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Section 1: DEF 14A (DEFINITIVE PROXY STATEMENT)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A
(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

 

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

 

Filed by the Registrant

 

Filed by a Party other than the Registrant

 

Check the appropriate box:

 

Preliminary Proxy Statement
   
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
   
Definitive Proxy Statement
   
Definitive Additional Materials
   
Soliciting Material Pursuant to Section 240.14a-12

 

COOPER TIRE & RUBBER COMPANY

 

(Name of Registrant as Specified in its Charter)

 

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.
   
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

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

 

 

2)Aggregate number of securities to which transaction applies:

 

 

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

 

 

4)Proposed maximum aggregate value of transaction:

 

 

5)Total fee paid:

 

 

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

 

1)Amount Previously Paid:

 

 

2)Form, Schedule or Registration Statement No.:

 

 

3)Filing Party:

 

 

4)Date Filed:

 

 

 

 
 

 

(coopertires logo) 

 

COOPER TIRE & RUBBER COMPANY

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

 

TO THE STOCKHOLDERS:

 

The 2017 Annual Meeting of Stockholders of Cooper Tire & Rubber Company (the “Company”) will be held at The Westin Detroit Metropolitan Airport, McNamara Terminal, 2501 Worldgateway Place, Detroit, Michigan 48242 on Friday, May 5, 2017, at 10:00 a.m., Eastern Daylight Time, for the following purposes:

 

(1)To elect eight Directors of the Company for the ensuing year. (2) To ratify the selection of the Company’s independent registered public accounting firm for the year ending December 31, 2017.

 

(3)To approve, on a non-binding advisory basis, the Company’s named executive officer compensation.

 

(4)To recommend, on a non-binding advisory basis, the frequency of advisory votes on the Company’s named executive officer compensation.

 

(5)To transact such other business as may properly come before the Annual Meeting or any postponement(s) or adjournment(s) thereof.

 

Only holders of Common Stock of record at the close of business on March 10, 2017, are entitled to notice of and to vote at the Annual Meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS
Stephen Zamansky,
Senior Vice President,
General Counsel and Secretary

 

Findlay, Ohio
March 20, 2017

 

Please mark, date, and sign the enclosed proxy and return it promptly in the enclosed addressed envelope, which requires no postage. In the alternative, you may vote by Internet or telephone. See page 2 of the proxy statement for additional information on voting by Internet or telephone. If you are present and vote in person at the Annual Meeting, the enclosed proxy card will not be used.

 

 

 

TABLE OF CONTENTS

 

  Page
   
GENERAL INFORMATION AND VOTING 1
Purpose of Annual Meeting 1
Voting 1
Proxy Matters 2
   
AGENDA ITEM 1 – Election of Directors 3
Nominees for Director 3
   
AGENDA ITEM 2 – Ratification of the Selection of the Company’s Independent Registered Public Accounting Firm 8
   
AGENDA ITEM 3 – Proposal to Approve, on a Non-Binding Advisory Basis, the Company’s Named Executive Officer Compensation 9
   
AGENDA ITEM 4 – To Recommend, on a Non-Binding Advisory Basis, the Frequency of Advisory Votes on the Company’s Named Executive Officer Compensation 10
   
COMPENSATION DISCUSSION AND ANALYSIS 11
Executive Summary 11
2016 Financial Results 12
Our Executive Officer Compensation Program Is Administered by the Compensation Committee 12
Executive Compensation Philosophy and Approach 13
Base Salaries 14
Incentive Compensation 15
Retirement Benefits 20
Executive Deferred Compensation Plan 21
Perquisites and Other Compensation 21
Other Program Design Elements 21
Employment Agreement and Change in Control Plan 23
Compensation Plan for 2017 23
Executive Compensation Consultant Disclosure 23
Compensation-Related Risk Assessment 23
   
COMPENSATION COMMITTEE REPORT 24
   
EXECUTIVE COMPENSATION 25
2016 Summary Compensation Table 25
2016 Grants of Plan-Based Awards Table 27
Outstanding Equity Awards at 2016 Fiscal Year-End Table 29
2016 Option Exercises and Stock Vested Table 30
2016 Pension Benefits Table 31
2016 Non-Qualified Deferred Compensation Table 32
Potential Payments Upon Termination or Change in Control 33
2016 Director Compensation Table 42

 

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TABLE OF CONTENTS
(continued)

 

  Page
   
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES 43
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION 49
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 49
AUDIT COMMITTEE REPORT 51
BENEFICIAL OWNERSHIP OF SHARES 52
SECURITY OWNERSHIP OF MANAGEMENT 53
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 54
STOCKHOLDER PROPOSALS FOR THE ANNUAL MEETING IN 2018 54
INCORPORATION BY REFERENCE 54
HOUSEHOLDING INFORMATION 54
SOLICITATION AND OTHER MATTERS 55
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 5, 2017 55

 

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COOPER TIRE & RUBBER COMPANY

 

701 Lima Avenue, Findlay, Ohio 45840
March 20, 2017

 

 

 

PROXY STATEMENT

 

 

 

GENERAL INFORMATION AND VOTING

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Cooper Tire & Rubber Company (the “Company,” “Cooper Tire,” “our,” “we,” or “us”) to be used at the Annual Meeting of Stockholders of the Company to be held on May 5, 2017, at 10:00 a.m., Eastern Daylight Time, at The Westin Detroit Metropolitan Airport, McNamara Terminal, 2501 Worldgateway Place, Detroit, Michigan 48242. This proxy statement and the related form of proxy were first mailed or made available to stockholders on or about March 20, 2017.

 

Purpose of Annual Meeting

 

The purpose of the Annual Meeting is for stockholders to act on the matters outlined in the notice of Annual Meeting on the cover page of this proxy statement. These matters consist of (1) the election of eight Directors, (2) the ratification of the selection of the Company’s independent registered public accounting firm for the year ending December 31, 2017, (3) the approval, on a non-binding advisory basis, of the Company’s named executive officer compensation, (4) the recommendation, on a non-binding advisory basis, of the frequency of advisory votes on the Company’s named executive officer compensation, and (5) the transaction of such other business as may properly come before the Annual Meeting or any postponement(s) or adjournment(s) thereof.

 

Voting

 

Each share of the Company’s Common Stock will be entitled to one vote on each matter. Only stockholders of record at the close of business on March 10, 2017, (the “record date”) will be eligible to vote at the Annual Meeting. As of the record date, there were 52,910,823 shares of Common Stock outstanding. The holders of a majority of the shares of Common Stock issued and outstanding, and present in person or represented by proxy, constitute a quorum. Abstentions and “broker non-votes” with respect to a proposal will be counted to determine whether a quorum is present at the Annual Meeting.

 

If your shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, then you are the beneficial owner of shares held in “street name,” and the organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to instruct that organization on how to vote the shares held in your account. “Broker non-votes” occur when an organization that holds shares for a beneficial owner has not received voting instructions with respect to the proposal from the beneficial owner. Whether such organization has the discretion to vote those shares on a particular proposal depends on the ballot item. If the organization that holds your shares does not have discretion and you do not give the organization instructions, the votes will be “broker non-votes,” which may have the same effect as votes against the proposal.

 

Below is a summary of the vote threshold required for passage of each agenda item and the effect of abstentions and “broker non-votes.”

 

Agenda Item 1. Except in the case of a contested election, each nominee for election as a Director who receives a majority of the votes cast with respect to such Director’s election by stockholders will be elected as a Director. In the case of a contested election, the nominees for election as Directors who receive the greatest number of votes will be elected as Directors. Abstentions and “broker non-votes” are not counted for purposes of the election of Directors.

 

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Agenda Item 2. Although the Company’s independent registered public accounting firm may be selected by the Audit Committee of the Board of Directors without stockholder approval, the Audit Committee will consider the affirmative vote of a majority of the shares of Common Stock having voting power present in person or represented by proxy at the Annual Meeting to be a ratification by the stockholders of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2017. As a result, abstentions will have the same effect as a vote cast against the proposal. As a routine matter, we do not expect “broker non-votes” with respect to this proposal.

 

Agenda Item 3. Although the advisory vote to approve named executive officer compensation is non-binding, the advisory vote allows our stockholders to express their opinions regarding named executive officer compensation. The Board will consider the affirmative vote of a majority of the shares of Common Stock having voting power present in person or represented by proxy at the Annual Meeting as approval of the compensation of the Company’s named executive officers for fiscal 2016. Abstentions are counted as votes against and “broker non-votes” are not counted for purposes of the advisory vote to approve named executive officer compensation. As a result, if you own shares through a bank, broker-dealer, or similar organization, you must instruct your bank, broker-dealer, or other similar organization to vote in order for them to vote your shares.

 

Agenda Item 4. Although the advisory vote to recommend the frequency of advisory votes on the Company’s named executive officer compensation is non-binding, the advisory vote allows our stockholders to express their opinions regarding the frequency of stockholder votes regarding the Company’s named executive officer compensation. The Board will consider the option receiving the greatest number of votes (every one, two or three years) of the shares of Common Stock having voting power present in person or represented by proxy at the Annual Meeting as the frequency recommended by stockholders. However, because this vote is advisory and not binding on the Board of the Company in any way, the Board may decide that it is in the best interests of our stockholders and our Company to hold an advisory vote on named executive officer compensation more or less frequently than the option recommended by our stockholders. Abstentions and “broker non-votes” will have no effect on this proposal.

 

Proxy Matters

 

Stockholders may vote by completing, properly signing, and returning the accompanying proxy card, or by attending and voting at the Annual Meeting. If you properly complete and return your proxy card in time to vote, your proxy (one of the individuals named in the proxy card) will vote your shares as you have directed. If you sign and return the proxy card but do not indicate specific choices as to your vote, your proxy will vote your shares (i) to elect the nominees listed under “Nominees for Director,” (ii) for the ratification of the selection of the Company’s independent registered public accounting firm, (iii) for approval of the compensation of the Company’s named executive officers for fiscal year 2016 and (iv) for advisory votes on the Company’s named executive officer compensation to occur “every year.”

 

Stockholders of record and participants in certain defined contribution plans sponsored by the Company (see below) may also vote by using a touch-tone telephone to call 1-800-690-6903, or by the Internet by accessing the following website: http://www.proxyvote.com.

 

Voting instructions, including your stockholder account number and personal proxy control number, are contained on the accompanying proxy card. You will also use this accompanying proxy card if you are a participant in the following defined contribution plans sponsored by the Company:

 

Spectrum Investment Savings Plan;

 

Pre-Tax Savings Plan (Texarkana Represented Employees); or

 

Pre-Tax Savings Plan (Findlay Represented Employees).

 

Those stockholders of record who choose to vote by telephone or Internet must do so no later than 11:59 p.m., Eastern Daylight Time, on May 4, 2017. All voting instructions from participants in the defined contribution plans sponsored by the Company and listed above must be received no later than 5:00 p.m., Eastern Daylight Time, on May 3, 2017.

 

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A stockholder may revoke a proxy by filing a notice of revocation with the Secretary of the Company, or by submitting a properly executed proxy card bearing a later date. A stockholder may also revoke a previously executed proxy (including one submitted by Internet or telephone) by attending and voting at the Annual Meeting, after requesting that the earlier proxy be revoked. Attendance at the Annual Meeting, without further action on the part of the stockholder, will not operate to revoke a previously granted proxy card. If the shares are held in the name of a bank, broker or other holder of record, the stockholder must obtain a proxy executed in his or her favor from the holder of record to be able to vote at the Annual Meeting.

 

AGENDA ITEM 1

 

ELECTION OF DIRECTORS

 

In accordance with the Restated Certificate of Incorporation of the Company, the Board of Directors has fixed the total number of Directors to be elected at the Annual Meeting at eight. All eight of our Directors standing for reelection have a term that expires at this Annual Meeting and each has consented to stand for reelection. At this Annual Meeting, eight Directors are being elected to serve for a term of office that will expire at the Annual Meeting of Stockholders in 2018. In the event that any of the nominees becomes unavailable to serve as a Director before the Annual Meeting, the Board of Directors may designate a new nominee, and the persons named as proxies will vote for that substitute nominee.

 

The Board of Directors recommends that stockholders vote FOR the eight nominees for Director.

 

NOMINEES FOR DIRECTOR
       
(PHOTO OF THOMAS P. CAPO)    THOMAS P. CAPO

Non-Executive Chairman of the Board,
Former Chairman of the Board,
Dollar Thrifty Automotive Group, Inc.

 

  Mr. Capo, age 66, served as Chairman of the Board of Dollar Thrifty Automotive Group, Inc., a vehicle rental company, from October 2003 to November 2010. Mr. Capo was a Senior Vice President and Treasurer of DaimlerChrysler Corporation, an automobile manufacturer, from November 1998 until August 2000. From November 1991 to October 1998, he was Treasurer of Chrysler Corporation, an automobile manufacturer. Prior to holding these positions, Mr. Capo served as Vice President and Controller of Chrysler Financial Corporation, a finance company. Mr. Capo currently serves as a director of Lear Corporation, and, until its sale in November 2012, he served as a director of Dollar Thrifty Automotive Group, Inc. Mr. Capo has a B.S. in Accounting and Finance, an M.A. in Economics, and an M.B.A. in Finance, each from the University of Detroit Mercy. Mr. Capo’s public company board and committee experience, including at the board chairman level, executive management and leadership experience, especially in finance, treasury, capital markets, M & A, strategy development, capital restructuring, financial reporting and compliance, including his service as a public company treasurer and controller, and education qualify him to continue serving as a member of the Board of Directors.
       
