SCHN 2017 Proxy Statement

Compensation Discussion and Analysis The following table summarizes the payouts for amounts earned by the NEOs under the PIBP for the first half of fiscal 2017: Named Executive Officer PIBP Payout (1)(2) Tamara L. Lundgren $147,809 Richard D. Peach $ 49,288 Michael R. Henderson $ 41,914 Steven G. Heiskell $ 31,334 Peter B. Saba $ 26,172 (1) These amounts are included in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.” (2) Reflects the exclusion of the NEOs’ earnings during the first quarter of fiscal 2017 from the calculation of the PIBP payout as discussed above and is equivalent to a payout factor of 0.5x for each NEO. Long-Term Incentive Program. All of our NEOs participate in the LTIP, which consists of two components: RSUs (time- vested awards) and performance shares (performance-based awards). As in fiscal 2016 and as described below, performance share awards granted in fiscal 2017 had two components: the TSR component and the CFROI component. LTIP award values are split equally between RSUs and performance shares. The award value for performance shares in fiscal 2017 was split equally between the TSR component and the CFROI component, with the number of RSUs and the target number of performance shares under the CFROI component calculated based on the closing market price of our common stock on the determination date and the target number of performance shares under the TSR component calculated based on the fair value per share of the TSR component as determined for accounting purposes. LTIP awards are made by the Committee pursuant to our Policy on Employee Equity Awards, which was adopted by the Board in April 2007 and sets forth the process for granting equity awards. LTIP awards to NEOs are generally made based on grant guidelines expressed as a percentage of salary. Grant guidelines for NEOs other than the CEO are developed each year based on a review of (a) market-based LTIP grant levels, as assessed by both the Committee’s and management’s consultants, (b) prior year grant guidelines, and (c) CEO recommendations, taking into account performance and internal pay equity considerations, including the relative scope of the business responsibilities of each NEO, the markets in which his or her business segment operates, and his or her individual performance. Grant guidelines for the CEO are developed each year by the Committee based on a review of market-based LTIP grant levels and prior year grant guidelines and an exercise of its discretion, taking into account CEO performance. Our practice generally has been to determine annual LTIP award levels and make both RSU and performance share awards in November of the fiscal year. RSU awards generally vest over five years, and awards under the performance share component have historically had a three-year performance cycle. We modified this historical practice in fiscal 2012 through fiscal 2015 and used a two-year performance cycle because the Committee determined that continuing market uncertainties made establishing three-year performance targets extremely difficult. In response to the input received through the Company’s shareholder outreach efforts, the Committee returned to the three-year performance cycle for awards made in fiscal 2016 and thereafter. The LTIP award level approved in fiscal 2017 for the CEO was 350% of her base salary at the time of the award, which was the same percentage of salary as in fiscal 2016. The grant levels for the other NEOs as a percentage of base salary were 155% for Mr. Peach, 143% for Mr. Henderson, 167% for Mr. Heiskell, and 125% for Mr. Saba. These grants placed the officers at the levels deemed by the Committee to be appropriate and reasonable in light of their respective performance, expertise, experience, and development within roles and responsibilities. In designing the LTIP, the Committee sought to make awards within a broad range on either side of the market median to individualize the award to the level of responsibility and performance of the recipient. In recognition of weak market conditions persisting into the early part of fiscal 2017, the Committee determined that for fiscal 2017 it would consider the LTIP awards in two stages: a grant in November 2016 at generally 50% of the previous year grant levels and a review at mid-year based on the Company’s financial and operating performance for the remaining 50%. Based on that mid-year review, in April 2017, the Committee determined to grant the second half of fiscal 2017 LTIP awards. The grant date fair values of LTIP awards made to each of our NEOs are disclosed in the “Stock Awards” column of the “Summary Compensation Table”. RSUs. The objective of RSUs is to align executive and shareholder long-term interests by creating a strong and direct link between executive compensation and shareholder return and to create incentives for NEOs to remain with the Company for the long term. Awarded RSUs generally vest over five years. Since fiscal 2007, we have granted RSUs instead of stock options to NEOs and other key employees to increase the equity ownership of senior management and provide a 48 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement