of shares needed to satisfy the ownership guidelines tied to the base salaries in effect on January 1, 2012 divided by the closing price of a common share on December 31, 2011 ($39.12). RSU awards will count towards the stock ownership guidelines; common shares underlying stock options and shares held in another person’s name (including a relative) will not. As of December 31, 2014, most of our officers met the stock ownership guidelines.

The Committee reviewed the guidelines during 2014 (mid-way through the five-year cycle) and concluded they were at appropriate levels. The next review is expected to take place in 2017.

Deductibility of Compensation

 

Our general philosophy is to qualify future compensation for tax deductibility under Section 162(m) of the U.S. Internal Revenue Code, wherever appropriate, recognizing that, under certain circumstances, the limitations may be exceeded. Qualification is sought to the extent practicable and only to the extent that it is consistent with our overall compensation objectives.

Our 2007 Management Incentive Compensation Plan, as amended (2007 MICP), contains performance measures that were last approved by our shareholders in 2012 and provides us with flexibility to grant performance-based awards under the plan that are fully deductible under Section 162(m).

In addition, our current equity compensation plan for employees, the 2006 EPI Plan, contains performance measures that were last approved by our shareholders in 2011, which provides us with flexibility to grant performance-based equity awards under the plan that are fully deductible under Section 162(m).

All of the compensation paid to the named executive officers during 2014 was tax deductible by Lincoln for federal income tax purposes.

 

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2014 SUMMARY COMPENSATION TABLE

The narrative, table and footnotes below describe the total compensation paid to our Chief Executive Officer and Chief Financial Officer during 2014, as well as the three next highest paid executive officers during 2014 – the “named executive officers.” The components of compensation reported in this table are described below. For information on the role of each component within the total compensation package, see the summary below and refer to the descriptions under the Compensation Discussion and Analysis section above.

 

 

Summary of 2014 Compensation Elements

 

 

LOGO

 

*

During 2014, the Compensation and Executive Development Committee of the Board determined to move the grant of awards of stock option and RSU awards to the first quarter (of 2015) from the fourth quarter (of 2014). Accordingly, our named executive officers did not receive any stock option or RSU award grants during 2014. We have included an additional table below the 2014 Summary Compensation Table under the heading “Summary Compensation Table Augmented by 2015 Equity Awards” to detail our named executives overall compensation after accounting for the change in the timing of the awards to allow for consideration of fiscal year-end financial results.

The base and annual bonus target amounts shown below were set for 2014 at the end of 2013. The actual bonus paid was based on 2014 financial and personal performance and was determined in February 2015 (after full year

 

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financial results were available). There were no stock options and RSU awards for 2014. The Cash LTIP payments reported below were set at the end of 2011 (targets), were related to 2012 to 2014 financial performance and were approved in March 2015 (after full year financial results were available).

In addition to the 2014 Summary Compensation Table immediately below, we have also included a Summary Compensation Table Augmented by 2015 Equity Awards, which includes the 2015 Equity Awards made in the first quarter of 2015. These grants are also reported in the 2015 Grants of Plan Based Awards Table set forth below.

 

 

2014 Summary Compensation Table

 

 

Name and

Principal Position

  Year     Salary
($)
    Stock  Awards
($)1
    Option
Awards
($)1
    Non-Equity
Incentive Plan
Compensation
($)2
   

Change in
Pension and
Nonqualified
Deferred
Compensation
Earnings

($)3

    All Other
Compensation
($)4
    Total
($)
 

Christopher L. Mapes5

    2014      $ 880,000 6       $-        $-      $ 2,196,696 6       $5      $ 36,745      $ 3,113,446   

Chairman, President and Chief Executive Officer

    2013        800,000        764,336        801,088        1,974,971        -        40,814        4,381,209   
    2012        510,000        2,346,821 5       755,407        894,801        -        43,590        4,550,619   

Vincent K. Petrella

    2014        460,000 7       -        -        852,751 7       616,579        30,910        1,960,240   

Executive Vice President, Chief Financial Officer and Treasurer

    2013        435,000        233,151        244,474        841,929        3,477        33,249        1,791,280   
    2012        409,000        256,319        264,424        815,120        435,306        34,151        2,214,320   

George D. Blankenship

    2014        435,000        -        -        717,300        887,149        32,695        2,072,144   

Executive Vice President; President, Lincoln Electric North America

    2013        400,000        183,241        192,268        665,338        -        32,090        1,472,937   
    2012        350,000        183,016        188,852        612,640        631,982        33,183        1,999,673   

Frederick G. Stueber

    2014        400,000 8       -        -        637,476 8       377,160        20,839        1,435,475   

Executive Vice President, General Counsel and Secretary

    2013        400,000        159,712        167,166        640,885        5,214        20,126        1,393,103   
    2012        384,000        173,913        179,465        643,760        613,623        21,164        2,015,925   

Steven B. Hedlund9

    2014        340,000        -        -        399,484        -        19,695        759,179   

Senior Vice President, President, Global Automation

    2013        320,000        436,753        106,593        360,318        -        19,740        1,243,404   
               
                                                               

 

1 

During 2014, the Compensation and Executive Development Committee decided to move the annual grant of plan-based awards (including RSUs and stock options) to the first quarter of 2015. Accordingly, during 2014, no named executive officers received any plan-based awards, including RSUs and stock options. Moreover, no targets for further awards were set for the 2015 to 2017 cycle during 2014 (as they were set in early 2015). See the 2015 Grants of Plan-Based Awards and Outstanding Equity Awards at Fiscal Year-End Tables below for additional information.

