DEF 14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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

 

 

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¨ Preliminary Proxy Statement
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þ Definitive Proxy Statement
¨ Definitive Additional Materials
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POLYONE CORPORATION

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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LOGO


NOTICE OF 2015

ANNUAL MEETING OF SHAREHOLDERS

AND PROXY STATEMENT

 

 

LOGO

PolyOne Corporation

 

 

 

 

 

 

 

LOGO


Contents

 

PROXY SUMMARY

  1   

PROXY STATEMENT

  6   

PROPOSAL 1 — ELECTION OF BOARD OF DIRECTORS

  7   

CORPORATE GOVERNANCE

  13   

2014 NON-EMPLOYEE DIRECTOR COMPENSATION

  19   

OWNERSHIP OF POLYONE SHARES

  22   

PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

  24   

COMPENSATION DISCUSSION AND ANALYSIS

  25   

Executive Summary

  25   

Executive Compensation Philosophy and Objectives

  29   

What We Pay and Why: Elements of Compensation

  31   

Other Aspects of Our Compensation Programs

  39   

EXECUTIVE COMPENSATION

  43   

2014 Summary Compensation Table

  43   

2014 Grants of Plan-Based Awards

  47   

Outstanding Equity Awards at 2014 Fiscal Year-End

  51   

2014 Option Exercises and Stock Vested

  54   

2014 Pension Benefits

  55   

2014 Nonqualified Deferred Compensation

  57   

Potential Payments Upon Termination or Change of Control

  59   

PROPOSAL 3  — APPROVAL OF THE AMENDED AND RESTATED POLYONE CORPORATION 2010 EQUITY AND PERFORMANCE INCENTIVE PLAN

  67   

PROPOSAL 4  — APPROVAL OF THE AMENDED AND RESTATED POLYONE CORPORATION SENIOR EXECUTIVE ANNUAL INCENTIVE PLAN

  86   

PROPOSAL 5 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  92   

MISCELLANEOUS PROVISIONS

  95   

APPENDIX A

  A-1   

APPENDIX B

  B-1   

APPENDIX C

  C-1   

 

 

 

 

 

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MESSAGE FROM OUR CEO

April 3, 2015

Dear Fellow Shareholder:

You are cordially invited to attend the PolyOne Corporation Annual Meeting of Shareholders (the “Annual Meeting”), which will be held at 9:00 a.m. on Thursday, May 14, 2015, at PolyOne Corporation’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012.

A Notice of the 2015 Annual Meeting of Shareholders, a proxy summary and the Proxy Statement follows. Please review this material for information concerning the business to be conducted at the Annual Meeting and the nominees for election to our Board of Directors (the “Board”).

You will also find enclosed a proxy and/or voting instruction card and an envelope in which to return the card. Whether or not you plan to attend the Annual Meeting, please complete, sign, date and return your enclosed proxy and/or voting instruction card, or vote by telephone or over the Internet as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. Your vote is very important. You may, of course, withdraw your proxy and change your vote prior to or at the Annual Meeting, by following the steps described in the Proxy Statement.

I appreciate the strong support of our shareholders over the years and look forward to seeing you at the meeting.

 

Sincerely,

Robert M. Patterson

President and Chief Executive Officer

PolyOne Corporation

Please refer to the accompanying materials for voting instructions.

 

 

 

 

 

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NOTICE OF 2015 ANNUAL MEETING OF SHAREHOLDERS

Thursday, May 14, 2015

9:00 a.m. Eastern Standard Time

PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012

We are pleased to invite you to join our Board, senior leadership and other associates of PolyOne Corporation (“PolyOne” or the “Company”) for the Annual Meeting. The purposes of the Annual Meeting are to:

 

1. Elect 10 nominees to our Board;

 

2. Approve, on an advisory basis, our Named Executive Officer compensation;

 

3. Approve the Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan;

 

4. Approve the Amended and Restated PolyOne Corporation Senior Executive Annual Incentive Plan;

 

5. Ratify the appointment of Ernst & Young LLP as our independent registered public accountants for 2015; and

 

6. Consider and transact any other business that may properly come before the Annual Meeting.

The Board set March 16, 2015 as the record date for the Annual Meeting, thus, owners of record of shares of common stock of PolyOne as of the close of business on that date are eligible to:

 

    Receive this notice of the Annual Meeting; and

 

    Vote at the Annual Meeting and any adjournments or postponements of the Annual Meeting.

Please ensure that your shares are represented at the Annual Meeting by promptly voting and submitting your proxy by telephone or over the Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope.

