UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

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PATRICK INDUSTRIES, INC.

(Name of Registrant as Specified In Its Charter)

 

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

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				PATRICK INDUSTRIES, INC.
DEAR SHAREHOLDER,				Please review the proxy / notice card for instructions on how to vote over the Internet, by telephone or by mail in order to be certain that your shares of stock are represented at the Annual Meeting. It is important that all Patrick Industries, Inc. shareholders vote and participate in the affairs and governance of our Company.

 

 

 

 

Notice of Annual Meeting

 

Date & Time: Thursday May 14, 2020 10:00 A.M., EDT				Location: Online at www.meetingcenter.io/205000405 Meeting Password: PATK2020				Record Date: March 20, 2020

 

Voting Matters
				Board Vote		Page Reference
Proposal				Recommendation		(for more detail)
PROPOSAL 1		To elect nine directors to the Board of Directors to serve until the 2021 Annual Meeting of Shareholders		FOR EACH NOMINEE			8
PROPOSAL 2		To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2020		FOR			16
PROPOSAL 3		To approve an amendment to the Patrick Industries, Inc., 2009 Omnibus Incentive Plan (the “Plan”) to increase the number of shares available for grant under the plan by a total of 1,000,000 shares		FOR			19
PROPOSAL 4		To approve, in an advisory and non-binding vote, the compensation of the Company’s named executive officers for fiscal year 2019 as disclosed in the Proxy Statement (a “Say-on-Pay” vote)		FOR			24
		To consider and transact such other business as may properly come before the meeting or any adjournment or postponement thereof

The Board of Directors has fixed the close of business on March 20, 2020 as the record date for the determination of the holders of shares of our outstanding common stock entitled to notice of and to vote at the Annual Meeting of Shareholders. Each shareholder is entitled to one vote per share on all matters to be voted on at the meeting.

Your vote is important. Whether or not you expect to attend the virtual meeting, please vote your shares using the Internet, by telephone or by mail by signing, dating and returning the enclosed proxy in the enclosed envelope, so that even if you are unable to attend, your shares will still be represented at the meeting. If you hold shares through a broker or other custodian, please check the voting instructions used by that broker or custodian. Please note that brokers may not vote your shares on the election of directors, on compensation matters or on other proposals to be considered by shareholders at the Annual Meeting (except on the ratification of the independent auditors) in the absence of your specific instructions as to how to vote. Please return your proxy card so your vote can be counted.

 

By Order of the Board of Directors,

 

				Joshua A. Boone Secretary, April 23, 2020

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held on May 14, 2020:

Our Proxy Statement and Annual Report to Shareholders for fiscal 2019 are available on Patrick Industries, Inc.’s website at www.patrickind.com under “Investor Relations-Investor Information.” You may also request hard copies of these documents free of charge by writing to us at the following address: 107 West Franklin Street, Elkhart, Indiana 46515-0638. Attention: Office of the Secretary.

Proxy				107 West Franklin Street Elkhart, Indiana 46515-0638 (574) 294-7511
Statement   ANNUAL MEETING OF SHAREHOLDERS

 

This Proxy Statement and the accompanying Proxy Card are being mailed to shareholders of Patrick Industries, Inc. (the “Company” or “Patrick”) whose shares are held through an intermediary, such as a bank or broker, on the shareholder’s behalf (“street name”) on or about April 23, 2020, and are furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) for the Annual Meeting of Shareholders to be held online (virtual meeting) on May 14, 2020 (the “Annual Meeting”) for the purpose of considering and acting upon the matters specified in the Notice of Annual Meeting of Shareholders accompanying this Proxy Statement.

The Company has elected to use the “Notice and Access” method of providing to registered shareholders of record the proxy materials via the Internet due to mailing and distribution difficulties related to COVID-19. This process provides you with a convenient way to access your proxy materials and vote your shares, while also allowing us to conserve natural resources and reduce the costs of printing and shipping the proxy materials to you. On or about April 23, 2020, we will mail to our registered shareholders a Notice of Internet Availability of Proxy Materials which includes instructions on how to access our Proxy Statement and our 2019 Annual Report online. The Notice also includes instructions on how to vote via the Internet and how to obtain a paper copy of the proxy materials.

If the form of proxy which accompanies this Proxy Statement is executed and returned, or is voted by Internet or by telephone, it may be revoked by the person giving it at any time prior to the voting thereof by:

 

(i)

changing your vote using the online voting method described under “Voting Information” on page 7, in which case only your latest Internet proxy submitted prior to the Annual Meeting will be counted;

 

(ii)

filing with the Secretary of the Company, during or before the Annual Meeting, a written notice of revocation bearing a date later than the date of the proxy;

 

(iii)

duly executing and dating a subsequent proxy relating to the common stock and delivering it to the Secretary of the Company during or before the Annual Meeting; or

 

(iv)

voting your shares electronically during the Annual Meeting.

 

If the form of proxy is signed, dated and returned without specifying choices on one or more matters presented to the shareholders, the shares will be voted on the matter or matters listed on the proxy card as recommended by the Company’s Board.

Additional solicitations, in person or by telephone or otherwise, may be made by certain directors, officers and employees of the Company regarding the proposals without additional compensation. Expenses incurred in the solicitation of proxies, including postage, printing and handling, and actual expenses incurred by brokerage houses, custodians, nominees and fiduciaries in forwarding documents to beneficial owners, will be paid by the Company.

For certain beneficial holders of our common stock, Patrick’s Annual Report to Shareholders, which contains Patrick’s Annual

Report on Form 10-K for the year ended December 31, 2019, accompanies this Proxy Statement. Requests for additional copies of the Annual Report on Form 10-K should be submitted to the Office of the Secretary, Patrick Industries, Inc., 107 West Franklin Street, Elkhart, Indiana 46515-0638. Annual Meeting materials may also be viewed online through our website, www.patrickind.com under “Investor Relations”.

 

 

 

Table of
Contents

 

Proxy Summary				This summary highlights certain information contained in our 2020 Proxy Statement. Although it does not contain all of the information in this Proxy Statement, it provides an overview of the information discussed herein. You should carefully review the entire Proxy Statement before voting.

 

Board Composition – Experience and Expertise

 

Corporate Governance Developments

The Board believes that fundamental corporate governance is important to ensure that we are managed for the long-term benefit of our shareholders per a (1) Board Diversity Policy and a (2) Social and Environmental Responsibility Policy.

In 2020, the Board provided additional disclosures, as summarized on pages 5 and 6, regarding the Company’s environmental, social and governance (“ESG”) practices. In alignment with the Company’s Code of Ethics and Business Conduct and Corporate Governance Guidelines, the Board aims to ensure that ESG matters are considered and supported in the Company’s operations and administrative matters and are consistent with Patrick shareholders’ best interests.

The Board Diversity and Social and Environmental Responsibility Policies are discussed in greater detail on pages 25 and 26 of this Proxy Statement and are also available on the Company’s website, www.patrickind.com, under “Investor Relations—Corporate Governance.”

 

 

 

		2020 PROXY STATEMENT		1

 

 

 

Business Financial Highlights

Fiscal Year 2019 Company Financial Performance Summary

 

7,500+ Team Members Helped Achieve Our Goals				168% Cumulative Company TSR % Over a Five Year Period				57% Cumulative S&P 500 Index TSR % Over Same Five Years

Fiscal 2019 represented continued strategic execution and positioning for the future, despite headwinds and volatility in the markets we serve as a result of secular industry recalibration. We focused our efforts on continuing to drive a lean organization, maintaining a balanced and disciplined capital allocation strategy, and further solidifying our balance sheet to position our Company to provide strength, flexibility and the ability to manage through various economic cycles for long-term strategic growth in the four core markets we serve—recreational vehicle (“RV”), marine, manufactured housing (“MH”), and Industrial. The ultimate goal of this vision centers around rewarding our shareholders in balance with the interests all of our stakeholders and the communities in which we operate and live.

The Company continued to execute on a company-wide market and performance-based rewards platform designed to reward for differentiated performance that supported operating excellence and growth organically and through acquisitions in 2019.

The execution of our 2019 Organizational Strategic Agenda and the efforts of our more than 7,500 team members produced sales, net income, and net income per diluted share in 2019 that was below our targeted operating results (net of acquisitions) primarily as a result of market declines being materially greater than the assumptions that were built into our fiscal 2019 operating plan. Despite actual revenues being below our plan, the Company adapted and flexed its operating structure to appropriately align costs with the revenue stream, deliver organic market share gains, and position itself for anticipated market growth in both the leisure and housing and industrial markets in 2020, but also for various possible downside market scenarios should they occur.

The Company’s cumulative total shareholder return (“TSR”) over the five-year period from December 31, 2014 to December 31, 2019 was 168% compared to 57% for the S&P 500 Index over the same time period.

The charts below illustrate the Company’s performance related to net sales, net income and net income per diluted share since 2015. We believe these achievements are the result of balancing our autonomous business unit structure with the overarching strategies and initiatives of the Company while focusing on our ‘Customer 1st’ performance-oriented culture.

 

 

 

2

 

 

 

The Company’s performance is ultimately focused on meeting the needs of our large breadth of customers, generating returns for our shareholders, supporting our communities, and reinvesting in our team members. While we focus on achieving annual objectives and outcomes, the Company continues to emphasize our long-range strategic plan and the execution of that plan.