 

  

The amounts reported for prior years reflect the grant date fair value under FASB ASC Topic 718 for the RSU awards and reflect the grant date fair value under FASB ASC Topic 718 for the stock option grants.

 

2 

The amounts shown for 2014 represent payments under our EMIP (annual bonus) as follows: Mr. Mapes ($1,323,988), Mr. Petrella ($519,709), Mr. Blankenship ($478,275), Mr. Stueber ($387,296), and Mr. Hedlund ($295,906). The amounts shown also include payments under our Cash LTIP as follows: Mr. Mapes ($872,708), Mr. Petrella ($333,042), Mr. Blankenship ($239,025), Mr. Stueber ($250,180), and Mr. Hedlund ($103,578). Both the EMIP and the Cash LTIP provide incentive-based compensation. For a description of our EMIP and Cash LTIP, see the Compensation Discussion and Analysis section above.

 

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3 

The amounts shown for 2014 represent the increase in actuarial value of our two defined benefit plans, the RAP and the SERP, as compared to 2013, and the difference in earnings under the Moody’s Corporate Bond Index fund in our Top Hat Plan for 2014 and a hypothetical rate. Mr. Mapes and Mr. Hedlund do not participate in our RAP or SERP.

 

2014 Increase in Pension Value
Name        RAP      SERP           Difference in 2014
Earnings Credited
in the Top Hat
Plan
   Moody’s
Corporate Bond
Index Earnings
   Hypothetical Market
Rate*

Christopher L. Mapes

       N/A         N/A          $5    $21    $16

Vincent K. Petrella

       $247,902         $365,196          $3,481    $20,142    $16,661

George D. Blankenship

     $ 191,074       $ 696,075          -    -    -

Frederick G. Stueber

     $ 187,516       $ 185,040          $4,604    $26,430    $21,826

Steven B. Hedlund

       N/A         N/A          -    -    -

 

  *

This rate is specified by the SEC rules for proxy disclosure purposes and is based on 120% of the applicable federal long-term rate, compounded monthly for 2014.

 

4 

The amounts shown for 2014 are comprised of the following:

 

2014 All Other Compensation  
                   Perquisites*  
     Company
401(k) & FSP
Contributions
    

Life and

AD&D
Premiums

     Financial
Planning
     Physical
Examination
   Club
Dues
 

Christopher L. Mapes

   $ 15,860       $ 1,235       $ 8,743       -    $ 10,907   

Vincent K. Petrella

     10,660         1,235         8,802       -      10,213   

George D. Blankenship

     31,460         1,235         -       -      -   

Frederick G. Stueber

     10,660         1,235         8,944       -      -   

Steven B. Hedlund

     18,460         1,235         -       -      -   
  *

The methodology for computing the aggregate incremental cost for the perquisites is the amount that is imputed to the individual as taxable income.

 

5 

Mr. Mapes is not a participant in the RAP or the SERP. The amounts shown for Mr. Mapes for 2012 reflect a special retirement replacement and executive retention award of 33,161 RSUs granted on December 31, 2012 in connection with his appointment as Chief Executive Officer, as well as regular RSU and stock option awards granted on December 13, 2012.

 

6 

Mr. Mapes deferred $264,000 of his 2014 base salary and $397,196 of his 2014 EMIP bonus, in each case under our Top Hat Plan. See the narrative following the Nonqualified Deferred Compensation Table below for additional information on this plan.

 

7 

Mr. Petrella deferred $100,000 of his 2014 base salary and $200,000 of his 2014 EMIP bonus, in each case under our Top Hat Plan. See the narrative following the Nonqualified Deferred Compensation Table below for additional information on this plan.

 

8 

Mr. Stueber deferred $50,000 of his 2014 base salary and $50,000 of his 2014 EMIP bonus, in each case under our Top Hat Plan. See the narrative following the Nonqualified Deferred Compensation Table below for additional information on this plan.

 

9 

Prior to 2013, Mr. Hedlund was not a named executive officer.

 

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2014 Summary Compensation Table Information Augmented by 2015 Equity Awards

 

 

Name  

2014

Salary2
($)

    2015
Stock  Awards1
($)
   

2015

Option
Awards1
($)

   

2014

Non-Equity
Incentive Plan
Compensation2
($)

   

2014

Change in
Pension and
Nonqualified
Deferred
Compensation
Earnings2

($)

   

2014

All Other
Compensation2
($)

    

Combined

Total2
($)

 

Christopher L. Mapes

    $880,000        $1,138,408        $1,097,410        $2,196,696        $5        $36,745         $5,349,264   

Vincent K. Petrella

    $460,000        $280,073        $270,106        $852,751        $616,579        $30,910         $2,510,419   

George D. Blankenship

    $435,000        $225,731        $217,668        $717,300        $887,149        $32,695         $2,515,543   

Frederick G. Stueber

    $400,000        $169,646        $163,663        $637,476        $377,160        $20,839         $1,768,784   

Steven B. Hedlund

    $340,000        $105,202        $101,496        $399,484        $-        $19,695         $965,877   

 

1 

During 2014, the Compensation and Executive Development Committee decided to move the timeline for granting of equity awards to the first quarter of 2015 (from the fourth quarter of 2014) in order to allow for consideration of final year-end results. The chart above includes Summary Compensation Table information for 2014 augmented by 2015 equity awards in order to better illustrate all of the components of our executive compensation. The 2015 stock and option awards will be reported in our proxy statement for the 2016 Annual Meeting.