    Director Since 2007

 

3

 

 

NOMINEES FOR DIRECTOR (CONT.)
       
 (PHOTO OF STEVEN M. CHAPMAN)   STEVEN M. CHAPMAN Group Vice President,
China and Russia,
Cummins, Inc.
     
  Mr. Chapman, age 63, has served as Group Vice President, China and Russia, for Cummins, Inc. since 2009. Cummins designs, manufactures, and markets diesel engines and related components and power systems. Mr. Chapman has been with Cummins since 1985 and served in various capacities, including as Group Vice President, Emerging Markets & Businesses, President of Cummins’ International Distribution Business, Vice President of International, and Vice President of Southeast Asia and China. Mr. Chapman graduated from St. Olaf College with a B.A. in Asian Studies and from Yale University with a M.P.P.M. in Management. Mr. Chapman’s education, board member experience, and business management experience in operations and international operations qualify him to continue serving as a member of the Board of Directors.
     
    Director Since 2006
       
(PHOTO OF SUSAN F. DAVIS)    SUSAN F. DAVIS Former Executive Vice President,
Asia-Pacific Region,
Johnson Controls
     
  Ms. Davis, age 63, served as Executive Vice President of the Asia-Pacific Region for Johnson Controls from September 2015 until her retirement in October 2016. Johnson Controls is a globally diversified technology and industrial leader serving customers in more than 150 countries. Ms. Davis has served in positions of increasing responsibility within Johnson Controls. She was named Vice President of Organizational Development in 1993. The following year, she was appointed Corporate Vice President of Human Resources and was named Executive Vice President of Human Resources in 2005. She was named Executive Vice President & Chief Human Resources Officer in 2012. She joined the company in 1985, following its acquisition of Hoover Universal, where she began her career in 1983 as a strategic planner for the automotive seating and plastics machinery business. Ms. Davis holds a Master of Business Administration (MBA) degree from the University of Michigan. She graduated magna cum laude with a Master of Arts degree and magna cum laude with a Bachelor of Arts, both from Beloit College. Ms. Davis currently serves as director of Quanex Corporation. Ms. Davis’s education, board member experience, and business management experience qualify her to continue serving as a member of the Board of Directors.
       
    Director Since 2016

 

4

 

 

NOMINEES FOR DIRECTOR (CONT.)
       
 (PHOTO OF JOHN J. HOLLAND)   JOHN J. HOLLAND President,
Greentree Advisors LLC
     
  Mr. Holland, age 67, has served as President of Greentree Advisors LLC since 2005. Greentree Advisors LLC provides business advisory services. Mr. Holland served as President of The International Copper Association (ICA) from 2012 to 2015. The ICA is a marketing and trade organization for the global copper industry. Mr. Holland served as President, Chief Operating Officer, and Chief Financial Officer of MMFX Technologies Corporation from September 2008 until October 2009. MMFX Technologies is an inventor and manufacturer of nano technology steel. Prior to that, he was Executive Vice President and Chief Financial Officer of Alternative Energy Sources, Inc., an ethanol producer, from August 2006 until June 2008. Mr. Holland previously was employed by Butler Manufacturing Company, a producer of pre-engineered building systems, supplier of architectural aluminum systems and components, and provider of construction and real estate services for the non-residential construction market, from 1980 until his retirement in 2004. Prior to his retirement from Butler, Mr. Holland served as Chairman of the Board from 2001 to 2004, as Chief Executive Officer from 1999 to 2004, and as President from 1999 to 2001. Mr. Holland is also a director of SAIA, Inc., and NCI Buildings Systems Inc. Mr. Holland holds B.S. and MBA degrees from the University of Kansas. Mr. Holland’s education, board member experience, and business management experience in operations and accounting, including his service as a chief executive officer and chief financial officer, qualify him to continue serving as a member of the Board of Directors.
       
    Director Since 2003
       
 (PHOTO OF BRADLEY E. HUGHES)   BRADLEY E. HUGHES President and Chief Executive Officer
     
  Mr. Hughes, age 55, has served as President & Chief Executive Officer since September 2016. He previously served the Company as Senior Vice President and Chief Operating Officer from January 2015 to September 2016; Senior Vice President and President-International Tire Operations from July 2014 to January 2015; Senior Vice President and Chief Financial Officer from September 2014 to December 2014; Senior Vice President, Chief Financial Officer and Treasurer from July 2014 to September 2014; Vice President, Chief Financial Officer and Treasurer from November 2013 to July 2014 and Vice President and Chief Financial Officer from November 2009 to November 2013. Mr. Hughes was previously employed at Ford Motor Co. where he worked as Global Product Development Controller for Ford in Dearborn, Michigan; as Finance Director for Ford’s South America Operations in Sao Paulo, Brazil; as Director of European Business Strategy and Implementation, Cologne, Germany; as European Manufacturing Controller, Cologne, Germany; and in other corporate finance and treasury positions. Mr. Hughes has a B.A. in business from Miami University and an MBA from the University of Michigan. Mr. Hughes’s education, extensive knowledge of the Company, international operations and business management experience qualify him to continue serving as a member of the Board of Directors.
       
    Director Since 2016

 

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NOMINEES FOR DIRECTOR (CONT.)
       
(PHOTO OF GARY S. MICHEL)    GARY S. MICHEL Senior Vice President and
President, Residential Heating, Ventilation
and Air Conditioning (HVAC) and Supply,
 Ingersoll Rand
     
  Mr. Michel, age 54, has served as President of Ingersoll Rand’s residential HVAC & Supply business since 2011; which includes brands such as Trane, American Standard, Ameristar, and Nexia. Ingersoll Rand is a $13 billion global business that enhances the quality and comfort of air in homes and buildings; transports and protects food and perishables, and increases industrial productivity and efficiency. Mr. Michel, a 32-year veteran of Ingersoll Rand, is a Senior Vice President of the company and also serves as a member of its enterprise leadership team. He also leads the Ingersoll Rand Sales Excellence Initiative, as well as serving as a co-lead of the company’s enterprise sustainability efforts. Mr. Michel began his tenure with Ingersoll Rand as an application engineer and went on to hold product, sales, and business management roles before moving into a series of leadership positions across various geographic and market segments, culminating in his current role. Mr. Michel holds a Bachelor of Science degree in Mechanical Engineering from Virginia Polytechnic Institute and State University and an MBA degree from the University of Phoenix. Mr. Michel’s education, board member experience, and business management experience qualify him to continue serving as a member of the Board of Directors.
       
    Director Since 2015
       
 (PHOTO OF JOHN H. SHUEY)   JOHN H. SHUEY Former Chairman of the Board,
President and Chief Executive Officer,
Amcast Industrial Corporation
     
  Mr. Shuey, age 71, joined Amcast Industrial Corporation, a producer of aluminum components for the automotive industry and plumbing products for the construction industry, in 1991 as Executive Vice President. He was elected President and Chief Operating Officer in 1993, a director in 1994, Chief Executive Officer in 1995, and Chairman in 1997. Mr. Shuey served as Chairman of the Board, President and Chief Executive Officer through February 2001. Prior to joining Amcast, Mr. Shuey served as chief financial officer for two Fortune 500 companies. Mr. Shuey has been a private investor since February 2001. Mr. Shuey has a B.S. degree in Industrial Engineering and an MBA degree, both from the University of Michigan. Mr. Shuey’s education, board experience, and business and financial management experience, including service as chief financial officer for two Fortune 500 companies, as well as his service as a chief executive officer and in numerous leadership positions for many organizations, qualify him to continue serving as a member of the Board of Directors.
       
    Director Since 1996

 

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NOMINEES FOR DIRECTOR (CONT.)
       
 (PHOTO OF ROBERT D. WELDING)   ROBERT D. WELDING Former Non-Executive Chairman,
Public Safety Equipment (Int’l) Limited
     
  Mr. Welding, age 68, served as the Non-Executive Chairman of Public Safety Equipment (Int’l) Limited, a manufacturer of highway safety and enforcement products, from January 2009 until his retirement in May 2010. Prior to that, he was President, Chief Executive Officer, and a director of Federal Signal Corporation, a manufacturer of capital equipment, from November 2003 until his retirement in 2007. Prior to holding those positions, Mr. Welding was Executive Vice President of BorgWarner, Inc., a U.S. automotive parts supplier, and Group President of BorgWarner’s Driveline Group from November 2002 until November 2003, and was President of BorgWarner’s Transmission Systems Division from 1996 to November 2002. Mr. Welding graduated from the University of Nebraska with a B.S. in Mechanical Engineering, holds an MBA from the University of Michigan, and is a graduate of Harvard Business School’s Advanced Management Program. Mr. Welding’s education, board member experience, and business management experience in strategy development, operations leadership, continuous improvement, product development, technology, and corporate leadership qualify him to continue serving as a member of the Board of Directors.
       
    Director Since 2007

 

 

Note: The beneficial ownership of the Directors and nominees in the Common Stock of the Company is shown in the table presented under the heading “Security Ownership of Management” in this proxy statement.

 

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AGENDA ITEM 2

RATIFICATION OF THE SELECTION OF THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

 

Ernst & Young LLP served as the independent registered public accounting firm of the Company in 2016 and has been retained by the Audit Committee to do so in 2017. In connection with the audit of the 2017 financial statements, the Company has engaged Ernst & Young LLP to perform audit services for the Company. The Board of Directors has directed that management submit the selection of the independent registered public accounting firm for ratification by the stockholders at the Annual Meeting.

 

Stockholder ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm is not required by the Company’s Bylaws or otherwise. However, the Board of Directors is submitting the selection of Ernst & Young LLP to the stockholders for ratification. If the stockholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain the firm. In such event, the Audit Committee may retain Ernst & Young LLP, notwithstanding the fact that the stockholders did not ratify the selection, or select another nationally recognized public accounting firm without resubmitting the matter to the stockholders. Even if the selection is ratified, the Audit Committee reserves the right in its discretion to select a different nationally recognized public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

 

The Board of Directors recommends that stockholders vote FOR the ratification of the selection of the Company’s independent registered public accounting firm.

 

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AGENDA ITEM 3

 

PROPOSAL TO APPROVE, ON A NON-BINDING ADVISORY BASIS, THE
COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION 

 

The Board of Directors is aware of the significant interest in executive compensation matters by investors and the general public. The Company is submitting this proposal, commonly known as a “say-on-pay” proposal, to stockholders. The Company is currently conducting say-on-pay votes every year and expects to hold the next say-on-pay vote in connection with its 2018 Annual Meeting of Stockholders, subject to the Board of Directors’ consideration of the outcome of the vote on Agenda Item 4 described in this proxy statement. As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act of 1934, or the Exchange Act, we are asking you to cast a non-binding advisory vote to approve the Company’s named executive officer compensation through the consideration of the following resolution:

 

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”

 

Our Compensation Committee has overseen the development and implementation of a compensation program that is discussed more fully in “Compensation Discussion and Analysis” and “Executive Compensation,” including the summary tables and narrative sections of this proxy statement.

 

The Company’s compensation program emphasizes a pay-for-performance philosophy. Performance-based annual cash incentive and cash and equity long-term incentive programs, collectively, are the majority of the targeted annual compensation for our named executive officers. These programs are designed to:

 

drive the long-term financial and operational performance of the Company;

 

deliver value to our stockholders;

 

recognize and reward corporate, group and individual performance;

 

provide a pay package that reflects our judgment of the value of each officer’s position in the marketplace and the Company; and

 

attract and retain strong executive leadership.

 

In executing a philosophy which begins with creating long-term value to stockholders, the Compensation Committee has established a framework for executive compensation that promotes a culture of performance and accountability with due consideration to risk management, transparency, and the need to adjust to rapidly changing market conditions. The program is heavily weighted toward pay at risk, with limited executive perquisites and benefits and clear line of sight to the link between important Company strategic goals and the rewards for achieving those objectives.

 

To further promote alignment with the interests of stockholders and a culture of enduring performance and accountability, the Company’s executives have stock ownership requirements and are bound by a clawback policy which allows for the recoupment of incentive payments in certain circumstances. The fully independent Compensation Committee believes that the executive compensation program is an essential factor in the Company’s strengthening of its leadership team and competitive position in the marketplace, both of which lead to business continuity and long-term value creation.

 

Because your vote is advisory, it will not be binding upon the Company, the Compensation Committee, or the Board of Directors. However, we value stockholders’ opinions, and the Board will carefully consider the outcome of the advisory vote on named executive officer compensation.

 

The Board of Directors recommends that the stockholders vote FOR approval, on a non-binding advisory basis, of the compensation of the Company’s named executive officers for fiscal year 2016.

 

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AGENDA ITEM 4

 

TO RECOMMEND, ON A NON-BINDING ADVISORY BASIS, THE FREQUENCY OF ADVISORY
VOTES ON THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATON

 

Section 14A of the Exchange Act requires the Company to include in its proxy statement a non-binding advisory vote on the Company’s named executive officer compensation not less frequently than once every three years. Section 14A also requires us to include in our proxy statement this year a separate non-binding advisory vote regarding whether the non-binding advisory vote on named executive officer compensation should be held every one, two or three years. The proposal gives stockholders the opportunity to cast a non-binding, advisory vote to determine the frequency of advisory votes on the Company’s named executive officer compensation.

 

The Board of Directors has concluded that holding an annual advisory vote has been and will continue to be the most effective means for conducting and responding to a say-on-pay vote. Conducting an annual stockholder vote on named executive officer compensation provides stockholder input on named executive officer compensation practices and allows the Company to respond to stockholders concerns on an annual basis.

 

The accompanying proxy card allows stockholders to recommend that the advisory vote on the Company’s named executive officer compensation occur every one, two, or three years, or to abstain from voting on the matter. You are not voting to approve or disapprove the Board’s recommendation. The option receiving the greatest number of votes (every one, two or three years) will be considered the frequency recommended by stockholders. Because the vote is advisory, it will not be binding upon the Company, the Compensation Committee or the Board of Directors. However, we value stockholders’ opinions, and the Board will carefully consider the outcome of the advisory vote on the frequency of the advisory vote on named executive officer compensation.

 

The Board of Directors recommends that the stockholders vote for an advisory vote on the Company’s named executive officer compensation to occur EVERY YEAR. 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

 

Cooper Tire’s executive compensation program for its named executive officers is driven by our financial and strategic goals and the principle of pay for performance. The compensation program, which primarily consists of a base salary and performance-based cash incentive and equity awards, is built upon many of the principles and governance practices highlighted below.

 

  Executive Compensation Design and Governing Principles
       
  Pay is tied to performance:
       
    - Approximately 83% of the CEO’s target annual compensation and 70% of the other named executive officers’ target annual compensation is at-risk and varies with performance against incentive goals as well as performance of Company stock.
       
    - There is an appropriate balance of annual and long-term incentives, and metrics used in the annual plan are different from the metrics used in the long-term incentive plan.
       
    - The annual incentive plan for the named executive officers is based upon the achievement of established corporate performance goals.
       
    - Two-thirds of the long-term opportunity is based on the achievement of established corporate performance goals.
       
    - Dividend equivalents are not accrued or paid on performance awards that are not notionally earned.
       
  Executives who participate in the long-term incentive plan are required to meet minimum levels of stock ownership and status of stock ownership is reviewed on an annual basis.
       
  None of the named executive officers has an employment agreement.
       
  Executive officers, including named executive officers, receive the same group benefits as other salaried employees, including health, life insurance, disability, and retirement benefits. They are also eligible for a non-qualified supplementary benefit plan designed to restore 401(k) benefits lost due to Internal Revenue Code (“Code”) statutory limits and a deferred compensation plan which does not provide any fixed, above-market earnings opportunity.
       
  Executive officer perquisites are limited and reviewed annually. There are no tax gross-ups on perquisites other than for travel expenses of a spouse when accompanying an executive to participate in business-related activities.
       
  The Company maintains a “double trigger” requirement for change in control severance benefits and for the acceleration of time-based equity awards, including restricted stock units and stock options (provided the awards are assumed or replaced with substantially equivalent awards).
       
  There are no excise tax gross-up provisions upon a change in control.
       
  The Compensation Committee generally designs and administers the executive compensation programs to maximize tax deductibility of executive compensation paid to the named executive officers.
       
  Benchmarking Philosophy and Risk Management
       
  The Compensation Committee references the market median with respect to establishing compensation levels for the named executive officers.
       
  To align with investor expectations and changes in the Company’s business and market practice, compensation peer groups are regularly evaluated.
       
  The Compensation Committee monitors all equity grants under the 2014 Incentive Compensation Plan, and the Company’s three-year average burn rate is below the mean burn rate for the Russell 3000 companies in GICS group 2510.
       
  The compensation program risk evaluation process is formalized, including an annual review of plans as described in the “Compensation-Related Risk Assessment” on page 23. Risk mitigation is incorporated into plan design, including capping both annual and long-term incentive plan payouts.
       
  The Compensation Committee regularly reviews all forms of compensation, including all cash and equity-based compensation grants, non-qualified account balances, and payments due upon termination of employment.
       
  The Board has an established policy for recoupment of annual and long-term incentive compensation in the event of a restatement of reported financial results or if an employee has engaged in unethical conduct detrimental to the Company.
       
  The Board has adopted an anti-hedging and anti-pledging policy.
       
  Our executive compensation consultant is retained directly by and reports to the Compensation Committee, does not provide any services to management, and had no prior relationship with our CEO or any other named executive officer.
     

  

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2016 Financial Results

 

The Company ended 2016 in a very strong position, increasing year-over net income by 16.7% from $213 million to $248 million and year-over-year operating profit by 8.4% from $354 million to $384 million. The Company also delivered a record operating profit margin of 13.1% of sales and an increase in unit volume of 2.6% from 2015 to 2016. In addition to these accomplishments, we remained good stewards of capital as reflected in the return on invested capital shown below.

 

Subsequent to the setting of annual targets for the 2016 plan year, the Company made the decision to offer a lump-sum pension settlement opportunity to certain former employees to reduce future pension liability. As a result of such offers, which were paid out of pension plan assets, the Company incurred non-cash pension settlement charges of $11.5 million. The Compensation Committee determined to exclude the impact of such charges from the calculation of incentive awards. The performance results shown below include an $11.5 million adjustment for the successful consummation of the lump-sum pension settlements. 

 

 

Corporate Performance Metrics*

 

 

2016 Targets

 

2016 Performance
Results

 

2016 Reported
Results

          
Operating Profit  $370,000,000  $395,849,000  $384,387,000
          
Free Cash Flow  $75,000,000  $111,063,000  $111,063,000
          
Net Income  $227,000,000  $256,087,000  $248,381,000
          
Return on Invested Capital  15.0%  19.4%  18.9%

 

*For more information about how these performance metrics are calculated and reconciliations to amounts presented in the 2016 Form 10-K, see “Incentive Compensation – Performance Metrics for 2016” on pages 15 and 16.

 

Our Executive Officer Compensation Program Is Administered by the Compensation Committee

 

The Compensation Committee is responsible for performing the duties of the Board of Directors relating to the compensation of our executive officers and other senior management. During 2016, our named executive officers were Mr. Bradley E. Hughes, President and Chief Executive Officer; Mr. Roy V. Armes, former Chairman, Chief Executive Officer, and President; Ms. Ginger M. Jones, Senior Vice President and Chief Financial Officer; Ms. Brenda S. Harmon, Senior Vice President and Chief Human Resources Officer; and Mr. Stephen Zamansky, Senior Vice President, General Counsel and Secretary. Mr. Hughes was named President and Chief Executive Officer effective September 1, 2016, following Mr. Armes’s retirement on August 31, 2016. Prior to that date, Mr. Hughes served as our Senior Vice President and Chief Operating Officer. Subsequent compensation information will reflect Mr. Armes’s employment for a partial year.

 

With input, as appropriate, from management and our outside executive compensation consultant, the Compensation Committee reviews and approves all elements of our executive compensation program. Management is responsible for making recommendations to the Compensation Committee regarding executive officer compensation (except with respect to the CEO’s compensation) and effectively implementing our executive compensation program, as approved by the Compensation Committee.

 

The Compensation Committee retained Exequity LLP as its executive compensation consultant in 2016 and utilized data from Aon Hewitt, an outside compensation consultant, for pay benchmarking.

 

Additional information about the role and processes of the Compensation Committee is presented under the heading “Executive Compensation Consultant Disclosure” and “Meetings of the Board of Directors and Its Committees - Compensation Committee” in this proxy statement.

 

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Executive Compensation Philosophy and Approach

 

The Cooper Tire executive officer compensation program is designed to deliver value to our stockholders by driving long-term financial and operational performance. To accomplish this goal, we have structured our executive compensation program to attract, motivate, and retain the caliber of leadership required to meet these objectives. In the following sections, we will address our benchmarking process and philosophy, how we set compensation levels, and the separate, but integrated elements of our program.

 

Compensation Peer Groups

 

The Compensation Committee annually analyzes market benchmark data regarding base salary and annual and long-term incentive opportunities and periodically evaluates market benchmark data regarding other compensation elements. The Compensation Committee uses benchmarking data to assess market pay levels and program design. For each element of compensation and in the aggregate, the Committee sets compensation targets near the middle of the range offered by comparable companies.

 

Peer Group for Pay Level Benchmarking - For 2016 officer pay level, we engaged Aon Hewitt to provide general industry data on 104 companies with revenues between $1.57 billion and $5.9 billion. The median revenue of these 104 companies was approximately $3.06 billion. As an additional benchmark, we also conducted a review and analysis of compensation data for the CEO and CFO positions in the peer group listed below using 2016 proxy information.

 

Peer Group for Program Design Benchmarking - For purposes of benchmarking executive compensation program design, the Committee periodically reviews a group of 17 companies (listed below) whose annual revenues range from approximately 50% to 250% of our revenues and who generally have similar characteristics with respect to capital-intensive manufacturing, producing and marketing a consumer-branded product, focusing on technology-driven products, and managing international operations. The median revenue for the following companies was $3.3 billion in 2016.

 

American Axle & Manufacturing Holdings Kennametal Inc.
Cooper-Standard Holdings Inc. Leggett & Platt Incorporated
Crane Co. Lennox International, Inc.
Dana Holding Corp. Snap-on Incorporated
Dover Corp. SPX Corp.
Flowserve Corporation Steelcase Inc.
Gentex Corp. The Timken Company
Harley-Davidson, Inc. Tower International, Inc.
Harsco Corporation  

 

Our Compensation Levels Are Set Considering Business Needs, Market Data and Other Factors

 

We use a comprehensive and structured approach in setting the compensation framework for all executive positions. We begin with a review of the Company’s overall strategy and the particular role each executive position is expected to play in achieving the goals of the Company. Starting with this foundation and with the assistance of the Compensation Committee’s executive compensation consultant, we obtain and review relevant market benchmark data for each position regarding base salary, annual cash incentive opportunities, and long-term incentive award levels. We then determine an appropriate range of compensation for each position by assessing the market data in conjunction with the valuation of the position’s impact and importance in setting and achieving the strategic objectives of the Company. Informed by a review of all current and previously granted forms of compensation, competitive market data, organization strategies, and individual performance assessments, the Compensation Committee uses its judgment, rather than a formulaic approach, in setting target compensation for each named executive officer each year.

 

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Elements of Our Compensation Program

 

We believe that our executive compensation program, by element and in total, best achieves our objectives. The majority of each named executive officer’s compensation opportunity is based on the achievement of important financial and strategic goals established at the beginning of the respective performance period. The primary elements of our executive compensation program, all key to the attraction, retention, and motivation of our named executive officers, are shown in the following table:

 

Element   Purpose   Nature of Component
         
Base Salary   To value the competencies, skills, experience, and performance of individual executives.     Cash. Not “at risk.” Reviewed annually.
         
Annual Incentive Compensation   To motivate and reward executives for the achievement of targeted financial goals.   Cash award.  Performance-based and “at risk.”  Amount earned will vary based upon results achieved against annual goals (operating profit and free cash flow in 2016).
         
Long-Term Incentive Compensation   To motivate and reward executives for the achievement of long-term goals and creation of stockholder value.   Equity and cash awards.  Performance-based and “at risk.”  Amount earned will vary depending upon results achieved against long-term incentive goals (net income and return on invested capital in 2016) and in the case of performance-based stock units, restricted stock units and stock option awards, Company stock performance.
         
Non-Qualified Benefits   To attract the level of talent required to achieve strategic objectives and to promote continuity of leadership.   Supplementary benefit plan to make up for qualified plan benefits lost due to limits of the Code.  Opportunity to participate in a non-qualified deferred compensation plan.  

  

Base Salaries

 

We provide market competitive base salaries to attract and retain outstanding talent and to provide a fixed component of pay for our named executive officers. Base salaries are reviewed annually and are determined with consideration to the role of the executive, time in position, competitive market data regarding similar roles in similar organizations, individual performance, budget, and other considerations. The Compensation Committee uses the median of market data as the general reference point for base salary decisions because it believes that the median is the best representation of competitive salaries in the market for similar roles and talent.

 

In setting base salaries for 2016, the Compensation Committee considered the officer’s experience in his or her current role, the impact of his or her role on the Company’s results, the overall quality and manner in which the officer performs his or her role, the financial position of the Company, and the value of retention.

 

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Incentive Compensation

 

With input from management and its executive compensation consultant, the Compensation Committee reviews and discusses annual corporate and business unit performance metrics and targets and the appropriateness of these performance metrics and targets considering the following primary factors prior to approval:

 

Expected performance based upon the annual operating plan as approved by the Board;

 

The economic environment in which we expect to operate during the year, including risk factors;

 

The achievement of financial results expected to enhance stockholder value; and

 

The strategic goals and initiatives of the Company.

  

The Compensation Committee also establishes a bonus pool aimed at potentially preserving the ability to deduct compensation paid under the annual incentive plan and the performance-based long-term incentive programs. The bonus pool approach establishes a maximum dollar amount and a maximum number of share units that can be paid to the Chief Executive Officer and certain other named executive officers from which the Compensation Committee may exercise negative discretion in determining the actual amounts paid under the annual and long-term incentive plans. The amounts the Compensation Committee approved for payment were below the maximum amounts established under the bonus pool. Please also see the section titled “Other Program Design Elements – Tax Deductibility of Executive Compensation” on pages 21 and 22 for additional information regarding the pool structure and approach.