 

 

Executive Compensation Highlights

 

Aligning Pay to Differentiated Performance

The Company has embraced a long-time philosophy of rewarding its leadership team for differentiated performance in a given performance year. The architecture of the Executive Compensation Plan is specifically designed to support this philosophy by focusing on variable pay for the leadership team, an approach which is also pervasive throughout the levels of the organization. This philosophy is reflected in each element of compensation as the Compensation Committee recommends compensation decisions to the Board. Our leaders understand and are motivated to impact the key metrics that will drive growth, profitability and ultimately shareholder value in both the short and long term. The plan design is brought to life through understanding each compensation element and the impact of the individual’s and the team’s performance as outlined below:

 

Compensation Element		Percentile Positioning vs. Peer Proxy and General Industry Data
BASE SALARY		25th – 50th
SHORT-TERM INCENTIVE		50th – 75th
TOTAL TARGET CASH		50th – 75th
LONG-TERM INCENTIVE		25th – 50th
TOTAL TARGET DIRECT COMPENSATION		50th – 75th

 

 

		2020 PROXY STATEMENT		3

 

 

 

The positioning of each compensation element relative to Peer Group and General Industry data supports our philosophy of rewarding differentiated performance by emphasizing each executive’s variable pay elements.

 

•

Base Salary incorporates a philosophy of a lower base than peers to reduce the importance of fixed pay and drive focus on performance-dependent variable pay.

 

•

The annual Short-term cash compensation plan is highlighted through enhanced payouts for performance above plan up to a maximum of 200% of target compensation and incorporates a threshold payout of 50% of target compensation at 75% of plan.

 

•

Long-term incentive compensation is designed to drive the executive’s focus on long-term profitability through both organic and inorganic growth over the three-year award performance period. This equity plan is also designed to motivate leadership to perform above plan with a maximum payout of 200% of target compensation and a threshold payout of 50% of target compensation at 80% of plan.

Our focus on variable pay to motivate performance has been core to our compensation plan over the past decade and has proven to be successful in aligning our team’s compensation to shareholder returns.

Our focus on variable compensation is highlighted through the charts below for variable vs. fixed compensation at target performance for our Chief Executive Officer (“CEO”) and for our other Named Executive Officers (“NEOs”) combined:

 

Key Compensation Actions Taken in Fiscal 2019

 

•

Modified both the Short-term and the Long-term Incentive Plans to better align the payout percentages for performance above plan with market benchmarks;

 

•

Increased compensation for the NEOs to align with the Company’s performance in 2019, year-over-year revenue growth, and size scoping of our Peer Group and General Industry data; and

 

•

Continued to utilize external consultant, Willis Towers Watson, for data and consultation as requested by the Compensation Committee.

For additional information regarding the compensation of our NEOs, please refer to the Compensation Discussion and Analysis (“CD&A”) beginning on page 33.

 

 

4

 

 

 

Voting

Information

 

 

 

 

 

		2020 PROXY STATEMENT		7

PROPOSAL 1: Election of Directors				The Board of Directors Recommends that Shareholders vote FOR the election of the following Nominees to the Board of Directors.

There are nine nominees for election to the Board, all of which are current members of our Board. The individuals elected as directors at the 2020 Annual Meeting will be elected to hold office until the 2021 Annual Meeting or until their successors are duly elected and qualified.

It is intended that the proxies will be voted for the nominees listed below, unless otherwise indicated on the proxy form. It is expected that these nominees will serve, but, if for any unforeseen cause any such nominee should decline or be unable to serve, the proxies will be voted to fill any vacancy so arising in accordance with the discretionary authority of the persons named in the proxies. The Board does not anticipate that any nominee will be unable or unwilling to serve.

The information provided below has been furnished by the director nominee, and sets forth (as of March 31, 2020) the names, ages, principal occupations, recent professional experience, certain specific qualifications identified as part of the Board’s determination that each such individual should serve on the Board and other directorships at other public companies for at least the past five years, if any. Each of the following nominees was elected to his or her present term of office at the Annual Meeting of Shareholders held on May 15, 2019.

Board Composition

 

Average Tenure		Gender & Ethnic Diversity		Audit Committee Expertise		Board Independence		Average Age
6.9 years		33%		67%		78%		55 years

 

 

8

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

Nominees for Election

 

 

Joseph M. Cerulli   AGE: 60   DIRECTOR SINCE: 2008   COMMITTEES: •  Corporate Governance and Nominations		BIOGRAPHY: Joseph M. Cerulli, age 60, has been employed by Tontine Associates, LLC, an investment management firm (together with its affiliates, “Tontine”), since January 2007.   QUALIFICATIONS: Mr. Cerulli has particular knowledge of our Company and the industries in which we operate based on Tontine’s long-standing investment in the Company and possesses extensive knowledge with respect to financial and investment matters.

 

 

 

Todd M. Cleveland   AGE: 52   DIRECTOR SINCE: 2008   COMMITTEES: •  None		BIOGRAPHY: Todd M. Cleveland, age 52, has been our Executive Chairman of the Board since January 1, 2020. Prior to that, Mr. Cleveland was Chairman of Board from May 2018 to December 2019 and our Chief Executive Officer from February 2009 to December 31, 2019. Mr. Cleveland was President of the Company from May 2008 to December 2015 and Chief Operating Officer of the Company from May 2008 to March 2013. Prior to that, he served as Executive Vice President of Operations and Sales and Chief Operating Officer of the Company from August 2007 to May 2008 following the acquisition of Adorn Holdings, Inc. by Patrick in May 2007. Mr. Cleveland has served as a director of IES Holdings, Inc. (“IES”) from 2017 to present, and he has been the chairman of IES’ Human Resources and Compensation Committee since February 2019.   QUALIFICATIONS: Mr. Cleveland has over 29 years of RV, MH and industrial experience in various operating capacities. He also has extensive knowledge of our Company and the industries to which we sell our products and experience with management development and leadership, acquisitions, strategic planning, manufacturing and sales of our products.   OTHER PUBLIC BOARD DIRECTORSHIPS: •  IES Holdings, Inc.

 

 

		2020 PROXY STATEMENT		9

 

 

 

John A. Forbes   AGE: 60   DIRECTOR SINCE: 2011   COMMITTEES: •  Corporate Governance and Nominations (Chair)   •  Audit   •  Compensation		BIOGRAPHY: John A. Forbes, age 60, has been a partner with Outcomes LLC and Full Sails LLC, two firms engaged in new product development and strategic business consulting, since June 2017. Previously, Mr. Forbes was the President of Utilimaster, a business unit of Spartan Motors USA, Inc., from July 2010 to June 2017. Prior to that, he was the Chief Financial Officer of Utilimaster from May 2009 to July 2010, the Chief Financial Officer of Nautic Global Group LLC from 2007 to 2009 and the Chief Financial Officer of Adorn LLC from 2003 to 2007. Mr. Forbes has served as a director of Chase Packaging Corporation since March 2019.   QUALIFICATIONS: Mr. Forbes has over 33 years of experience in serving various manufacturing industries, having held senior financial leadership roles. Mr. Forbes also has extensive experience with operations management, acquisitions, strategic planning, risk management and banking relations. He has been determined to be an “audit committee financial expert” under the rules and regulations of the Securities and Exchange Commission (the “SEC”) by our Board.

 

 

 

Michael A. Kitson   AGE: 61   DIRECTOR SINCE: 2013   COMMITTEES: •  Audit (Chair)   •  Compensation   •  Corporate Governance and Nominations		BIOGRAPHY: Michael A. Kitson, age 61, has been the Chief Financial Officer of oVertone Haircare, Inc., a manufacturer of haircare products, since July 2018. Previously, Mr. Kitson was a principal with AVL Growth Partners, a firm that provides chief financial officer and other financial advisory services, from March 2017 to July 2018. Prior to that, Mr. Kitson was the Chief Financial Officer of MikaTek, Ltd. from January 2016 until July 2016, the Chief Executive Officer of SharpShooter Imaging from March 2015 to January 2016, the Chief Executive Officer of Nautic Global Group (“Nautic”) from March 2011 to October 2013 and the Chief Financial Officer of Nautic from August 2010 to March 2011.   QUALIFICATIONS: Mr. Kitson has over 33 years of experience in serving various manufacturing industries, having also held senior financial leadership roles with Lilly Industries, Inc. Mr. Kitson also has extensive experience with corporate and operations management, strategic planning and risk management. He has been determined to be an “audit committee financial expert” under the SEC’s rules and regulations by our Board.

 

 

10

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

Pamela R. Klyn   AGE: 49   DIRECTOR SINCE: 2019   COMMITTEES: •  Audit   •  Compensation   •  Corporate Governance and Nominations		BIOGRAPHY: Pamela R. Klyn, age 49, has been the Senior Vice President in the Global Product Organization at Whirlpool Corporation, the world’s leading major home appliance company, since 2016 and has held various leadership positions in marketing and engineering within Whirlpool since 1993.   QUALIFICATIONS: Ms. Klyn has over 27 years of experience in the home appliance industry and has extensive experience in marketing, engineering, strategic planning and new product development.

 

 

 

Derrick B. Mayes   AGE: 46   DIRECTOR SINCE: 2019   COMMITTEES: •  Audit   •  Compensation   •  Corporate Governance and Nominations		BIOGRAPHY: Derrick B. Mayes, age 46, has been the Vice President of WME/IMG, a strategic advisory firm to the sports and entertainment industry, since 2015. Prior to that, Mr. Mayes was the Chief Executive Officer of ExecutiveAction Sports & Entertainment, serving as a strategic adviser to high profile individuals, groups and organizations in the sports and entertainment industry, from 2007 to 2015.   QUALIFICATIONS: Mr. Mayes has over 19 years of experience in strategic planning, with extensive experience in the digital communications space, and has been a leadership and diversity speaker to numerous public companies and private organizations, particularly in the sports and entertainment markets.