 

2 

For footnotes related to certain 2014 Compensation components, we refer you to the footnotes set forth in the 2014 Summary Compensation Table above.

The narrative below describes the material terms of each named executive officer’s employment agreement or arrangement with us to the extent it is not otherwise discussed above in the Compensation Discussion and Analysis section and/or in the Summary Compensation Table.

 

 

Additional Employment Terms for Mr. Mapes

 

When Mr. Mapes joined the company as an officer in 2011, he received an award of 66,604 RSUs and 38,153 stock options, as well as a pro-rated target award for the 2011 annual bonus (EMIP) and pro-rated target awards for the 2009-2011, 2010-2012 and 2011-2013 Cash LTIP cycles (which represent all open cycles under the Cash LTIP at the time of his appointment). A portion of the RSUs awarded to Mr. Mapes during 2011 (52,498 RSUs) represent a special executive retention and retirement replacement award valued at $1,650,000. As previously noted, Mr. Mapes will not be a participant in either our RAP or SERP.

On December 31, 2012, Mr. Mapes was appointed President and Chief Executive Officer. In connection with his appointment, Mr. Mapes received a special retirement replacement and executive retention award of 33,161 RSUs valued at $1,608,000 and we increased his Cash LTIP targets, on a pro-rata basis.

The value of Mr. Mapes’ awards discussed above was intended to provide comparable, competitive

retention and retirement benefits for a senior level executive of a manufacturing company but were delivered in a form (namely RSUs) that require strong financial performance (share price appreciation) to deliver the intended value. This differs from the RAP and SERP which require only continuous service. The special retirement replacement and executive retention awards for both 2011 and 2012 vest at a rate of 20% over five years. They are not eligible for accelerated vesting upon achievement of company performance objectives. Once vested, Mr. Mapes has elected to defer these RSUs under our Top Hat Plan until his retirement from the Company.

The remainder of the RSU awards and the stock options provided to Mr. Mapes are subject to our ordinary terms.

For 2014, Mr. Mapes’ salary and bonus accounted for 80% of his compensation reported in the 2014 Summary Compensation Table (which excludes the annual equity grants) (or 47% of his compensation reported in the 2014 Summary Compensation Table Information Augmented by 2015 Equity Awards

 

 

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(“Augmented SCT”)), which contains the annual equity awards), based on the value of his 2014 base salary, 2014 actual EMIP (or bonus) and one-third (1/3) of his actual Cash LTIP payment for the 2012 to 2014 performance cycle.

 

 

Additional Employment Terms for the Other Named Executive Officers

 

Mr. Stueber entered into an agreement in February 1995 when he was originally hired by the Company, which was modified in May 1998. The agreement contains many terms no longer in effect. The agreement grants credited service for purposes of the SERP of 22 years as of his date of hire, assuming a normal retirement age of 60 and service of 45 years at age 65.

In April 2013, Mr. Hedlund received a special executive retention award of 6,410 RSUs. The value of the award was intended to provide comparable, competitive retention benefits for a senior level executive of a manufacturing company. The award vests ratably over seven years, commencing at age 55.

For 2014, Mr. Petrella’s salary and bonus accounted for 56% of his compensation reported in the 2014 Summary Compensation Table (which excludes the annual equity grants) (or 43% based on the Augmented SCT), Mr. Stueber’s salary and bonus accounted for 61% of his compensation reported in the 2014 Summary Compensation Table (which excludes the annual equity grants) (or 49% based on the Augmented SCT), Mr. Blankenship’s salary and bonus accounted for 48% of his compensation reported in the 2014 Summary Compensation Table (which excludes the annual equity grants) (or 39% based on the Augmented SCT) and Mr. Hedlund’s salary and bonus accounted for 88% of his compensation reported in the 2014 Summary Compensation Table (which excludes the annual equity grants) (or 69% based on the Augmented SCT). The above percentages were based, in each case, on the value of the executive’s 2014 base salary, 2014 actual EMIP (or bonus) and one-third of the executive’s actual Cash LTIP payment for the 2012 to 2014 performance cycle.

 

 

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2014 GRANTS OF PLAN-BASED AWARDS

The Compensation and Executive Development Committee determined in 2014 to move the grant of plan-based awards to the first quarter following the close of prior fiscal year to allow for consideration of full year financial results as part of the award process. Accordingly, there were no awards of plan-based awards granted in 2014 to our named executive officers.

2015 GRANTS OF PLAN-BASED AWARDS

The following table provides information relating to estimated future payouts under non-equity incentive plan awards determined in 2015 for payout in 2016 or future years. The information provided in the chart below is included in the Summary Compensation Table Augmented by 2015 Equity Awards set forth above and will be included in our Proxy Statement for the 2016 Annual Meeting as 2015 compensation.

 

 

2015 Grants of Plan-Based Awards

 

 

Name   Grant
Date
    Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
    All Other
Stock
Awards;
Number of
Shares of
Stock or
Units
(#)3
   

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#)4

    Exercise or
Base Price
of Option
Awards
($/Sh)
   

Grant
Date Fair
Value of
Stock and
Option
Awards

($)5

 
    Threshold
($)
   

Target

($)

   

Maximum

($)

         

Christopher L.

    2/5/2015        0        1,252,000 1      2,253,600                                   

Mapes

    2/5/2015        0        1,117,000 2       2,234,000                                   
    2/5/2015                                16,340                      $ 1,138,408   
      2/5/2015                                        66,550      $ 69.67        1,097,410   

Vincent K.

