UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
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¨ | Soliciting Material Pursuant to §240.14a-12 | |||
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FEDERAL SIGNAL CORPORATION | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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1415 West 22nd Street
Oak Brook, Illinois 60523
Notice of Annual Meeting of Stockholders
To Be Held on April 28, 2015
To the Stockholders of Federal Signal Corporation:
The Annual Meeting of Stockholders of Federal Signal Corporation (the “Company”), a Delaware corporation, will be held at the Regency Towers Conference Center, 1515 West 22nd Street, Oak Brook, Illinois 60523 on Tuesday, April 28, 2015, at 8:30 a.m., local time, for the following purposes:
• | To elect eight directors; |
• | To approve, on an advisory basis, the compensation of our named executive officers (“NEOs”); |
• | To approve the Federal Signal Corporation 2015 Executive Incentive Compensation Plan; |
• | To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2015; and |
• | To transact such other business that may properly come before the meeting or any adjournment(s) or postponement(s) thereof. |
The Board of Directors of Federal Signal Corporation (the “Board”) has fixed the close of business on March 2, 2015 as the record date for the meeting. Only stockholders of record on the record date are entitled to receive notice of, and to vote at, the Annual Meeting (or any adjournment(s) or postponement(s) of the Annual Meeting).
The Board recommends that you vote “FOR” the nominees for director proposed by the Board, “FOR” the advisory approval of the Company’s NEO compensation, “FOR” approval of the Federal Signal Corporation 2015 Executive Incentive Compensation Plan and “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2015.
Stockholders of record on the record date will receive a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”). The Notice of Internet Availability, first mailed on March 18, 2015, contains instructions on how to access the proxy statement, this notice and our 2014 Annual Report on Form 10-K on the Internet at www.proxyvote.com. Stockholders wishing to receive a printed copy of our proxy materials should follow the instructions provided in the Notice of Internet Availability. Those stockholders who previously requested printed or electronic copies of our proxy materials will receive a printed or electronic copy, as applicable.
To vote, please follow the instructions in the Notice of Internet Availability or the proxy materials if you received printed copies. If you vote by telephone or Internet, you do not need to return a proxy card. If you are present at the meeting, you may vote your shares in person. If you hold your shares through a broker or other custodian, please check the voting instructions provided to you by that broker or custodian.
YOUR VOTE IS IMPORTANT! Whether or not you expect to attend the meeting, please vote your shares at your earliest convenience. This will ensure the presence of a quorum at the meeting and save the extra expense of additional solicitation. Submitting your proxy now will not prevent you from voting your shares at the meeting, as your proxy is revocable at your option. If you have any questions or need assistance in voting your shares of our common stock, please call the Corporate Secretary at (630) 954-2008 or email us at info@federalsignal.com.
By order of the Board of Directors, |
 |
JENNIFER L. SHERMAN, Corporate Secretary |
March 18, 2015
TABLE OF CONTENTS
PROXY STATEMENT SUMMARY
This summary highlights information contained elsewhere in this proxy statement. Please read the entire proxy statement before voting. This summary does not contain all of the information that you should consider before voting.
GENERAL INFORMATION
Stock Symbol: FSS
Stock Exchange: New York Stock Exchange (“NYSE”)
Registrar and Transfer Agent: Computershare Limited
State and Year of Incorporation: Founded in 1901 and reincorporated in Delaware in 1969
Corporate Headquarters: 1415 West 22nd Street, Suite 1100, Oak Brook, Illinois 60523
Corporate Website: www.federalsignal.com
ANNUAL MEETING
Time and Date: 8:30 a.m., local time, on Tuesday, April 28, 2015
Place: Regency Towers Conference Center, 1515 West 22nd Street, Oak Brook, Illinois 60523
Record Date: March 2, 2015
Common Shares Outstanding on Record Date: 62,735,537
Voting: Each share of our common stock is entitled to one vote for each director to be elected and on each matter to be voted upon at the Annual Meeting
ITEMS TO BE VOTED ON AND BOARD RECOMMENDATIONS
Item | Board Recommendations | Page | ||||
Proposal 1 | Election of Eight Directors | For all nominees | ||||
Proposal 2 | Advisory Vote to Approve our Named Executive Officer Compensation | For | ||||
Proposal 3 | Approval of the Federal Signal Corporation 2015 Executive Incentive Compensation Plan | For | ||||
Proposal 4 | Ratification of the Appointment of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for Fiscal Year 2015 | For | ||||
Transact any other business that may properly come before the Annual Meeting or adjournments or postponements thereof.
PROPOSAL 1: ELECTION OF EIGHT DIRECTORS
DIRECTOR NOMINEES
Name | Age | Director Since | Occupation and Experience | Independent | Audit Committee | Compensation and Benefits Committee | Nominating and Governance Committee | |||||||
James E. Goodwin | 70 | 2005 | Chairman, Federal Signal Corporation | Yes | ü | ü | ||||||||
Paul W. Jones | 66 | 1998 | Former Executive Chairman and Chief Executive Officer (“CEO”), A. O. Smith Corporation | Yes | ü | Chair | ||||||||
Bonnie C. Lind | 56 | 2014 | Sr. Vice President, Chief Financial Officer (“CFO”) and Treasurer, Neenah Paper, Inc. | Yes | ü | |||||||||
Dennis J. Martin | 64 | 2008 | President and CEO, Federal Signal Corporation | No | ||||||||||
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Name | Age | Director Since | Occupation and Experience | Independent | Audit Committee | Compensation and Benefits Committee | Nominating and Governance Committee | |||||||
Richard R. Mudge | 69 | 2010 | President, Compass Transportation and Technology, Inc. | Yes | ü | |||||||||
William F. Owens | 64 | 2011 | Former Governor of Colorado | Yes | ü | ü | ||||||||
Brenda L. Reichelderfer | 56 | 2006 | Sr. Vice President and Managing Director, TriVista Business Group | Yes | Chair | ü | ||||||||
John L. Workman | 63 | 2014 | Former CEO, Omnicare, Inc. | Yes | Chair (1) | |||||||||
(1) | Charles R. Campbell was Chair of the Audit Committee until his term on the Board expired on April 22, 2014. Mr. Workman became Chair of the Audit Committee effective April 22, 2014. |
All nominees are current directors. Each nominee attended at least 75% of the aggregate of all fiscal year 2014 meetings of the Board and each Committee on which he or she served.
CORPORATE GOVERNANCE
Standing Board Committees (Meetings Held in Fiscal Year 2014): Audit (9); Compensation and Benefits (5); and Nominating and Governance (4)
Independent Directors Meet without Management: Yes
Separate Chairman and CEO: Yes
Staggered Board: No (all directors elected annually)
Director Retirement Age Limit: Yes (may not stand for election after attaining age 72 without a waiver from the Board)
Stockholder Rights Plan: No
Director and Officer Stock Ownership Guidelines: Yes
Policy Prohibiting Hedging, Short Sale and Pledging: Yes
Recoupment Policy (Clawback): Yes
FISCAL YEAR 2014 HIGHLIGHTS
• | Net sales increased by $67.2 million, or 8%, to $918.5 million, from $851.3 million in 2013. |
• | Operating income improved by $22.0 million, or 31%, to $92.6 million, from $70.6 million in 2013. |
• | Operating margin improved to 10.1%, from 8.3% in 2013. |
• | Adjusted net income from continuing operations** increased by $16.8 million, or 40%, to $59.1 million, from $42.3 million in 2013. |
• | Adjusted diluted earnings per share from continuing operations** increased by 39%, to $0.93 per share, from $0.67 per share in 2013. |
• | Cash flow from continuing operating activities was $72.2 million and helped reduce debt balances by 45%, from $92.1 million in 2013 to $50.2 million. |
• | Interest expense was reduced by 57% to $3.8 million, from $8.8 million in 2013. |
• | Net availability of borrowings under our domestic revolving credit facility increased by $22.5 million, or 22%, from $103.6 million in 2013. |
• | Debt leverage was reduced to 0.5 times adjusted EBITDA**, from 1.1 times adjusted EBITDA** in 2013. |
• | Quarterly dividend was reinstated and we issued dividends totaling $5.6 million. |
• | We increased focus on return on invested capital (“ROIC”) in 2014 and introduced an ROIC metric into our long-term incentive compensation programs. This increased focus contributed to a significant year-over-year improvement in ROIC, which we define as net operating profit after taxes divided by average invested capital. |
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• | We repurchased approximately 696,000 shares of our stock under share repurchase programs. The remaining aggregate authorization under these programs of $79.7 million at December 31, 2014 represents approximately 8% of our market capitalization. |
** | As these are non-GAAP measures, we have included a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in Appendix A. |
PROPOSAL 2: ADVISORY VOTE TO APPROVE OUR NAMED EXECUTIVE OFFICER COMPENSATION
Key Elements of our 2014 Executive Compensation Program:
Compensation Elements | Performance Based | Primary Financial Metric(s) | Terms |
Base Salary | N/A | Assessed annually based on individual performance and market data to ensure we attract and retain highly qualified executives. | |
Short-Term Incentive Bonus Plan (Cash) | ü | Earnings and Primary Working Capital | Annual cash awards designed to incentivize executives to achieve Company and individual objectives. |
Achievement of financial targets weighted 70%. | |||
Achievement of individual objectives weighted 30%. | |||
Designed to pay out between 0% and 200% of bonus opportunity based on financial and individual performance. | |||
Capped at a maximum of 200% of bonus opportunity. | |||
Long-Term Incentive Bonus (Equity) (1) | Annual equity awards link long-term financial interests of executives to those of our stockholders. | ||
• Performance Share Units (2) | ü | Earnings Per Share from Continuing Operations and Return on Invested Capital | Performance share units are earned only if the threshold is met during a two-year performance period. Shares vest one year after the end of the performance period. |
• Stock Options (3) | Stock Price | Stock options only have value if share price increases over grant date value. Stock options vest ratably over three years. | |
Special Awards (4) | Case-by-case | Special awards are based on achievement of critical Company initiatives which may be comprised of cash, stock options or restricted stock (subject to vesting requirements) as determined by the Compensation and Benefits Committee. | |
Indirect Compensation | N/A | Includes access to the same health and welfare and retirement plans available to other eligible employees. | |
(1) | Time-based restricted stock units may also be awarded. |
(2) | Effective fiscal year 2015, the performance period was increased from two to three years. Employees vest in any earned awards at the end of the performance period. |
(3) | In our view, stock options are inherently at-risk because they only have value if share price increases over grant date value. |
(4) | No special awards were granted to our NEOs for fiscal year 2014. |
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PROPOSAL 3: APPROVAL OF THE FEDERAL SIGNAL CORPORATION 2015 EXECUTIVE INCENTIVE COMPENSATION PLAN
On March 9, 2015, our Board approved the Federal Signal Corporation 2015 Executive Incentive Compensation Plan (the “2015 Plan”), subject to stockholder approval at the 2015 Annual Meeting. We are asking our stockholders to approve the 2015 Plan in order to satisfy applicable listing rules of the NYSE and the stockholder approval requirement under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. If the 2015 Plan is approved, we would be permitted to grant equity awards relating to an aggregate maximum of 7,800,000 shares of common stock to members of our Board, employees and consultants of Federal Signal Corporation and its affiliates under the 2015 Plan, and no new grants would be permitted under the Federal Signal Corporation 2005 Executive Incentive Compensation Plan (2010 Restatement) as of the first day following the 2015 Annual Meeting. Performance share units granted before or on the date of the 2015 Annual Meeting will continue to vest and be earned under the 2010 Plan in accordance with the terms of the 2010 Plan and applicable award agreements.
PROPOSAL 4: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2015
Deloitte & Touche LLP has served as our independent registered public accounting firm since June 2013. Our Board has accepted the recommendation of the Audit Committee and selected Deloitte & Touche LLP to serve in this same role for fiscal year 2015.
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1415 West 22nd Street
Oak Brook, Illinois 60523
Proxy Statement for Annual Meeting of Stockholders
To Be Held on April 28, 2015
GENERAL INFORMATION
Our Board is soliciting your proxy for use at the Annual Meeting of Stockholders to be held at the Regency Towers Conference Center, 1515 West 22nd Street, Oak Brook, Illinois 60523 on Tuesday, April 28, 2015, at 8:30 a.m., local time. Whenever we refer in this proxy statement to the “Annual Meeting” we are also referring to any meeting that results from an adjournment or postponement of the Annual Meeting. The purpose of the Annual Meeting is:
1. | To elect eight directors; |
2. | To approve, on an advisory basis, the compensation of our NEOs; |
3. | To approve the Federal Signal Corporation 2015 Executive Incentive Compensation Plan; |
4. | To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2015; and |
5. | To transact such other business that may properly come before the meeting or any adjournment(s) or postponement(s) thereof. |
This year we are furnishing proxy materials to our stockholders primarily by the Internet, instead of mailing copies to each stockholder, in order to save costs and reduce the environmental impact of our Annual Meeting. On March 18, 2015, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) to our stockholders. The Notice of Internet Availability contains instructions on how to access this proxy statement, the Notice of Annual Meeting to Stockholders and our 2014 Annual Report on Form 10-K on the Internet at www.proxyvote.com. Stockholders wishing to receive a printed copy of our proxy materials should follow the instructions provided in the Notice of Internet Availability to request a printed copy. Those stockholders who previously requested printed or electronic copies of our proxy materials will receive a printed or electronic copy, as applicable. Printed copies were first mailed on or around March 18, 2015.