 

Annual Incentive Compensation

 

Target Opportunities

 

The Compensation Committee uses the median of general industry market data as the general reference point for target annual cash incentive opportunities because it believes that the median is the best representation of competitive annual cash incentive levels in the market for similar roles and talent. With regard to setting individual annual cash incentive opportunity levels, the Compensation Committee has the discretion to adjust the target opportunity levels as it deems appropriate. Typical reasons for adjusting an individual officer’s target annual cash incentive opportunity level above or below the market median include how long the officer has been in his or her current role, the impact of the role upon the organization, and the multiple of salary needed to bring the total cash compensation of the executive to a competitive level. At the highest level of achievement, the annual cash incentive opportunity for our named executive officers was 200% of the target opportunity in 2016. At a threshold level of performance, the incentive opportunity was 50% of the target in 2016, with no incentive earned if performance was below the threshold achievement level.

 

Presented below are the target incentive awards for the named executive officers in 2016 using eligible earnings for the period of January 1, 2016, through December 31, 2016, and using annual incentive plan (AIP) target percentages for the full period.

 

Named Executive Officer  Eligible Earnings   Weighted Target Bonus  Target Incentive
Mr. Hughes   $698,852    98.6%*   $688,967 
Mr. Armes   $758,955    140%   $1,062,537 
Ms. Jones   $499,180    75%   $374,385 
Ms. Harmon   $426,337    65%   $277,119 
Mr. Zamansky   $430,428    65%   $279,778 

 

*Mr. Hughes’s bonus target changed from 90% to 110% effective with his promotion to President & Chief Executive Officer on September 1, 2016.

 

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Performance Metrics for 2016

 

The performance metrics under the 2016 Annual Incentive Plan for the named executive officers were 65% corporate operating profit and 35% corporate free cash flow. The potential payout for each of the financial metrics ranged from 0% to 200% of target. The table below summarizes the threshold, target, and maximum goals as compared to actual results:

 

Performance Metric   Threshold
Goal
  Target
Goal
  Maximum
Goal
  Performance
Result
  Results as a
Percent of
Target
                     
Corporate Operating Profit   $225,000,000   $370,000,000   $450,000,000   $395,849,000   132.3%
                     
Corporate Free Cash Flow   $45,000,000   $75,000,000   $100,000,000   $111,063,000   200.0%

 

Corporate operating profit is equal to operating profit from the Company’s financial statements, adjusted for one-time non-cash pension settlement charge of $11,462,000.

 

Corporate free cash flow is defined as cash provided by continuing operations plus proceeds from the sale of assets, less capital expenditures and dividends, from the Company’s financial statements.

 

Following is the calculation of corporate free cash flow for 2016:

 

Cash Provided by Continuing Operations   $ 309,795,000  
Plus: Proceeds From Sale of Assets     337,000  
Less: Capital Expenditures     (175,437,000 )
Less: Dividends     (23,632,000 )
Corporate Free Cash Flow   $ 111,063,000  

 

Presented below are the actual incentive awards for the named executive officers in 2016 based upon eligible earnings for the period of January 1, 2016 through December 31, 2016, the target bonus percentage levels for the same period, and a weighted AIP achievement level of 156%.

 

                 
Named Executive Officer   Eligible Earnings   Weighted Target Bonus   Actual Bonus at 156%
Mr. Hughes   $698,852   98.6%   $ 1,074,789  
Mr. Armes*   $758,955    140%   $ 1,657,558  
Ms. Jones   $499,180    75%   $ 584,041  
Ms. Harmon   $426,337    65%   $ 432,306  
Mr. Zamansky   $430,428    65%   $ 436,454  

 

*Mr. Armes actual bonus reflects amount earned through his retirement date of August 31, 2016.

 

Long-Term Incentive Compensation

 

The Compensation Committee approves long-term incentive awards on an annual basis for the named executive officers and other senior executives of the Company. Long-term incentive awards are granted under the Cooper Tire & Rubber Company 2014 Incentive Compensation Plan, which allows for a variety of forms of long-term incentives. 

 

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For 2016, awards of restricted stock units (“RSUs”), performance-based stock units, and performance-based cash were granted, with each weighted approximately one-third of the total award. In determining the appropriate form or mix of long-term performance awards, the Compensation Committee considers such factors as the motivational impact of various components, alignment with stockholder interests, the affordability of certain awards, and other business objectives which may prescribe or suggest the form or mix of awards at a particular time in the business cycle.

 

Award Grant Timing and Pricing

 

For current executives in the plan, the grant date is typically the date of our February Compensation Committee meeting. For most new executives, the grant date may be as of, or shortly after, the hiring date of the newly eligible executive. The methodology to determine the number of options or shares to grant and to establish the exercise price of equity-based awards is to average the high and low trading price of our common stock, as quoted on the New York Stock Exchange, on the date of grant.

 

Performance-Based Stock Units and Performance-Based Cash

 

Key design features of our performance-based stock units and performance-based cash grants include:

 

One-year measurement periods within a three-year performance period;

 

At the start of each year, specific financial metrics are set;

 

At the end of each year within a three-year performance period, performance-based stock units and performance-based cash can be notionally earned if financial targets for the awards have been achieved;

 

Payout opportunities can range from 0% to 200% of the target award opportunity;

 

Notionally earned performance-based stock units and performance-based cash, if any, vest and are payable at the end of the three-year cycle, with performance-based stock units payable in shares of common stock and performance-based cash settled in cash; and

 

Dividend equivalents, which are credited to notionally earned performance-based stock units, are reinvested into additional stock units and paid at the end of the three-year cycle with the underlying and vested performance-based stock units. Performance-based stock units that have not notionally earned do not receive dividend equivalents.

 

Since the performance period for each performance-based grant is three years, participants can have overlapping three-year award opportunities active at any time.

 

The financial metrics for the 2016 measurement period of the 2014-2016, 2015-2017, and 2016-2018 performance periods approved by the Compensation Committee at the beginning of 2016 were net income (80% weighting) and return on invested capital (20% weighting). The Compensation Committee selected these performance metrics because net income and prudent management of capital are essential to the strategic and financial goals of the Company over each measurement period and the full three-year performance period.

 

The ultimate value of performance-based stock units is based on the Company’s financial results and the stock price, which aligns with long-term stockholder value creation. The ultimate value of performance-based cash is based solely on performance against the financial metrics. In 2016, the potential payout on each of the financial metrics ranged from 0% to 200% of target.

 

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The following table summarizes the threshold, target, and maximum performance goals for the 2016 measurement period of the 2014-2016, 2015-2017, and 2016-2018 performance periods, as compared to the performance results: 

                     
Performance Metric   Threshold
Goal
  Target
Goal
  Maximum
Goal
  Performance
Result
  Results as a
Percent of
Target
                   
Net Income $140,000,000   $227,000,000   $280,000,000   $256,087,000   154.9%
                   
Return on Invested Capital 11.0%   15.0%   18.0%   19.4%   200.0%

 

Net income is equal to net income from the Company’s financial statements, as adjusted for a one-time non-cash pension settlement charge of $11,462,000, net of taxes of $3,756,000.

 

Return on invested capital is calculated by dividing operating profit from the Company’s financial statements, adjusted for a one-time non-cash pension settlement charge of $11,462,000, net of taxes of $3,756,000, less income tax and the tax impact of net interest expense, by an average of debt and equity. The average of debt and equity is calculated by taking the sum of the balance at the end of fiscal year 2015 and the balance at the end of each quarter in fiscal year 2016 and dividing by five, also adjusted for the one-time non-cash pension settlement, net of taxes.

 

Following is the calculation of return on invested capital for 2016: 

         
Numerator:        
Operating Profit   $ 384,387,000  
One-Time Non-Cash Pension Settlement Charge     11,462,000  
Income Tax Expense     (119,555,000 )
Net Interest Tax Effect     (7,019,000 )
    $ 269,275,000  
Denominator:        
Average of Debt and Equity   $ 1,389,596,000  
         
Corporate Return on Invested Capital     19.4 %

 

Performance-Based Stock Units

 

For the 2016-2018 performance period, the Compensation Committee granted individual target award opportunities for performance-based stock units, a portion of which could be notionally earned in 2016.

 

Presented below are the target numbers of performance-based stock units for the 2016 measurement period (or “tranche”) of the 2014-2016, 2015-2017, and 2016-2018 performance periods. 

                   
    Target Performance-Based Stock Unit
Award For 2016
Named Executive
Officer
  2014-2016
Long-Term Incentive
Performance Period
  2015-2017
Long-Term Incentive
Performance Period
  2016-2018
Long-Term Incentive
Performance Period
Mr. Hughes   3,869     3,096     3,416  
Mr. Armes   20,695     15,408     15,798  
Ms. Jones       2,497     2,557  
Ms. Harmon   2,736     1,844     1,892  
Mr. Zamansky   2,588     1,844     1,910  

  

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Performance-Based Cash

 

For the 2016-2018 performance period, the Compensation Committee also granted individual target award opportunities for performance-based cash, a portion of which could be notionally earned in 2016.

 

Presented below are the target performance-based cash awards for the 2016 tranche of the 2014-2016, 2015-2017, and 2016-2018 performance periods:

 

    Target Performance-Based Cash
Award For 2016
Named Executive
Officer
  2014-2016
Long-Term Incentive
Performance Period
  2015-2017
Long-Term Incentive
Performance Period
  2016-2018
Long-Term Incentive
Performance Period
Mr. Hughes   $92,692     $113,334     $125,556  
Mr. Armes   $495,834     $564,000     $580,711  
Ms. Jones       $91,389     $94,000  
Ms. Harmon   $65,550     $67,500     $69,534  
Mr. Zamansky   $62,000     $67,500     $70,200  

 

Amounts Notionally Earned for the 2016 Measurement Period

 

In 2016, there was an opportunity to notionally earn performance-based stock units and performance-based cash granted under the 2014-2016, the 2015-2017, and the 2016-2018 performance periods. Presented below are the performance-based stock units (“PBUs”) and the performance cash notionally earned for the 2016 measurement period. 

                           
    2016 Measurement Period  
    2014-2016
Performance Period
  2015-2017
Performance Period
  2016-2018
Performance Period
 
Named
Executive Officer
  PBUs   Performance
Cash
  PBUs   Performance
Cash
  PBUs   Performance
Cash
 
Mr. Hughes   6,341   $151,922   5,074   $185,754   5,599   $205,786  
Mr. Armes*   22,613   $541,781   16,836   $616,264   17,262   $634,524  
Ms. Jones               —   4,093   $149,787   4,191   $154,066  
Ms. Harmon   4,484   $107,436   3,022   $110,633   3,101   $113,966  
Mr. Zamansky   4,242   $101,618   3,022   $110,633   3,130   $115,058  

 

*Mr. Armes’s PBUs and performance cash values reflect amounts notionally earned through his retirement date of August 31, 2016.

 

Amounts Earned for the 2014-2016 Performance Period

 

The table below summarizes the awards which were notionally earned in 2014, 2015 and 2016 for the now completed 2014-2016 performance period. These awards were paid in shares of common stock and cash in early 2017. 

                                   
    2014-2016 Performance Period      
    2014 Measurement Period   2015 Measurement Period   2016 Measurement Period   2014-2016 Total Earned  
    82.2% Achievement   200% Achievement   163.9% Achievement      
Named Executive
Officer
  PBUs   Performance
Cash
  PBUs   Performance
Cash
  PBUs   Performance
Cash
  PBUs   Performance
Cash
 
Mr. Hughes   3,180   $ 76,193   7,738   $185,384   6,341   $151,922   17,259   $413,499  
Mr. Armes*   17,011   $407,576   41,390   $991,668   22,613   $541,781   81,014   $1,941,025  
Ms. Jones                  —               —      
Ms. Harmon   2,249   $53,882   5,472   $131,100   4,484   $107,436   12,205   $292,418  
Mr. Zamansky   2,127   $50,964   5,176   $124,000   4,242   $101,618   11,545   $276,582  

 

*Mr. Armes’s PBUs and performance cash values reflect amounts notionally earned through his retirement date of August 31, 2016.

 

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In accordance with the regulations established by the Securities and Exchange Commission for the 2016 Summary Compensation Table, the “Stock Awards” column for 2016 shows only the performance stock unit tranches granted in 2016. The “Non-Equity Incentive Plan Compensation” column for 2016 shows the cash amounts notionally earned in 2014 and 2015 and 2016 for the now completed 2014-2016 performance period because these cash amounts became nonforfeitable and were fully earned after the end of 2016. Likewise, in the 2016 Grants of Plan-Based Awards Table, the Estimated Future Payouts Under Non-Equity Incentive Awards column shows the performance cash tranches for each performance period.

 

Restricted Stock Units

 

The size of the restricted stock unit grants was determined with reference to the competitive benchmarking described on page 13, the Cooper Tire stock price, as well as individual performance and other long-term considerations.

 

The restricted stock units granted in 2016 generally vest in equal installments of one-third per year beginning one year after the date of grant and are presented in the “2016 Grants of Plan-Based Awards Table” that follows the Summary Compensation Table.