 

 

		2020 PROXY STATEMENT		11

 

 

 

Andy L. Nemeth   AGE: 51   DIRECTOR SINCE: 2006   COMMITTEES: •  None		BIOGRAPHY: Andy L. Nemeth, age 51, has been the Company’s Chief Executive Officer since January 1, 2020 and President since January 2016. Prior to that, Mr. Nemeth was the Executive Vice President of Finance and Chief Financial Officer from May 2004 to December 2015 and Secretary-Treasurer from 2002 to 2015. He was also the Vice President of Finance and Chief Financial Officer from 2003 to 2004.   QUALIFICATIONS: Mr. Nemeth has over 28 years of RV, MH and industrial experience in various financial and management capacities. Mr. Nemeth also has particular knowledge of our Company and the industries to which we sell our products and has extensive experience with corporate management, development and leadership, acquisitions, strategic planning, risk management and banking and finance relations.

 

 

 

Denis G. Suggs   AGE: 51   DIRECTOR SINCE: 2019   COMMITTEES: •  Audit   •  Compensation   •  Corporate Governance and Nominations		BIOGRAPHY: Denis G. Suggs, age 54, has been the Chief Executive Officer of LCP Transportation, LLC, a non-emergency medical transportation company, since February 2020. Prior to that, Mr. Suggs was the President and Chief Executive Officer of Strategic Materials Corp. from March 2014 to January 2020 and also served as Chairman from 2017 to 2020. Prior to that, Mr. Suggs was the Global Executive Vice President of Belden, Inc. from 2009 to 2013 and the President of the Americas Division / Vice President of Belden, Inc. from 2007 to 2009.   QUALIFICATIONS: Mr. Suggs has over 21 years of experience in leading complex global businesses, having also held senior financial executive leadership roles with Danaher Corporation and Public Storage Corporation. Mr. Suggs also has extensive experience with corporate and operations management, strategic planning, mergers and acquisitions and risk management. Mr. Suggs has served as a director of the Education Corporation of America from 2015 to 2018 and of Strategic Materials, Inc. and the Glass Packaging Institute from 2014 to 2020. He has been determined to be an “audit committee financial expert” under the SEC’s rules and regulations by our Board.

 

 

12

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

M. Scott Welch   AGE: 60   DIRECTOR SINCE: 2015   LEAD INDEPENDENT DIRECTOR SINCE: 2018   COMMITTEES: •  Compensation (Chair)   •  Audit   •  Corporate Governance and Nominations		BIOGRAPHY: M. Scott Welch, age 60, has been the President and Chief Executive Officer of Welch Packaging Group, a large independently owned corrugated packaging company, since 1985. Prior to establishing Welch Packaging, he worked at Northern Box, Performance Packaging and Elkhart Container. Mr. Welch has served as a director of Lakeland Financial Corporation (“Lakeland”) from 1998 to present, and he has been the lead independent director from 2012 to 2019 and a member of Lakeland’s compensation committee since 2012. He has also served as a trustee of DePauw University since 2005.   QUALIFICATIONS: Mr. Welch has over 38 years of experience in the packaging industry and has extensive experience in sales, marketing and strategy. He has been determined to be an “audit committee financial expert” under the SEC’s rules and regulations by our Board.   OTHER PUBLIC BOARD DIRECTORSHIPS: •  Lakeland Financial Corporation

 

 

 

		2020 PROXY STATEMENT		13

 

 

 

2019 Non-Employee Director Compensation

While the structure of the 2019 Non-Employee Director Compensation Plan was unchanged from the 2018 plan, the Corporate Governance and Nominations Committee revised the amounts of the compensation components in May 2019. The plan structure and compensation composition, as approved by the Board, are detailed below:

 

		1/1/19 -6/30/19										7/1/19 -12/31/19
ANNUAL RETAINER			$	65,000									$	75,000
COMMITTEE CHAIRPERSONS ANNUAL RETAINER
Audit				8,000										10,000
Compensation				4,000										6,000
Corporate Governance and Nominations				4,000										6,000
LEAD INDEPENDENT DIRECTOR ANNUAL RETAINER				4,000										6,000
ANNUAL RESTRICTED STOCK GRANT (1)				100,000										100,000

 

(1)	Non-employee directors receive an annual restricted stock grant in May of each year, which vests upon such director’s continued service as a Board member for one year from the grant date or earlier upon certain events.

Employee directors receive no compensation as such. In addition to the compensation described above, the Company reimburses the non-employee directors’ expenses, including travel, accommodations and meals, for attending Board and Board Committee meetings, our Annual Meeting of Shareholders and any other activities related to our business.

 

 

14

2019 NON-EMPLOYEE DIRECTOR COMPENSATION

 

 

 

The following table sets forth a summary of the compensation paid to non-employee directors in the year ended December 31, 2019:

 

Name		Fees Earned or Paid in Cash					Stock Awards (1)					Payments under the Company’s Executive Retirement Plan and Deferred Compensation Plan (2)					Total
JOSEPH M. CERULLI			$	70,000				$	100,016					—				$	170,016
JOHN A. FORBES				75,000					100,016					—					175,016
PAUL E. HASSLER (3)				24,375					100,016				$	33,922					158,313
MICHAEL A. KITSON				79,000					100,016					—					179,016
PAMELA R. KLYN (4)				57,555					115,079					—					172,634
DERRICK B. MAYES (4)				57,555					115,079					—					172,634
DENIS G. SUGGS (4)				57,555					115,079					—					172,634
M. SCOTT WELCH (5)				78,000					100,016					—					178,016
WALTER E. WELLS (6)				25,875					100,016					—					125,891

 

(1)	Amounts shown do not represent compensation actually received. Such amounts reflect the aggregate grant date fair value of 2,241 shares of restricted stock granted to each non-employee director, at a closing stock price of $44.63 on May 15, 2019.

 

(2)	Represents payments under the Company’s Executive Retirement Plan and Deferred Compensation Plan based on prior employment with the Company.

 

(3)	Mr. Hassler retired from the Board effective May 15, 2019 and was 100% vested on the date of the annual share grant of 2,241 shares as discussed in footnote (1) above.

 

(4)

Ms. Klyn and Messrs. Mayes and Suggs began receiving compensation for their service on the Board upon their appointment on March 21, 2019. In addition to the annual share grant of 2,241 shares as discussed in footnote (1) above, Ms. Klyn and Messrs. Mayes and Suggs were awarded a pro-rated portion of the $100,000 May 2018 restricted stock award consisting of 347 shares of the Company’s common stock based on a closing stock price of $43.41 on March 21, 2019. The shares became fully vested on the first anniversary of the grant date or March 21, 2020.

 

(5)	Mr. Welch was elected to serve as the Chairman of the Compensation Committee of the Board effective May 15, 2019.

 

(6)	Mr. Wells retired from the Board effective May 15, 2019 and was 100% vested on the date of the annual share grant of 2,241 shares as discussed in footnote (1) above.

 

 

		2020 PROXY STATEMENT		15

PROPOSAL 2: Ratification of the Appointment of Independent Registered Public				The Board of Directors unanimously recommends a vote FOR approval of the ratification of the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2020.
Accounting Firm

The Audit Committee has appointed Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (collectively, “Deloitte”) as our independent registered public accounting firm for the fiscal year ending December 31, 2020. Deloitte has been the Company’s independent registered public accounting firm since June 2019. The Board and the Audit Committee recommend that shareholders ratify the appointment of Deloitte as our independent registered public accounting firm for our fiscal year 2020. Although we are not required to do so, we believe that it is appropriate to request that shareholders ratify this appointment. If shareholders do not ratify the appointment, the Audit Committee will investigate the reasons for the shareholders’ rejection and reconsider the appointment. Representatives of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to any shareholder questions that may arise.

Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR” approval of the ratification of the appointment of Deloitte. The ratification of the appointment will be approved by our shareholders if, at the Annual Meeting, a quorum is present and the vote of a majority of the votes cast are voted in favor of the proposal.

 

 

16

 

 

 

Independent Public Accountants

On June 3, 2019, the Audit Committee appointed Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2019. As noted above in Proposal 2, the Audit Committee has appointed Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2020.

Effective June 3, 2019, the Audit Committee approved the dismissal of Crowe LLP as our independent registered public accounting firm. The reports of Crowe LLP on our financial statements as of and for the years ended December 31, 2018 and 2017 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During the fiscal years ended December 31, 2018 and 2017 and the subsequent interim period through June 3, 2019, there were no disagreements with Crowe LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Crowe LLP, would have caused Crowe LLP to make reference thereto in its reports on our financial statements for such years and interim period.

During the subsequent interim period through the date of the Company’s appointment of Deloitte on June 3, 2019, neither the Company nor anyone on its behalf consulted with Deloitte regarding any of the matters or events set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.

Audit Fees

The following table presents fees and out-of-pocket expenses for professional audit services rendered by Deloitte during the fiscal year ended December 31, 2019:

 

		2019
AUDIT FEES (1)				$1,314,500
AUDIT-RELATED FEES				—
TAX FEES (2)				328,800
TOTAL FEES			$	1,643,300

 

(1)

Audit fees consist of fees for professional services rendered for the annual audit of the Company’s financial statements, the reviews of the second- and third-quarter financial statements included in the Company’s quarterly reports, and other services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements, such as the issuance of a comfort letter.

 

(2)	Tax fees include fees related to tax compliance and consulting services.

The Audit Committee has advised us that it has determined that the non-audit services rendered by our independent auditors during our most recent fiscal year are compatible with maintaining the independence of such auditors.

The Audit Committee has adopted a Pre-Approval Policy for Audit and Non-Audit Services pursuant to which it pre-approves all audit and non-audit services provided by the independent auditors prior to each particular engagement. The Audit Committee has delegated authority to its Chairman to approve certain proposed services other than the annual audit, tax and quarterly review services, and the Chairman must report any approvals to the balance of the Committee at the next scheduled meeting.