Voting Your Shares
Only stockholders owning shares of our common stock on March 2, 2015, the “record date,” are entitled to vote. Such stockholders will be entitled to one vote for each share owned on the record date for each of the eight directorships and on each other matter presented at the meeting. On the record date, there were 62,735,537 shares of our common stock issued and outstanding.
You may vote on the above matters in the following ways:
• | By Telephone or Internet: You may vote by telephone or Internet by following the instructions included in the Notice of Internet Availability and in these proxy materials; |
• | By Written Proxy: If you received a printed copy of the proxy materials, you may vote by written proxy by signing, dating and returning the proxy card in the postage-paid envelope provided; or |
• | In Person: If you are a stockholder of record, you may vote in person at the Annual Meeting. You are a stockholder of record if your shares are registered in your name. If your shares are in the name of your broker or bank, your shares are held in “street name” and you are not a stockholder of record. If your shares are held in street name and you wish to vote in person at the Annual Meeting, you will need to contact your broker or bank to obtain a legal proxy allowing attendance at the Annual Meeting. If you plan to attend the Annual Meeting in person, please bring proper identification and proof of ownership of your shares. |
Our By-Laws provide that a majority of the outstanding shares, present in person or by proxy, will constitute a quorum at the Annual Meeting. For purposes of determining if a quorum is present, we will count: (i) all shares that are voted on any proposal and (ii) all shares that are designated as “withholding authority” to vote for a nominee or nominees or “abstaining” from any proposal, as shares represented at the Annual Meeting.
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If you return a proxy card, but no specific voting instructions are given with respect to a proposal, your shares will be voted “for” each of the eight director nominees named on the proxy card, “for” the advisory approval of the Company’s NEO compensation, “for” the Federal Signal Corporation 2015 Executive Incentive Compensation Plan and “for” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2015.
If you hold your shares in more than one account, you will receive a Notice of Internet Availability for each account. To ensure that all of your shares are voted, please vote by telephone or Internet for each account or, if you have requested printed materials, sign, date and return a proxy card for each account in the postage-paid envelope provided.
Broker Non-Votes
Under the rules governing brokers who have record ownership of shares they hold in street name for clients who beneficially own such shares, a broker may vote such shares in its discretion on “routine” matters if the broker has not received voting instructions from its client. However, a broker cannot exercise its discretion to vote shares on “non-routine” matters absent voting instructions from its client. When a broker votes a client’s shares on some but not all of the proposals presented at the meeting, each non-routine proposal for which the broker cannot vote because it has not received a voting instruction from the client is referred to as a “broker non-vote.” Proposals 1, 2 and 3 are non-routine matters. Therefore, if your shares are held in street name and you do not provide instructions to your broker as to how your shares are to be voted on Proposals 1, 2 and 3, your broker will not be able to vote your shares on these proposals. Your vote is important! We urge you to provide instructions to your broker so that your votes may be counted.
Votes Required
Our By-Laws provide that in an uncontested election, as is the case in this election, a nominee for director shall be elected to the Board if the votes cast “for” such nominee’s election exceed the “withhold authority” votes cast with respect to such nominee’s election (Proposal 1).
Advisory approval of the Company’s NEO compensation requires the affirmative vote of a majority of shares of our common stock cast in person or by proxy (Proposal 2).
Approval of the Federal Signal Corporation 2015 Executive Incentive Compensation Plan requires the affirmative vote of a majority of the shares of our common stock cast in person or by proxy (Proposal 3).
Ratification of the appointment of the independent registered public accounting firm requires the affirmative vote of a majority of the shares of our common stock cast in person or by proxy (Proposal 4).
In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered votes cast on that proposal. For Proposals 1, 2 and 4, pursuant to our By-Laws, abstentions are not considered votes cast on those proposals. For Proposal 3, abstentions are considered votes cast and will have the effect of a vote “against” Proposal 3.
Shares Held in 401(k) Plan
Our 401(k) Plan (the Federal Signal Corporation Retirement Savings Plan) held 1,122,991 shares of our common stock in the name of Vanguard Fiduciary Trust Company, as trustee of the 401(k) Plan, as of March 2, 2015. If you are a participant in our 401(k) Plan, you will also receive a Notice of Internet Availability with respect to shares held on your behalf in the 401(k) Plan. If no proper voting direction is received, Vanguard, in its capacity as the 401(k) Plan Trustee, will vote your shares held in the 401(k) Plan in the same proportion as votes received from other participants in the 401(k) Plan.
Revocability of Proxy
You may revoke your proxy at any time before it is voted by:
• | Voting by telephone or Internet on a later date, or delivering a later-dated proxy card if you requested printed proxy materials, prior to or at the Annual Meeting; |
• | Filing a written notice of revocation with our Corporate Secretary; or |
• | Attending the Annual Meeting and voting your shares in person (Note: Attendance alone at the Annual Meeting will not revoke a proxy). |
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Manner of Solicitation and Solicitation Costs
We will pay the costs of proxy solicitation for the Annual Meeting. Proxies may be solicited by correspondence, electronically, telephone, mail or otherwise. Our directors, officers and employees may solicit proxies but they will not receive any extra compensation for these services. We will reimburse brokers and other nominee holders for their reasonable expenses incurred in forwarding proxy materials to beneficial owners. We do not intend to retain professional proxy solicitation assistance, but we may utilize professional services in the future.
Stockholder Questions
If you have any questions about the Annual Meeting, please submit them to Federal Signal Corporation, 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary, or call our Corporate Secretary at 630-954-2008. If you would like to receive printed copies of the proxy materials, please follow the instructions on the Notice of Internet Availability.
OWNERSHIP OF OUR COMMON STOCK
Common stock is our only class of voting securities. The following table identifies beneficial owners, of which we are aware, that hold more than five percent of our common stock as of March 2, 2015.
Beneficial Owners of More than Five Percent of Our Common Stock
Name | Amount and Nature of Beneficial Ownership | Percent of Outstanding Common Stock (1) | ||
Heartland Advisors, Inc. | 6,704,879 (2) | 10.7% | ||
789 North Water Street | ||||
Milwaukee, WI 53202 | ||||
BlackRock, Inc. | 5,819,674 (3) | 9.3% | ||
55 East 52nd Street | ||||
New York, NY 10022 | ||||
Franklin Mutual Advisers, LLC | 4,712,381 (4) | 7.5% | ||
101 John F. Kennedy Parkway | ||||
Short Hills, NJ 07078 | ||||
Dimensional Fund Advisors LP | 3,878,160 (5) | 6.2% | ||
Building One | ||||
6300 Bee Cave Road | ||||
Austin, TX 78746 | ||||
(1) | Based on 62,735,537 shares of common stock issued and outstanding as of March 2, 2015. |
(2) | Based solely on a Schedule 13G (Amendment No. 8) filed with the United States Securities and Exchange Commission (the “SEC”) on February 13, 2015, in which Heartland Advisors, Inc. reported that, as of December 31, 2014, it had shared voting power and shared dispositive power over all shares as a registered investment adviser. These shares may be deemed beneficially owned by both Heartland Advisors, Inc., by virtue of its investment discretion and voting authority granted by certain clients, which may be revoked at any time, and William J. Nasgovitz, by virtue of his control of Heartland Advisors, Inc. Mr. Nasgovitz disclaims beneficial ownership of these shares. |
(3) | Based solely on a Schedule 13G (Amendment No. 6) filed with the SEC on January 15, 2015, in which BlackRock, Inc. reported that, as of December 31, 2014, it had sole voting power over 5,665,579 shares and sole dispositive power over 5,819,674 shares. |
(4) | Based solely on a Schedule 13G (Amendment No. 9) filed with the SEC on February 3, 2015, in which Franklin Mutual Advisers, LLC reported that, as of December 31, 2014, it had sole voting and dispositive power with respect to all shares. |
(5) | Based solely on a Schedule 13G (Amendment No. 2) filed with the SEC on February 5, 2015, in which Dimensional Fund Advisors LP reported that, as of December 31, 2014, it had sole voting power over 3,731,938 shares and sole dispositive power with respect to 3,878,160 shares in its capacity as an investment adviser registered under the Investment Advisors Act of 1940 to four investment companies and as investment |
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manager to certain other commingled group trusts and separate accounts. Dimensional Fund Advisors LP disclaims beneficial ownership of these shares.
Stock Ownership of Directors and Management
The following table sets forth the beneficial ownership of our common stock by each of our directors and NEOs individually and as a group as of March 2, 2015.
Name (1) | Amount and Nature of Beneficial Ownership (2) | Percent of Outstanding Common Stock (3) | Other (4) | ||
James E. Goodwin | 165,407 | * | — | ||
Paul W. Jones | 113,737 | * | — | ||
Bonnie C. Lind (5) | 6,958 | * | — | ||
Richard R. Mudge | 74,126 | * | — | ||
William F. Owens | 71,691 | * | — | ||
Brenda L. Reichelderfer | 117,196 | * | — | ||
John L. Workman (5) | 11,667 | * | — | ||
Dennis J. Martin | 666,688 | 1.1% | 154,762 | ||
Jennifer L. Sherman | 346,713 | * | 54,166 | ||
Brian S. Cooper | 10,541 | * | 34,108 | ||
Bryan L. Boettger | 117,024 | * | 18,452 | ||
Julie A. Cook | 23,046 | * | 13,094 | ||
All Directors and Executive Officers as a Group (14 persons) (6) | 1,815,876 | 2.9% | 306,110 | ||
(1) | All of our directors and officers use our Company address: 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523. |
(2) | Totals include shares subject to stock options exercisable within 60 days of March 2, 2015 as follows: Mr. Goodwin, 62,210; Mr. Jones, 6,254; Dr. Mudge, 5,000; Mr. Owens, 5,000; Ms. Reichelderfer, 9,226; Mr. Martin, 438,323; Ms. Sherman, 200,020; Mr. Cooper, 10,541; Mr. Boettger, 88,256; and Ms. Cook, 12,646. All directors and executive officers as a group hold stock options exercisable within 60 days of March 2, 2015 with respect to 887,532 shares. Totals also include restricted stock units that are vested but for which delivery has been deferred at the election of the director, as follows: Mr. Goodwin, 25,161 and Dr. Mudge, 23,361. Totals also include 40,730 shares held by Ms. Sherman in our 401(k) Plan. Totals do not include 822 notional shares held by Mr. Boettger in our Savings Restoration Plan. |
(3) | Based upon 62,735,537 shares of common stock issued and outstanding as of March 2, 2015 and, for each director or executive officer or the group, the number of shares subject to stock options exercisable by such director or executive officer or the group within 60 days of March 2, 2015. The use of “*” denotes percentages of less than 1%. |
(4) | Consists of earned performance share units that remain subject to additional time-based vesting. These shares, under the rules of the SEC, are not deemed to be “beneficially owned” for purposes of this table and accordingly have been separately listed. |
(5) | Ms. Lind and Mr. Workman were appointed to the Board effective February 20, 2014. |
(6) | The information contained in this portion of the table is based upon information furnished to us by the named individuals above and from our records. Except with respect to 1,000 shares beneficially owned by Dr. Mudge, which he jointly owns with his spouse, each director and officer claims sole voting and investment power with respect to the shares listed above. |
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PROPOSAL 1
ELECTION OF EIGHT DIRECTORS
In accordance with the recommendation of the Nominating and Governance Committee, our Board has nominated the following eight individuals for election at the Annual Meeting to hold office for one year or until their successors are elected and qualified: James E. Goodwin, Paul W. Jones, Bonnie C. Lind, Dennis J. Martin, Richard R. Mudge, William F. Owens, Brenda L. Reichelderfer and John L. Workman. All director nominees are incumbent members of our Board.
Pursuant to our By-Laws, in an uncontested election, as is the case in this election, a nominee for director shall be elected to the Board if the votes cast “for” such nominee’s election exceed the “withhold authority” votes cast with respect to such nominee’s election. Each of the nominees has consented to being named in this proxy statement and to serve if elected. If any of the nominees should decline or be unable to serve as a director, the persons named as proxies will vote your proxies for such other nominee(s) as the Nominating and Governance Committee may nominate to provide for a full Board.
The Board recommends a vote “FOR” the election of James E. Goodwin, Paul W. Jones, Bonnie C. Lind, Dennis J. Martin, Richard R. Mudge, William F. Owens, Brenda L. Reichelderfer and John L. Workman.
Information Regarding Directors and Nominees
On an annual basis, the Nominating and Governance Committee reviews with our Board the applicable skills and characteristics required of Board nominees and recommends nominees to the Board. The Nominating and Governance Committee is comprised solely of independent members of our Board.
When identifying nominees, the Nominating and Governance Committee considers (i) current Board composition, (ii) past performance for existing director nominees, (iii) the Company’s objectives and position; and (iv) the qualifications and qualities of individual candidates. Characteristics with particular relevance and weight include core competencies, experience, independence, level of commitment, integrity, high personal and professional ethics, personal accomplishment, understanding of our business, gender, age and ethnic diversity. The Nominating and Governance Committee may also engage a third party to assist in identifying potential director nominees.