 

Retirement Benefits

 

In order to attract high caliber leadership and promote management continuity among our named executive officers, we provide the following retirement benefits:

 

401(k) Plan. The Company provides a 401(k) retirement savings plan for eligible employees, including the named executive officers. Under the Spectrum Retirement Savings Plan, in which the named executive officers participate, participants may choose to contribute up to the annual limit determined by the Internal Revenue Service (“IRS”). The Company currently provides each participant with a stated matching contribution of 100% of the first 1% of pay contributed by the employee and 50% of the next 5% of pay contributed by the employee. In addition, the Company may make a discretionary contribution into the 401(k) plan on behalf of all employees eligible to participate in the Spectrum Retirement Savings Plan, up to the limits determined annually by the IRS.

 

Pension Plan. Among the named executive officers, only Mr. Armes has an accrued benefit under the frozen cash balance plan. At “retirement,” as defined under the frozen cash balance plan, a participant who is eligible for an immediate benefit under the cash balance plan may elect his benefit be paid in the form of an annuity or in a lump sum. A participant who terminates prior to eligibility to receive an immediate benefit under the plan will receive an annuity at the time of normal or early retirement unless, within one year of termination of employment, the participant elects a lump-sum payment.

 

Non-Qualified Supplementary Benefit Plan. The Non-Qualified Supplementary Benefit Plan is a non-elective deferred compensation plan. This plan is designed to make up for any qualified retirement plan benefits lost due to limits of the Code, and the named executive officers participate in the Non-Qualified Supplementary Benefit Plan only to the extent that full participation in our qualified plan is restricted by limits under the Code. Mr. Armes, who has an accrued balance under the frozen cash balance plan as noted above, has a balance in the Non-Qualified Supplementary Benefit Plan for the cash balance plan benefits that were lost due to the limits of the Internal Revenue Code, as well as a balance for the 401(k) benefits lost due to IRS limitations. These balances are shown in the “2016 Pension Benefits Table” on page 31.

 

For the executives who participate in the Company’s long-term incentive plan, including the named executive officers, retirement eligibility is the earlier of the date the executive becomes age 65, or the date the sum of his or her years of continuous employment with the Company and his or her age equals at least 70 years.

 

The actuarial change from 2015 in our named executive officers’ pension benefit is presented in the “2016 Summary Compensation Table” on page 25. Detailed information about these pension plans is also presented in the “2016 Pension Benefits Table” and related disclosures on page 31.

 

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Executive Deferred Compensation Plan

 

In order to provide executives an opportunity to defer earned salary or cash incentive awards, the Company offers a non-qualified deferred compensation plan. The plan allows selected senior management employees, including our named executive officers, to elect to defer receipt of up to 80% of their base salary and up to 100% of their annual incentive compensation each year (subject to an aggregate $10,000 minimum per year), until a date or dates chosen by the participant. We do not make matching or other employer contributions to the Executive Deferred Compensation Plan. Amounts deferred into this plan are credited to a notional account that is notionally invested in the same investment vehicles offered in the 401(k) plan and/or Cooper Tire stock, at the participant’s election. The plan does not provide any fixed, above-market earnings opportunity. Detailed information about this plan is presented in the “2016 Non-Qualified Deferred Compensation Table” and related footnotes.

 

Perquisites and Other Compensation

 

We provide a limited annual allowance of $15,000 to cover the cost of financial planning services and an annual executive physical for our named executive officers. There is minimal use of the Company plane for personal use, and we do not provide a tax gross-up on the imputed income associated with any personal use of the Company plane by an executive. It is the Company’s policy to reimburse for and to gross up the imputed income associated with the travel costs of spouses who accompany the executives to participate in business-related activities. The value of the noted perquisites is detailed in the footnote to the “All Other Compensation” column of the 2016 Summary Compensation Table on page 25.

 

Other Program Design Elements

 

Requirements to Maintain a Minimum Level of Stock Ownership

 

We believe that our named executive officers, whose business decisions impact our operations and results, should obtain and maintain a reasonable equity ownership in the Company. Toward that end, the Compensation Committee has established stock ownership guidelines for our named executive officers as outlined below: 

               
Officer   Ownership Guideline   Targeted Achievement Date
Mr. Hughes   5X Base Salary   September 1, 2021
Mr. Armes   5X Base Salary   January 1, 2013
Ms. Jones   3X Base Salary   December 3, 2019
Ms. Harmon   3X Base Salary   December 16, 2014
Mr. Zamansky   3X Base Salary   April 4, 2016

 

If any of our named executive officers do not satisfy the stock ownership guidelines in a timely manner, the Compensation Committee may take action, including requiring that 50% of an executive’s annual cash incentive be paid in stock; requiring that the executive retain 50% of the net after-tax shares following the exercise of any stock options or upon the vesting of other equity awards; requiring that 50% of the executive’s long-term incentive awards be paid in stock; or reducing the executive’s long-term incentive grants. All named executive officers had met their respective ownership requirements as of March 1, 2017.

 

Clawback Policy

 

Our Board has adopted a policy that permits us to recoup the incentive compensation paid to our executives in certain circumstances. Under this policy, if the Company significantly restates its reported financial results, the Board will review the circumstances that caused such restatement, consider issues of accountability and oversight, and analyze the impact of such restatement on compensation paid or awarded to Company employees. If the restatement is the result of fraud or misconduct, the Board may elect to recover all annual cash incentive awards, long-term incentive awards, and other incentive-based compensation paid to the employees who engaged in such fraud or misconduct. Additionally, for participants in the Company’s long-term incentive plans, the Board may elect to recover amounts paid out to the extent the Company’s performance results were overstated as a result of such restatement, and, for all participants, the Board may adjust any unvested or notionally earned amounts related to the relevant 

 

21 

 

 

measurement period(s) to reflect the restatement. If the restatement is not the result of fraud or misconduct, the Board may adjust any unvested or notionally earned amounts related to the relevant measurement period(s) to reflect the restatement. The policy also provides that if the Board determines that any employee has engaged in unethical conduct detrimental to the Company, the Board may seek recoupment of all annual cash incentives, long-term incentives, or other incentive-based compensation paid to such employee during the period(s) of such unethical behavior, and cancel all unvested or notionally earned incentive-based compensation related to such period(s). Recovery under the Clawback Policy is in addition to any recoupment required or permitted by law, including the Sarbanes-Oxley Act of 2002 and common law, or by contract.

 

Hedging and Pledging Transactions

 

In order to align the interests of the Company’s officers and Directors with those of its stockholders and to address a potential appearance of improper or inappropriate conduct, the Board of Directors has adopted a policy with respect to hedging and pledging of Common Stock or other equity securities of the Company (“Company Securities”). This anti-hedging policy prohibits Company officers and Directors, including certain family members of such persons, from hedging Company Securities, including short-selling, options, puts, calls, collars and exchange funds, as well as derivatives such as swaps, forwards and futures, or pledging or otherwise encumbering Company Securities as collateral for indebtedness. Persons subject to this policy will be afforded a reasonable opportunity to unwind or otherwise terminate any prohibited hedging transactions or arrangements existing as of the time such person becomes subject to the policy.

 

Tax Deductibility of Executive Compensation

 

The financial reporting and income tax consequences of the compensation elements are considered by the Compensation Committee when it analyzes the design and level of compensation. The Compensation Committee balances its objective of ensuring effective and competitive compensation packages with the desire to maximize the tax deductibility of compensation.

 

Regulations issued under Section 162(m) of the Internal Revenue Code provide that compensation in excess of $1 million paid to the Chief Executive Officer and certain other named executive officers will not be deductible unless it meets specified criteria for being “performance-based.” The Compensation Committee generally designs and administers the executive incentive programs of the Company to potentially qualify for the performance-based exemption. It also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances the business objectives of the Company.

 

In 2014, the Compensation Committee implemented a bonus pool approach to preserve the ability to deduct compensation paid under the AIP and the performance-based long-term incentive programs. The bonus pool approach establishes a maximum dollar amount and a maximum number of share units that can be paid to the Chief Executive Officer and certain other named executive officers and excludes certain merger, acquisition, divestiture, or similar expenses. The bonus pool formula for the 2016 AIP was based on the greater of 4% of operating profit or 5% of net cash provided by operating activities; the bonus pool formula for aggregate performance cash awarded under the 2016-2018 long-term incentive plan was based on the greater of 1.5% of cumulative operating profit for 2016, 2017, and 2018 or 2% of cumulative net cash provided by operating activities for 2016, 2017, and 2018; and the bonus pool for aggregate performance-based stock units awarded under the 2016-2018 long-term incentive plan was based upon 3% of cumulative operating profit for 2016, 2017, and 2018 or 4% of cumulative net cash provided by operating activities for 2016, 2017, and 2018, the greater of which is divided by the fair market value of the stock on the last day of the performance period. Within the limits of the respective bonus pools, the Compensation Committee determined the amounts paid under the annual and long-term incentive plans as previously described.

 

22 

 

 

Employment Agreements and Change in Control Plan

 

The Company has no current employment agreements with any of the named executive officers.

 

As a tool to facilitate attraction and retention of key executive talent, the Company has a change in control plan that covers each of the named executives. Under this plan, benefits are received only in the event that an actual change in control and termination occurs, or termination occurs during a time when the Company is party to a definitive agreement, the consummation of which would result in a change in control, and thus such benefits are not considered part of annual compensation. We believe that a change in control plan maintains productivity, facilitates a long-term commitment to the organization, and encourages retention when, and if, we are confronted with the potential disruptive impact of a change in control of the Company.

 

See “Potential Payments Upon Termination or Change in Control” beginning on page 33 for more information regarding these arrangements.

 

Compensation Plan for 2017

 

When setting executive compensation for 2017, the Compensation Committee took into account the results of the stockholder advisory vote on named executive officer compensation that occurred at the 2016 Annual Meeting of Stockholders. As a substantial majority (approximately 94%) of the votes cast approved the compensation program described in our 2016 proxy statement, the Compensation Committee applied the same general principles in determining the amounts and types of executive compensation for 2017 as described below.

 

Base pay levels are set with reference to individual roles, impact, individual performance, and median levels of competitive market pay as determined by general market comparisons as described on page 14.

 

Annual cash incentive opportunity levels are benchmarked against competitive norms as measured against general industry data for similar executive positions. Individual annual cash incentive opportunity levels are adjusted, if warranted, to maintain competitive compensation packages for our named executive officers.

 

The long-term incentive opportunity for 2017 includes approximately one-third performance-based stock units, one-third performance-based cash, and one-third RSUs. Individual long-term incentive targets are benchmarked against appropriate market data and adjusted, if warranted, to maintain competitive compensation opportunity for our named executive officers.

 

Executive Compensation Consultant Disclosure

 

During the 2016 fiscal year, the Compensation Committee engaged Exequity LLP to serve as an executive compensation consultant. Exequity provides research, data analysis, survey information and design expertise in developing compensation programs for executives. In addition, Exequity keeps the Compensation Committee apprised of regulatory developments and market trends related to executive compensation practices. A representative of Exequity typically attends meetings of the Compensation Committee and is available to participate in executive sessions. The Compensation Committee has considered the independence-related factors enumerated by the NYSE and the SEC and has concluded that Exequity is independent. In addition, the Compensation Committee has concluded that the work of Exequity in 2016 did not raise any conflicts of interest.

 

Compensation-Related Risk Assessment

 

The Compensation Committee periodically reviews the incentive plan policies and practices that apply to all of our non-represented employees to determine whether such policies and practices are reasonably likely to have a material adverse effect on the company. As part of this process, during 2016, the Compensation Committee, with the assistance of management and the human resources department, conducted a formal assessment of these compensation plans and practices. After conducting this assessment, both management and the Compensation Committee have determined that none of our compensation policies and practices creates any risks that are reasonably likely to have a material adverse effect on the Company.

 

23 

 

  

COMPENSATION COMMITTEE REPORT

 

The following report has been submitted by the Compensation Committee of the Board of Directors:

 

The Compensation Committee of the Board of Directors has reviewed and discussed the Company’s Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s definitive proxy statement on Schedule 14A for its 2017 Annual Meeting, which is incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, each as filed with the Securities and Exchange Commission.

 

The foregoing report was submitted by the Compensation Committee of the Board and shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A promulgated by the Securities Exchange Commission or Section 18 of the Exchange Act.

 

Respectfully submitted,

 

Robert D. Welding, Chairman
Steven M. Chapman
Susan F. Davis

 

24 

 

  

EXECUTIVE COMPENSATION

 

The following tables and narratives provide, for the fiscal year ended December 31, 2016, descriptions of the cash compensation paid by the Company, as well as certain other compensation awarded, paid or accrued, during 2016 to our named executive officers, including:

 

Mr. Bradley E. Hughes, Chief Executive Officer and President;

 

Mr. Roy V. Armes, former Chairman, Chief Executive Officer and President;

 

Ms. Ginger M. Jones, Senior Vice President and Chief Financial Officer;

 

Ms. Brenda S. Harmon, Senior Vice President and Chief Human Resources Officer and Mr. Stephen Zamansky, Senior Vice President, General Counsel and Secretary; who were our most highly compensated executive officers other than Messrs. Hughes and Armes and Ms. Jones, who were employed by the Company as of December 31, 2016.

 

2016 SUMMARY COMPENSATION TABLE

 

The following table shows compensation information for 2014, 2015, and 2016 as applicable, for our named executive officers.