    2/5/2015        0        450,000 1       810,000                                   

Petrella

    2/5/2015        0        275,000 2       550,000                                   
    2/5/2015                                4,020                        280,073   
      2/5/2015                                        16,380        69.67        270,106   

George D.

    2/5/2015        0        450,000 1       810,000                                   

Blankenship

    2/5/2015        0        222,000 2       444,000                                   
    2/5/2015                                3,240                        225,731   
      2/5/2015                                        13,200        69.67        217,668   

Frederick G.

    2/5/2015        0        330,000 1       594,000                                   

Stueber

    2/5/2015        0        167,000 2       334,000                                   
    2/5/2015                                2,435                        169,646   
      2/5/2015                                        9,925        69.67        163,663   

Steven B.

    2/5/2015        0        250,000 1       450,000                                   

Hedlund

    2/5/2015        0        103,000 2       206,000                                   
    2/5/2015                                1,510                        105,202   
      2/5/2015                                        6,155        69.67        101,496   

 

1 

The performance-based amounts shown represent the range of cash payouts for 2015 under the EMIP. Payments are based on the achievement of company financial performance and the executive’s individual performance. Target awards are set by the Compensation and Executive Development Committee of the Board in the first quarter each year. Actual payment amounts are determined by the Committee in the first quarter each year. The targets shown above are pursuant to the new EMIP matrix for 2015 (which allows for potential payouts at 180% of target), which is reflected on page 43 above. For additional information regarding our annual bonus, see the Compensation Discussion and Analysis section above.

 

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2 

The performance-based amounts shown represent the range of cash payouts for the 2015 to 2017 cycle under our Cash LTIP plan. Under the plan, payments are based on achievement of company financial goals over a three-year cycle. Target awards are set by the Committee in the first quarter each year. Actual payment amounts are determined by the Committee in the first quarter of the year following the three-year cycle.

 

3 

With respect to the awards made on February 5, 2015 (the annual grant), the RSUs vest upon the earlier of (1) the recipient remaining in continuous employment for five years (to February 5, 2020), or (2) a determination by the Committee that the financial targets for our cash long-term incentive plan (discussed above) are met (3 years) (2015-2017 cycle), with accelerated vesting upon a change in control in the event the employee is terminated or in the event any successor to Lincoln does not honor the terms of the award or in the event of death or disability. Upon retirement, a pro-rata portion of the award will vest, subject to the potential for full accelerated vesting for the one award that falls closest to the officer’s retirement date (assuming retirement occurs on or after July 1st of that performance year).

 

  

Upon vesting, the RSUs are paid out solely in Lincoln common stock (there is no cash option). Dividend equivalents are sequestered by us until the shares underlying the RSUs are distributed, at which time such dividend equivalents are paid in additional common shares. The dividend rate for dividend equivalents paid on the RSUs to the named executive officers is the same as for all other shareholders (in other words, it is not preferential). Recipients of RSUs who participate in our EMIP bonus program (which includes all of the named executive officers) are eligible to elect to defer all or a portion of their RSUs under our Top Hat Plan – see the 2014 Nonqualified Deferred Compensation section below for a description of this plan.

 

4 

The amounts shown in this column represent stock option grants made under our EPI Plan on February 5, 2015. The stock options were granted at the closing price of our common shares on the date of the grant. All stock options are non-qualified for tax purposes. We value stock options using the Black-Scholes valuation method. The stock options vest over a three-year period (in equal annual increments), with accelerated vesting upon death or disability or a change in control in the event the employee is terminated or if the plan is not assumed upon the change in control. A pro-rata portion of the award vests upon retirement. All options have 10-year terms.

 

5 

The amounts shown represent the full value of the RSU awards and the stock option grants calculated in accordance with FASB ASC Topic 718 as of the date of the grant. The actual amount, if any, realized upon the exercise of stock options will depend upon the market price of our common shares relative to the exercise price per share of the stock option at the time of exercise. The actual amount realized upon vesting of RSUs will depend upon the market price of our common shares at the time of vesting. There is no assurance that the hypothetical full values of the awards reflected in this table will actually be realized.

 

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HOLDINGS OF EQUITY-RELATED INTERESTS

The following provides information relating to exercisable and unexercisable stock options and RSUs at December 31, 2014 for our named executive officers.

 

 

Outstanding Equity Awards at December 31, 2014

 

 

         

Option Awards

 

Stock Awards

Name   Grant
Date
    Number of
Securities
Underlying
Unexercised Options
(#) Exercisable1
  Number of Securities
Underlying
Unexercised Options
(#) Unexercisable1
 

Option
Exercise
Price

($)

  Option
Expiration
Date
  Number of
Shares or
Units of
Stock
That
Have Not
Vested
(#)2
  Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)3

Christopher L.

Mapes

    9/1/2011      38,153       $33.060       9/1/2021   22,008   $1,520,533
    11/2/2011      28,500         35.550     11/2/2021     9,140        631,483
    12/13/2012      31,653   15,827     47.910   12/13/2022   15,290     1,056,386
    12/31/2012                      19,897     1,374,684
      12/16/2013      14,680   29,360     71.300   12/16/2023   10,720        740,645

Vincent K.

Petrella

    12/3/2008      22,740         21.985     12/3/2018        
    12/1/2009      27,280         26.355     12/1/2019        
    12/1/2010      21,360         31.315     12/1/2020        
    11/2/2011      19,250         35.550     11/2/2021     6,170        426,285
    12/13/2012      11,080     5,540     47.910   12/13/2022     5,350        369,632
      12/16/2013        4,480     8,960     71.300   12/16/2023     3,270        225,924

George D.

Blankenship

    7/31/2009        2,400         21.190     7/31/2019        
    12/1/2009      17,700         26.355     12/1/2019        
    12/1/2010      13,740         31.315     12/1/2020        
    11/2/2011      13,860         35.550     11/2/2021     4,440        306,760
    12/13/2012        7,913     3,957     47.910   12/13/2022     3,820        263,924
      12/16/2013        3,523     7,047     71.300   12/16/2023     2,570        177,561

Frederick G.

Stueber

    12/3/2008      18,200         21.985     12/3/2018        
    12/1/2009      21,820         26.355     12/1/2019        
    12/1/2010      16,900         31.315     12/1/2020        
    11/2/2011      14,480         35.550     11/2/2021     4,640        320,578
    12/13/2012        7,520     3,760     47.910   12/13/2022     3,630        250,797
      12/16/2013        3,063     6,127     71.300   12/16/2023     2,240        154,762

Steven B.

Hedlund

    12/1/2010        5,580         31.315     12/1/2020        
    11/2/2011        6,010         35.550     11/2/2021     1,930        133,344
    12/13/2012        4,353     2,177     47.910   12/13/2022     2,100        145,089
    4/24/2013                        6,410        442,867
      12/16/2013        1,953     3,907     71.300   12/16/2023     1,430          98,799

 

1 

Stock options vest in three equal annual installments, commencing on the first anniversary of the date of the grant.

 

2 

Amounts shown in this column represent restricted stock unit (RSU) awards made pursuant to our EPI Plan. The RSU awards vest in full five years from the date of grant, but are subject to accelerated vesting in three years if the targets are met for the applicable Cash LTIP cycle. In addition, amounts shown for Mr. Mapes include an executive retention and retirement replacement award of RSUs granted on September 1, 2011 and December 31, 2012 in connection with his appointment as Chief Operating Officer and Chief Executive Officer, respectively. Both of these additional RSU awards vest ratably over five years and are not subject to accelerated vesting for achievement of performance objectives. The amounts shown for Mr. Hedlund include a special executive retention award of RSUs granted in April 2013. The award vests ratably over seven years, commencing at age 55.

 

  

For more information on our restricted stock unit awards under our EPI Plan, see the discussion provided in the Grants of Plan-Based Award Table.

 

3 

Based on the closing price of our common stock on the last trading day of the fiscal year 2014 (December 31, 2014) of $69.09.

 

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2014 Stock Option Exercises and Stock Vested

 

The following table provides information for restricted stock and RSUs that vested, and stock options that were exercised, by the named executive officers during 2014, as well as RSUs for Mr. Mapes that vested but were contributed to our Top Hat (deferred compensation) plan.

 

    Option Awards   Stock Awards  
Name  

Number of
Shares Acquired
on Exercise

(#)

 

Value Realized
On Exercise

($)

 

Number of
Shares Acquired
on Vesting

(#)

 

Value Realized
On Vesting

($)

 

Christopher L. Mapes

  -   -     26,9151   $ 1,929,329   

Vincent K. Petrella

  -   -        6,4772     480,917   

George D. Blankenship

  -   -   5,2183     379,220   

Frederick G. Stueber

  26,880   1,058,8324       5,1365     381,348   

Steven B. Hedlund

  -   -       1,6916     125,557   

For all of the named executive officers except for Mr. Mapes, the amounts shown above in the “Stock Awards” columns represent restricted stock awards and dividends earned on restricted stock that vested during 2014. On March 1, 2014, restricted stock awards granted in 2010 vested as a result of a determination that the financial targets for our Cash LTIP had been met. For Mr. Mapes, the amounts shown above represent RSUs and dividends earned on RSUs that vested during 2014, including RSUs awarded to Mr. Mapes upon his appointment as Chief Operating Officer and President and CEO in 2011 and 2012, respectively, which vest ratably over five years and have been deferred under our Top Hat Plan. For more information on the terms of deferral, see “Retirement and Other Post-employment Benefits – 2014 Nonqualified Deferred Compensation.”

 

1 

Total includes 10,499 RSUs (September 2011 award) and 6,632 RSUs (December 2012 award) that vested during 2014, as well as 489 additional shares attributable to dividends earned on the RSUs, and were deferred under our Top Hat Plan. These RSUs vest ratably over a five-year-period. The total also includes 9,068 RSUs that vested during 2014 (as a result of a determination that the financial targets for our Cash LTIP had been met) and 227 additional shares attributable to dividends earned on the RSUs. Mr. Mapes remitted 3,132 shares to the company in satisfaction of his tax withholding obligations.

 

2 

Total also includes 197 additional shares attributable to dividends earned on the restricted stock. Mr. Petrella remitted a total of 2,182 shares to the company in satisfaction of his tax withholding obligations.

 

3 

Total also includes 178 additional shares attributable to dividends earned on the restricted stock. Mr. Blankenship remitted a total of 1,912 shares to the company in satisfaction of his tax withholding obligations.

 

4 

Based on actual market prices per share (which ranged between $72.00 and $73.00 per share) less the exercise price (ranging from $30.255 to $34.255 per share).

 

5 

Total also includes 156 additional shares attributable to dividends earned on the restricted stock. Mr. Stueber remitted 1,542 shares to the company in satisfaction of his tax withholding obligations.

 

6 

Total also includes 51 additional shares attributable to dividends earned on the restricted stock. Mr. Hedlund remitted 570 shares to the company in satisfaction of his tax withholding obligations.