Set forth below are biographical summaries for each nominee as of the record date, along with a description of the key qualifications and relevant experience that led the Board to conclude that he or she is well-qualified to serve as a member of our Board.
 | Mr. Goodwin has served as Chairman of our Board since April 2009. He served as interim President and CEO of our Company from December 2007 until September 2008. From October 2001 to December 2007, Mr. Goodwin operated his own independent consulting business. He resumed this business in September 2008 and continues to operate it to date. Mr. Goodwin also serves as a member of the Advisory Board of Wynnchurch Capital, a private equity company, a position he has held since January 2013. From July 1999 to October 2001, Mr. Goodwin served as Chairman and CEO of United Airlines, a worldwide airline operator (NYSE: UAL). Mr. Goodwin also serves as a member of the Board of Directors of AAR Corp., a manufacturer of products for the aviation/aerospace industry (NYSE: AIR), and John Bean Technologies Corporation, a manufacturer of industrial equipment for the food processing and air transportation industries (NYSE: JBT), serving in such positions since April 2002 and July 2008, respectively. | |
James E. Goodwin | Key Qualifications: | |
Director since October 2005 | • Extensive background in global operations, broad management experience and strategic leadership skills | |
Committees: | • In-depth understanding of our Company and its industry | |
• Nominating and Governance | • Significant experience as a Chairman, CEO and director of publicly traded companies | |
• Compensation and Benefits | ||
Age: 70 | ||
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 | Effective April 2014, Mr. Jones retired as Executive Chairman of A. O. Smith Corporation, a manufacturer of water heating and water treatment systems (NYSE: AOS), a position he held since January 2013. From December 2005 to January 2013, he was Chairman and CEO of A. O. Smith Corporation, and from January 2004 until December 2005, he was President and COO. Mr. Jones has served on the Board of Directors of A. O. Smith Corporation since December 2004. In December 2014, Mr. Jones joined the Board of Directors of Rexnord Corporation, a manufacturer of water management systems (NYSE: RXN). Mr. Jones also has served on the Board of Directors of Integrys Energy Group, Inc., a utility holding company (NYSE: TEG), since December 2011. From July 2006 to July 2011, Mr. Jones served as a member of the Board of Directors of Bucyrus International, Inc., a manufacturer of mining and construction machinery (formerly NASDAQ: BUCY), until its acquisition by Caterpillar Inc. Mr. Jones also serves as a member of the Board of Directors of the United States Chamber of Commerce since March 2008. | |
Paul W. Jones | Key Qualifications: | |
Director since December 1998 | • Extensive management and manufacturing experience with multinational companies | |
Committees: | • Significant experience as a Chairman, CEO and director of publicly traded companies | |
• Nominating and Governance (Chair) | ||
• Experienced strategist focused on enterpirse growth | ||
• Compensation and Benefits | ||
Age: 66 | ||
 | Ms. Lind is Senior Vice President, CFO and Treasurer of Neenah Paper, Inc., a technical specialties and fine paper company (NYSE: NP). Ms. Lind joined Neenah Paper, Inc. in 2004 as CFO to execute the spin-off from Kimberly-Clark Corporation, a manufacturer of personal care, consumer tissue and health care products (NYSE: KMB). Ms. Lind was an employee of Kimberly-Clark Corporation from 1982 until 2004, holding a variety of increasingly senior financial and operations positions and served as their Assistant Treasurer from 1999 until June 2004. From 2009 to the present, Ms. Lind has served on the Board of Directors of Empire District Electric Company, a utility generating, transmitting and distributing power to southwestern Missouri and adjacent areas (NYSE: EDE). Ms. Lind is a member of Empire’s Audit Committee and Nominating and Corporate Governance Committee, and Chairman of its Retirement Committee. | |
Bonnie C. Lind | Key Qualifications: | |
Director since February 2014 | • Vast experience in manufacturing, financing and mergers and acquisitions | |
• Deep finance and treasury experience | ||
• Extensive leadership and managerial experience | ||
Committees: | ||
• Audit | ||
Age: 56 | ||
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 | Mr. Martin has served as our Company’s President and CEO since October 30, 2010 and joined our Board in March 2008. Prior to becoming our President and CEO, Mr. Martin served as an independent business consultant to manufacturing companies. From May 2001 to August 2005, Mr. Martin was the Chairman, President and CEO of General Binding Corporation, a manufacturer and marketer of binding and laminating office equipment (formerly NASDAQ: GBND), until its acquisition by Acco World Brands. Mr. Martin has served as a director of HNI Corporation, a provider of office furniture and hearths (NYSE: HNI), since July 2000. Mr. Martin served on the Board of Directors of Coleman Cable, Inc., a manufacturer and innovator of electrical and electronic wire and cable products (formerly NASDAQ: CCIX), from February 2008 until February 2014 when Coleman was purchased by Southwire Company. Mr. Martin also served on the Board of Directors of A. O. Smith Corporation, a manufacturer of water heating systems and electric motors (NYSE: AOS), from January 2004 until December 2005. | |
Dennis J. Martin | Key Qualifications: | |
Director since March 2008 | • Expertise in manufacturing and business process engineering | |
• Accomplished sales strategist | ||
Committees: None | • In-depth knowledge of our Company and its operations as President and CEO | |
Age: 64 | ||
 | Dr. Mudge is President of Compass Transportation and Technology Inc., a private consulting firm, a position he has held since December 2013. Dr. Mudge previously served as the Vice President of the U.S. Infrastructure Division of Delcan Corporation from 2002 until December 2013 and he had served on the Board of Directors of Delcan’s U.S. subsidiary from 2005 until December 2013. Dr. Mudge previously served as President of the transportation subsidiary of U.S. Wireless Corporation, from April 2000 to December 2001, and as Managing Director of Transportation for Hagler Bailly, Inc., a worldwide provider of management consulting services to the energy and network industries (formerly NASDAQ: HBIX), from 1998 to 2000. In 1986, Dr. Mudge co-founded Apogee Research Inc., an infrastructure consulting firm, and served as its President until 1995 and then as its Chairman of the Board from 1995 until 1997, when Apogee merged with Hagler Bailly. Dr. Mudge also worked for the Congressional Budget Office from 1975 to 1986 where he became Chief of the Public Investment Unit and for the Rand Corporation where he served as Director of Economic Development Studies from 1972 to 1975. | |
Richard R. Mudge | ||
Key Qualifications: | ||
Director since April 2010 | ||
• Expertise across multiple facets of the transportation industry | ||
Committees: | • Leadership in technology, finance, business, government policy and research | |
• Audit | • Experience growing businesses | |
Age: 69 | ||
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 | Mr. Owens serves on the Board of Directors of Bill Barrett Corporation, an independent oil and gas company (NYSE: BBG); Cloud Peak Energy, Inc., a sub-bituminous steam coal producer (NYSE: CLD); and Key Energy Services, Inc., an oil well services company (NYSE: KEG), positions he has held since May 2010, January 2010 and January 2007, respectively. Mr. Owens served on the Board of Directors of Far Eastern Shipping Company Plc., a shipping and railroad company listed on the Moscow exchange (MOEX: FESH), from June 2007 to June 2012. Since 2013, Mr. Owens has served as the Chairman of the Supervisory Board of the Credit Bank of Moscow, a private bank headquartered in Moscow. Mr. Owens also currently serves as Managing Director of Renew Strategies, LLC, a land and water development firm. Mr. Owens served as Governor of Colorado from 1999 to 2007. Prior to that, he served as Treasurer of Colorado (1995-1999) and as a member of the Colorado Senate (1989-1995) and the Colorado House of Representatives (1983-1989). | |
William F. Owens | Key Qualifications: | |
Director since April 2011 | • Extensive experience in international business | |
• Management expertise across a broad range of industries | ||
Committees: | • Distinguished Government background | |
• Compensation and Benefits | ||
• Nominating and Governance | ||
Age: 64 | ||
 | Ms. Reichelderfer is Senior Vice President and Managing Director of TriVista Business Group, a management consulting and advisory firm, a position she has held since June 2008. Since June of 2011, Ms. Reichelderfer has served on the Board of Directors of Meggitt PLC, a global defense and aerospace firm, the shares of which are listed on the London Stock Exchange (MGGT: LSE). From April of 2010 to June 2014, she served on the Board of Directors of Wencor Group LLC, an aerospace distribution business owned by a private equity firm. From 2008 to 2014, Ms. Reichelderfer served as a member of the Technology Transfer Advisory Board of The Missile Defense Agency, a division of the United States Department of Defense. Until May 2008, Ms. Reichelderfer was Senior Vice President, Group President (from December 1999), and then Corporate Director of Engineering and Chief Technology Officer (from October 2005) of ITT Corporation, a global engineering and manufacturing company (NYSE: ITT). | |
Brenda L. Reichelderfer | Key Qualifications: | |
Director since October 2006 | • Expertise in growing industrial and aerospace businesses | |
• Extensive experience in operations, innovation and new product development | ||
• Significant international business experience | ||
Committees: | ||
• Compensation and Benefits (Chair) | ||
• Nominating and Governance | ||
Age: 56 | ||
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 | In June 2014, Mr. Workman retired as CEO of Omnicare, Inc., a healthcare services company specializing in the management of pharmaceutical care in 47 states, a position he held since June 2012 (NYSE: OCR). From February 2011 to June 2012, Mr. Workman was Omnicare’s President and CFO and held the position of Executive Vice President and CFO from November 2009 until February 2011. Mr. Workman also served on the Board of Directors of Omnicare, Inc. from September 2012 to June 2014. From 2004 to 2009, Mr. Workman served as Executive Vice President and CFO of HealthSouth Corporation, a provider of inpatient rehabilitation services in the U.S. (NYSE: HLS). Mr. Workman held the position of CEO of U.S. Can Corporation, a manufacturer of aerosol and general line cans sold in the U.S., Europe and South America, from 2003 to 2004 and served as its CFO from 1998 to 2002. Mr. Workman has been a member of the Board of Directors of Universal Hospital Services, Inc., a private company that provides medical equipment management services since November 2014. Effective February 2015, Mr. Workman was appointed the Interim Executive Chairman of the Board of Directors of Universal Hospital Services, Inc. Mr. Workman served on the Boards of APAC Customer Services, Inc. (formerly NASDAQ: APAC), a provider of customer care outsourcing solutions, from 2008 to 2011 and U.S. Can Corporation from 2000 to 2004. | |
John L. Workman | ||
Director since February | ||
2014 | ||
Key Qualifications: | ||
Committees: | • Broad based executive and leadership experience in a variety of businesses and disciplines | |
• Audit (Chair — effective April 22, 2014) | ||
• Financial expertise | ||
• Executive experience with focus on optimizing capital structure | ||
Age: 63 | ||
INFORMATION CONCERNING THE BOARD
Board Leadership Structure and Role in Risk Oversight
We separate the roles of CEO and Chairman of the Board. Separating these positions allows our CEO to focus on the day-to-day leadership and performance of our Company while allowing our Chairman to lead our Board in its fundamental role of providing advice to and independent oversight of management. Our Board believes that having separate positions with an independent outside director serving as Chairman is the appropriate leadership structure for our Company at this time and demonstrates our commitment to good corporate governance.
Our Board has overall responsibility for the oversight of risk management. Day-to-day risk management is the responsibility of management, which has implemented the Enterprise Risk Management process to identify, assess, manage and monitor risks that our Company faces. Enterprise Risk Management is administered by our Company officers and is discussed and reviewed by our executive management. Our Internal Audit function is responsible for monitoring the program.
Our Board, either as a whole or through its Committees, regularly discusses with management (i) our major risk exposures, (ii) the potential impact of such exposures on our Company and (iii) the steps we take to monitor, control and remediate such exposures. In addition, the Board receives an annual overview of significant risks along with risk mitigation plans.
While our Board is ultimately responsible for risk oversight at our Company, our Board Committees assist the Board in fulfilling its oversight responsibilities in certain areas. In particular, the Audit Committee focuses on the management of financial and accounting risk exposures. The Compensation and Benefits Committee assists our Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. Finally, the Nominating and Governance Committee focuses on the management of risks associated with Board organization, membership and structure, as well as the organizational and governance structure of our Company.
Attendance at Board and Committee Meetings
During fiscal year 2014, our Board held a total of five meetings, the Audit Committee held nine meetings, the Compensation and Benefits Committee held five meetings and the Nominating and Governance Committee held four meetings. Our Corporate Governance Guidelines require regular attendance by our directors at Board meetings and their respective Committee meetings. All directors attended at least 75% of our Board meetings and their Committee meetings.
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Independence of Members of the Board
The Board has determined that all of its directors, other than Mr. Martin, qualify as independent. In making this determination, the Board considered the rules of the NYSE and the SEC. The Board also reviewed information provided by the directors and nominees in questionnaires and other certifications concerning their relationships to our Company (including relationships of each director’s immediate family members and other associates to our Company).
Committees of the Board
Pursuant to our By-Laws, we have established standing Board Committees, including Audit, Compensation and Benefits, and Nominating and Governance. The Board has determined that all of the members of these Committees are independent as defined under applicable NYSE and SEC rules. The Board has adopted a charter for each Committee to comply with the requirements of the NYSE and applicable law, copies of which are available on our website at www.federalsignal.com.