                                                                 
Name and Principal
Position(1)
  Year   Salary   Bonus   Stock
Awards(2)
  Option
Awards(3)
  Non-Equity
Incentive Plan
Compensation(4)
  Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(5)
  All Other
Compensation
(6)
  Total  
                                       
Bradley E. Hughes   2016   $ 693,038       $ 1,883,319         $ 1,488,288               $ 158,554       $ 4,223,199    
Chief Executive Officer,   2015   $ 559,912     $ 713,325       $ 1,243,478             $ 92,377       $ 2,609,092    
and President   2014   $ 497,989     $ 726,218   $ 398,144   $ 550,618             $ 72,164       $ 2,245,133    
                                                                 
Roy V. Armes   2016   $ 758,955       $ 3,650,084         $ 3,598.583       $ 9,510     $ 176,127       $ 8,193,259    
Former Chairman,   2015   $ 1,103,344     $ 3,654,001       $ 4,362,087       $ 9,100     $ 249,154       $ 9,377,686    
Chief Executive   2014   $ 1,071,911     $ 3,689,147   $ 1,851,910   $ 2,302,674       $ 8,709     $ 201,089       $ 9,125,440    
Officer, and President                                                                
                                                                 
Ginger M. Jones   2016   $ 499,036       $ 467,771         $ 584,041               $ 109,142       $ 1,659,990    
Senior Vice President and   2015   $ 470,574     $ 367,309       $ 705,000             $ 27,550       $ 1,570,433    
Chief Financial Officer   2014   $ 32,538     $ 479,025       $ 25,990                     $ 537,553    
                                                                 
Brenda S. Harmon   2016   $ 426,312       $ 446,560         $ 724,725               $ 91,161       $ 1,688,758    
Senior Vice President and   2015   $ 413,881     $ 459,835       $ 716,743             $ 60,050       $ 1,650,509    
Chief Human Resources   2014   $ 401,825     $ 664,210   $ 244,844   $ 396,786             $ 56,895       $ 1,764,560    
Officer                                                                
                                                                 
Stephen Zamansky   2016   $ 430,401       $ 443,767         $ 713,036               $ 82,521       $ 1,669,725    
Senior Vice President,   2015   $ 416,727     $ 449,096       $ 709,699               $ 56,957       $ 1,632,479    
General Counsel and   2014   $ 393,354     $ 651,295   $ 266,324   $ 381,393               46,922       $ 1,739,288    
Secretary                                                                

 

(1)Ms. Jones joined the Company on December 3, 2014. Mr. Armes retired from the Company on August 31, 2016. Mr. Hughes was appointed Chief Executive Officer and President effective September 1, 2016. He previously served as Senior Vice President and Chief Operating Officer.

 

(2)Except as otherwise noted below, the amounts shown do not reflect compensation actually received by the named executive officer. The amounts shown in this column are the aggregate grant date fair values computed in accordance with FASB ASC Topic 718. The assumptions made in the valuation are discussed in Note 13 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the twelve months ended December 31, 2016. At maximum performance levels under the 2016 tranche of the 2014-2016 Long-Term Incentive Plan, the grant date value for each of the named executive officers was as follows: Mr. Hughes, $284,449; Mr. Armes, $1,521,496; Ms. Jones, $0; Ms. Harmon, $201,151; and Mr. Zamansky $190,270. At maximum performance levels under the 2016 tranche of the 2015-2017 Long-Term Incentive Plan, the grant date value for each of the named executive officers was as follows: Mr. Hughes, $227,618; Mr. Armes, $1,132,796; Ms. Jones, $183,579; Ms. Harmon, $135,571; and Mr. Zamansky, $135,571. At maximum performance levels under the 2016

 

25 

 

 

tranche of the 2016-2018 Long-Term Incentive Plan, the grant date value for each of the named executive officers was as follows: Mr. Hughes, $251,144; Mr. Armes, $1,161,469; Ms. Jones, $187,991; Ms. Harmon, $139,100; and Mr. Zamansky, $140,423.

 

(3)The amounts shown do not reflect compensation actually received by the named executive officer. The amounts shown in this column are the aggregate grant date fair values computed in accordance with FASB ASC Topic 718. The assumptions made in the valuation are discussed in Note 13 to our Consolidated Financial Statements for the twelve months ended December 31, 2016.

 

(4)The amounts shown in this column for 2016 represent payouts in cash for performance under our annual cash incentive program and the performance-based cash notionally earned for the 2014, 2015 and 2016 tranches of the 2014-2016 long-term incentive plan. This reporting reflects the fact that notionally earned amounts are not actually earned by the named executive officers until the completion of the full three –year performance period. As discussed under “Compensation Discussion and Analysis” above, these amounts were based on achievement of certain financial goals. See “Compensation Discussion and Analysis” beginning on page 11 for more information about our annual cash incentive program and the performance-based component of the long-term incentive program.

 

(5)These amounts represent aggregate changes in the actuarial present value of Mr. Armes’s accumulated benefit under our pension plans (including supplemental defined benefit plans). Only Mr. Armes participated in the now frozen pension plan; and none of the named executive officers received above-market earnings on deferred compensation balances from prior years.

 

(6)The amounts shown in this column for 2016 represent other compensation and perquisites, including Company contributions to qualified and non-qualified defined contribution plans, and the incremental cost of executive physicals, financial planning services, personal use of Company aircraft and spouse and dependent travel. The Company contributions to the non-qualified plan include contributions made in 2017 for the 2016 plan year. Personal use of the Company plane is limited and charged based upon Cooper Tire’s operating costs.

 

Amounts received by each named executive officer for 2016 are identified and quantified in the table below:

                             
Named Executive Officer   Company
Contributions
To Qualified
Defined
Contribution
Plan
  Company
Contributions
To
Non-Qualified
Defined
Contribution
Plan
  Personal,
Spouse,
and
Dependent
Travel
  Tax
Gross-Up
Related
to Travel
Costs
  Financial
Planning
Services
  Executive
Physical
  Total
Bradley E. Hughes   $20,208   $126,605   $367   $318   $9,315   $1,741   $158,554
Roy V. Armes   $9,275   $126,104   $22,468   $5,822   $6,100   $6,358   $176,127
Ginger M. Jones   $20,208   $82,715       $4,540   $1,679   $109,142
Brenda S. Harmon   $20,208   $61,620   $468   $406   $6,625   $1,834   $91,161
Stephen Zamansky   $20,208   $62,313               $82,521

 

26 

 

 

2016 GRANTS OF PLAN-BASED AWARDS TABLE

 

The following table shows all plan-based awards granted to our named executive officers during 2016. The unvested portion of the stock awards identified in this table are also reported in the “Outstanding Equity Awards at 2016 Fiscal Year-End Table” on page 29. All awards were granted under our 2014 Incentive Compensation Plan. For a summary of the incentive plan designs, see “Compensation and Discussion Analysis” beginning on page 11. 

                                               
         Estimated Future
Payouts Under
Non-Equity Incentive
Plan Awards
  Estimated Future
Payouts Under
Equity Incentive
Plan Awards
          
Name
(a)
 Type(1)  Grant
Date
(b) 
  $
Threshold
(2)
(c)
  $
Target
(3)
(d)
  $
Maximum
(4)
(e)
  #
Threshold
(5)
(f)
  #
Target
(6)
(g)
  #
Maximum
(7)
(h)
  All Other
Stock Awards:
Number of
Shares of
Stock or
Units
(#)
  Value of
Stock and
Option
Awards
($)
(8)
(i)
Bradley E.  AIP  2/18/2016  $344,484   $688,967   $1,377,934               
Hughes  PBU1  2/18/2016                  1,935    3,869    7,738        $142,224 
   PBU2  2/18/2016                  1,548    3,096    6,192        $113,809 
   PBU3  2/18/2016                  1,708    3,416    6,832        $125,572 
   PBU4  2/18/2016  $46,346   $92,692   $185,384                          
   PBU5  2/18/2016  $56,667   $113,334   $226,668                          
   PBU6  2/18/2016  $62,778   $125,556   $251,112                          
   RSU                                    43,380   $1,501,714 
                                               
Roy V.  AIP  2/18/2016  $531,269   $1,062,537   $2,125,074                          
Armes  PBU1  2/18/2016                  10,348    20,695    41,390        $760,748 
   PBU2  2/18/2016                  7,704    15,408    30,816        $566,398 
   PBU3  2/18/2016                  7,899    15,798    31,596        $580,734 
   PBU4  2/18/2016  $247,917   $495,834   $991,668                          
   PBU5  2/18/2016  $282,000   $564,000   $1,128,000                          
   PBU6  2/18/2016  $290,356   $580,711   $1,161,422                          
   RSU                                    47,394   $1,742,203 
                                               
Ginger M.  AIP  2/18/2016  $187,193   $374,385   $748,770                          
Jones  PBU2  2/18/2016                  1,249    2,497    4,994        $91,790 
   PBU3  2/18/2016                  1,279    2,557    5,114        $93,995 
   PBU5  2/18/2016  $45,695   $91,389   $182,778                          
   PBU6  2/18/2016  $47,000   $94,000   $188,000                          
   RSU                                    7,671   $281,986 
                                               
Brenda S.  AIP  2/18/2016  $138,560   $277,119   $554,238                          
Harmon  PBU1  2/18/2016                  1,368    2,736    5,472         100,575 
   PBU2  2/18/2016                  922    1,844    3,688         67,785 
   PBU3  2/18/2016                  946    1,892    3,784        $69,550 
   PBU4  2/18/2016  $32,775   $65,550   $131,100                          
   PBU5  2/18/2016  $33,750   $67,500   $135,000                          
   PBU6  2/18/2016  $34,767   $69,534   $139,068                          
   RSU                                    5,676   $208,650 
                                               
Stephen  AIP  2/18/2016  $139,889   $279,778   $559,556                          
Zamansky  PBU1  2/18/2016                  1,294    2,588    5,176        $95,135 
   PBU2  2/18/2016                  922    1,844    3,688         67,785 
   PBU3  2/18/2016                  955    1,910    3,820        $70,212 
   PBU4  2/18/2016  $31,000   $62,000   $124,000                          
   PBU5  2/18/2016  $33,750   $67,500   $135,000                          
   PBU6  2/18/2016  $35,100   $70,200   $140,400                          
   RSU                                    5,730   $210,635 

 

27 

 

 

(1)AIP = Annual Incentive Plan; PBU1 = Performance-based stock units granted in the 2016 tranche of the 2014-2016 Long-Term Incentive Plan; PBU2 = Performance-based stock units granted in the 2016 tranche of the 2015-2017 Long-Term Incentive Plan; PBU3 = Performance-based stock units granted in the 2016 tranche of the 2016-2018 Long-Term Incentive Plan; PBU4 = Performance-based cash granted in the 2016 tranche of the 2014-2016 Long-Term Incentive Plan; PBU5 = Performance-based cash granted in the 2016 tranche of the 2015-2017 Long Term Incentive Plan; PBU6 = Performance-based cash granted in the 2016 tranche of the 2016-2018 Long Term Incentive Plan; RSU = Restricted Stock Units.

 

(2)The amounts shown in column (c) with respect to AIP represent the threshold opportunity if all of the performance metrics are met. The threshold payout is based on performance at 61% of the corporate operating profit and achievement of corporate free cash flow of $45,000,000. The amounts shown in column (c) with respect to PBU4, PBU5, and PBU6 represent the threshold amount of performance-based cash that the executive would notionally earn for 2016 performance under the 2014-2016, 2015-2017, and 2016-2018 measurement periods of our Long-Term Incentive Plan, if the 2016 performance is $140,000,000 for corporate net income and return on invested capital is 11.0 percent. If the 2016 performance is below the applicable targets, our executives would not receive any payout of the performance-based cash awarded to them.

 

(3)The amounts shown in column (d) with respect to AIP represent the target opportunity if all of the performance metrics are met. The amounts shown in column (d) with respect to PBU4, PBU5, and PBU6 represent the amount of performance-based cash that the executive would notionally earn for 2016 performance under the 2014-2016, 2015-2017, and 2016-2018 measurement periods of our Long-Term Incentive Plan, if the 2016 performance is at 100% of target (the payout is 100% of the executives’ targeted payout amounts).

 

(4)The amounts shown in column (e) with respect to AIP represent the maximum opportunity if all of the performance metrics are met. The maximum payout amounts are capped at 200% of the executives’ targeted payout amounts. Maximum payout is earned on performance equal to or exceeding $450,000,000 for the corporate operating profit and achieving or exceeding corporate free cash flow of $100,000,000. The amounts shown in column (e) with respect to PBU4, PBU5, and PBU6 represent the maximum amount of performance-based cash that the executive would notionally earn for 2016 performance under the 2014-2016, 2015-2017, and 2016-18 measurement periods of our Long-Term Incentive Plan. The payout amounts are capped at 200% of the executives’ targeted payout amounts. Maximum payout is earned on performance equal to or exceeding $280,000,000 for corporate net income and a return on invested capital of or exceeding 18.0 percent.

 

(5)The amounts shown in column (f) represent the threshold number of performance-based stock units that the executive would notionally earn for 2016 performance under the 2014-2016, 2015-2017, and 2016-2018 measurement periods of our Long-Term Incentive Plan, if the 2016 performance is $140,000,000 for corporate net income and return on invested capital targets is 11.0 percent (in each case, the payout would have been 50% of the executives’ targeted payout amounts). If the 2016 performance is below the applicable targets, our executives would not receive any payout of the performance-based stock units awarded to them.