 

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RETIREMENT AND OTHER POST-EMPLOYMENT BENEFITS

 

 

2014 Pension Benefits

 

Retirement Annuity Program (RAP)

 

 

Under the RAP, each eligible employee accumulates 2.5% of each year’s base compensation in the form of an annuity payable at normal retirement age (age 60 or five years of employment, if later). Participants may also retire early and receive a benefit as early as age 55, but that benefit is reduced to reflect the early payments. For example, a participant commencing his or her RAP benefit at age 55 will receive a benefit equal to 63.82% of his or her normal retirement benefit. In addition to the 2.5% accumulation each year, we have granted, on a number of occasions, additional prospective past service benefits to all participants. The program also provides accumulated benefits to eligible spouses of deceased employees or former employees. Benefits under the program are in addition to those payable under Social Security. The RAP was modified in 1997 and again in 2006 and 2012 to provide one-time elections to all employees at those times.

 

 

The 1997 election provided a one-time choice to existing employees (hired before November 1, 1997), between maintaining a feature in the RAP known as the Age 60 Feature (or Ramp) or eliminating that feature prospectively in lieu of receipt of employer-provided benefits in our 401(k) plan (referred to as FSP benefits). Under the Ramp feature, if a participant, including a named executive officer, works past normal retirement age (60), he or she may be eligible for certain enhanced benefits to be paid in one of two ways at his/her election: (1) retirement benefits would commence at age 60 while the participant

   

continued to work, or (2) retirement benefits would be delayed until actual retirement with the participant receiving higher payments. Under the Ramp, a participant must start his or her retirement benefits at age 65, even if he/she continues to work for us.

 

 

The 2006 election provided a one-time choice for existing employees (hired before January 1, 2006), between maintaining the current program or opting into an alternative program in which the prospective annual earned annuity in the RAP is reduced to 1.25% of each year’s base compensation and the employee is entitled to an enhanced Lincoln contribution in the qualified 401(k) plan, based on service. The enhanced defined contribution program is known as the FSP Plus program.

 

 

All eligible employees hired after January 1, 2006 participate in the FSP Plus program (and do not participate in any RAP benefits). Accordingly, Mr. Mapes and Mr. Hedlund do not participate in the RAP.

 

 

During 2012, the RAP was modified to provide a lump-sum distribution feature effective July 1, 2012. With this modification, participants can elect to receive an immediate lump-sum distribution or have the lump-sum value paid out over five years. This new lump-sum feature is in addition to the other distribution options (single-life annuity; joint and survivor annuity; year-certain annuity).

 

 

Supplemental Executive Retirement Plan (SERP)

 

Although no new participants have been added to the SERP since 2005, we have a two-tier benefit structure applicable to any new participants. Under the two-tier benefit structure, future participants, if any, designated as “Management Committee and Regional President Participants” are entitled to a retirement benefit as follows:

 

          

to a maximum of 60%

              

Management

Committee/

Regional

Presidents

  =    [  

(

  1.333%   x  

years

of

service

  x  

final

average

pay

 

)

  -  

applicable

offsets

  ]   x   

participation

factor

                             
                             

 

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Future participants designated as “Other Participants”, if any, are entitled to a retirement benefit as follows:

 

           to a maximum of  50%               

Other

Participants

  =    [  

(

  1.111%   x  

years

of

service

  x  

final

average

pay

 

)

  -  

applicable

offsets

  ]   x   

participation

factor

                             
                             

Currently, two participants (who are not named executive officers) are eligible for benefits under the “Management Committee and Regional Presidents” benefit structure, while there are no current participants under the “Other Participants” category.

Benefits under the SERP for current legacy participants (who joined before the two-tier system was adopted), including each named executive officer other than Mr. Mapes and Mr. Hedlund, are determined as follows:

 

          

to a maximum of 65%

              

Current

Participants

  =    [  

(

  1.445%   x  

years

of

service

  x  

final

average

pay

 

)

  -  

applicable

offsets

  ]   x   

participation

factor

                             
                             

For purposes of the SERP:

 

 

Years of service includes all service with Lincoln (and, for Mr. Stueber, includes service with previous employers) but excludes service after age 65. Credited service for SERP purposes, as of December 31, 2014, is provided below. Mr. Stueber was awarded prior years of service under the SERP for service with his previous employer. In 2001, however, we eliminated the practice of granting extra years of credited service under the SERP and we do not intend to grant extra years service credit in the future.

 

 

Final average pay is the average base and bonus compensation for the three highest years in the seven-year period preceding retirement.

 

 

Benefits payable under the SERP are reduced by applicable offsets that include: the maximum Social Security benefit payable in the year of retirement, the single life benefit payable under the RAP, the lifetime benefit equivalence of any account balance attributable to employer matching contributions, Employee Stock Ownership Plan contributions and/or FSP contributions under the 401(k) plan, and other employer-paid qualified plan benefits paid by previous employers (but only if prior years of service are awarded). Benefits under the SERP are also reduced if the covered employee has participated in the SERP for fewer than eight years at the time of retirement.

 

 

Unless a different factor is set by the Committee, participants are credited with only 20% of the net amount of the benefit otherwise payable under the SERP when they first become participants, and in each of the next eight years, an additional 10% of the net amount of the benefit will become payable upon retirement. As of December 31, 2014, all of the named executive officers who participate in the SERP had 100% participation factors. Unless modified the maximum net benefit payable under the SERP is $300,000 per year.

 

 

No new participants have been added to the SERP since 2005. Accordingly, neither Mr. Mapes, who joined the company during 2011, nor Mr. Hedlund, who joined the company during 2008, participate in the SERP.