 

 

		2020 PROXY STATEMENT		17

 

 

 

Audit Committee

Report

 

 

 

18

 

 

 

PROPOSAL 3:

Approval of an

Amendment to the 2009

Omnibus Incentive Plan

to Increase the Number

of Shares of Common

Stock Available for Grant

Purpose and Background

The Board has amended the Patrick Industries, Inc. 2009 Omnibus Incentive Plan (the “Plan”), subject to shareholder approval, to increase the number of shares available for grants under the program by an additional 1,000,000 shares. The proposed amendment is intended to allow the Company to continue to keep pace with trends in management compensation and make the Company competitive with companies that offer stock incentives to attract and retain management employees and non-employee directors.

The Plan was originally adopted on August 13, 2009 (the “Effective Date”), and approved at a special meeting of shareholders in November 2009. The purposes of the Plan are (i) to attract and retain highly competent persons as employees, directors and consultants of the Company and its affiliates (“Service Providers”); (ii) to provide additional incentives to such Service Providers by aligning their interests with those of the Company’s shareholders; and (iii) to promote the success and business of the Company and its affiliates.

Patrick currently may grant equity awards under the terms of the Plan including incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”) and stock awards. An aggregate of 461,220 net shares were available for future awards under the Plan as of March 20, 2020 (the record date for the Annual Meeting), prior to the approval by shareholders of this Proposal 3. In the event that the required votes to approve the amendment to the Plan are not obtained, then Patrick’s ability to make future grants under the Plan will be limited to the 461,220 net shares currently available.

The Board of Directors recommends that you vote to approve the amendment to the Plan. The affirmative vote of a majority of the votes cast is required for approval of the amendment to the Plan provided a quorum (50% of the outstanding shares of common stock) is present at the Annual Meeting. Broker non-votes and abstentions will not have an effect on the approval of the proposal.

A summary of the Plan follows, which summary is qualified in its entirety by reference to the full text of the Plan itself, on file with the Securities and Exchange Commission. A copy of the Plan is available from the Corporation’s Secretary at the address on the cover of this Proxy Statement.

 

 

		2020 PROXY STATEMENT		19

 

 

 

 

 

20

PROPOSAL 3: APPROVAL OF AN AMENDMENT TO THE 2009 OMNIBUS INCENTIVE PLAN

 

 

 

 

 

		2020 PROXY STATEMENT		21

 

 

 

 

 

22

PROPOSAL 3: APPROVAL OF AN AMENDMENT TO THE 2009 OMNIBUS INCENTIVE PLAN

 

 

 

 

 

 

		2020 PROXY STATEMENT		23

PROPOSAL 4: Advisory Vote on Executive Compensation   The Dodd-Frank Act requires that the Company seek a non-binding advisory vote from its shareholders to approve the compensation of its named executive officers as disclosed under the “Executive Compensation” section in this Proxy Statement in accordance with SEC rules.   Our executive compensation policy is designed to enable the Company to attract, motivate and retain highly-qualified senior executives by providing a competitive compensation opportunity based on performance. Our intent is to provide fair and equitable compensation in a way that rewards executives for achieving specified financial and non-financial performance goals. Our performance-related awards are structured to link a substantial portion of our executives’ total potential compensation to the Company’s performance on both a long-term and short-term basis, to recognize individual contribution, as well as overall business results, and to align executive and shareholder interests. Accordingly, we reward performance in excess of pre- established profitability targets and we avoid establishing goals that could divert our executives’ attention from the fundamentals of effective and efficient operations.				For the reasons stated, the Board of Directors recommends a vote FOR the following non-binding resolution: “RESOLVED, that the compensation paid to the Company’s named executive officers for fiscal year 2019, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and related information and discussion, is hereby APPROVED.”

We are requesting shareholder approval of the compensation of our named executive officers as disclosed in this Proxy Statement, including the disclosures under “Executive Compensation - Compensation Discussion and Analysis for Executive Officers,” the compensation tables and the related information and discussion.

The vote is advisory and therefore not binding on the Company or the Compensation Committee or the Board. However, we value the opinions of our shareholders, and we will carefully consider the outcome of the advisory vote on executive compensation when making future compensation decisions.

The affirmative vote of a majority of the votes cast is required for advisory approval of the foregoing non-binding resolution. See “Voting Information” on page 7.

 

 

24

 

 

 

Corporate Governance and Related Matters

The Board believes that fundamental corporate governance is important to ensure that we are managed for the long-term benefit of our shareholders. Recent actions taken by the Board include the following:

 

•

Board Diversity Policy. The Corporate Governance and Nominations Committee adopted a formal policy in 2018 specifying the application of diversity of background, ethnicity and personal experience in identifying or evaluating director candidates. As part of its annual self-evaluation under our Corporate Governance Guidelines, the Board considers whether the level of diversity of its members is appropriate, and the Corporate Governance and Nominations Committee will take this consideration into account when identifying and evaluating director candidates. See “Director Qualifications and Board Diversity Policy” below for a more detailed description of the diversity policy.

 

•

Environmental, Health and Safety / Social Responsibility and Corporate Governance Disclosures. In alignment with the Company’s Code of Ethics and Business Conduct and Corporate Governance Guidelines, the Board aims to ensure that matters of environmental, health and safety, social and governance responsibility are considered and supported in the Company’s operations and administrative matters and are consistent with Patrick shareholders’ best interests.

 

•

The Board adopted a formal policy in 2018 for managing its commitment to social and environmental matters. This policy is available on the Company’s website at www.patrickind.com under “Investor Relations - Corporate Governance” under the heading “Social and Environmental Responsibility Policy.”

 

•

In 2019, the Board provided disclosures regarding the Company’s ESG practices as noted below. The ESG disclosures are also available on the Company’s website at www.patrickind.com under “Investor Relations - Corporate Governance” under the heading “Environmental, Social and Governance Disclosures.”

 

•

In 2019, the Corporate Governance and Nominations Committee was charged with providing appropriate oversight on ESG matters that includes working with management to identify and define relevant ESG topics and enhancing our communications with our employees, customers, communities and shareholders.

Environmental, Health and Safety / Social Responsibility

We are conscious of our environmental impact and the health and safety (“EHS”) of all of our team members, contractors, and communities in which we operate. We will actively seek sound practices and safe behaviors to protect the environment and the health and safety of our employees insofar as they are affected by our facilities, products and services. In particular, we will:

 

•

Meet or exceed applicable environmental, health, safety and legal requirements;

 

•

Continuously improve our processes to reduce pollution and eliminate workplace injuries;

 

•

Require individual accountability and provide regular training and development of all team members;

 

•

Identify, consider and minimize potential EHS impacts of new and modified products and production processes, acquisitions, and capital project review and approval activities; and

 

•

Promote health and wellness of our employees;

Our Board, Executive Management team, Business Unit directors, EHS team, and Human Resources teams have the shared responsibility to develop, implement, and manage safety and health programs in the interest of a safe work environment that also promotes a work/life balance. In addition, we will seek to contribute positively to the communities in which we operate.

 

 

		2020 PROXY STATEMENT		25

 

 

 

In conjunction with Board oversight related to climate related risks and opportunities, our goal is to comply with all applicable environmental and local, state, and federal safety and health regulations, and conduct our operations in a manner that safeguards the environment and minimizes waste, emissions, and energy consumption. We look forward to developing new processes and technologies to recycle more material, manage energy consumption, and engineer products for each of the markets we serve.

We continually aim to upgrade our assurance processes to detect, communicate and correct defects to monitor the delivery of products and services so that they meet or exceed contractual quality and legal and regulatory requirements.

We require everyone in the Patrick organization to assume the responsibility of individual and organizational safety. It is each team member’s responsibility that all work tasks be conducted in a safe and efficient manner. An extensive array of metrics has been established and communicated to team members to ensure an understanding of our current level of performance and to continually identify opportunities for improvement.

Corporate Governance

The Board believes that fundamental corporate governance is important to ensure that we are managed for the long-term benefit of our shareholders. Commensurate with the size and nature of each of Patrick’s businesses, the Company utilizes management systems, tools and processes to help (1) ensure compliance with applicable laws, regulations and the requirements set forth in its Code of Ethics and Business Conduct (the “Code”); (2) promote an awareness and commitment to ethical business practices, including, without limitation, the expectations set forth in the Code; (3) facilitate the timely discovery, investigation, disclosure and implementation of corrective actions for violations of law, regulations or the expectations set forth in the Code; and (4) provide training to all employees on compliance requirements, as necessary and as required by law.

The Board expects to continue to review its corporate governance practices and policies as set forth in its Corporate Governance Guidelines, Code of Ethics and Business Conduct, Diversity Policy, Social and Environmental Responsibility Policy, and various Committee Charters, all of which were updated in accordance with the listing standards of the NASDAQ Stock Market and the SEC rules, at least annually or as it deems appropriate. Our environmental, social and governance policies and related documents are available on Patrick’s website at www.patrickind.com under “Investor Relations - Corporate Governance.”

Board Membership and Leadership

As of the date of this Proxy Statement, our Board has nine (9) members. Mr. Cleveland serves as Executive Chairman of the Board and Mr. Welch serves as lead independent director. Except for Mr. Cleveland and Mr. Nemeth, our President and Chief Executive Officer, no director is an employee.

Election of Directors and Length of Board Term

Directors are currently elected for a one-year term at the Annual Meeting of Shareholders.

Board Meetings and Attendance

The Board and Board Committees hold regular meetings on a set schedule and may hold special meetings and act by written consent from time to time as necessary or appropriate. The Board had five regular meetings in 2019. Additionally, the Board had 12 special meetings in 2019 which included periodic update calls with the Chief Executive Officer, President, and Chief Financial Officer. Each director attended at least 75% of the meetings of the Board and the Board Committees on which he/she served in 2019 and all directors attended the most recent Annual Meeting of Shareholders, which was held on May 15, 2019. We expect all Board members to attend the 2020 Annual Meeting, either in person or virtually, but from time to time, other commitments may prevent all directors from attending each meeting.