Current Committee Membership
Name | Audit | Compensation and Benefits | Nominating and Governance |
James E. Goodwin | — | ü | ü |
Paul W. Jones | — | ü | Chair |
Bonnie C. Lind (1) | ü | — | — |
Dennis J. Martin | — | — | — |
Richard R. Mudge | ü | — | — |
William F. Owens | — | ü | ü |
Brenda L. Reichelderfer | — | Chair | ü |
John L. Workman (1) | Chair | — | — |
(1) | The Board has determined that Mr. Workman and Ms. Lind each qualify as an “audit committee financial expert” as defined by the SEC. Mr. Workman and Ms. Lind joined the Audit Committee on February 21, 2014 and Mr. Workman became its Chair on April 22, 2014 when Mr. Campbell’s term on the Board expired. |
Audit Committee
The Audit Committee is responsible for monitoring:
• | The integrity of our financial statements; |
• | The qualifications and independence of our independent registered public accounting firm; |
• | The performance of our internal audit function and independent registered public accounting firm; and |
• | Our compliance with legal and regulatory requirements, including our Policy for Business Conduct for all employees and Code of Ethics for our CEO and senior officers. |
In fulfilling its role, the Audit Committee reviews the design and operation of internal control processes and the manner in which we control our major financial risk exposures. The Audit Committee has direct and regular access to our financial executives, including our Vice President of Internal Audit, Corporate Controller, CFO and independent auditor. The Audit Committee has the sole authority to appoint or replace our independent auditor, and is directly responsible for overseeing its work and determining its compensation. The Audit Committee also considers and approves the performance of non-audit services by our independent auditor, taking into consideration the effect that the performance of non-audit services may have upon our auditor’s independence. None of the Audit Committee members serves on more than three audit committees of publicly traded companies (including our Company).
Compensation and Benefits Committee
The Compensation and Benefits Committee is responsible for formulating and overseeing effective implementation of our compensation and benefits philosophy. This Committee sets compensation objectives, determines the components of compensation and establishes and evaluates performance goals for our executive officers. The functions of this Committee are further described in this proxy statement under the heading “Compensation Discussion and Analysis.”
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The Compensation and Benefits Committee recently conducted a compensation risk assessment of the various elements of our Company’s overall compensation programs, including incentive compensation programs. The Committee reviewed current and evolving best practice guidance and our compensation programs and policies, including appropriate internal controls to mitigate and reduce risk. The Committee concluded that our compensation programs and policies are in accordance with best practices and do not create excessive and unnecessary risk. Our Company and the Committee will continue to maintain proper policies and procedures to ensure ongoing management and assessment of compensation practices as they relate to best practices and risk.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for recommending guidelines to the Board for corporate governance, including the structure and function of our Board, its Committees and the management of our Company. This Committee also identifies and recommends nominees for election to our Board and advises the Board regarding appropriate director compensation.
Stockholders may recommend individuals to the Nominating and Governance Committee to be considered as potential directors by giving written notice to our Corporate Secretary at least 90 days, but not more than 120 days, prior to the anniversary of the preceding year’s Annual Meeting. Such recommendations must be accompanied by the specific information required by our By-Laws, including but not limited to (i) the name and address of the nominee, (ii) the number of shares of our common stock beneficially owned by the stockholder (including associated persons) nominating such nominee and (iii) an SEC appropriate consent by the nominee to serve as a director if elected. If you would like to receive a copy of the provisions of our By-Laws setting forth all of the requirements, please send a written request to Federal Signal Corporation, 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary. The Nominating and Governance Committee will consider stockholder nominees on the same basis as other nominees.
The Nominating and Governance Committee has set no specific minimum qualification for a nominee to the Board. Under our Corporate Governance Guidelines, no person may stand for election as director: (i) after attaining age 72 without a waiver from the Board; (ii) if he or she serves on more than six boards of publicly traded companies or (iii) if he or she is the CEO of a publicly traded company and serves on more than three boards of publicly traded companies.
Pursuant to our director resignation policy contained in our Corporate Governance Guidelines, each director nominee must submit an irrevocable letter of resignation from our Board prior to every director election. These resignations become effective if the director does not receive the necessary majority vote for election and the Board, after evaluating the Nominating and Governance Committee’s recommended course of action, determines to accept the resignation. The Board will take action on the Committee’s recommendation within 180 days following the election and will disclose its decision publicly including, if applicable, the reasons for rejecting a resignation.
Director Compensation in the Last Fiscal Year
The following table details the compensation provided to each non-employee director for fiscal year 2014. Our President and CEO, Mr. Martin, does not receive any additional compensation for his service on our Board.
Non-Employee Director Compensation in Fiscal Year 2014
Name | Fees Earned or Paid in Cash (1) | Stock Awards (2) | Option Awards (3) | Other Compensation | Total | ||||||||||
Charles R. Campbell (4) | $ | 21,846 | $ | — | $ | — | $ | — | $ | 21,846 | |||||
James E. Goodwin (5) | $ | 113,608 | $ | 90,000 | $ | — | $ | — | $ | 203,608 | |||||
Paul W. Jones | $ | 73,500 | $ | 75,000 | $ | — | $ | — | $ | 148,500 | |||||
Bonnie C. Lind | $ | 57,859 | $ | 75,000 | $ | 33,900 | $ | — | $ | 166,759 | |||||
Richard R. Mudge | $ | 67,338 | $ | 75,000 | $ | — | $ | — | $ | 142,338 | |||||
William F. Owens | $ | 69,514 | $ | 75,000 | $ | — | $ | — | $ | 144,514 | |||||
Brenda L. Reichelderfer | $ | 76,769 | $ | 75,000 | $ | — | $ | — | $ | 151,769 | |||||
John L. Workman | $ | 61,977 | $ | 75,000 | $ | 33,900 | $ | — | $ | 170,877 | |||||
(1) | Includes the following share amounts awarded in lieu of cash using the closing share price of our common stock on the grant date: Ms. Lind, 1,991 shares; Mr. Owens, 586 shares and Mr. Workman, 3,200 shares. |
(2) | Each non-employee director is issued a stock award annually. The annual award is determined by dividing $75,000 ($90,000 in the case of the Chairman) by the closing price of our common stock on the grant date. |
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Amounts stated reflect the grant date fair value computed in accordance with Accounting Standards Codification 718 “Compensation — Stock Compensation” (“ASC 718”). The following awards were granted to the non-employee directors on April 22, 2014, at a closing share price of $15.10: 5,960 shares of common stock to Mr. Goodwin as Chairman and 4,967 shares of common stock to each of Messrs. Jones, Mudge, Owens and Workman, and Mses. Lind and Reichelderfer. As of December 31, 2014, each non-employee director held the following aggregate number of shares: Mr. Goodwin, 103,197 shares, including 25,161 deferred shares held in the form of restricted stock units; Mr. Jones, 107,483 shares; Ms. Lind, 6,958 shares; Dr. Mudge, 69,126 shares, including 23,361 deferred shares held in the form of restricted stock units; Mr. Owens, 66,691 shares; Ms. Reichelderfer, 107,970 shares; and Mr. Workman, 11,667 shares. Excluding initial awards upon appointment, stock awards to non-employee directors are not subject to vesting requirements.
(3) | Amounts stated reflect the aggregate grant date fair value for the fiscal year ended December 31, 2014 computed in accordance with ASC 718. In connection with appointment to our Board, Ms. Lind and Mr. Workman each received a grant of 5,000 stock options on February 20, 2014 with an exercise price of $12.69 per share, the closing price of our common stock on the date of grant, all of which vest in full on the third anniversary of the date of grant. No stock options were granted to any of the other directors during the fiscal year ended December 31, 2014. As of December 31, 2014, each non-employee director had the following number of stock options outstanding: Mr. Goodwin, 62,210; Mr. Jones, 6,254; Ms. Lind, 5,000; Dr. Mudge, 5,000; Mr. Owens, 5,000; Ms. Reichelderfer, 9,226; and Mr. Workman, 5,000. For information on the assumptions used to calculate the value of the stock option awards, refer to Note 11 — Stock-Based Compensation to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as filed with the SEC on March 2, 2015. |
(4) | Mr. Campbell served as a member of the Board until April 22, 2014, when his term as a director expired. The annual retainer paid to Mr. Campbell was prorated through April 22, 2014. |
(5) | Mr. Goodwin’s fees in the first column are comprised of an annual retainer amount of $87,500, Committee membership fees of $11,108 and meeting fees of $15,000. |
Additional Information about Director Compensation
In advising our Board on compensation for non-employee directors, the Nominating and Governance Committee may consult third-party advisors, generally available source material, proxy statements and data from peer companies. Non-employee directors receive both cash and equity compensation and are subject to a common stock ownership requirement designed to align their interests with those of our stockholders. Our only employee director, Mr. Martin, is subject to stock ownership requirements as an executive officer (see “Compensation Discussion and Analysis — Executive Stock Ownership Requirements”).
Cash Compensation
The table below sets forth our fiscal year 2014 cash compensation structure for non-employee directors.
2014 Cash Compensation of Our Non-Employee Directors
Annual Retainer | Per Diem Fee | Board Meeting Attended in Person (1) | Board Meeting Attended by Telephone | |||||||||
Chairman of the Board (2) | $ | 87,500 | $ | 2,500 | $ | 3,000 | $ | 500 | ||||
Director (excluding Chairman) | $ | 50,000 | $ | — | $ | 1,500 | $ | 500 | ||||
Audit Committee Chair | $ | 15,000 | $ | — | $ | — | $ | — | ||||
Audit Committee Member | $ | 9,000 | $ | — | $ | — | $ | — | ||||
Compensation & Benefits Committee Chair | $ | 12,000 | $ | — | $ | — | $ | — | ||||
Compensation & Benefits Committee Member | $ | 6,000 | $ | — | $ | — | $ | — | ||||
Nominating & Governance Committee Chair | $ | 10,000 | $ | — | $ | — | $ | — | ||||
Nominating & Governance Committee Member | $ | 6,000 | $ | — | $ | — | $ | — | ||||
(1) | Directors are also reimbursed for their out-of-pocket expenses relating to attendance at Board and Committee meetings. |
(2) | The Chairman is also eligible to receive a per diem fee for other time spent on Company business (up to a maximum of $150,000 per year). Mr. Goodwin elected not to receive any per diem fees for the additional time he spent on Company matters during fiscal year 2014. |
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Equity Compensation
Upon initial appointment or election to our Board, each non-employee director receives a grant of 5,000 stock options, subject to three-year cliff vesting. Thereafter, our non-employee directors typically receive an annual stock award as partial compensation for their Board service. The table below sets forth the equity awards granted on April 22, 2014, the date of our 2014 Annual Meeting of Stockholders, to our non-employee directors as compensation for their service in fiscal year 2014.
2014 Annual Equity Awards Granted to Non-Employee Directors
Common Stock Award | |||
Chairman of the Board | $ | 90,000 | |
Non-employee director (excluding the Chairman) | $ | 75,000 | |
Pursuant to our Director Compensation Policy, the number of shares of common stock awarded is determined by dividing the dollar amount of the award by the closing market price of our common stock on the grant date.
Director Deferred Stock Compensation Program
Our non-employee directors may elect before the beginning of each year to defer receipt of some or all of the shares of Company stock that they are entitled to receive as compensation for Board service during the upcoming year. Under this program, instead of receiving shares of Company stock, the director receives an equivalent number of fully vested unrestricted stock units that are ultimately distributable on a date or dates selected by the director, subject to certain restrictions. The directors are given a one-time right to further defer the original distribution of stock to a date that is at least five years after the originally scheduled payment date. Distributions under the program are only payable in shares of Company stock. During 2014, no directors elected to defer stock under the program.
Director Stock Ownership Guidelines
We require our non-employee directors to own common stock valued at five times their annual retainers. All of our non-employee directors have met their target ownership levels, except our directors appointed in 2014, Ms. Lind and Mr. Workman. Under our rules, until target ownership is met, at least 50% of a non-employee director’s annual compensation fees are paid in shares of our common stock. We prohibit non-employee directors from selling their shares until they have met the holding requirement (however, they may tender shares: (i) to pay taxes upon the exercise of stock options or the vesting of shares of restricted stock or (ii) for the exercise price upon the exercise of stock options). Stock ownership value is calculated annually using our average stock price for the prior six-month period. Once a determination has been made that the target ownership has been achieved, a decrease in the value of our common stock will not impact the determination. Also, after achieving the ownership target, each director is required to hold 50% of the net shares received from exercised options or vested shares of common stock (over and above the target ownership level) for at least two years from the date of exercise or vesting.
CORPORATE GOVERNANCE, BUSINESS CONDUCT AND CODE OF ETHICS;
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
We are committed to good corporate governance. We believe the foundation of our corporate governance is (i) the independence of our directors, (ii) the separation of the roles of our CEO and Chairman of the Board and (iii) our commitment to both responsible corporate citizenship and the interests of our stockholders. In accordance with the requirements of the NYSE and the Sarbanes-Oxley Act of 2002, our Board has adopted Corporate Governance Guidelines as well as charters for each of the standing Board Committees. These guidelines and charters, as well as our Policy for Business Conduct and Policy for Business Conduct-Directors (together, the “Business Conduct Policies”) and a Code of Ethics, which is applicable to our CEO and our senior officers, are available for review on our website at www.federalsignal.com.