April 3, 2015

 

For the Board of Directors
Lisa K. Kunkle
Secretary and General Counsel

 

Important Notice regarding the availability of Proxy materials for the

Annual Meeting to be held on May 14, 2015:

The proxy statement, proxy card and annual report to shareholders for the fiscal year ended

December 31, 2014 are available at our Internet website, www.polyone.com, on the

“Investor Relations” page.

 

 

 

 

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PROXY SUMMARY

 

PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

VOTING AND MEETING INFORMATION

Your vote is important to the future of the Company. Please carefully review the proxy materials for the Annual Meeting, which will be held on Thursday, May 14, 2015 Eastern Standard Time at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012. Follow the instructions below to cast your vote on all of the voting matters.

Who is Eligible to Vote

 

 

You are entitled to vote if you were a shareholder of record at the close of business on March 16, 2015, the record date for the Annual Meeting. Each share of common stock is entitled to one vote for each Board of Director nominee and one vote for each of the other proposals to be voted on.

Advance Voting Methods

 

 

Even if you plan to attend our Annual Meeting in person, if you are a registered holder, please cast your vote as soon as possible using one of the following advance methods:

LOGO visit www.proxypush.com/pol to vote your proxy OVER THE INTERNET until 11:59 p.m. (CT) on May 13, 2015.

LOGO call 1-866-883-3382 to vote your proxy BY TELEPHONE until 11:59 p.m. (CT) on May 13, 2015.

LOGO sign, date and return your proxy card/voting instruction form to vote BY MAIL.

 

Each shareholder’s vote is important. Please complete, sign, date

and return your proxy or voting instruction form, or submit your vote

and proxy by telephone or over the Internet.

Attending and Voting at the Annual Meeting

 

 

All shareholders of record may vote in person at the Annual Meeting. Beneficial owners may vote in person at the meeting if they have a legal proxy.

 

 

 

 

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PROXY SUMMARY

 

Meeting Agenda and Voting Recommendations

 

 

Agenda    Page
  References  
   Board Vote Recommendation

Election of 10 Directors

   7    FOR

  each Director nominee  

Company Proposals          

•    Advisory approval of our Named Executive Officer compensation

   24    FOR

•    Approve the Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan

•    Approve the Amended and Restated PolyOne Corporation Senior Executive Annual Incentive Plan

•    Ratification of Ernst & Young as our auditor for 2015

   67

86

92

   FOR

FOR

FOR

Transact other business that properly comes before the meeting

         

Director Nominees (Pages 8-12)

The following table provides summary information about each Board nominee.

 

                            Committee Memberships  (1)
Name    Age    Director
Since
   Principal Occupation  

 Inde- 

 pen- 

 dent 

   AC     CC   

 EH& 

 SC 

   N& GC

Richard H. Fearon

   59    2004    Vice Chairman & Chief Financial and Planning Officer, Eaton   X   C            X

Gregory J. Goff

   58    2011    President & Chief Executive Officer (CEO”), Tesoro   X           C    X

Sandra B. Lin

   57    2013    Retired President, CEO and Director, Calisolar (now Silicor Materials)   X   X       X     

Richard A. Lorraine

   69    2008   

Retired SVP & CFO,

Eastman Chemical

  X   X            X

Stephen D. Newlin

   62    2006    Executive Chairman, PolyOne               X     

Robert M. Patterson

   42    2014    President and CEO, PolyOne               X     

William H. Powell

   69    2008    Retired Chairman & CEO, National Starch and Chemical Company   X       C         

Kerry J. Preete

   54    2013    Executive Vice President, Global Strategy, Monsanto   X       X   X     

Farah M. Walters

   70    1998    President & CEO, QualHealth, LLC   X       X        X

William A. Wulfsohn

   53    2011    Chairman & CEO, Ashland, Inc.   X       X         

2014 Meetings

  9   6   2    3

AC   Audit Committee

  

N&GC   Nominating and Governance Committee

  

CC   Compensation Committee

     

C   Committee Chairperson

  

EH&SC   Environmental Health & Safety Committee

  

X   Committee Member

  

 

(1) Effective May 14, 2015, Director Gordon D. Harnett, who is not standing for re-election pursuant to our Director retirement policy and who chaired the Nominating and Governance Committee is expected to be replaced by Mr. Fearon as Chairperson of the Nominating and Governance Committee. Also effective May 14, 2015, Mr. Lorraine is expected to become the Chairperson of the Audit Committee.