 

 

26

CORPORATE GOVERNANCE AND RELATED MATTERS

 

 

 

Access to Corporate Governance Documents

The charters of our Audit, Compensation, and Corporate Governance and Nominations Committees, our Corporate Governance Guidelines and our Code of Ethics and Business Conduct are all available on our website at www.patrickind.com, or by writing to:

Patrick Industries, Inc.

Attn: Joshua A. Boone, Secretary

107 West Franklin Street

Elkhart, Indiana 46515-0638

Shareholder Communications

Shareholders may send communications to members of the Board by sending a communication to the Board and/or a particular member c/o Joshua A. Boone-Secretary, Patrick Industries, Inc., 107 West Franklin Street, Elkhart, Indiana 46515-0638. Communications intended for independent directors should be directed to the Chairman of the Corporate Governance and Nominations Committee.

Executive Sessions of Independent Directors

The Board and Board Committees regularly meet in executive session without the presence of any employee directors or representatives. The executive sessions of the Board were presided over by Mr. Welch, the lead independent director. Any independent director can request additional executive sessions. The independent directors met in executive sessions five times in 2019.

Seven of the nine members of the Board (as of the date of this Proxy) have been designated by the Board as independent directors. In general, the Board determines whether a director is independent by following the guidelines of the NASDAQ Stock Market and the SEC rules and regulations. The Board has determined that the independent directors in 2019 were Joseph M. Cerulli, John A. Forbes, Michael A. Kitson, Pamela R. Klyn, Derrick B. Mayes, Denis G. Suggs and M. Scott Welch.

Board Risk Oversight

The Board has delegated its risk oversight responsibilities to the Audit Committee, as described below under the heading “Audit Committee.” In accordance with the Audit Committee’s Charter, each of our senior financial and accounting officers reports directly to the Audit Committee regarding material risks to our business, among other matters, and the Audit Committee meets in executive sessions with the senior financial and accounting officers and with representatives of our independent registered public accounting firm. The Audit Committee Chairman reports to the full Board regarding material risks as deemed appropriate.

Director Qualifications and Board Diversity Policy

The Board seeks a diverse group of candidates who possess the background, skills and expertise and the highest level of personal and professional ethics, integrity, judgment and values to represent the long-term interests of our Company and its shareholders. To be considered for membership on the Board, a candidate should possess some or all of the following major attributes:

 

•

Breadth of knowledge about issues affecting the Company and the industries/markets in which it operates;

 

•

Significant experience in leadership positions or at senior policy-making levels and an established reputation in the business community;

 

•

Expertise in key areas of corporate management and in strategic planning;

 

•

Financial literacy and financial and accounting expertise; and

 

•

Independence and a willingness to devote sufficient time to carry out his or her duties and responsibilities effectively and assume broad fiduciary responsibility.

The Board Diversity Policy, which the Board adopted in 2018, is available on the Company’s website at www.patrickind.com under “Investor Relations - Corporate Governance.”

 

 

		2020 PROXY STATEMENT		27

 

 

 

The Board believes that a board made up of highly qualified directors with diverse backgrounds, skills and experiences and who reflect the changing population demographics of the markets in which the Company operates, the talent available with the required expertise and the Company’s evolving customer and employee base, promotes better corporate governance. To support this, the Corporate Governance and Nominations Committee will, when identifying candidates to recommend for appointment/election to the Board:

 

•

Consider only candidates who are highly qualified based on their experience, functional expertise, and personal skills and qualities;

 

•

Consider diversity criteria including gender, age, ethnicity and geographic background; and

 

•

In addition to its own search, engage qualified independent external advisors, if it deems necessary, to conduct a search for candidates who meet the Board’s skills and diversity criteria to help achieve its diversity aspirations.

Board appointments will be based on merit and candidates will be considered against objective criteria, having due regard for the benefits of diversity on the Board. In furtherance of this commitment, the Corporate Governance and Nominations Committee shall require that the list of candidates to be considered by the Corporate Governance and Nominations Committee and/or the Board for nomination to our Board include candidates with diversity of race, ethnicity and gender.

The Committee will consider a candidate’s qualifications and background, including responsibility for operating a public company or a division of a public company, international business experience, a candidate’s technical and financial background or professional qualification, diversity of background and personal experience, and any other public company boards on which the candidate is a director. The Committee will also consider whether the candidate would be “independent” for purposes of the NASDAQ Stock Market and the SEC rules and regulations by our Board. The Committee may, from time to time, engage the services of a professional search firm to identify and evaluate potential nominees.

Process for Consideration of Director Candidates

The Corporate Governance and Nominations Committee will consider board nominees recommended by shareholders. Those recommendations should be sent to the Chairman of the Corporate Governance and Nominations Committee, c/o of the Secretary of Patrick Industries, Inc., 107 West Franklin Street, Elkhart, Indiana 46515-0638. In order for a shareholder to nominate a candidate for director, under our By-laws, timely notice of the nomination must be given in writing to the Secretary of the Company. To be timely, such notice must be received at our principal executive office not less than 20 days or more than 50 days prior to the next Annual Meeting of Shareholders. Notice of nomination must include the name, address and number of shares owned by the person submitting the nomination; the name, age, business address, residence address and principal occupation of the nominee; and the number of shares beneficially owned by the nominee. It must also include the information that would be required to be disclosed in the solicitation of proxies for election of directors under the federal securities laws, as well as whether the individual can understand basic financial statements and the candidate’s other board memberships (if any). The nominee’s consent to be elected and serve must be submitted. The Corporate Governance and Nominations Committee may require any nominee to furnish any other information, within reason, that may be needed to determine the eligibility of the nominee.

As provided in its Charter, the Corporate Governance and Nominations Committee will follow procedures which the committee deems reasonable and appropriate in the identification of candidates for election to the Board and evaluating the background and qualification of those candidates. Those processes include consideration of nominees suggested by an outside search firm, by incumbent board members, and by shareholders. The Committee will seek candidates having experience and abilities relevant to serving as a director of the Company, and who represent the best interests of shareholders as a whole and not any specific group or constituency.

Board Committee Responsibilities and Related Matters

The Company has three standing committees of the Board: the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominations Committee. All members of each Committee are independent directors who meet the independence and experience standards of NASDAQ. The Board annually selects the directors who serve on each of the Board Committees. Each Board Committee functions pursuant to a written charter. The Board has delegated certain responsibilities and authority to each Board Committee as described below. At each regularly scheduled Board meeting, each Board Committee Chairman (or other designated Board Committee member) reports to the full Board on his/her Board Committee’s activities.

 

 

28

CORPORATE GOVERNANCE AND RELATED MATTERS

 

 

 

The following table reflects the current membership of each Board Committee:

 

Name

Audit Committee

Compensation Committee

Corporate Governance and Nominations Committee

JOSEPH M. CERULLI

X

JOHN A. FORBES

X

X

Chair

MICHAEL A. KITSON

Chair

X

X

PAMELA R. KLYN

X

X

X

DERRICK B. MAYES

X

X

X

DENIS G. SUGGS

X

X

X

M. SCOTT WELCH

X

Chair

X

 

Audit Committee   The Audit Committee’s report is provided on page 18 of this Proxy Statement.   For a more detailed list of the roles and responsibilities of the Audit Committee, please see the Audit Committee Charter located in the “Corporate Governance” section of our website at www.patrickind.com.						The Board has an Audit Committee for which Michael A. Kitson serves as the Chairman. Ms. Klyn and Messrs. Mayes and Suggs were appointed to the Board on March 21, 2019 and to the Audit Committee on May 15, 2019. The Audit Committee met 13 times in 2019. These meetings included conference calls with management to review quarterly earnings releases and SEC filings prior to their issuance. The primary responsibilities of the Audit Committee include:   •  Oversight responsibilities related to potential material risks to the business including, but not limited to, credit, liquidity and operational risks;   •  Recommending to the Board the independent auditors to be employed for the purpose of conducting the annual audit of our financial statements;   •  Discussing with the independent auditors the scope of their examination;   •  Reviewing our financial statements and the independent auditors’ report thereon with our personnel and the independent auditors;   •  Inviting the recommendations of the independent auditors regarding internal controls and other matters; and   •  Approving all non-audit services provided by the independent auditors and reviewing these engagements on a per occurrence basis.   The Board has determined that each of the current members of the Audit Committee is independent, as defined in the NASDAQ listing standards and relevant SEC rules. In addition, the Board has determined that four of these members also meet both the qualifications required to be an audit committee financial expert and the financial sophistication requirements contained in the NASDAQ listing standards (Messrs. Forbes, Kitson, Suggs and Welch).

 

 

		2020 PROXY STATEMENT		29

 

 

 

Compensation Committee   The Compensation Committee’s report is provided on page 56 of this Proxy Statement.   For a more detailed list of the roles and responsibilities of the Compensation Committee, please see the Compensation Committee Charter located in the “Corporate Governance” section of our website at www.patrickind.com.						The Board has a Compensation Committee for which Walter E. Wells served as Chairman from January 1, 2019 through May 14, 2019. On May 15, 2019, M. Scott Welch assumed the role of Chairman of the Compensation Committee upon the retirement of Mr. Wells from the Board effective May 15, 2019. Ms. Klyn and Messrs. Mayes and Suggs were appointed to the Board on March 21, 2019 and to the Compensation Committee on May 15, 2019. The Compensation Committee met four times in 2019. The primary responsibilities of the Compensation Committee include:   •  Reviewing and recommending to the independent members of the Board the overall compensation programs for the officers of the Company;   •  Oversight authority to attract, develop, promote and retain qualified senior executive management; and   •  Oversight authority for the stock-based compensation programs.   In its oversight of executive officer compensation, the Compensation Committee seeks assistance from our management and our independent compensation consultant, Willis Towers Watson, as further described below under the heading “Compensation Discussion and Analysis for Executive Officers.” Willis Towers Watson’s fees are approved by the Compensation Committee. Willis Towers Watson provides the Compensation Committee with data about the compensation paid by our peer group and industry benchmark groups, updates the Compensation Committee on new developments in areas that fall within the Compensation Committee’s jurisdiction and is available to advise the Compensation Committee regarding all of its responsibilities, including best practices and market trends in executive compensation. Our Compensation Committee has assessed the independence of Willis Towers Watson pursuant to SEC and NASDAQ listing rules and determined that their work did not give rise to any conflicts of interest.   The Board has determined that each of the current members of the Compensation Committee is independent as defined in the NASDAQ listing standards and our Corporate Governance Guidelines.   Compensation Committee Interlocks and Director Participation   During 2019, no executive officer served on the board or compensation committee of any other corporation with respect to which any member of the Compensation Committee was engaged as an executive officer. No member of the Compensation Committee was an officer or employee of the Company during 2019.