The non-employee directors of the Board meet in executive session without management, as appropriate. The Chairman presides over executive sessions. Directors may be contacted as a group, by Committee or individually, and the Chairman or the non-employee directors as a group may be contacted on an anonymous and/or confidential basis by addressing a letter to Federal Signal Corporation, 1415 West 22nd Street, Suite 1100, Oak Brook, IL 60523, Attn: Corporate Secretary. These letters will be forwarded to the Chairman or the non-employee directors as designated in the letter. We encourage our directors to attend our Annual Meetings of Stockholders. All of our then current directors, and Mr. Campbell whose term ended on April 22, 2014, attended the 2014 Annual Meeting of Stockholders.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2014, all members of our Compensation and Benefits Committee were independent directors, and no member other than Mr. Goodwin was a current or former employee of the Company. None of our executive officers served on the compensation committee (or its equivalent) or board of directors of another company that, in turn, had an executive officer serving on our Compensation and Benefits Committee and/or our Board.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
We maintain policies and procedures relating to the review, approval or ratification of transactions in which our Company participates and our directors, executive officers, 5% stockholders (if any) or their family members have a direct or indirect material interest. Our Business Conduct Policies (available at www.federalsignal.com) prohibit our directors, executive officers, employees and, in some cases, their family members, from engaging in certain activities without prior written consent. These activities typically relate to situations where the individual may have significant financial or business interests in another company competing with or doing business with us, or stands to benefit in some way from such a relationship or activity. Specifically, our Business Conduct Policies prohibit: receiving or giving gifts or prizes above a nominal value from or to customers or suppliers; working for a customer or supplier or engaging in outside profit-making activities in any area of business in which we operate; representing any outside commercial interest during normal business hours or when traveling on Company business; lending to or borrowing money from individuals affiliated with an entity with whom we conduct business; owning any part of any customer’s or supplier’s business (excluding routine investments in publicly traded companies); using Company property, information or positions for improper personal gain or benefit; and engaging in Company business with any entity in which a family member has an executive position or a significant financial interest unless approved in advance. Since all types of prohibited transactions cannot be listed, we encourage our directors, executive officers and employees to seek advice before proceeding if there is any doubt regarding the appropriateness of an arrangement under our Business Conduct Policies.
Pursuant to our Business Conduct Policies and the Audit Committee Charter, our Chairman, CFO and COO implement our Business Conduct Policies, and the Audit Committee reviews, approves, ratifies and makes recommendations to our Board regarding related-party transactions.
Additionally, each year we require our directors, including nominees for director, and executive officers to complete a questionnaire identifying, among other things, any transactions or potential transactions with us in which the individual, or one of his or her family members or associated entities, has an interest. We also require that directors and executive officers notify our COO as soon as possible of any changes during the course of the year to the information provided in the annual questionnaire.
During fiscal year 2014, we determined that none of our directors, nominees for director, executive officers, stockholders owning more than 5% of our common stock or immediate family members of any such persons engaged in a transaction with us in which he or she had a direct or indirect material interest that required disclosure under applicable SEC rules.
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COMPENSATION DISCUSSION AND ANALYSIS
In this section, we provide information about the material components of our executive compensation programs for our NEOs:
• | Dennis J. Martin, President and CEO; |
• | Jennifer L. Sherman, COO; |
• | Brian S. Cooper, Senior Vice President and CFO; |
• | Bryan L. Boettger, President of the Public Safety Systems Division within our Safety and Security Systems Group; and |
• | Julie A. Cook, Vice President, Human Resources. |
We encourage you to read this section in conjunction with Proposal 2, the Say-on-Pay Advisory Vote regarding compensation of our NEOs, as this section includes: (i) a review of our 2014 performance; (ii) details the role of our Compensation and Benefits Committee (the “Committee”) in setting and determining compensation; and (iii) summarizes 2014 NEO compensation.
The Committee values and carefully considers stockholder feedback on its Say-on-Pay Advisory Vote. Stockholder advisory votes on executive compensation are conducted annually. The Committee’s recommended compensation programs were endorsed by 95% of the advisory votes cast at our 2014 Annual Meeting.
Executive Summary
During 2014, we continued our upward momentum. Since the start of Mr. Martin’s tenure as our CEO in October 2010, we have seen a total stockholder return of 177% through December 31, 2014. In April 2014, we appointed Ms. Sherman as our COO, formalizing the responsibilities she assumed over the prior two years and furthering a succession path.
Fiscal Year 2014 Highlights
We continued to generate strong improvement in operating earnings. Our key objectives included continued financial growth, improving manufacturing efficiencies and costs, leveraging invested capital and diversifying our customer base. With this focus, we delivered strong operational and financial results. Highlights included:
• | Net sales increased by $67.2 million, or 8%, to $918.5 million, from $851.3 million in 2013. |
• | Operating income improved by $22.0 million, or 31%, to $92.6 million, from $70.6 million in 2013. |
• | Operating margin improved to 10.1%, from 8.3% in 2013. |
• | Adjusted net income from continuing operations** increased by $16.8 million, or 40%, to $59.1 million, from $42.3 million in 2013. |
• | Adjusted diluted earnings per share from continuing operations** increased by 39%, to $0.93 per share, from $0.67 per share in 2013. |
• | Cash flow from continuing operating activities was $72.2 million and helped reduce debt balances by 45%, from $92.1 million in 2013 to $50.2 million. |
• | Interest expense was reduced by 57% to $3.8 million, from $8.8 million in 2013. |
• | Net availability of borrowings under our domestic revolving credit facility increased by $22.5 million, or 22%, from $103.6 million in 2013. |
• | Debt leverage was reduced to 0.5 times adjusted EBITDA**, from 1.1 times adjusted EBITDA** in 2013. |
• | Quarterly dividend was reinstated and we issued dividends totaling $5.6 million. |
• | We increased focus on ROIC in 2014 and introduced an ROIC metric into our long-term incentive compensation programs. This increased focus contributed to a significant year-over-year improvement in ROIC, which we define as net operating profit after taxes divided by average invested capital. |
• | We repurchased approximately 696,000 shares of our stock under share repurchase programs. The remaining aggregate authorization under these programs of $79.7 million at December 31, 2014 represents approximately 8% of our market capitalization. |
** | As these are non-GAAP measures, we have included a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in Appendix A. |
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On an enterprise level, in 2014 we exceeded the targets of both performance metrics under our Short-Term Incentive Bonus Plan (“STIP”) (i.e. earnings and primary working capital). As a result, our NEOs earned between 158% and 185% of the financial targets under the STIP in 2014.
Executive Compensation Program Updates During Fiscal Years 2014 and 2015
The Committee took a number of actions with respect to our compensation and benefits programs, including the following:
• | In February 2014, the Committee approved changes to our long-term equity incentive awards, effective in fiscal year 2014, which included increasing the performance period from one to two years followed by a one-year vesting period, and adding an ROIC metric designed to incentivize and reward the efficient use of capital. For 2014, long-term incentive awards granted were based on the metrics of earnings per share (weighted at 75%) and ROIC (weighted at 25%). |
• | In February 2015, the Committee further extended the performance period for long-term equity incentive awards from two to three years, effective in fiscal year 2015, and retained the 2014 performance metrics. The elongated performance period is designed to better align executives’ and stockholders’ long-term interests. It is also consistent with the market practice. |
• | For fiscal years 2014 and 2015, no changes were made to the mix of long-term equity incentive awards. We split our Section 16 Officers’ equity grants equally between stock options (which have value only if our stock price rises) and performance share units (which are earned only if the Company achieves performance metric targets), with the exception of Mr. Boettger who received time-based restricted stock in lieu of performance share units. This design is intended to closely align the long-term interests of our executives and stockholders. |
• | With respect to our STIP, in 2014, the Committee adopted a primary working capital metric (in lieu of a cash flow metric which is adequately captured within primary working capital) and retained an earnings metric. The 2014 STIP metrics were based on earnings (weighted at 50%), primary working capital (weighted at 20%) and individual objectives (weighted at 30%). The Committee retained these metrics for fiscal year 2015. |
• | To further align the interests of the our executives and stockholders, the Committee approved an extension of the Company’s Stock Ownership Guidelines to include key management personnel and other corporate officers, along with executive officers and directors. |
• | In March 2015, the Committee adopted, subject to and effective upon stockholder approval of Proposal 3, the Federal Signal Corporation 2015 Executive Incentive Compensation Plan (the “2015 Plan”). The 2015 Plan replaces the 2005 Executive Incentive Compensation Plan (2010 Restatement) and the Executive Incentive Performance Plan, As Amended and Restated. For further information, please refer to Proposal 3 and the 2015 Plan (Appendix B). |
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Compensation Philosophy and Objectives
Our executive compensation programs link compensation to the performance and growth of our businesses, aligning the interests of our executives with those of our stockholders in a manner designed to maximize the returns for both. Our compensation programs (i) include individual performance objectives, (ii) emphasize teamwork and (iii) reward employees who think and behave like business owners. Our executive compensation philosophy is guided by the following principles:
• | Executive compensation must be linked to the achievement of strategic, financial and operational goals that successfully drive growth in stockholder value; |
• | Total targeted compensation must be competitive to attract, motivate and retain experienced executives during all business cycles with leadership abilities and talent necessary for the Company’s short-term and long-term success, profitability and growth, while taking into account Company performance and external market factors; |
• | The portion of compensation that is variable based on performance and therefore at-risk should increase with officer level and responsibility; |
• | Executive awards should differ based on actual performance to ensure alignment with stockholder value (actual pay can be above or below target pay); and |
• | Equity ownership and holding requirements align the interests of executives and directors with the interests of stockholders and help build long-term value. |
Our compensation consultant, Towers Watson, assisted us in a survey of compensation practices of comparator companies to ensure that our executive compensation programs are competitive with the market. Our comparator peer group is reviewed bi-annually and refined as appropriate to reflect the appropriate median revenue and industry classification composition.
Our cash and equity incentive plans reflect our compensation philosophy and are designed to drive both short-term and long-term profitability.
Role of Our Compensation and Benefits Committee
The Committee establishes and oversees our general compensation and benefits philosophy, and approves compensation and benefits for our executive officers. Specifically, the Committee:
• | Establishes our compensation philosophy, sets broad compensation objectives and evaluates compensation to ensure that it complies with and promotes our compensation philosophy and objectives; |
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• | Determines the various elements of our executive compensation, including base salary, annual cash incentives, long-term equity incentives, retirement, health and welfare benefits and perquisites; |
• | Establishes performance goals for our CEO and oversees the establishment of performance goals for the other executive officers and for each business unit; |
• | Evaluates annually each executive officer’s performance in light of the goals established for the most recently completed year; |
• | Establishes each executive officer’s annual compensation level based upon the individual’s performance, our financial results, the amount of compensation paid to comparable executive officers at comparable companies, the awards given to the individual in past years and our capacity to fund the compensation; |
• | Reviews our CEO’s annual succession planning report and executive development recommendations for his direct reports; |
• | Reviews benefit and compensation programs and plans to ensure incentive pay does not encourage unnecessary risk taking; and |
• | Retains and oversees advisors it may engage periodically to assist in the performance of its role. |
On an annual basis, our CEO reviews the performance of each other executive officer and presents his recommended compensation adjustments and awards to the Committee. The Committee has the discretion to modify or reject any recommended adjustment or award to these executive officers. CEO compensation is determined by the Committee alone, meeting in executive session without the CEO present.
Elements of Executive Compensation
Our compensation programs consist of a number of components that support our compensation objectives:
• | Base salary; |
• | Annual cash incentives; |
• | Long-term equity incentives; |
• | Retirement, health and welfare benefits; and |
• | Perquisites. |
Our programs allow us to balance individual, business unit and Company-wide goals and achievements in determining executive officer pay. Weighing these factors within the framework of our compensation philosophy, the Committee determines appropriate adjustments to base salary, cash incentive awards and equity grants for our executive officers.
We believe that the percentage of at-risk compensation should generally increase in proportion with the executive officer’s position and level of responsibility. At-risk compensation includes performance share units, stock options and cash incentives under the STIP. During fiscal year 2014, the at-risk compensation of our CEO was 74.5% of total compensation and the at-risk compensation of our other NEOs was 56.1%.
**The 2.6% referenced above relates to an award of time-based restricted stock granted to Mr. Boettger in lieu of performance share units in 2014.
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Base Salaries
The two most important factors considered in setting base salaries for our NEOs are individual performance from the prior year and competitive market data. Base salaries are targeted to be at the 50th percentile of competitive market data and are evaluated in the context of total compensation. For fiscal year 2014, actual base salaries for our NEOs ranged from 12.8% less than to 9.1% more than market midpoint targets. The Committee also considers: (i) current base salary relative to the targeted level; (ii) level of job responsibility and performance, including any substantive increases in responsibility during the year; (iii) prior experience and breadth of knowledge; (iv) market factors and (v) length of service.
Annual Cash Incentive Payments
Overview
Annual cash incentive payments are paid under our STIP, based upon the achievement of both Company and individual performance objectives. Depending on officer position, Company objectives during fiscal year 2014 were based on target consolidated earnings and primary working capital for the Company and its subsidiaries and, in some cases, the relevant business group (“Group”) or division (“Division”) as depicted in the table below.
Company Financial Performance | Group Financial Performance | Division Financial Performance | Individual Performance | |
President and CEO | 70% | — | — | 30% |
COO | 70% | — | — | 30% |
Senior Vice President and CFO | 70% | — | — | 30% |
Division President | 28% | 14% | 28% | 30% |
Vice President, Human Resources | 70% | — | — | 30% |
Company, Group and/or Division performance comprises 70% of the STIP design and individual performance comprises 30%. The Committee believes that this split encourages executives to collaborate across the Company in order to achieve broader Company-wide objectives in addition to achieving results within specific Groups or Divisions.