 

(6)The amounts shown in column (g) represent the target number of performance-based stock units that the executive would notionally earn for 2016 performance under the 2014-2016, 2015-2017, and 2016-2018 measurement periods of our Long-Term Incentive Plan, if the 2016 performance is $227,000,000 for corporate net income and a return on invested capital target is 15.0 percent (the payout is 100% of the executives’ targeted payout amounts).

 

(7)The amounts shown in column (h) represent the maximum number of performance-based stock units that the executive would notionally earn for 2016 performance under the 2014-2016, 2015-2017, and 2016-2018 measurement periods of our Long-Term Incentive Plan. Maximum payout is earned on performance equal to or exceeding $280,000,000 of corporate net income and return on invested capital of or exceeding 18.0 percent. The maximum payout amounts are capped at 200% of the executives’ targeted payout amounts.

 

(8)The amounts in column (l) represent the grant date fair value as of the grant date of stock awards determined pursuant to FASB ASC Topic 718. The assumptions made in the valuation are discussed in Note 13 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the twelve months ended December 31, 2015.

 

For more information about the compensation arrangements in which our named executive officers participate, see “Compensation Discussion and Analysis” beginning on page 11.

 

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OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR-END TABLE

 

The following table shows all outstanding equity awards (stock options, performance-based stock units that have not been earned, and unvested restricted stock units) held by our named executive officers at the end of 2016.

                                  
    Option Awards  Stock Awards
                                        
Name   Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable(1)
 Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
  Option
Exercise
Price
($)
  Grant Date  Option
Expiration
Date
   Number
of Shares
or Units of
Stock That
Have Not
Vested
(#)(2)
  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)(4)
  Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(3)(4)
                              
Bradley E.   26,760       $25.425   February 21, 2013  February 21, 2023        
Hughes   21,650   10,825   $23.960   February 20, 2014  February 20, 2024        
                        66,965  $2,601,597   9,928  $385,703
    48,410   10,825                               
                                        
Roy V. Armes       50,351   $23,960   February 20, 2014  August 31, 2021               
                                   
                        144,776   $5,624,538          
        50,351                               
                                        
Ginger M.                       41,614   $1,616,685   7,611   $295,687 
Jones                                       
                                        
Brenda S.   18,000      $22.970   February 23, 2011  February 23, 2021               
Harmon   17,553       $25.425   February 21, 2013  February 21, 2023               
    13,314   6,657   $23.960   February 20, 2014  February 20, 2024               
                        19,381   $752,964   5,628   $218,648 
    48,867   6,657                               
                                        
Stephen                                  
Zamansky       7,241   $23.960   February 20, 2014  February 20, 2024               
                       19,466   $756,247   5,664   $220,046 
       7,241                               

 

(1)The stock options vest in one-third increments on each of the first three anniversaries of the grant date (which grant date was February 23, 2011 for the options expiring February 23, 2021, February 21, 2013 for the options expiring on February 21, 2023 and February 20, 2014 for the stock options expiring on February 20, 2024).

 

(2)Includes dividend equivalent units earned on outstanding restricted stock units. The amounts reported in this column will vest: for Mr. Hughes, as to 3,458 units on February 17, 2017, as to 3,169 units on February 18, 2017, as to 11,105 units on September 1, 2017, as to 11,341 units on December 31, 2017, as to 3,457 units on February 17, 2018, as to 3,169 units on February 18, 2018, as to 11,105 units on September 1, 2018, as to 5,599 units on December 31, 2018, as to 3,457 units on February 17, 2019, as to 11,105 units on September 1, 2019; for Mr. Armes, as to 15,987 units on February 17, 2017, as to 15,766 units on February 18, 2017, as to 15,987 units on February 28, 2017, as to 15,766 units on February 28, 2017, as to 15,987 units on February 28, 2017, as to 48,021 units on December 31, 2017, as to 15,987 units on February 17, 2018, as to 15,766 units on February 18, 2018, as to 17,262 units on December 31, 2018, as to 15,987 units on February 17, 2019; for Ms. Jones, as to 2,588 units on February 17, 2017, as to 2,556 units on February 18, 2017, as to 15,397 units on December 3, 2017, as to 9,149 units on December 31, 2017, as to 2,588 units on February 17, 2018, as to 2,557 units on February 18, 2018, as to 4,191 units on December 31, 2018, as to 2,588 units on February 17, 2019; for Ms. Harmon, as to 1,916 units on February 17, 2017, as to 1,889 units on February 18, 2017, as to 6,757 units on December 31, 2017, as to 1,915 units on February 17, 2018, as to 1,888 units on February 18, 2018, as to 3,101 units on December 31, 2018, as to 1,915 units on February 17, 2019; and for Mr. Zamansky, as to 2,553 units on February 17, 2017, as to 2,798 units

 

29 

 

 

on February 18, 2017, as to 6,757 units on December 31, 2017, as to 2,552 units on February 17, 2018, as to 2,798 units on February 18, 2018, as to 3,130 units on December 31, 2018, as to 2,552 units on February 17, 2019.

 

(3)Value is based on the closing price of our common stock of $38.85 on December 30, 2016, as reported on the New York Stock Exchange.

 

(4)Reflects the target payout opportunity for 2017 and 2018 performance periods under the 2015-2017 and 2016-2018 measurement periods of our Long-Term Incentive Plan. The target payout opportunities for 2017 under the 2015-2017 measurement period (3,096 units for Mr. Hughes, 2,497 units for Ms. Jones, 1,844 units for Ms. Harmon, and 1,844 units for Mr. Zamansky), if earned, will vest on December 31, 2017. The target payout opportunities for each of 2017 and 2018 under the 2016-2018 measurement period (3,416 and 3,416 units for Mr. Hughes, 2,557 and 2,557 for Ms. Jones, 1,892 and 1,892 units for Ms. Harmon, and 1,910 and 1,910 units for Mr. Zamansky,) if earned will vest on December 31, 2018. In the event of death, disability, or retirement during a measurement period, performance awards under the Long-Term Incentive plans are prorated for a period of time that the grantee was employed during the measurement period. Retirement is defined as the earlier of age 65 or the date on which the grantee’s years of age and service equal 70.

 

2016 OPTION EXERCISES AND STOCK VESTED TABLE

 

The following table shows our named executive officers’ exercise of stock options, plus the value realized at exercise by each named executive officer, and restricted stock awards that vested, plus the value realized by each named executive officer as a result of such vesting, during 2016.

 

   Option Awards  Stock Awards
Name  Number of
Shares
Acquired
on Exercise
(#)
  Value
Realized
on Exercise
($)
  Number of
Shares
Acquired
on Vesting
(#)
  Value
Realized
on Vesting
($)(1)
(a)  (b)  (c)  (d)  (e)
Bradley E. Hughes           19,718   $704,480 
Roy V. Armes   92,024   $3,672,770    102,218   $3,667,342 
Ginger M. Jones           2,525    91,531 
Brenda S. Harmon           16,323   $573,747 
Stephen Zamansky   13,397   $523,005    15,914   $557,449 

 

(1)These amounts represent the fair market value of our common stock on the vesting date or distribution date multiplied by the number of shares that vested or were distributed.

 

30 

 

 

2016 PENSION BENEFITS TABLE

 

This table shows the actuarial present value of accumulated benefits payable to, and the number of years of service credited to Mr. Armes, who was the only named executive officer with a benefit under our now frozen defined benefit plan. Mr. Armes had a cash balance plan benefit under the Spectrum Retirement Plan, and a related supplementary benefit under the Non-Qualified Supplementary Benefit Plan.

 

Name  Plan Name  Number of
Years
Credited
Service
   Present
Value of
Accumulated
Benefit
  Payments
During
Last Fiscal
Year
 
(a)  (b)  (c)   (d)  (e) 
Roy V. Armes  Spectrum Retirement Plan  9   $45,800   $0 
   Non-Qualified Supplementary Benefit Plan – DB Account  9   $175,042   $0 

 

For purposes of the amounts reflected above under column (d), we have used the same assumptions that we use for financial reporting purposes under generally accepted accounting principles, except that we have assumed that the retirement age for Mr. Armes was his normal retirement age of 65. Mr. Armes has retired on August 31, 2016. His actual benefit under the qualified and non-qualified plans will be determined under the provisions of those plans as they apply to all participants. See Note 10 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the twelve months ended December 31, 2016, for details as to our valuation method and the material assumptions applied in quantifying the present value of the current accrued benefit. See also our discussion of pension and postretirement benefits under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” beginning on page 28 of the Company’s Form 10-K for the year ended December 31, 2016.

 

Mr. Armes’s benefit under the Spectrum Retirement Plan may be paid in the form of an annuity, or in a lump sum, as he elects. A participant may receive the amount of his or her benefit in a lump sum payment upon termination of employment, subject to any Code Section 409A provisions. Payment of the benefit in an annuity form may not generally commence until the participant has reached age 55. The amount payable is not reduced by Social Security benefits payable to the participant.

 

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2016 NON-QUALIFIED DEFERRED COMPENSATION TABLE

 

This table shows certain information for 2016 for each of our named executive officers under our non-qualified deferred compensation plans and programs. As noted above, Mr. Armes was the only named executive officer who had a benefit under the Non-Qualified Supplementary Plan that is related to the now frozen defined benefit (cash balance) plan.

 

Name  Executive
Contributions
($)(1)
  Company
Contributions
($)(2)
  Aggregate
Earnings
($)(3)
  Aggregate
Withdrawals/
Distributions
($)
  Aggregate
Balance at
12/31/16
($)(4)
Bradley E. Hughes      $126,605   $3,746       $329,800 
Non-Qualified Supplementary Benefit Plan                         
                          
Roy V. Armes                         
Non-Qualified Supplementary Benefit Plan      $126,104   $18,097       $1,145,231 
Deferred Restricted Stock Units           $130,557       $3,507,572 
                          
Ginger M. Jones                         
Non-Qualified Supplementary Benefit Plan      $82,715    $298.00       $104,957 
                          
Brenda S. Harmon                         
Non-Qualified Supplementary Benefit Plan      $61,620   $8,365       $292,793 
                          
Stephen Zamansky                         
Non-Qualified Supplementary Benefit Plan      $62,313   $1,873       $159,983 

 

(1)The amounts reported as Executive Contributions are fully reported in the 2016 Summary Compensation Table.

 

(2)The amounts reported as Company Contributions include amounts with respect to both base salary and annual incentive compensation earned by each named executive officer for 2016. These amounts include contributions made in 2017 with respect to 2016. All of these amounts are reported as All Other Compensation in the 2016 Summary Compensation Table.

 

(3)None of the amounts reported as Aggregate Earnings are reported in the 2016 Summary Compensation Table.

 

(4)

The Aggregate Balance at December 31, 2016, includes deferred compensation which was reported in the Summary Compensation Table for this year and prior year proxies. The amounts are $376,316 for Mr. Hughes, $1,190,104 for Mr. Armes, $94,061 for Ms. Jones, $204,367 for Ms. Harmon, and $113,993 for Mr. Zamansky.

 

For more information about our non-qualified deferred compensation programs, see “Compensation Discussion and Analysis” beginning on page 11.

 

Non-Qualified Supplementary Benefit Plan

 

The Non-Qualified Supplementary Benefit Plan is a non-elective deferred compensation plan. The named executive officers participate in the Non-Qualified Supplementary Benefit Plan only to the extent that full participation in our qualified 401(k) plan (the Spectrum Investment Savings Plan) is restricted by limits under the Internal Revenue Code. Mr. Armes has an accrued benefit under the frozen cash balance plan.

 

32 

 

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

We are generally obligated to provide our named executive officers with certain payments or other forms of compensation upon a termination of employment or a change in control. The forms of such termination can involve voluntary termination, retirement, involuntary termination without cause, for cause termination, termination following a change in control, and the disability or death of the executive. The disclosure below describes the circumstances under which we may be obligated to provide our named executive officers (other than Mr. Armes) with payments or compensation. Additionally, the tables below reflect the estimated amounts of payments or compensation each of our named executive officers (other than Mr. Armes) may receive under particular circumstances in the event of termination of such named executive officer’s employment.

 

Payments to Mr. Armes

 

We were a party to an employment agreement with Mr. Armes. The initial term of employment for Mr. Armes was for three years beginning January 1, 2007, which term was automatically extended for one additional year commencing each January 1 after the commencement of the initial term. The employment agreement contains non-competition and non-solicitation provisions that extend for two years after any termination of employment. Certain compensation awards granted to Mr. Armes were also governed by the applicable compensation plans and award agreements. Below is a description of the payments or compensation Mr. Armes is entitled to as a result of his employment with us terminating on August 31, 2016.

 

Payments Made Upon Retirement

 

Mr. Armes received his then current base salary, to the extent unpaid through his termination date, plus the prorated portion of our annual and long-term incentive compensation programs based upon actual performance through the end of the applicable measurement period(s) to be distributed in accordance with the terms of the plans. Additionally, all outstanding stock options (or similar equity awards) will remain outstanding and exercisable in accordance with their terms. The vesting and distribution of restricted stock units will be in accordance with the terms of the grants. He will also receive any accrued and vested retirement benefits, including under the Company’s Non-Qualified Supplementary Benefit Plan.