 

 

30

CORPORATE GOVERNANCE AND RELATED MATTERS

 

 

 

Corporate Governance and Nominations Committee   For a more detailed list of the roles and responsibilities of the Corporate Governance and Nominations Committee, please see the Corporate Governance and Nominations Committee Charter located in the “Corporate Governance” section of our website at www.patrickind.com.						The Board has a Corporate Governance and Nominations Committee for which John A. Forbes serves as the Chairman. Ms. Klyn and Messrs. Mayes and Suggs were appointed to the Board on March 21, 2019 and to the Corporate Governance and Nominations Committee on May 15, 2019. The Corporate Governance and Nominations Committee met five times in 2019. The primary responsibilities of the Corporate Governance and Nominations committee include:   •  Assist the Board in identifying, screening and recommending qualified candidates to serve as directors;   •  Recommend nominees to the Board to fill new positions or vacancies as they occur;   •  Review and recommend to the Board the compensation of directors;   •  Recommend to the Board nominees for election by shareholders at the Annual Meeting; and   •  Review and monitor corporate governance compliance as well as recommend appropriate changes.   The Board has determined that each of the current members of the Corporate Governance and Nominations Committee is independent as defined in the listing standards of the NASDAQ Stock Market and our Corporate Governance Guidelines.   Delinquent Section 16(a) Reports   Section 16(a) of the Securities Exchange Act of 1934 requires that certain of our officers, directors and 10% shareholders file with the SEC an initial statement of beneficial ownership and certain statements of changes in beneficial ownership of our common stock. Based solely on our review of such forms and written representation from the directors and officers that no other reports were required, we are unaware of any instances of noncompliance or late compliance with such filings during the fiscal year ended December 31, 2019, except with respect to the late filing of one Form 4 on October 21, 2019 for Andy L. Nemeth, a named executive officer and director.

 

 

		2020 PROXY STATEMENT		31

 

 

 

Executive Compensation

The following Compensation Discussion and Analysis (“CD&A”) should be read in conjunction with the executive compensation tables and corresponding footnotes that follow. The discussion focuses on the compensation program approved by the Board for the 2019 fiscal year for the Named Executive Officers (“NEOs”).

Named Executive Officers included in the 2019 CD&A

 

Effective January 1, 2020, Andy L. Nemeth assumed the role of CEO of the Company and will continue in his role as President. Todd M. Cleveland previously held the role of CEO from February 2009 through December 31, 2019. In addition, Mr. Cleveland assumed the role of Executive Chairman of the Company effective January 1, 2020. A brief biography of each of the NEOs is as follows:

TODD M. CLEVELAND

Todd M. Cleveland was appointed Executive Chairman of the Board of the Company in January 2020. Prior to that, Mr. Cleveland was Chairman of the Board from May 2018 to December 2019 and Chief Executive Officer from February 2009 until December 2019. Mr. Cleveland was President of the Company from May 2008 to December 2015 and Chief Operating Officer from May 2008 to March 2013. Prior to that, Mr. Cleveland served as Executive Vice President of Operations and Sales and Chief Operating Officer from August 2007 to May 2008 following the acquisition of Adorn Holdings, Inc. by Patrick in May 2007. Mr. Cleveland has over 29 years of manufactured housing, recreational vehicle and industrial experience in various leadership capacities.

ANDY L. NEMETH

Andy L. Nemeth was appointed Chief Executive Officer of the Company in January 2020. In addition to this role, Mr. Nemeth serves as President of the Company, a position he has held since January 2016. Mr. Nemeth was the Executive Vice President of Finance and Chief Financial Officer from May 2004 to December 2015 and Secretary-Treasurer from 2002 to 2015. Mr. Nemeth has over 28 years of manufactured housing, recreational vehicle and industrial experience in various financial and managerial capacities.

 

 

32

EXECUTIVE COMPENSATION

 

 

 

JEFFREY M. RODINO

Jeffrey M. Rodino was appointed Chief Sales Officer of the Company in September 2016. In addition to this role, Mr. Rodino serves as the Executive Vice President of Sales, a position he has held since December 2011. Prior to that, he was the Chief Operating Officer of the Company from March 2013 to September 2016 and Vice President of Sales for the Midwest from August 2009 to December 2011. Mr. Rodino has over 26 years of experience in serving the recreational vehicle, manufactured housing and industrial markets.

KIP B. ELLIS

Kip B. Ellis was appointed Executive Vice President of Operations and Chief Operating Officer of the Company in September 2016. He was elected an officer in September 2016. Mr. Ellis joined the Company as Vice President of Market Development in April 2016. Prior to his role at Patrick, Mr. Ellis served as Vice President of Aftermarket Sales for the Dometic Group from 2015 to 2016. Prior to his tenure at Dometic, Mr. Ellis served as Vice President of Global Sales and Marketing from 2007 to 2015 at Atwood Mobile Products. Mr. Ellis has over 23 years of experience serving the recreational vehicle, manufactured housing, industrial and automotive markets.

JOSHUA A. BOONE

Joshua A. Boone was appointed Vice President of Finance, Chief Financial Officer and Secretary-Treasurer of the Company in January 2016. He was elected an officer in May 2016. Mr. Boone joined the Company as its Director of Corporate Finance in July 2014. Prior to his role at Patrick, Mr. Boone served as Chief Financial Officer for Pretzels, Inc. from 2012 to 2014 and served in several leadership positions in finance and accounting at Brunswick Corporation from 2007 to 2012. Mr. Boone has over 15 years of experience serving the manufacturing, industrial and marine industries in various financial and managerial capacities.

 

 

2019 Executive Compensation Plan Highlights

 

•

Increase to CEO base pay; no increase to short-term incentive (“STI”) or long-term incentive (“LTI”) target pay year-over-year. Base compensation was adjusted in alignment with Company scope and to assure a competitive position with the market for total target direct compensation.

 

•

Increases to each of the other NEOs’ compensation in one or more compensation components. Adjustments were made in alignment with Company and role scope increases and to assure a competitive position with the market for total target direct compensation.

 

•

Changes to the STI Plan performance targets and corresponding payout when performing above plan.

 

•

Change to the LTI Plan performance targets and corresponding payout when performing above plan. In addition, the maximum payout increasing in competitive alignment with the market.

 

•

No other changes year-over-year to the Executive Compensation Plan.

Compensation Discussion and Analysis for Executive Officers (“CD&A”)

We believe that our compensation plan as it relates to the NEOs and other executives should be aligned with the Company’s short-term and long-term organizational strategic agenda and its operating performance and cash flows and ensure appropriate management ownership in the Company. Messrs. Cleveland, Nemeth, Rodino, Ellis and Boone comprise our NEOs for fiscal 2019, as such term is used under SEC rules. Our philosophy and objectives are to provide a comprehensive market competitive compensation program designed to attract, retain and motivate the best qualified talents from inside and outside the industry and to align the interests of our senior management team with the interests of our shareholders, both short-term and long- term. The Company utilizes a “pay-for-differentiated performance” compensation philosophy that establishes base salaries that are generally low relative to its peer group companies while offering the opportunity for greater upside potential by establishing performance-based short-term and long-term incentives that are generally high relative to its peer group companies. Our performance management system links compensation to achieving or exceeding certain objectives based on our short-term and long-term goals. In order to meet these objectives, the Compensation Committee has met numerous times over the past year and has conducted independent benchmark studies and analyses, in conjunction with the utilization of a third-party compensation consultant, to develop a comprehensive performance and rewards compensation strategy as it relates to our NEOs and other executives. See “Plan Components” discussion below.

 

 

		2020 PROXY STATEMENT		33

 

 

 

2019 Executive Compensation Plan: Pay-at-Risk

The 2019 executive compensation plan for the NEOs was designed to compensate and reward the plan participants with “pay-for-differentiated-performance.” The plan design is specifically designated through each compensation component to incrementally reward the NEO as the performance against established key financial metrics is achieved. This plan design places a high degree of emphasis and reward based on variable compensation or “pay-at-risk.” Each element of compensation is outlined below in demonstration of the philosophy and architecture of the plan design.

Base Pay (Salary)

To implement our variable pay-at-risk philosophy in 2019, we intentionally set the NEOs’ base salaries so that they are lower than market-based salaries.

The CEO’s and each of the other NEOs’ base compensation for 2019 was aligned to the 25th to 50th percentile range of their respective established peer group and general industry data.

 

Executive

2019 Base Pay

Fixed or Variable Pay

CEO

$750,000

Fixed Pay

ALL OTHER NEOS COMBINED

1,775,000

Fixed Pay

Non-Equity Incentive Compensation (Short-Term Incentive)

The 2019 Short-Term Incentive Plan (“STIP”) was designed to reward the CEO and each of the other NEOs for differentiated incremental performance against the net income of the plan year (net of 2019 acquisitions) and individual performance goals of each NEO. The STIP is designed to be 100% variable, performance dependent, pay-at-risk. Assuming target performance, the net income metric performance accounts for 70% of the performance payout and each NEO’s personal strategic objectives account for 30% of the performance payout, allowing for differentiation of each individual NEO’s contributions to the performance of the Company. STIP compensation may range from 0 to 200% of target and is 100% variable compensation.