For fiscal years 2014 and 2015, the financial objectives portion of the STIP consisted of an earnings component weighted at 50% and a primary working capital metric weighted at 20%. The calculation of incentive compensation payable in connection with financial objectives is based on the achievement of threshold, target and maximum financial goals which have been set for Groups, Divisions and our Company as a whole.
The remaining 30% of the STIP award is based on the achievement of individual objectives, consisting of an individual performance goals rating weighted at 18% and a competencies rating weighted at 12%. Performance is measured by numerical scores the executive receives in the annual performance appraisal process. We believe that including an individual performance component allows us to reward outstanding individual performance regardless of overall financial performance and to limit bonuses for those who have underperformed.
The Committee believes our STIP design motivates individuals and ensures accountability. At the same time, we retain broad discretion to adjust or discontinue the STIP on an annual basis to accommodate changing market conditions and Company objectives.
Company Objectives
The table that follows depicts the relevant Company objectives for our 2014 and 2015 STIP.
Component | Company Level | Group and Division Level |
Earnings (50%) | Based on consolidated income before income taxes. As Company income taxes are impacted by external factors outside the control of the majority of STIP participants, the Committee decided that income taxes should not factor into the calculation. | Based on earnings before interest and taxes, thereby excluding income taxes and interest expense, neither of which are generally impacted by participants at this level. |
Primary Working Capital (20%) | Based on average primary working capital as a percentage of sales (12-month average of the sum of accounts receivable, net, and inventory, net, less accounts payable and customer deposits divided by net sales for the year). | |
Calculations of award levels and actual performance levels are subject to adjustment at the discretion of the Committee. Historically, the Committee has made adjustments to award and actual performance levels for items
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considered to be extraordinary or nonrecurring or other items the Committee determines should not impact the awards to plan participants, favorably or unfavorably.
Individual Objectives
Measurement of performance against individual objectives is determined through our annual performance appraisal process. This process has both objective and subjective components and is subject to the discretion of our CEO and the Committee with respect to NEOs and our Committee alone with respect to our CEO.
Individual objectives for our executive officers are set in the first quarter of each fiscal year jointly by the CEO and each executive officer and then submitted for approval by the Committee. Following the end of each year, the Committee determines the individual performance-based bonus payouts by considering: (i) input from the CEO; (ii) personal observations on performance and (iii) achievement of individual objectives. Individual objectives consist of: (i) pre-defined competencies applicable to all executives and (ii) personal objectives that are specific to each executive. Competencies include, among others, business acumen, customer focus and strategic agility. Specific personal objectives may relate to financial or strategic initiatives such as expense reduction, acquisitions or divestitures, sales targets or product quality. Measuring actual performance relative to objectives defined at the beginning of the year allows us to differentiate among executives and emphasize the link between personal performance and compensation.
The Committee may adjust the amount payable to any participant with respect to the individual objectives, reducing it to as low as zero or increasing it to as much as twice the individual performance target component percentage. For example, the Committee may further reward executives who consistently demonstrate outstanding performance.
Payouts and Clawback Policy
Typically, in February of each year, the Committee determines the STIP cash awards based upon prior-year performance. Cash bonus incentive payments are generally made in March.
Threshold, target or maximum goal achievement results in a corresponding cash incentive award equal to a pre-set percentage of the executive’s base salary. The target percentage for each executive is based on competitive market data. If performance falls between the threshold and target goals or the target and maximum goals, the bonus percentage and resulting cash incentive award are interpolated on a straight-line basis between the end-points.
The Committee retains the discretion to adjust the individual portion of the STIP award and approves the total amount of the STIP award. The total individual performance portion of the STIP is limited to twice the individual performance target component percentage. In addition, the STIP limits the total award to twice each participant’s target bonus opportunity.
Payments under the STIP are subject to a “clawback” policy under which we require that, to the extent practicable upon the occurrence of specified events, an NEO must repay a portion of his or her performance bonus payment plus a reasonable rate of interest. The clawback policy is triggered by: (i) an accounting restatement or a determination by our Board that the performance results were materially inaccurate and (ii) a determination that the amount of such performance-based bonus would have been less than the amount previously paid to such NEO, taking into account the restated financial results or otherwise corrected performance results.
Long-Term Equity Incentives
We believe equity ownership plays a key role in merging the interests of our executives with our stockholders. Our long-term equity incentive plan is designed simultaneously to attract, motivate and retain experienced executives and to encourage their commitment to our long-term business strategy and success. Typically, the Committee grants long-term equity incentive awards on an annual basis as well as periodically upon promotion or hiring. We have stock ownership guidelines for our executive officers and key management personnel designed to ensure continued ownership as discussed below under the heading “Executive Stock Ownership Requirement.”
The Committee emphasizes pay-for-performance by structuring awards to our Section 16 Officers with two components: stock options and performance share units, with limited exceptions. The overall value of the long-term incentives is split evenly between each component. Stock options have value only if our share price appreciates and vest ratably over a three-year period measured from the date of grant. Likewise, performance share units are earned only if the Company achieves performance targets tied to two key financial metrics — earnings per share (“EPS”) from continuing operations (weighted at 75%) and ROIC (weighted at 25%). In our view, EPS from continuing operations and ROIC are the most relevant measures because they most directly affect long-term stock price appreciation. If the Company does not achieve a threshold level of performance for each metric measured independently, the corresponding percentage award tied to that metric is forfeited, no units are earned and no
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shares are issued. These awards are valued using the closing price of our common stock on the grant date at target level of performance.
The table below illustrates our annual performance award mix over the last three fiscal years and in 2015, our performance measures, the applicable performance period and whether the award was earned.
Fiscal Year | Annual Equity Award Mix (1) | Performance Share Unit Metric (2)(3) | Performance Period (4) | Award Earned or Not Earned (5) |
2012 | Performance Share Units (50%) Stock Options (50%) | EPS from Continuing Operations | 1 year | Earned |
2013 | Earned | |||
2014 | Performance Share Units (50%) Stock Options (50%) | EPS from Continuing Operations (75%) | 2 years | To be determined at end of fiscal year 2015 |
ROIC (25%) | ||||
2015 | Performance Share Units (50%) Stock Options (50%) | EPS from Continuing Operations (75%) | 3 years | To be determined at end of fiscal year 2017 |
ROIC (25%) | ||||
(1) | Stock options are inherently at-risk and have value only if our stock price increases. These awards are not tied to a performance metric and vest ratably over a three-year period measured from the grant date. |
(2) | If the Company does not achieve a threshold level of performance for each metric measured independently, the corresponding percentage award tied to that metric is forfeited, no units are earned and no shares are issued. |
(3) | Effective fiscal year 2014, we adjusted the weighting placed on the EPS performance metric to 75% and added ROIC as a performance metric, weighted at 25%. The 2014 awards included an additional one-year vesting period measured from the end of the performance period. The same performance metric categories and weightings are retained in fiscal year 2015. |
(4) | Effective fiscal year 2014, we increased the performance period from one to two years followed by a one-year vesting period. Effective fiscal year 2015, we further increased the performance period from two to three years and, subject to performance, vesting occurs at the end of the performance period. These modifications advance our compensation philosophy by further deepening the linkage between the long-term interests of our executives and stockholders. |
(5) | For fiscal years 2012 and 2013, the performance period was one year followed by an additional two-year vesting period measured from the end of the performance period. For fiscal year 2012, the Company exceeded maximum performance for the relevant performance metric. The performance share units were earned at 200% and the underlying shares of Company common stock were issued in January 2015 following completion of the two-year vesting period on December 31, 2014. For fiscal year 2013, the Company exceeded maximum performance for the relevant performance metric. The performance share units were earned at 200% and the underlying shares of Company common stock are subject to the completion of a two-year vesting period measured from the end of the performance period. These shares will be issued if the recipient remains employed by the Company through December 31, 2015. |
As under our STIP, performance share unit awards utilize threshold, target and maximum goals. Performance at the end of the applicable performance period against those targets results in a corresponding percentage of earning of such awards up to 200% at maximum level of performance. If performance falls between the threshold and target goals or the target and maximum goals, the bonus percentage and resulting equity award earning is interpolated on a straight-line basis between the end-points.
The Committee maintains the discretion and flexibility to grant other equity incentives on a case-by-case basis in accordance with our compensation philosophy and to promote internal equity. For example, the Committee may award restricted stock units to certain employees, international employees in particular, in substitution for one or more components of the standard grant described above. The award value and the type of grant will take into account applicable law, administrative concerns and competitive market data for the specific country at issue.
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Executive Stock Ownership Requirement
We require each of our executive officers to maintain a certain level of Company stock ownership while employed, pursuant to our Stock Ownership Guidelines for Executive Officers and Directors. Specifically, those executives who have the strongest ability to impact our earnings are subject to the provisions of this policy. In 2014, we extended the application of this policy to key management personnel and other corporate officers. We believe executive equity ownership plays a key role in aligning the interests of our executives, key decision-makers and officers and stockholders.
The table below illustrates our target stock ownership requirements. Target ownership is expressed as a multiple of the executive officer’s current base salary (i.e., the total stock value of the participant’s holdings must equal or exceed the specified target value).
Position/Title | Target Ownership Level |
President and CEO | 5 x Base Salary |
COO and CFO | 3 x Base Salary |
All Other Section 16 Officers | 2 x Base Salary |
Selected Key Management Personnel and Other Corporate Officers | 1 x Base Salary |
The earned equity holdings of Messrs. Martin and Boettger and Ms. Sherman exceed our target ownership levels. Mr. Cooper and Ms. Cook continued to make progress toward achieving their respective target ownership levels. Toward our requirements, we count all vested stock, unvested restricted stock awards or restricted stock units, earned but unvested performance share units at the level that they were earned and shares owned in 401(k) and profit sharing plans.
Generally, executive officers are not permitted to sell shares of Company stock prior to achieving their ownership target. Once achieved, the target ownership level must be maintained before any sale is permitted unless an exclusion or exception applies. Sales of Company stock held in the 401(k) plan are excluded. Executive officers below target ownership levels must obtain CEO approval prior to selling their shares. Exceptions to these guidelines may be granted depending upon the circumstances and if the executive officer is making adequate progress toward achieving his or her ownership target. Under these guidelines, shares may be tendered (i) to pay taxes upon the vesting of restricted stock shares, performance share units or exercise of stock options or (ii) to pay the exercise price upon the exercise of stock options. There is no minimum time period required to achieve the target ownership level.
Once an executive officer has reached his or her target ownership level, he or she is also required to retain 50% of the net shares received from any exercised options or vested shares of common stock (over and above target ownership level) for at least two years from the exercise or vesting date.
Similar guidelines also apply to non-employee directors and are discussed in the section titled “Director Compensation” under the heading “Equity Compensation.”
Insider Trading Restrictions and Policy Against Hedging and Pledging of Company Stock
Consistent with securities laws and pursuant to our insider trading policy, we prohibit directors, employees and certain of their family members from: (i) purchasing or selling Company stock while such person is aware of material non-public information and (ii) providing material non-public information to any person who may trade while aware of such information. Trades by directors and executive officers are prohibited during certain blackout periods.
We also prohibit all directors, officers and employees subject to our Stock Ownership Guidelines from engaging in certain speculative trading activities with regard to Company stock such as selling stock “short,” holding stock in margin accounts or pledging Company stock.
Retirement and Health and Welfare Benefits
We recognize that our employees are critical to our profitable growth and that employee well-being is an important compensation component. We offer a competitive package of Company sponsored health and welfare benefits to all eligible employees, including our NEOs.
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Retirement and Health and Welfare Benefits |
Retirement Plans |
Executives participate in the same retirement savings plans available to other eligible employees. Our Retirement Savings Plan is a 401(k) defined contribution plan that includes both a matching component and an additional points-weighted Company contribution, providing an opportunity for enhanced benefits. Generally, all eligible employees receive a Company-matching contribution of up to 50% of the first 6% of the compensation the employee elects to defer into the plan. Eligible employees may receive an additional Company-paid retirement contribution between 1% and 4% of eligible compensation based on age and years of service. For those eligible employees who wish to defer additional income, but are subject to certain limits of the Internal Revenue Code, our non-qualified Savings Restoration Plan restores Company contributions through a notional Company contribution and notional earnings from investments, and provides investment choices similar to those available under the 401(k) plan. Certain employees, including two of our NEOs, continue to participate in our defined benefit plan. We froze years of service under the plan at December 31, 2006 and wage increases will freeze effective December 31, 2016. |
Health and Welfare Plans |
NEOs may participate in the same broad-based, market-competitive health and welfare plans (medical, prescription, dental, vision, wellness, life and disability insurance) that are available to other eligible employees. |
Perquisites
We provide executives with modest perquisites that the Committee deems reasonable and consistent with our compensation philosophy. We currently provide the following perquisites:
• | airline club memberships; and |
• | auto allowances. |
The Committee periodically reviews the amount and nature of perquisites and may approve additional perquisites on an individual basis in its discretion. No other additional perquisites were approved for fiscal year 2014.
Setting Actual Compensation for Our NEOs
Our compensation actions for our NEOs are summarized below.
Base Salary
In setting NEO base salaries for fiscal year 2014, the Committee evaluated and weighed Company and individual performance, level of responsibility and actual salary compared to the targeted level. In February 2015, the Committee engaged in the same process and weighed the same factors in setting NEO base salaries for fiscal year 2015. The base salaries of our executive officers for 2015 are targeted at the 50th percentile of competitive market data.
