Proxy-12-28-2020 - Report - Page 26
THE PROCESS USED TO DETERMINE COMPENSATION
Base Salary
The process for setting annual base salaries is one whereby the CEO makes recommendations for all other officers' meritbased salary increases and, occasionally, base salary adjustments needed to position an executive officer appropriately against
market benchmarks. The Executive Compensation Committee approves or adjusts those recommendations for a final determination
and determines the base salary adjustment for the CEO. As part of this process, the CEO prepares a performance appraisal for
each executive officer, including himself, which is reviewed in detail by the Executive Compensation Committee. These performance
appraisals take into consideration:
•
•
•
the outcomes achieved by the business unit or functional area for which the officer is responsible;
the conduct and contribution of the officer and the organization he manages in achieving overall Company results; and
the officer’s achievements in developing organizational strength for the future.
In developing his recommendations for base salary increases and adjustments for the calendar year for the NEOs in 2020,
the CEO was also guided by the pay increase made across other Moog sites worldwide. During fiscal 2020, all NEOs received an
increase to base salary of 3%, other than Mr. Fishback who received no increase. Ms. Walter received a promotional increase of
41% on her appointment to the role of Chief Financial Officer.
Short Term Incentive (STI)
Annual bonuses paid to senior executives are developed in accordance with the STI plan introduced in fiscal 2016 in which
there are approximately 388 participants. For this group, payments under the STI plan are paid based on growth in EPS and FCF.
The bonus amount payable to each participant is determined by multiplying the participant’s base salary by the sum of the
following: (i) the product of the percentage growth in EPS for the fiscal year and a multiplier based on the participant’s position;
plus (ii) the product of actual FCF conversion for the fiscal year and a multiplier based on the participant’s position, as expressed
in the following formula:
Base Salary x [(% Increase in EPS x EPS Growth Multiplier) + (Actual % FCF conversion x FCF Multiplier)] = Total Bonus
There are multiple levels used within the STI plan for each performance multiplier, which vary based on a participant’s
responsibilities.
During fiscal 2020, the NEOs, other than the CEO, were eligible to receive a bonus that is equal to the participant’s base salary
at year end multiplied by the sum of (i) the percentage improvement in EPS times a factor of 3.375, and (ii) the FCF conversion
achieved multiplied by 0.1125. For the CEO, the same calculation was used but with multipliers of 4.5 for EPS improvement and
0.15 for FCF conversion.
Payments under the STI plan are subject to an overall cap of 75% of base salary (100% for the CEO), inclusive of both cash
and stock bonus awarded. STI payouts were distributed in both cash and stock in a ratio of 2:1 in favor of cash. Stock bonuses
were awarded in the form of Class B shares. This stock bonus is reflected in the following tables as part of the total incentive paid.
The multipliers are used to achieve bonus payments which, in years of strong earnings growth and FCF conversion, are
somewhat comparable to the bonus plans for executives in other companies in the peer group identified by Korn Ferry.
For fiscal 2020, the CEO received an STI payment at the on-target level of 60% of base salary, split in the ratio 2:1 between
cash and Class B shares, while other NEOs received an on-target payment of 45% of base salary split in the same ratio. These
payments were below the amount that would ordinarily have been paid under the STI plan. The decision to pay at target rather than
a higher amount was made on the basis that a higher payment would have been wholly driven by the one-off positive impact on
free cash flow conversion that came about as a result of actions the Company took to reduce liabilities associated with the Company’s
pension plan. By purchasing a single premium group annuity contract, the Company transferred future benefit obligations and
administration for certain beneficiaries of the Moog Inc. Employees' Retirement Plan, to a third party. Making a lower payment at
the previously established on-target levels was deemed to be more appropriate given the wider business context of fiscal 2020.
The Company’s EPS increase, FCF conversion and NEO bonus history over the last three years is as follows:
Year
(1)
(2)
22
EPS Increase %
FCF %
2020
0.0%
2,066%
2019
90.7%
35%
2018
0.0%
8%
Payment made at on target. CEO on-target bonus was 60%.
Includes amounts paid under the STI plan and the supplemental bonus paid for fiscal 2018.
22
NEO Bonus %
45.00% (1)
44.30%
31.60% (2)