 

 

SERP benefits vest at the plan’s normal retirement age of 60. Other than Mr. Stueber, none of the named executive officers who participate in the SERP is currently vested in the SERP. Benefits may become vested as early as age 55, but only if such vesting is approved by the Committee. If benefits are paid before age 60, they are reduced for early commencement. The SERP also provides accumulated benefits to eligible spouses of deceased employees or former employees.

 

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2014 PENSION BENEFITS TABLE

 

The following provides information relating to potential payments and benefits under our RAP and SERP for the named executive officers who participate in those programs. As noted above, Mr. Mapes and Mr. Hedlund are not participants in the RAP or the SERP.

 

Name    Plan Name    Number of Years
of Credited
Service (#)
  Present Value of
Accumulated
Benefits ($)
  Payments During
the Last Fiscal
Year ($)

Christopher L. Mapes

   RAP    N/A   N/A   N/A
   SERP    N/A   N/A   N/A

Vincent K. Petrella

   RAP    191   1,107,0603   -
   SERP    192   1,263,5274   -

George D. Blankenship

   RAP    291   909,3693   -
   SERP    292   1,990,8844   -

Frederick G. Stueber

   RAP    191   1,454,4793   -
   SERP    412   4,385,7304   -

Steven B. Hedlund

   RAP    N/A   N/A   N/A
   SERP    N/A   N/A   N/A

 

1 

Under the RAP, credited years of service are the same as actual years of service, both of which are calculated from the date of hire with Lincoln. Accordingly, there is no benefit increase for credited years of service under the plan. All of the named executive officers, other than Mr. Stueber, are currently under normal retirement age under the terms of the plan.

 

2 

Under the SERP, credited years of service versus actual years of service are the same for Messrs. Petrella and Blankenship, all of which are calculated from their dates of hire with Lincoln. Credited years of service versus actual years of service vary for Mr. Stueber as follows: (actual: 19) (credited: 41). When he joined Lincoln over 19 years ago, Mr. Stueber was granted additional years of service under the SERP for service with his prior employer. As a result, benefits earned at his prior employer, if any, will serve as an offset against his SERP benefits. There are no prior employer offsets for Mr. Stueber. The aggregate benefit increase under the SERP for enhanced credited years of service for Mr. Stueber is $3,172,959.

 

3 

This represents the actuarial present value of accrued benefits in the RAP for the named executive officers who participate at December 31, 2014. However, this is an estimated full value number that is discounted to a current date. The above actuarial present values were determined using a 3.99% discount rate, RP-2014 Annuitant table, with blue collar adjustment, protected generationally with Scale MP-2014, age 60 commencement and no decrements for death or termination prior to age 60.

All of the named executive officers who participate are currently vested in their RAP benefits because they each have at least five years of service with Lincoln.

 

Name    When Eligible for a Full, Unreduced
Benefit under the RAP
   Accrued Annual Benefit Payable under the
RAP at Age 60 (as  of December 31, 2014) ($)

Christopher L. Mapes

   N/A    N/A

Vincent K. Petrella

   2020    90,698

George D. Blankenship

   2022    78,902

Frederick G. Stueber

   2013    99,686

Steven B. Hedlund

   N/A    N/A

Vested participants who are below normal retirement age (60) may receive an earlier reduced benefit after he or she reaches age 55.

 

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4 

This represents the actuarial present value of accrued benefits in the SERP for the named executive officers who participate at December 31, 2014. However, this is an estimated full value number that is discounted to a current date. The above actuarial present values were determined using a 3.99% discount rate, IRS Section 417(e), assumed commencement of SERP benefits at age 60 and no decrements for death or termination prior to age 60.

 

Name    When Eligible for a Full, Unreduced
Benefit under the SERP
   Accrued Annual Benefit Payable under the
SERP at Age 60 (as  of December 31, 2014)

Christopher L. Mapes

   N/A    N/A

Vincent K. Petrella

   2020    $104,536

George D. Blankenship

   2022    175,240

Frederick G. Stueber

   2013    300,000

Steven B. Hedlund

   N/A    N/A

Benefits may become vested earlier, but this earlier vesting would require approval of the Committee. In addition, benefits paid early would be reduced to account for the early payment.

 

 

2014 Nonqualified Deferred Compensation

 

2005 Deferred Compensation Plan (Top Hat Plan)

 

Our plan is designed to be a “top-hat” plan that complies with Section 409A of the U.S. Internal Revenue Code. Participation is limited to management and highly compensated employees, approved by the Committee, who have elected to make the maximum elective contributions permitted under the terms of our 401(k) plan for the applicable deferral period/year ($17,500 for 2014).

As of August 1, 2011 participants may defer all or a portion of the common shares underlying restricted stock unit (RSU) awards upon vesting, as well as any gain or income that otherwise would have been recognized upon or after vesting of the RSUs. Any RSUs that have been deferred are paid out in common shares (not cash) when distributed from the plan. The plan now also includes a recovery of funds provision consistent with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

A participant may elect to defer a specified dollar amount or percentage of his or her compensation, provided the amount cannot exceed the sum of eighty percent (80%) of base salary, bonus and/or Cash LTIP for deferral period. A participant may elect to defer a specified percentage of RSUs, provided the amount cannot exceed one hundred percent (100%) of his or her RSUs for the deferral period.