The table below sets forth base salary information for each of our NEOs for fiscal years 2013 through 2015.
NEO | 2013 Annual Base Salary | 2014 Annual Base Salary | 2015 Annual Base Salary | % Change between 2013 and 2014 | % Change between 2014 and 2015 | ||||||
Dennis J. Martin | $ | 755,000 | $ | 780,000 | $ | 805,000 | 3.3% | 3.2% | |||
Jennifer L. Sherman (1) | $ | 380,000 | $ | 393,300 | $ | 435,000 | 3.5% | 10.6% | |||
Brian S. Cooper | $ | 320,000 | $ | 339,200 | $ | 349,400 | 6.0% | 3.0% | |||
Bryan L. Boettger | $ | 238,750 | $ | 245,913 | $ | 253,300 | 3.0% | 3.0% | |||
Julie A. Cook | $ | 236,900 | $ | 251,114 | $ | 258,600 | 6.0% | 3.0% | |||
(1) | Ms. Sherman received an increase of 10.6% in recognition of her 2014 promotion to COO. |
Annual Cash Incentive Payments — STIP
Financial-Based Incentive Compensation
For fiscal year 2014, we measured the earnings component at the Company level based on consolidated income before income taxes. At the Group and Division levels, we measured earnings based on earnings before interest and taxes. In doing so, the Committee excluded income taxes and interest expense, which generally are not impacted by the performance of lower level executives whose STIP includes a Group and/or Division level earnings component.
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At the Company, Group and Division levels, we measured primary working capital as a percentage of sales (12-month average of the sum of accounts receivable, net, and inventory, net, less accounts payable and customer deposits divided by net sales for the year).
The threshold, target and maximum goals relating to our NEOs, along with the Company’s actual performance with respect to these goals, are set forth in the following tables.
2014 STIP — Financial-Based Incentive Earnings Measures and Actual Performance
($ in millions) | Threshold | Target | Maximum | Actual | Payout Percentage | ||||||||
Federal Signal Corporation | $ | 61.7 | $ | 74.2 | $ | 86.8 | $ | 87.3 | 200% | ||||
Safety and Security Systems Group | $ | 25.6 | $ | 33.3 | $ | 41.1 | $ | 31.3 | 87% | ||||
2014 STIP — Financial-Based Incentive Primary Working Capital Measures and Actual Performance
(%) | Threshold | Target | Maximum | Actual | Payout Percentage |
Federal Signal Corporation | 20.4% | 17.7% | 15.0% | 17.0% | 126% |
Safety and Security Systems Group | 21.6% | 18.8% | 16.0% | 19.2% | 93% |
Aggregate Targets and Actual Incentive Compensation
As shown in the tables that follow, for fiscal year 2014, the target annual bonus opportunity for Mr. Martin was set at 100% of his base salary and the target opportunities for Ms. Sherman and Mr. Cooper were set at 60% of their base salaries. Mr. Boettger and Ms. Cook’s target annual bonus opportunities were respectively set at 45% and 40% of their base salaries.
2014 STIP — Aggregate Targets
Name | Target Bonus Opportunity as Percentage of Salary | Target Financial- Based Incentive | Target Individual Performance- Based Incentive | Total Target Incentive | ||||||
Dennis J. Martin | 100% | $ | 546,000 | $ | 234,000 | $ | 780,000 | |||
Jennifer L. Sherman | 60% | $ | 165,186 | $ | 70,794 | $ | 235,980 | |||
Brian S. Cooper | 60% | $ | 142,464 | $ | 61,056 | $ | 203,520 | |||
Bryan L. Boettger | 45% | $ | 77,463 | $ | 33,198 | $ | 110,661 | |||
Julie A. Cook | 40% | $ | 70,312 | $ | 30,134 | $ | 100,446 | |||
The annual incentive bonuses paid to our NEOs for fiscal year 2014 performance under the applicable financial and individual performance-based measures are shown below.
2014 STIP — Aggregate Payments
Name | Payment Based on Company Performance | Payment Based on Business Unit Performance(s) | Payment Based upon Individual Performance | Total STIP Payment | Percent of Target | ||||||||
Dennis J. Martin (1) | $ | 976,560 | $ | — | $ | 468,000 | $ | 1,444,560 | 185% | ||||
Jennifer L. Sherman (1) | $ | 295,447 | $ | — | $ | 141,588 | $ | 437,035 | 185% | ||||
Brian S. Cooper (1) | $ | 254,807 | $ | — | $ | 76,320 | $ | 331,127 | 163% | ||||
Bryan L. Boettger (1)(2) | $ | 55,419 | $ | 69,783 | $ | 49,797 | $ | 174,999 | 158% | ||||
Julie A. Cook (1) | $ | 125,758 | $ | — | $ | 45,201 | $ | 170,959 | 170% | ||||
(1) | In recognition of their contributions and outstanding leadership in the continued execution of the Company’s turnaround strategy and in the achievement of our strong 2014 financial performance, Mr. Martin and Ms. Sherman were each awarded two times their targets for individual performance, Mr. Cooper was awarded one and one-quarter times his target for individual performance, and Mr. Boettger and Ms. Cook were each awarded one and one-half times their targets for individual performance. |
(2) | Mr. Boettger’s STIP is determined by Group and Division performance measures. |
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The STIP design will continue to be comprised of 70% financial objectives and 30% individual objectives. The financial objectives are comprised of an earnings measure weighted at 50% and a primary working capital measure weighted at 20%.
Long-Term Equity Incentives
In May 2014, the Committee granted long-term equity incentive awards in the form of options, performance share units and time-based restricted stock as specified below:
• | Messrs. Martin, Cooper and Boettger, and Mses. Sherman and Cook received options to purchase 104,312; 24,340; 10,779; 33,031; and 8,344 shares of our common stock, respectively, at an exercise price of $14.48 per share (the closing price of our stock on date of grant). The options vest in three equal annual installments on the first three anniversaries of the grant date. |
• | Messrs. Martin and Cooper and Mses. Sherman and Cook received performance share units of 51,795; 12,085; 16,402; and 4,144, respectively. Each performance share unit represents a right to receive up to two shares of our common stock based upon achieving certain performance targets during a two-year performance period ending December 31, 2015. The award is subject to vesting requirements that require each recipient to remain employed with us for an additional one year following the end of the performance period (i.e. until December 31, 2016). |
• | Mr. Boettger received 5,352 shares of time-based restricted stock in lieu of performance share units. |
Independent Compensation Consultant
For fiscal year 2014, Towers Watson assisted the Committee in its annual review of our executive compensation programs, including assistance in developing benchmarks for executive compensation and preparation of our proxy statement. Towers Watson also participated in select Committee meetings. The aggregate fees paid to Towers Watson for executive compensation services in fiscal year 2014 totaled $14,400. Towers Watson also provided pension and benefit consulting and other services to the Company during fiscal year 2014 at the request of Company management. The aggregate fees for the additional services totaled $309,000. The Committee discussed the independence of Towers Watson and whether the provision of the additional services created a conflict of interest. In doing so, the Committee considered each of the factors set forth in Rule 10C-1(b)(4) under the Securities Exchange Act of 1934, as amended, and NYSE rules. As part of its review, the Committee received a letter from Towers Watson that discussed its independence and provided relevant disclosure regarding the SEC and NYSE factors.
Management and the Committee determined that Towers Watson was independent based in part on the following reasons:
• | The total fees paid to Towers Watson of $323,400 represented approximately 0.009% of Towers Watson’s revenue for its 2014 fiscal year-end ($3.5 billion); |
• | There is no overlap between the Towers Watson team that provided services to the Committee and the Towers Watson team that provided the additional services; |
• | No member of the Towers Watson team receives additional compensation as a result of the provision of services to the Committee or with respect to the additional services; |
• | Towers Watson prohibits compensation consultants from owning stock in any companies it advises; |
• | There are no business ventures or personal relationships between Towers Watson and any member of the Committee; and |
• | There is no affiliation between any member of Towers Watson’s team and any member of our Board or any NEO. |
After its review, the Committee retained Towers Watson as the Company’s independent compensation consultant for 2015.
Benchmarks for Executive Compensation
Compensation levels for our executives are compared to the compensation paid to executives at the peer companies listed below. Our objective is to attract and retain the most highly qualified executives. In doing so, we draw from a pool of talent that is highly sought after by large and established companies within a market that is global in scope.
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The Company, with the assistance of Towers Watson, generally reviews and updates its peer group biennially, most recently in 2012. In 2014, the Company deferred the peer group review until 2015 in order to align the review with our scheduled 2015 Section 16 Officer compensation benchmarking. Our peer group is consistent with peer groups established by certain major proxy advisory firms.
Federal Signal Peer Group Companies | |
• Actuant Corporation | • Graco Inc. |
• Alamo Group | • The Greenbrier Companies Inc. |
• Astec Industries, Inc. | • John Bean Technologies Corporation |
• Brady Corporation | • Nordson Corporation |
• Columbus McKinnon Corporation | • Powell Industries |
• Commercial Vehicle Group | • Standex International |
• EnPro Industries, Inc. | • Teleflex Incorporated |
• ESCO Technologies Inc. | • Tennant Company |
• L.B. Foster Company | • TriMas Corporation |
• Franklin Electric Company, Inc. | |
Compensation Policy Regarding Tax Gross-Up Payments and Limitation of Severance Benefits
Our compensation policy provides as follows:
• | Except as noted below, we will not enter into any employment agreement, severance agreement or change-in-control agreement that requires us to make or agree to make any tax gross-up payments to any NEO except for such payments provided pursuant to a relocation or expatriate tax equalization plan, policy or arrangement; and |
• | Unless approved by a vote of our stockholders entitled to vote in an election of directors, we will not enter into any compensation agreement with any NEO that provides for severance payments (excluding the value of any accelerated vesting of equity based awards) in an amount exceeding 2.99 times the sum of: (i) the NEO’s highest annual base salary for the year of termination (determined as an annualized amount) or either of the immediate two preceding years; plus (ii) either the NEO’s current target bonus or the highest annual bonus awarded to the NEO in any of the three years preceding the year in which the NEO’s termination of employment occurs (excluding the value of any accelerated vesting of equity based awards). |
This compensation policy does not alter the terms of any agreement or compensation or benefit plan in effect before the adoption of the policy in 2009, including a change-in-control agreement with Ms. Sherman that was executed before 2009.
Impact of Accounting and Tax Treatment on Forms of Compensation Paid
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1 million paid to each of the CEO and the next three most highly compensated other executive officers other than the CFO. The Committee intends to structure compensation arrangements in a manner that will avoid the deduction limitations imposed by Section 162(m) if it is appropriate based on its assessment of the interests of the Company and its stockholders. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. The Committee believes that it is important and necessary that it retains the discretion to provide and revise compensation arrangements, such as base salary and cash bonus incentive opportunities, that may not qualify under Section 162(m) if such arrangements are in the best interests of our Company and our stockholders.
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COMPENSATION AND BENEFITS COMMITTEE REPORT
The Compensation and Benefits Committee has reviewed and discussed the Compensation Discussion and Analysis provided above with management. The Committee has recommended to the Board, and the Board has approved, that the Compensation Discussion and Analysis be included in this proxy statement.
COMPENSATION AND BENEFITS COMMITTEE
Brenda L. Reichelderfer, Chair
James E. Goodwin
Paul W. Jones
William F. Owens
Notwithstanding anything set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this proxy statement, in whole or in part, the preceding report shall not be deemed incorporated by reference in any such filings.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The table below sets forth information concerning compensation paid to or accrued for our NEOs during the last three fiscal years.