 

Payments to Other Named Executive Officers

 

Payments Made Upon Retirement, Death, or Disability

 

Upon (i) retirement by a named executive officer who is eligible to retire or (ii) death or disability, named executive officers receive the following:

 

Prorated incentive (annual and long-term) compensation through the date of termination based upon actual performance through the end of the applicable measurement period(s) to be distributed in accordance with the terms of the plans;

 

Accrued and vested retirement benefits;

 

Upon death or disability, stock options fully vest and are exercisable for twelve (12) months; upon retirement, stock options continue to vest in accordance with the terms of the plans and are exercisable for five years from the date of retirement; and

 

Unvested restricted stock unit awards vest upon retirement, death, or disability and are distributable in accordance with participant elections under the terms of the plan.

 

33

 

 

Payments Made Upon Voluntary or Involuntary Termination Without Cause

 

Upon voluntary or involuntary termination without cause, named executive officers are entitled to payment of any earned and unpaid base pay as of the date of termination and vested benefits in accordance with the terms of the applicable plans.

 

Notionally earned performance units and cash under long-term compensation plans and annual incentive plans for completed performance periods vest in full upon certification by the Compensation Committee.

 

Vested stock options at the date of termination are exercisable for thirty (30) days for voluntary termination; ninety (90) days for involuntary termination without cause.

 

Payments Made Upon Termination for Cause

 

Upon termination for cause, named executive officers are entitled to payment of any earned and unpaid base pay as of the date of termination and vested benefits in accordance with the terms of the applicable plans. All unpaid notionally earned annual and long-term compensation, stock options, and unvested restricted stock units are immediately forfeited.

 

Payments Made in Connection with a Change in Control

 

Following a change in control or a qualified pre-change in control termination such as when the Company is party to a definitive agreement the consummation of which would result in a change in control, named executive officers are entitled to receive the following payments and benefits:

 

Benefits upon closing of the change in control or a qualified termination under a potential change in control.

 

Payment of notionally earned and unpaid annual and long-term incentive compensation;

 

Prorated target for annual or long-term incentive compensation that is not notionally earned;

 

If the time-based restricted stock units or stock option awards are not assumed by the successor upon the change in control, the restricted stock units and stock options vest upon the change in control. Stock options remain exercisable for 90 days following termination. Restricted stock units and stock options may be converted to cash if the acquiring company does not assume responsibility for the obligation; and

 

Upon a qualified termination under a potential change in control only, accelerated vesting of all then unvested time-based restricted stock units and stock option awards with payment of restricted stock units in accordance with the participant elections under terms of the plan and stock options are exercisable for 90 days following termination.

 

Additional benefits upon a termination without cause or a voluntary termination due to good reason within two years after a change in control.

 

Prorated annual incentive compensation from the date of the beginning of the performance period through the date of termination for awards or programs in which the executive participates at target levels;

 

34

 

 

If the time-based restricted stock units or stock option awards are assumed by the successor upon the change in control, accelerated vesting of all then unvested time-based restricted stock units and stock option awards with payment in accordance with the terms of the applicable plans (stock options will be subject to exercise for 90 days following termination);

 

Three times the sum of the chief executive officer’s base pay plus target annual incentive compensation at the greater of the amount at termination or immediately prior to the change in control; two times the sum for all other named executive officers.

 

24 months’ continuation of life, accident, and health benefits followed by retiree medical and life insurance coverage to the extent eligible, subject to mitigation;

 

Outplacement services for 12 months, in an amount up to 15% of the named executive officer’s base salary; and

 

If the parachute payments on an after-tax basis exceed 110% of the parachute payments that would have been received calculated without a reduction to the “Section 280G safe harbor limit,” the payments are not cut back to the “Section 280G safe harbor limit,” otherwise they are cut back. In any event, there is no tax gross-up for excise taxes.

 

All post-termination payments are conditioned upon the execution by the executive at the time of termination of a release of all claims against the Company.

 

Tabular Disclosure

 

Except as otherwise indicated, the amounts shown in the tables below assume that a named executive officer was terminated and, as applicable, a change in control occurred as of December 31, 2016, and that the price of our Common Stock equals $38.85, which was the closing price of our Common Stock on December 30, 2016, as reported on the New York Stock Exchange. Actual amounts that we may pay to any named executive officer upon termination of employment, however, can only be determined at the time of such named executive officer’s actual separation from Cooper Tire & Rubber Company.

 

35

 

 

Bradley E. Hughes

 

The following table shows the potential payments upon termination under various circumstances for Bradley E. Hughes, Chief Executive Officer and President.

                         
Benefits and Payments
Upon Termination
  Retirement
on
12/31/16
(A)
  Termination
by Death
on
12/31/16
  Termination
by
Disability
on
12/31/16
  Termination
Without
Cause or
for Good
Reason on
12/31/16
  Termination
for Cause
or Without
Good
Reason on
12/31/16
  Termination
Subsequent
to a Change
in Control
on
12/31/16
                               
Compensation:                              
                               
Base Salary(1)  $                          
                               
Annual Incentive Compensation(2)  $    1,074,789    1,074,789    1,074,789    1,074,789    1,074,789 
                               
Cash Severance - Base Salary and Average Annual Incentive Compensation Multiple(3)  $                        5,362,200 
                               
Long-Term Incentive - Performance-Based Stock Units and Cash(4)  $    2,366,982    2,366,982    1,090,655         2,366,982 
                               
Stock Options(5)  $    869,566    869,566    869,566         869,566 
                               
Restricted Stock Units(6)  $    1,943,432    1,943,432              1,943,432 
                               
Benefits and Perquisites:                              
                               
Pension Plan and Non-Qualified Supplementary Benefit Plan(7)(B)  $    329,800    329,800    329,800    329,800    329,800 
                               
Executive Deferred Compensation Plan  $                          
                               
Life, Accident, and Health Insurance(8)  $                        37,917 
                               
Retiree Medical and Life Insurance(9)  $                          
                               
Excise Tax Gross-Up(10)  $                          
                               
Outplacement Services(11)  $                        135,000 
Total  $    6,584,569    6,584,569    3,364,810    1,404,589    12,119,686 

 

(A)Not eligible for retirement at 12/31/16.

 

(B)Not eligible to participate in Pension Plan.

 

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Roy V. Armes

 

The following table shows the potential payments upon termination under various circumstances for Roy V. Armes, Former Chairman, Chief Executive Officer, and President.

                    
Benefits and Payments
Upon Termination
  Retirement on
12/31/16
(A)
  Termination
by Death
on
12/31/16
  Termination
by
Disability
on
12/31/16
  Termination
Without
Cause or
for Good
Reason on
12/31/16
  Termination
for Cause
or Without
Good
Reason on
12/31/16
  Termination
Subsequent
to a Change
in Control
on
12/31/16
                     
Compensation:                    
                     
Base Salary(1)  $                
                     
Annual Incentive Compensation(2)  $1,657,558                
                     
Cash Severance - Base Salary and Average Annual Incentive Compensation Multiple(3)  $                
                     
Long-Term Incentive - Performance-Based Stock Units and Cash(4)  $10,038,170                
                     
Stock Options(5)  $749,726                
                     
Restricted Stock Units(6)  $6,595,875                
                     
Benefits and Perquisites:                    
                     
Pension Plan and Non-Qualified Supplementary Benefit Plan(7)  $1,320,273                
                     
Executive Deferred Compensation Plan  $                
                     
Life, Accident, and Health Insurance(8)  $                
                     
Retiree Medical and Life Insurance(9)  $                
                     
Excise Tax Gross-Up(10)  $                
                     
Outplacement Services(11)  $                
Total  $20,361,602                

 

(A)Mr. Armes retired on 8/31/16.

 

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Ginger M. Jones

 

The following table shows the potential payments upon termination under various circumstances for Ginger M. Jones, Senior Vice President and Chief Financial Officer.

                         
Benefits and Payments
Upon Termination
  Retirement
on
12/31/16
(A)
  Termination
by Death
on
12/31/16
  Termination
by
Disability
on
12/31/16
  Termination
Without
Cause or
for Good
Reason on
12/31/16
  Termination
for Cause
or Without
Good
Reason on
12/31/16
  Termination
Subsequent
to a Change
in Control
on
12/31/16
                               
Compensation:                              
                               
Base Salary(1)  $                          
                               
Annual Incentive Compensation(2)  $    584,041    584,041    584,041    584,041    584,041 
                               
Cash Severance - Base Salary and Average Annual Incentive Compensation Multiple(3)  $                        1,721,885 
                               
Long-Term Incentive - Performance-Based Stock Units and Cash(4)  $    1,004,890    1,004,890              1,004,890 
                               
Stock Options(5)  $                          
                               
Restricted Stock Units(6)  $    1,098,484    1,098,484              1,098,484 
                               
Benefits and Perquisites:                              
                               
Pension Plan and Non-Qualified Supplementary Benefit Plan(7)(B)  $    104,957    104.957    104,957    104,957    104,957 
                               
Executive Deferred Compensation Plan  $                          
                               
Life, Accident, and Health Insurance(8)  $                        35,803 
                               
Retiree Medical and Life Insurance(9)  $                          
                               
Excise Tax Gross-Up(10)  $                          
                               
Outplacement Services(11)  $                        76,500 
Total  $    2,792,372    2,792,372    688,998    688,998    4,626,560 

 

(A)Not eligible for retirement at 12/31/16.

 

(B)Not eligible to participate in Pension Plan.

 

38

 

 

Brenda S. Harmon

 

The following table shows the potential payments upon termination under various circumstances for Brenda S. Harmon, Senior Vice President and Chief Human Resources Officer.

                         
Benefits and Payments
Upon Termination
  Retirement
on
12/31/16
(A)
  Termination
by Death
on
12/31/16
  Termination
by
Disability
on
12/31/16
  Termination
Without
Cause or
for Good
Reason on
12/31/16
  Termination
for Cause
or Without
Good
Reason on
12/31/16
  Termination
Subsequent
to a Change
in Control
on
12/31/16
                               
Compensation:                              
                               
Base Salary(1)  $                          
                               
Annual Incentive Compensation(2)  $432,306    432,306    432,306    432,306    432,306    432,306 
                               
Cash Severance - Base Salary and Average Annual Incentive Compensation Multiple(3)  $                        1,418,092 
                               
Long-Term Incentive - Performance-Based Stock Units and Cash(4)  $1,514,021    1,514,021    1,514,021    1,514,021         1,514,021 
                               
Stock Options(5)  $836,410    836,410    836,410    836,410         836,410 
                               
Restricted Stock Units(6)  $369,969    369,969    369,969              369,969 
                               
Benefits and Perquisites:                              
                               
Pension Plan and Non-Qualified Supplementary Benefit Plan(7)(B)  $292,793    292,793    292,793    292,793    292,793    292,793 
                               
Executive Deferred Compensation Plan  $                          
                               
Life, Accident, and Health Insurance(8)  $                        29,168 
                               
Retiree Medical and Life Insurance(9)  $                          
                               
Excise Tax Gross-Up(10)  $                          
                               
Outplacement Services(11)  $                        64,459 
Total  $3,445,499    3,445,499    3,445,499    3,075,530    725,099    4,957,218 

 

(A)Eligible for retirement at 12/31/16.

 

(B)Not eligible to participate in Pension Plan.

 

39

 

 

Stephen Zamansky

 

The following table shows the potential payments upon termination under various circumstances for Stephen Zamansky, Senior Vice President, General Counsel and Secretary.

                         
Benefits and Payments
Upon Termination
  Retirement
on
12/31/16
(A)
  Termination
by Death
on
12/31/16
  Termination
by
Disability
on
12/31/16
  Termination
Without
Cause or
for Good
Reason on
12/31/16
  Termination
for Cause
or Without
Good
Reason on
12/31/16
  Termination
Subsequent
to a Change
in Control
on
12/31/16
                               
Compensation:                              
                               
Base Salary(1)  $                          
                               
Annual Incentive Compensation(2)  $    436,454    436,454    436,454    436,454    436,454 
                               
Cash Severance - Base Salary and Average Annual Incentive Compensation Multiple(3)  $                        1,431,706 
                               
Long-Term Incentive - Performance-Based Stock Units and Cash(4)  $    1,474,452    1,474,452    729,651         1,474,452 
                               
Stock Options(5)  $    107,818    107,818    107,818         107,818 
                               
Restricted Stock Units(6)  $    372,183    372,183              372,183 
                               
Benefits and Perquisites:                              
                               
Pension Plan and Non-Qualified Supplementary Benefit Plan(7)(B)  $    159,983    159,983    159,983    159,983    159,983 
                               
Executive Deferred Compensation Plan  $                          
                               
Life, Accident, and Health Insurance(8)  $                        24,018 
                               
Retiree Medical and Life Insurance(9)  $                          
                               
Excise Tax Gross-Up(10)  $                          
                               
Outplacement Services(11)  $                        65,078 
Total  $    2,550,890    2,550,890    1,433,906    596,437    4,071,692 

 

(A)Not eligible for retirement at 12/31/16.

 

(B)Not eligible to participate in Pension Plan.

 

40

 

 

Footnotes for Tabular Disclosure

 

(1)As of December 31, 2016, the amount of base salary payable to the named executive officers for services rendered during 2016 has been paid.

 

(2)Amounts shown are actual amounts payable in early 2017, if any, based upon achieved performance metrics established for 2016 although the payments could be different for a termination during the year under the various listed terminations.

 

(3)Mr. Hughes would receive three (3) times the sum of base salary as of the end of 2016 plus target annual cash incentive compensation for termination due to change in control. Other named executive officers would receive two (2) times the sum of the same amount. Any required reduction due to a Section 280G related excise tax “Cap” for other named executives due to a change in control adjusts the cash severance.