SCHN 2017 Proxy Statement
Compensation Discussion and Analysis Fiscal 2017 Accomplishments Strongest fiscal year earnings per share since 2011 • Reported earnings per share of $1.60 and adjusted earnings per share of $1.53* represent substantial increases compared to fiscal 2016 reported loss per share of $0.66 and adjusted earnings per share of $0.69* Expanded operating margins • Expanded operating margins through ferrous and nonferrous volume growth and sustained benefits from cost reduction and productivity initiatives Volume growth • Achieved 10% higher ferrous volumes and 15% higher nonferrous volumes through a combination of expanding supply channels, further diversifying sales, and improved market conditions Strengthened operating platform flexibility and productivity • Realized approximately $18 million in incremental annual operating performance improvements from cost savings and productivity initiatives, which completed the targeted $95 million in annual benefits related to these measures announced since fiscal 2015 • Completed CSS integration of steel manufacturing and Oregon metals recycling operations and invested in a major equipment upgrade aimed at increasing productivity and enhancing product quality Generated $100 million of operating cash flow • Reduced debt by 25% to its lowest level since the first quarter of 2011 • Returned $20 million to shareholders through dividend payments * See pages 47-49 of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 24, 2017 for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures. Our executive compensation program is designed to pay for performance. As a result, actual compensation in fiscal 2017 was higher than target levels (except with respect to the PIBP) reflecting alignment with the Company’s significantly improved financial performance as set forth above. Aligned with our strong performance, for fiscal 2017, the APBP paid out at 2.35x of target for the CEO and the AICP paid out for the other NEOs at either 1.55x or 1.56x of target. • Fiscal 2017 compensation also included the second half of the one-year PIBP established by the Committee in order to incentivize the execution of $30 million in critical new cost savings and productivity initiatives launched in response to significantly weakened market conditions in the first half of fiscal 2016. The PIBP performance period commenced in the second half of 2016 and continued through the first half of fiscal 2017. The PIBP included a “gateway” mechanism with no credit for any quarter in which we reported an adjusted loss per share and a retention component with no payout for the CEO and other NEOs until after the end of such 12-month period. Because we experienced an adjusted loss per share in the first quarter of fiscal 2017, the CEO and other NEOs did not receive credit for the first three months of the fiscal 2017 PIBP performance period. As a result, the overall PIBP payout for the NEOs, including the CEO, for amounts earned in fiscal 2017 was equivalent to 0.5x of the PIBP target (equal to approximately 0.1x of the participant’s AICP/APBP target) and totaled less than $300,000 for all NEOs, including the CEO, combined. • No performance shares vested in fiscal 2017 as a result of the transition to a three-year performance period for performance share plans • Realizable pay on average over the past three years as compared to total compensation reported in the summary compensation table, as described below, was 79% for the CEO and 72% for the other NEOs • In consultation with its independent compensation consultant and taking into account that the annual base salary of the CEO had not been increased since May 2011, approved a 10% increase in CEO base salary effective July 2017 • Increases in base salary for all other NEOs ranged from 2.5% to 3.8% The Executive Compensation Process Role of the Compensation Committee . The Committee is responsible for: • Developing and making recommendations to the Board with respect to our compensation policies and programs; • Determining the levels of all compensation to be paid to the CEO and other NEOs (including annual base salary and incentive compensation, equity incentives, and benefit plans); and 36 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement
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