Summary Compensation Table for Fiscal Years 2012 through 2014
Name and Principal Position | Year | Salary | Bonus (1)(7) | Stock Awards (2)(7) | Option Awards (3) | Non-Equity Incentive Plan Compensation (4) | Change in Pension Value and Non- qualified Deferred Compensation Earnings (5) | All Other Compensation (6) | Total | ||||||||||||||||
Dennis J. Martin, President and CEO | 2014 | $ | 775,833 | $ | — | $ | 749,992 | $ | 750,003 | $ | 1,444,560 | $ | — | $ | 170,074 | $ | 3,890,462 | ||||||||
2013 | $ | 750,000 | $ | — | $ | 650,000 | $ | 649,998 | $ | 1,359,554 | $ | — | $ | 169,970 | $ | 3,579,522 | |||||||||
2012 | $ | 715,750 | $ | 393,000 | $ | 675,000 | $ | 550,000 | $ | 1,350,000 | $ | — | $ | 91,417 | $ | 3,775,167 | |||||||||
Jennifer L. Sherman, COO | 2014 | $ | 391,083 | $ | — | $ | 237,501 | $ | 237,493 | $ | 437,035 | $ | 75,369 | $ | 81,289 | $ | 1,459,770 | ||||||||
2013 | $ | 375,000 | $ | — | $ | 227,497 | $ | 227,502 | $ | 410,567 | $ | — | $ | 78,920 | $ | 1,319,486 | |||||||||
2012 | $ | 347,458 | $ | 205,000 | $ | 312,500 | $ | 187,500 | $ | 391,034 | $ | 68,634 | $ | 67,543 | $ | 1,579,669 | |||||||||
Brian S. Cooper, Senior Vice President and CFO | 2014 | $ | 336,000 | $ | — | $ | 174,991 | $ | 175,005 | $ | 331,127 | $ | — | $ | 22,897 | $ | 1,040,020 | ||||||||
2013 | $ | 191,590 | $ | — | $ | 153,998 | $ | 153,999 | $ | 189,296 | $ | — | $ | 15,320 | $ | 704,203 | |||||||||
2012 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Bryan L. Boettger, President, Public Safety Systems Division of the Safety and Security Systems Group | 2014 | $ | 244,719 | $ | — | $ | 77,497 | $ | 77,501 | $ | 174,999 | $ | 114,685 | $ | 29,755 | $ | 719,156 | ||||||||
2013 | $ | 237,021 | $ | — | $ | 77,498 | $ | 77,499 | $ | 114,928 | $ | — | $ | 29,734 | $ | 536,680 | |||||||||
2012 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Julie A. Cook, Vice President, Human Resources | 2014 | $ | 248,745 | $ | — | $ | 60,005 | $ | 59,993 | $ | 170,959 | $ | — | $ | 47,725 | $ | 587,427 | ||||||||
2013 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
2012 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
(1) | Due to the important nature of our debt refinancing and the outstanding performance of the executives leading the initiative, on February 22, 2012, in connection with the Company’s refinancing of its credit and note facilities, the Compensation and Benefits Committee awarded one-time cash bonuses to Mr. Martin and Ms. Sherman in the amounts of $268,000 and $80,000, respectively. These amounts are included in the bonus amounts indicated in the table for fiscal year 2012. The balance of the amounts depicted are described in footnote (7). |
(2) | The stock award values represent the aggregate grant date fair values computed in accordance with ASC 718. These figures reflect long-term equity incentive restricted stock awards and performance share units, discussed in the section titled “Compensation Discussion and Analysis — Elements of Executive Compensation” under the heading “Long-Term Equity Incentives.” The restricted stock awards are valued at the closing price of our Company’s common stock on the grant date. Performance share units granted in fiscal years 2012, 2013 and 2014 were valued at the closing price of our Company’s stock on the grant dates, resulting in values of $5.50 for grants in 2012, $8.40 and $9.03 for grants in 2013 and $14.48 for grants issued in 2014. For fiscal year 2012, we achieved the EPS from continuing operations maximum and 200% of the target units were earned. The shares underlying the earned units vested on December 31, 2014 upon the completion of the applicable two-year vesting requirement. For fiscal year 2013, we achieved the EPS from continuing operations maximum and 200% of the target units were earned. The shares underlying the earned units will be issued upon completion of an additional two-year vesting requirement requiring their employment by the Company through December 31, 2015. For fiscal year 2014, we adjusted the weighting of the EPS metric from 100% to 75%, added an ROIC performance metric (weighted at 25%) and expanded the performance period from one to two years. The performance period ends on December 31, 2015 and is followed by an additional one-year vesting period. |
(3) | The option award values represent the grant date fair values computed in accordance with ASC 718. These amounts reflect long-term equity incentive stock option grants, discussed in further detail in the section titled “Compensation Discussion and Analysis — Elements of Executive Compensation” under the heading “Long-Term Equity Incentives.” The Black-Scholes model is used to estimate the fair value of stock options, resulting in an estimated value of $7.19 for options granted on May 5, 2014; $4.87 for options granted on May 28, 2013; $4.50 for options granted on May 9, 2013; and $2.73 for options granted on May 9, 2012. For information on |
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the assumptions used to calculate the value of the stock option awards, refer to Note 11 — Stock-Based Compensation to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as filed with the SEC on March 2, 2015.
(4) | Reflects cash payments under the STIP. For a description of this program, see the section titled “Compensation Discussion and Analysis — Elements of Executive Compensation” under the heading “Annual Cash Incentive Payments.” |
(5) | Reflects the actuarial increase in the present value of the NEOs’ benefits under all pension plans, including our supplemental pension plans, determined using interest rate and mortality rate assumptions consistent with those used in our financial statements, and includes amounts which the NEO may not currently be entitled to receive because such amounts are not vested. The present value of the benefits for eligible NEOs increased in 2014, driven primarily by a lower discount rate. Earnings on deferred compensation are not reflected in this column because the return on earnings is calculated in the same manner and at the same rate as earnings on externally managed investments of salaried employees participating in the tax-qualified 401(k) savings plan, and dividends on our common stock are paid at the same rate as dividends paid to stockholders. |
(6) | All other compensation in fiscal year 2014 includes the following aggregate perquisites and other items. |
Name | Auto Allowance | Contribution to Retirement Savings Plans | Savings Restoration Plan Contributions | Other Items (a) | Totals | ||||||||||
Dennis J. Martin | $ | 13,800 | $ | 15,983 | $ | 138,394 | $ | 1,897 | $ | 170,074 | |||||
Jennifer L. Sherman | $ | 11,400 | $ | 18,200 | $ | 50,535 | $ | 1,154 | $ | 81,289 | |||||
Brian S. Cooper | $ | 11,400 | $ | 10,892 | $ | — | $ | 605 | $ | 22,897 | |||||
Bryan L. Boettger | $ | 11,400 | $ | 17,915 | $ | — | $ | 440 | $ | 29,755 | |||||
Julie A. Cook | $ | 11,400 | $ | 13,156 | $ | 22,721 | $ | 448 | $ | 47,725 | |||||
(a) | For Mr. Martin, includes $500 for membership in the United Airlines United Club and $1,397 for life insurance premium payments. For Ms. Sherman, includes $450 for membership in the United Airlines United Club and $704 for life insurance premium payments. For Messrs. Cooper and Boettger, and Ms. Cook, amounts stated are for life insurance premium payments. |
(7) | The 2012 “Bonus” and “Stock Awards” columns include incentive bonuses awarded to Mr. Martin and Ms. Sherman on June 21, 2012 with respect to the sale of the former Federal Signal Technologies Group (“FSTech”) businesses in the amount of $250,000 to each of them contingent upon the closing of the sale of FSTech. The bonuses were paid on September 4, 2012, following the closing of the FSTech sale as follows: (i) $125,000 in cash and (ii) $125,000 in shares of restricted stock awarded under our 2005 Executive Incentive Compensation Plan (2010 Restatement) (i.e., an award of 20,458 shares based on the closing price of the Company’s common stock on the date of grant of $6.11 per share). The restricted stock will vest in full on September 4, 2015, subject to continued employment. |
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Grants of Plan-Based Awards
The table below sets forth information concerning grants of plan-based awards to our NEOs during fiscal year 2014.
Grants of Plan-Based Awards in Fiscal Year 2014
Name | Grant Date | Estimated Future Payouts under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards (3) | |||||||||||||||||||
Threshold | Target | Maximum | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||
Dennis J. Martin | $ | 390,000 | $ | 780,000 | $ | 1,560,000 | — | — | — | — | — | $ | — | $ | — | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | 25,898 | 51,795 | 103,590 | — | — | $ | — | $ | 749,992 | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | — | — | — | — | 104,312 | $ | 14.48 | $ | 750,003 | |||||||||||
Jennifer L. Sherman | $ | 117,990 | $ | 235,980 | $ | 471,960 | — | — | — | — | — | $ | — | $ | — | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | 8,201 | 16,402 | 32,804 | — | — | $ | — | $ | 237,501 | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | — | — | — | — | 33,031 | $ | 14.48 | $ | 237,493 | |||||||||||
Brian S. Cooper | $ | 101,760 | $ | 203,520 | $ | 407,040 | — | — | — | — | — | $ | — | $ | — | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | 6,043 | 12,085 | 24,170 | — | — | $ | — | $ | 174,991 | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | — | — | — | — | 24,340 | $ | 14.48 | $ | 175,005 | |||||||||||
Bryan L. Boettger (4) | $ | 55,331 | $ | 110,661 | $ | 221,322 | — | — | — | — | — | $ | — | $ | — | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | — | — | — | 5,352 | — | $ | — | $ | 77,497 | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | — | — | — | — | 10,779 | $ | 14.48 | $ | 77,501 | |||||||||||
Julie A. Cook | $ | 50,223 | $ | 100,446 | $ | 200,892 | — | — | — | — | — | $ | — | $ | — | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | 2,072 | 4,144 | 8,288 | — | — | $ | — | $ | 60,005 | |||||||||||
5/5/2014 | $ | — | $ | — | $ | — | — | — | — | — | 8,344 | $ | 14.48 | $ | 59,993 | |||||||||||
(1) | See the section titled “Compensation Discussion and Analysis — Elements of Executive Compensation” under the heading “Annual Cash Incentive Payments.” |
(2) | These columns include information regarding performance share units. The “Threshold” column represents the minimum amount payable when threshold performance is met (50% of performance share units granted are earned for each metric). If performance is below the threshold performance, no units are earned. The “Target” column represents the amount payable if each metric achieved is equal to target (100% of performance share units granted are earned for each metric). The “Maximum” column represents the full payout potential under the plan if the performance under the metric is equal to or greater than maximum (200% of performance share units granted are earned for each metric). Shares of Company stock are awarded, if any, as a percentage of the pre-determined target shares for that executive officer ranging from 0% to 200% as determined by the performance against the applicable metrics. For fiscal year 2014, the performance metric was EPS from continuing operations weighted at 75% and ROIC weighted at 25%. The performance period was expanded from one to two years. The performance period ends on December 31, 2015 and is followed by an additional one-year vesting period. |
(3) | The grant date fair values are calculated based upon ASC 718. The fair value of performance share units was set at the closing price of our Company’s common stock on the grant date, resulting in an estimated fair value of $14.48 for units granted on May 5, 2014. The Black-Scholes model is used to estimate the fair value of stock options, resulting in an estimated value of $7.19 on May 5, 2014. |
(4) | Mr. Boettger was granted restricted stock awards in lieu of performance share units. |
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Information Regarding Equity Awards
Outstanding Equity Awards at Fiscal Year-End
The table that follows sets forth information concerning outstanding equity awards held by our NEOs at the end of fiscal year 2014.
Name | Grant Date | Option Awards | Stock Awards | |||||||||||||||||||
Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable (1) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised, Unearned Options | Option Exercise Price (2) | Option Expiration Date | Number of Unvested Shares or Stock Units (3)(4)(5) | Market Value of Unvested Shares or Units of Stock (6) | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Unvested Rights | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Unvested Rights | ||||||||||||||
Dennis J. Martin | 3/12/08 | 5,000 | — | — | $ | 12.39 | 3/12/18 | — | $ | — | — | $ | — | |||||||||
10/30/10 | 90,875 | — | — | $ | 5.39 | 10/30/20 | — | $ | — | — | $ | — | ||||||||||
5/4/11 | 159,990 | — | — | $ | 6.52 | 5/4/21 | — | $ | — | — | $ | — | ||||||||||
5/9/12 | 134,310 | 67,155 | — | $ | 5.50 | 5/9/22 | — | $ | — | — | $ | — | ||||||||||
9/4/12 | — | — | — | $ | — | — | 20,458 | $ | 315,872 | — | $ | — | ||||||||||
5/9/13 | 48,148 | 96,296 | — | $ | 8.40 | 5/9/23 | — | $ | — | — | $ | — | ||||||||||
5/9/13 | — | — | — | $ | — | — | 154,762 | $ | 2,389,525 | — | $ | — | ||||||||||
5/5/14 | — | 104,312 | — | $ | 14.48 | 5/5/24 | — | $ | — | — | $ | — | ||||||||||
5/5/14 | — | — | — | $ | — | — | 51,795 | $ | 799,715 | — | $ | — | ||||||||||
Jennifer L. Sherman | 2/10/05 | 15,700 | — | — | $ | 16.01 | 2/10/15 | — | $ | — | — | $ | — | |||||||||
2/8/06 | 13,525 | — | — | $ | 16.94 | 2/8/16 | — | $ | — | — | $ | — | ||||||||||
2/26/07 | 11,700 | — | — | $ | 16.10 | 2/26/17 | — | $ | — | — | $ | — | ||||||||||
2/22/08 | 16,100 | — | — | $ | 10.59 | 2/22/18 | — | $ | — | — | $ | — | ||||||||||
2/20/09 | 16,100 | — | — | $ | 6.68 | 2/20/19 | — | $ | — | — | $ | — | ||||||||||
8/7/09 | 14,479 | — | — | $ | 8.53 | 8/7/19 | — | $ | — | — | $ | — | ||||||||||
4/26/10 | 20,200 | — | — | $ | 10.04 | 4/26/20 | — | $ | — | — | $ | — | ||||||||||
5/4/11 | 45,277 | — | — | $ | 6.52 | 5/4/21 | — | $ | — | — | $ | — | ||||||||||
5/9/12 | 45,787 | 22,894 | — | $ | 5.50 | 5/9/22 | — | $ | — | — | $ | — | ||||||||||
9/4/12 | — | — | — | $ | — | — | 20,458 | $ | 315,872 | — | $ | — | ||||||||||
5/9/13 | 16,852 | 33,704 | — | $ | 8.40 | 5/9/23 | — | $ | — | — | $ | — | ||||||||||
5/9/13 | — | — | — | $ | — | — | 54,166 | $ | 836,323 | — | $ | — | ||||||||||
5/5/14 | — | 33,031 | — | $ | 14.48 | 5/5/24 | — | $ | — | — | $ | — | ||||||||||
5/5/14 | — | — | — | |||||||||||||||||||