Deferrals are credited to participant accounts based on their elections, and accounts are credited with earnings based on the investment elections made by the participant. There are currently 27 investment options, 26 of which mirror the third-party managed investment funds available under our 401(k) plan and one, Moody’s Corporate Bond Average Index, which preserves an investment option previously available under our old deferred compensation plan. RSU deferrals are invested solely in a Lincoln Stock fund, with no other plan deferrals eligible for investment into that fund. All of the third-party managed investment options track precisely with the returns reported by the investment managers for the funds to which they are associated. The Moody’s Corporate Bond Average Index is derived from pricing data for approximately 100 corporate bonds in the U.S. market, each with current outstandings of over $100 million.

Non-qualified deferred compensation plan distributions are permitted only in the event of separation from service, disability, death, a change in control of the employer or an unforeseeable emergency. Distributions also can be made at a specified time or under a fixed schedule, as stated in the plan at the time of the deferral.

Amounts deferred under the plan are distributed when a participant terminates employment with us or elects to receive an in-service distribution, which is available to assist participants in meeting shorter-term financial needs. In-service distributions are payable in a lump-sum payment on a date that is at least one calendar year after the

 

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date of the applicable deferral period/plan year. Distributions following death or retirement may be made by payment in five, ten or fifteen annual installments or by payment of a single lump-sum, except that accounts valued at less than $35,000 are distributed in a single lump-sum payment. The retirement distribution is available for participants starting at age 60 (or age 55 if the participant has 25 years of service). The plan administrator, in its sole discretion, may also allow for financial hardship distributions in certain circumstances. Loans are not permitted under the plan.

2014 Deferred Compensation Plan Table

 

The following table provides deferred compensation information for 2014 for the named executive officers.

 

Name   Executive
Contributions in Last
Fiscal Year
($)
  Registrant
Contributions in
Last Fiscal Year
($)
  Aggregate Earnings
in Last Fiscal Year
($)
  Aggregate
Withdrawals/
Distributions
($)
 

Aggregate Balance at

Last Fiscal Year-End
($)

Christopher L. Mapes

  517,976   1,239,1751   (15,816)2   -   3,941,6683

Vincent K. Petrella

  300,000   -    22,8624    -       917,8103

George D. Blankenship

  -   -   -   -   -

Frederick G. Stueber

  100,000   -    26,4305    -       640,1233

Steven B. Hedlund

  -   -         954     -        81,2273

 

1 

Represents 17,131 RSUs plus 489 additional shares attributable to dividends that vested during 2014.

 

2 

Of the amount reported, $5 is included as compensation for 2014 in the “Change in Pension and Nonqualified Deferred Compensation Earnings” column of the Summary Compensation Table above and is described in its footnotes.

 

3 

The portions of the amount reported that relate to deferral contributions in prior years have all been reported in the Summary Compensation Table in those years to the extent the individual was a named executive officer for those years.

 

4 

Of the amount reported, $3,481 is included as compensation for 2014 in the “Change in Pension and Nonqualified Deferred Compensation Earnings” column of the Summary Compensation Table above and is described in its footnotes.

 

5 

Of the amount reported, $4,604 is included as compensation for 2014 in the “Change in Pension and Nonqualified Deferred Compensation Earnings” column of the Summary Compensation Table above and is described in its footnotes.

 

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TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS

 

The Termination and Change in Control Table below reflects the estimated additional amounts of compensation each named executive officer would receive in the event of a termination of employment. Termination events include: a voluntary termination by the executive; normal retirement of the executive (defined as termination at age 60 or later); an involuntary, not-for-cause termination by Lincoln; a for-cause termination by Lincoln; a termination upon a change in control; and a termination due to death or disability. In addition, estimated additional compensation amounts are shown in the event of a change in control without termination of employment. The amounts shown assume that each event occurred on December 31, 2014, the last business day of the calendar year.

 

 

Termination of Employment

 

No written agreements exist that provide additional payments to a named executive officer in the event of a voluntarily termination of employment with Lincoln or a termination of employment initiated by Lincoln (whether for cause or not). We do not have employment agreements or severance agreements, except for our change in control agreements described below. Pursuant to our standard employment policies, however, upon termination of employment, a named executive officer would be entitled to receive the following:

 

 

Earned but unpaid base pay, up to the date of termination;

 

 

Earned and unused vacation, up to the date of termination;

 

 

Vested amounts held in the executive’s account under our 401(k) plan;

 

 

Amounts held in the executive’s account under our Top Hat Plan (based on the executive’s election);

 

 

Deferred vested benefits under our RAP (pension plan) – payments for which could begin at normal retirement age (60) or as early as age 55 (but at a reduced amount); and

 

 

Continuing medical and/or dental coverage under COBRA, for which the executive would pay 102% of the applicable premium.

In addition, the named executive officer generally would be entitled to exercise any vested stock options for a period of three months after termination (after which time the options would expire). However, vested options would be cancelled if the executive’s employment were terminated for cause or if the executive engaged in competitive conduct within six months of termination. Annual bonuses, cash long-term incentives, unvested stock options, restricted stock and RSUs would be forfeited.

 

 

Normal Retirement

 

In addition to the entitlements described above, upon termination after normal retirement age (age 60), but subject to any 409A deferred payment requirements, a named executive officer would be entitled to receive the following:

 

 

A pro-rata portion of the annual bonus (EMIP), based on the executive’s period of employment during the calendar year, subject to achievement of the applicable personal and financial goals;

 

 

Pro-rata portions of each cash long-term incentive plan (Cash LTIP), based on the executive’s periods of employment during each of the open three-year cycles and upon completion of each cycle, subject to achievement of the applicable financial goals;

 

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