If an individual’s performance rating is below the threshold performance rating, such individual is not eligible for a STIP award regardless of Company performance. If the Company’s net income (net of acquisitions) performance is below the threshold Company performance, no individual is eligible for that performance plan year’s annual STIP award regardless of individual performance.

The STIP threshold, target, stretch and maximum performance levels for both net income (net of 2019 acquisitions) and personal performance and related payouts are noted below for reference.

 

 

				Company Performance (70% of target performance payout)
Net Income Performance				Performance to Plan (%)				Payout (%)
LESS THAN THRESHOLD				<75				0
THRESHOLD				75				50
TARGET (PLAN)				100				100
STRETCH				110				175
MAXIMUM				115				200

 

 

34

EXECUTIVE COMPENSATION

 

 

 

							NEO Individual Performance (30% of target performance payout)
Personal Performance							Performance Rating (0-5 Scale)										Payout (%)
LESS THAN THRESHOLD							<2.5										0
THRESHOLD							2.5										50
TARGET (PLAN)							3.5										100
STRETCH							4.4										175
MAXIMUM							5.0										200

The STIP target amount for the CEO and each of the other NEOs is designed to align to the 75th percentile range of established peer group and general industry pay percentiles.

 

Executive

2019 Target STIP

Fixed or Variable Pay

CEO

$1,800,000

Variable Pay

ALL OTHER NEOS COMBINED

2,275,000

Variable Pay

Long-Term Incentive Plan Compensation (Long-Term Incentive Plan)

The 2019 Long-Term Incentive Plan (“LTIP”) was designed to reward the CEO and each of the other NEOs for sustained, long-range performance while ensuring incremental reward for differentiated performance against the Company’s three-year cumulative earnings before interest, taxes, depreciation and amortization (“EBITDA”) plan. The design of the LTIP creates 80% of the target value of the award in the form of this performance-dependent variable pay and 20% in the form of retentive, time-based fixed compensation with three-year cliff vesting.

The LTIP threshold, target, stretch and maximum performance levels for three-year cumulative EBITDA and related payouts are noted below for reference.

 

3-Year Cumulative EBITDA		Performance to Plan (%)										Payout (%)
LESS THAN THRESHOLD		<80										0
THRESHOLD		80										50
TARGET		100										100
STRETCH		110										150
MAXIMUM		120										200

The LTIP target amount for the CEO and each of the other NEOs is designed to align to the 50th percentile range of peer and general industry pay percentiles. The target value of the LTIP is awarded in Restricted Stock Units (“RSUs”). The table below outlines the target LTIP amount for the CEO and all the other NEOs combined.

 

Executive		2019 Target LTIP										Variable Pay (80%)										Fixed Pay (20%)
CEO				$3,000,000										$2,400,000										$600,000
ALL OTHER NEOS COMBINED				3,450,000										2,760,000										690,000

 

 

		2020 PROXY STATEMENT		35

 

 

 

Total Target Compensation: Fixed vs. Variable Pay Summary

Upon combining all pay elements of the 2019 Executive Compensation Plan, the philosophy of paying for differentiated performance is realized through the high percentages of variable pay-at-risk verses fixed pay as depicted in the table and graph below.

 

												Total Target Fixed Pay																				Total Target Variable Pay
Executive		Total Target Compensation										$										%										$										%
CEO				$5,550,000										$1,350,000										24.3%										$4,200,000										75.7%
ALL OTHER NEOS COMBINED				7,500,000										2,465,000										32.9%										5,035,000										67.1%

Total Fixed vs. Variable Pay at Target

 

 

 

36

EXECUTIVE COMPENSATION

 

 

 

Executive Compensation Decisions

Participants and Roles

 

COMPENSATION COMMITTEE						•  Reviews and approves, with input from our management team and external advisors, the Company’s executive compensation and benefits programs, including the NEOs.   •  Provides annual and ongoing review, discussion, analysis and recommendations regarding the evaluation of the execution of the performance plan for the NEOs against defined business objectives.
INDEPENDENT COMMITTEE CONSULTANT						•  Provides published survey data, peer group proxy data and analysis and consultation to the Compensation Committee on executive and non-employee director compensation.   •  Establishes and maintains an independent perspective to avoid any conflicts of interests while working directly for the Compensation Committee unless the Committee has pre- approved any work to be conducted with management for review by the Committee and approval by the Board.
CHIEF EXECUTIVE OFFICER AND CHIEF HUMAN RESOURCES OFFICER						•  When requested by the Compensation Committee, provides executive compensation and benefit plan input related to the performance management structure and provides support on compensation and benefit program design and implementation, as well as compliance and disclosure requirements.   •  The CEO evaluates the performance plans of the President, CSO, COO and CFO and other executives in accordance with the Board approved plan.

Plan Factors

There are several key factors the Compensation Committee considers when recommending plan-year executive compensation decisions:

 

•

NEOs’ roles, position scope, experience, skill set and performance history;

 

•

The external market for comparable roles;

 

•

The current and expected business climate; and

 

•

The Company’s financial position and operating results.

Plan Components

The Compensation Committee utilizes its own judgment in approving the components of compensation, benefits, and plan targets for the NEOs. The Compensation Committee further reviews and approves compensation including base compensation, targets, thresholds, and maximums of short-term and long-term incentive compensation. In addition, the Compensation Committee utilizes a third-party compensation consulting firm, Willis Towers Watson, to provide relevant compensation benchmarks for the NEOs and other key leadership roles as well as plan design review and input. The Compensation Committee takes the shareholder advisory voting results, along with any other shareholder input on executive compensation, into consideration as one of several decision points in its executive compensation decision making process for each plan year. Approximately 84% of shareholders voted to approve the compensation of the NEOs for fiscal year 2018 based on the most recent shareholder advisory vote at our Annual Meeting of Shareholders held on May 15, 2019. This advisory vote has been taken into consideration by the Compensation Committee with respect to the acceptability of the 2019 plan.

 

 

		2020 PROXY STATEMENT		37

 

 

 

Benchmark Sources and Fiscal Year 2019 Peer Group

As described under “Plan Components,” an important factor in establishing executive compensation for 2019 is the external market for comparable roles. In addition, based on the data utilized from an index of General Industry companies provided by the Central Data Base Survey of Willis Towers Watson, our independent compensation committee consultant, the Compensation Committee updated its benchmark peer group for the period ended December 31, 2019 to include the following companies, which we believe represents an effective comparator group with similar scope of revenue and market capitalization. Ply Gem Holdings, Inc. was deleted from the 2019 peer group due to the acquisition of the entity.

 

 

Fiscal Year 2019 Executive Compensation

 

Compensation and Benefits Components		Description and Purpose
BASE SALARY		Cash payments reflecting a market competitive position for performance of functional role.
SHORT-TERM INCENTIVES		Lump sum cash payments reflective of approved pay-for-performance plan and the relative achievements of the business and individual performance objectives. The Board reserves the right at any time to award discretionary bonuses to senior management based on outstanding performance or other factors.
LONG—TERM INCENTIVES		Stock vehicle grants reflecting approved pay-for-performance plan and the relative long-term achievement of the business performance plans as well as the Company’s desire to retain high- performing talent and align the interests of senior management with shareholder interests.
EXECUTIVE HEALTH AND WELFARE BENEFITS		Health and welfare benefits mirror scope of standard plans for all employees.
VOLUNTARY DEFERRED COMPENSATION PLAN		Highly compensated individuals can elect to voluntarily defer all or a portion of their wages in any given year subject to applicable laws and restrictions. Designed to supplement market competitive position and further drive retention of key executives.
OTHER COMPENSATION		Other compensation includes: Automobile allowance, Company contributions pursuant to the Patrick Industries, Inc. 401(k) Plan and to individual Health Savings Accounts, and health club reimbursement pursuant to the Company’s general health and welfare program.
SEVERANCE BENEFITS		Reasonable and customary transition support aligned to market benchmark data.

 

 

38

EXECUTIVE COMPENSATION

 

 

 

Base Salary

The Compensation Committee reviews and approves the base salaries of the NEOs each year, as well as at the time of promotion, change in job responsibilities or any other change deemed to be a material event. Base salaries are set during the first quarter of each year. The Compensation Committee sets the salary for the CEO and approves the base salaries for the other NEOs based on recommendations by the CEO.

When determining base salary adjustments for its NEOs, the Compensation Committee considers a combination of (1) peer group data, (2) market data, including industry norms and benchmarking data from companies of similar size and scope and (3) outstanding Company and individual performance. In general, the Compensation Committee targets the 25th to 50th percentile of the Company’s peer group in determining base salaries.

The Board increased the CEO salary in 2019 as a result of Mr. Cleveland’s individual performance and increased role in developing and executing the Company’s growth strategy and peer comparator group market data alignment. The other NEOs’ base salary increases were based on peer group data market alignment and individual performance contributions.

 

Name / Benefit		2018 Base Salary - 1/29/18										2019 Base Salary - 1/28/19										% Increase
TODD M. CLEVELAND				$700,000										$750,000										7.1	%
ANDY L. NEMETH				475,000										500,000										5.2	%
JEFFREY M. RODINO				400,000										425,000										6.3	%
KIP B. ELLIS				400,000										450,000										12.5	%
JOSHUA A. BOONE				335,000										400,000										19.4	%

Non-Equity Incentive Plan Awards

The short-term incentive portion of the 2019 compensation plan consists of annual non-equity incentive plan awards, which are reviewed and approved each year and are based on the Company’s financial results and the individual’s performance against defined objectives. Several key components were considered in the development of the 2019 STIP to align the STIs with shareholder interest by measuring the Company’s financial performance and the individual’s performance in support of the Company’s short- and long-term strategies. These components are noted on pages 34 and 35.

Below are the STI metric components for 2019:

 

2019 STIP Award Component

Threshold Performance

Target Performance

Maximum Performance

COMPANY PERFORMANCE (NET INCOME) (1)

$81.69MM

$108.92MM

$125.26MM

INDIVIDUAL RATING

2.5

3.5

5.0

PAYOUT AS A PERCENTAGE OF TARGET AWARD

50%

100%

200%

 

(1)	All net income targets are net of the contributions of 2019 acquisitions.

 

 

		2020 PROXY STATEMENT		39

 

 

 

The Company achieved adjusted fiscal 2019 net income of $85.9 million (net of 2019 acquisitions) which equated to 78.9% of the target Company performance. When combined with the individual performance rating for each NEO, the actual STIP award payouts for 2019 were as follows:

 

Name / Benefit		2019 Base Salary					Target Award as a % of Base Salary (1)					Target STI Award					Actual Award Amount as a % of Target Award					Actual 2019 STI Award Payout
TODD M. CLEVELAND				$750,000					240.0	%				$1,800,000					69	%				$1,243,800
ANDY L. NEMETH				500,000					155.0	%				775,000					81	%				624,650
JEFFREY M. RODINO				425,000					141.1	%				600,000					71	%				423,600
KIP B. ELLIS				450,000					111.1	%				500,000					88	%				440,500
JOSHUA A. BOONE				400,000					100.0	%				400,000					81	%				322,400

 

(1)

The target award as a percentage of base salary for the NEOs was determined by the Compensation Committee and applied to the base salary in effect as of January 28, 2019. An increased target award as a percentage of base salary was established for each NEO in 2019 in alignment with the Company’s “pay-for-differentiated-performance” philosophy, market competitive positions for earned payout and further enhancement of the pay-at-risk for each NEO.

While these targets were used in fiscal year 2019, the Compensation Committee reserves the right to modify, cancel, change or reallocate any components of this calculation or criteria at any time.

Each NEO’s individual performance rating takes into account four strategic performance objectives in assessing the personal performance of the NEOs named in the Summary Compensation Table for 2019. The four strategic objectives are specific for each NEO and are linked to the Company’s strategic plan and that year’s organizational strategic agenda and include, among others: (1) improving the revenue and profitability of business units under the leadership and control of the NEO; (2) the introduction of new product

lines and product line extensions to achieve target revenue growth levels and market share; (3) the ongoing evaluation of strategic opportunities related to our capital allocation strategy and the execution of those opportunities, as appropriate; and (4) objectives linked to developing and managing talent consistent with the Company’s values and enhancing and developing the leadership capabilities of the Company’s future leaders.

The individual objectives for each NEO are initially developed by the Compensation Committee to guide their planned respective contribution toward the Company’s strategic and financial goals for the plan year and are reviewed and approved by either the CEO or by the Board, in the CEO’s case.

In assessing the NEOs’ individual performance, the Compensation Committee is provided with detailed quantitative and qualitative documentation substantiating individual performance against each individual objective. The Compensation Committee looks to the CEO’s performance assessments of the other NEOs and his recommendations regarding a performance rating for each, as well as input from the non-management Board members. These recommendations may be adjusted by the Compensation Committee prior to finalization. The personal performance assessment of our CEO is determined by the Compensation Committee with input from members of the Board.

While the achievement of corporate objectives is quantified with an individual rating, each NEO’s relative contribution to those objectives is only one qualitative component against which the individual’s performance is assessed by the Compensation Committee. Based upon their individual achievements, as evaluated by the Compensation Committee, and by the CEO for Messrs. Nemeth, Rodino, Ellis and Boone, the individual performance rating achieved by each of these four NEOs exceeded the target performance rating of 3.5 set by the Compensation Committee.

 

 

40

EXECUTIVE COMPENSATION

 

 

 

Long-Term Incentive Plan

We believe that long-term incentive compensation represents an important and appropriate motivational tool to achieve certain long- term Company goals and closely align the interests of our management team with those of our shareholders. Our executive officers participate in our long-term incentive plan (“LTIP”) as a result of their ability to make a significant contribution to the Company’s financial performance, their level of responsibility, their ability to meet performance objectives and their leadership potential and execution.

In 2019, the Compensation Committee adopted a Board approved “pay-for-differentiated-performance” based Long-Term Incentive Plan (“2019 LTIP”) for the NEOs as noted on page 35. The 2019 LTIP utilizes a long-term incentive target award, which is established as a percentage of base compensation for each of the NEOs. The target award is comprised of a restricted share award (80% of which is performance-contingent and 20% of which is time-based). In determining the number of shares comprising the restricted share award,

the target value of the restricted share component is divided by the stock price per share as established by the Board for the particular plan year, reflecting the trading price range of the common stock preceding the grant date ($36.00 for the 2019 LTIP award). The awarded target shares vest over a three-year time/performance period. Time-based shares cliff vest at the conclusion of the three-year period from the grant date. The performance-contingent shares are earned based on the achievement of three-year cumulative Company EBITDA performance (2019 to 2021) against target from 0% up to a maximum payout of 200% of target. The 2019 LTIP further reflects the Company’s “pay-for-differentiated-performance” philosophy through its upside potential for performance in excess of target levels. The target as a percentage of base compensation was increased for all NEOs in alignment with the Company’s “pay-for-differentiated-performance” philosophy, market competitive positions for earned payout and the increased component of the pay-at-risk compensation for each NEO.

The table below shows a sample calculation of 2019 LTIP award components:

 

Base Salary		Target Award as a % of Base Salary					Target Award (1,250 Restricted Shares @ $36.00 per share)					Restricted Shares Target Award: Performance-Contingent  (80%) (Shares @ $36.00 per share)					Restricted Shares Target Award: Time-Based (20%) (Shares @  $36.00 per share)
$150,000				30	%				$45,000					1,000					250

The restricted share award is divided into (1) restricted shares with time-based vesting (“Time-Based Shares”) and (2) restricted shares with performance-based vesting (“Performance-Contingent Shares”). The Compensation Committee believes that the use of Time-Based Shares and Performance-Contingent Shares aligns the NEOs’ focus with the Company’s long-term financial performance objectives and assures that significant retention value of the granted equity is maintained for each NEO.

The threshold, target, stretch and maximum performance metrics for the 2019 LTIP are outlined below:

 

Plan Component		Threshold EBITDA Performance (1) Payout as % of Target					Target EBITDA Performance (1) Payout as % of Target					Stretch EBITDA Performance (1) Payout as % of Target					Maximum EBITDA Performance (1) Payout as % of Target
TIME-BASED SHARES				100	%				100	%				100	%				100	%
PERFORMANCE-CONTINGENT SHARES				50	%				100	%				150	%				200	%

 

(1)	The Company EBITDA performance is measured as the cumulative EBITDA achieved in 2019, 2020 and 2021.

 

 

		2020 PROXY STATEMENT		41

 

 

 

The target 2019 LTIP award components for the NEOs in 2019 were as follows:

 

Name / Benefit		Total Target Award as % of Base Salary					Total Target Award					Total Target Award (Shares)					Target Time-Based Share Award (Shares)					Target Performance-Contingent Share Award (Shares)
TODD M. CLEVELAND				400.0	%				$3,000,000					83,334					16,667					66,667
ANDY L. NEMETH				320.0	%				1,600,000					44,445					8,889					35,556
JEFFREY M. RODINO				129.4	%				550,000					15,278					3,056					12,222
KIP B. ELLIS				166.7	%				750,000					20,834					4,167					16,667
JOSHUA A. BOONE				137.5	%				550,000					15,278					3,056					12,222

Individual NEO threshold, target, stretch and maximum payouts in shares for each long-term incentive component of the 2019 LTIP are outlined below:

 

Name / Benefit		Threshold EBITDA Performance Component Award (Shares)					Target EBITDA Performance Component Award (Shares)					Stretch EBITDA Performance Component Award (Shares)					Maximum EBITDA Performance Component Award (Shares)
TIME-BASED SHARES (1) (2)   Todd M. Cleveland				16,667					16,667					16,667					16,667
Andy L. Nemeth				8,889					8,889					8,889					8,889
Jeffrey M. Rodino				3,056					3,056					3,056					3,056
Kip B. Ellis				4,167					4,167					4,167					4,167
Joshua A. Boone				3,056					3,056					3,056					3,056
PERFORMANCE-CONTINGENT SHARES (1)   Todd M. Cleveland				33,334					66,667					100,001					133,334
Andy L. Nemeth				17,778					35,556					53,334					71,112
Jeffrey M. Rodino				6,111					12,222					18,333					24,444
Kip B. Ellis				8,334					16,667					25,001					33,334
Joshua A. Boone				6,111					12,222					18,333					24,444

 

(1)	Represents the number of shares for the threshold, target, stretch and maximum payouts for the Time-Based shares and Performance-Contingent shares for the 2019 LTIP award.

 

(2)	The Time-Based shares cliff vest at the conclusion of the required three-year service period.

The Company records the estimated compensation expense over the life of the LTIP Plan performance period assuming the stretch payout (150%) and adjusts its estimates on a periodic basis, if required. The NEOs have voting rights with respect to all of the shares as of the date of grant and the shares will be returned to the Company in the event that performance targets or time-based vesting requirements are not achieved. The actual payout under the 2019 LTIP will be determined at the conclusion of the three-year performance period ending on December 31, 2021 (the third year in the cumulative EBITDA performance measurement period) and payment of the award will be settled in stock.

See “Potential Payments Upon Termination or Upon a Change of Control” on pages 52 to 55 payable to each of the NEOs upon termination or a change in control.

 

 

42