 

 

 

 

LOGO    2


PROXY SUMMARY

 

How Pay is Tied to Company Performance (Page 26)

 

We understand there are different views on how to assess whether a company “pays for performance.” This section highlights how our Compensation Committee views executive compensation and Company performance. It also highlights why we believe the Company’s compensation programs are appropriately aligned with performance.

Our executive compensation programs reflect the belief that the amount earned by our executives must, to a significant extent, depend on achieving rigorous Company and business unit performance objectives designed to enhance shareholder value. The Compensation Committee views Company performance in two ways:

 

    The Company’s operating performance, including results against both our long-term and short-term growth targets; and

 

    Return to shareholders over time.

Our Named Executive Officer compensation is in line with the Company’s performance against these measures, as outlined below.

Company Operating Performance

 

 

In a year marked by continued uncertainty in the global economy, PolyOne delivered strong adjusted operating income and revenue growth, and realized further gains from our specialty platform, which accounts for nearly two-thirds of our segment operating income. We will work to continue this growth trend as we focus on more specialty end-uses in markets such as transportation, consumer, packaging and healthcare. Additional 2014 Company financial performance highlights include(1):

 

•       Adjusted earnings per share of $1.80, which is a Company all-time high and represents a 37% increase from 2013

•       Our specialty platform adjusted operating income now represents 65% of our segment adjusted operating income, which is up from 2% in 2005

•       Our stock price has increased 7% in the past year to $37.91 on December 31, 2014 from $35.35 on December 31, 2013

•       Increased our dividend 25% to $0.10 per quarter; representing the fourth consecutive increase and a 250% increase from when we initiated quarterly dividends in 2011

•       Year-end adjusted operating income increased to $320 million, which represents a 22% increase from 2013

•       Strong balance sheet and free cash flow as total cash and liquidity ended the year at $239 million and $475 million, respectively, with a low net debt to EBITDA ratio of 1.9x

 

(1)  Adjusted earnings per share and adjusted operating income for consolidated PolyOne reported in this proxy statement differ from what is reported under United States Generally Accepted Accounting Principles (“GAAP”). See Appendix A for a reconciliation of non-GAAP financial measures to our results as reported under GAAP.

Our Company has delivered twenty-one consecutive quarters of strong double-digit adjusted earnings per share growth.

 

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PROXY SUMMARY

 

Return to Shareholders

 

 

Our Company has delivered consistent positive return to shareholders over time as noted below.

 

LOGO

 

(1) Total Shareholder Return (“TSR”) is defined as the change in the stock price plus dividends declared divided by beginning stock price.

Impact of Our Performance on Named Executive Officer 2014 Compensation

 

 

As a result of our strong operational performance highlighted above, our Named Executive Officers earned an above target payout under the 2014 PolyOne Corporation Senior Executive Annual Incentive Plan (the “Annual Plan”) as noted below. Mr. Van Hulle and Ms. McAlindon have responsibility for business unit-specific results (our Global Color, Additives and Inks business and Designed Structures and Solutions business, respectively) and their Annual Plan opportunity is based on performance goals related to each applicable business. The performance measures, weightings, targets and the respective levels of attainment are set forth below (dollars in millions).

 

Corporate Plan (Patterson, Newlin, Richardson, Kahler, Smith)(1)
       
Measure      Weighting     2014
Targets
   2014
Results
     Attainment  
%

Consolidated Adjusted Operating Income

       50.0 %     $ 298.1        $ 319.7          156.0 %

Working Capital as a % of Sales

       25.0 %       10.8%           9.9%           200.0 %

Revenue

       25.0 %     $ 3,903.7        $ 3,832.7          54.2 %

Total Attainment

                                       141.5 %

 

(1) Mr. Kedrowski did not receive a payout under the Annual Plan for 2014 due to his separation from service.

Mr. Van Hulle and Ms. McAlindon have responsibility for business unit-specific results and while their adjusted operating income performance goals are weighted 50% overall, they are based two-thirds on business unit-specific results and one-third on consolidated PolyOne adjusted operating income results. For Mr. Van Hulle, whose results were based on the Global Color, Additives and Inks Plan, total attainment was 120.3%, with the components consisting of: (1) 33.3% based on business unit adjusted operating income attainment of 133.0% (2014 attainment of $123.4 million measured against a target of $119.3 million); (2) 16.7% based on consolidated adjusted operating income attainment of 156.0% (2014 attainment of $319.7 million measured against a target of $298.1 million); (3) 25.0% based on working capital as percentage of sales attainment of 200.0% (2014 attainment of 10.0% measured against a target of 10.7%); and (4) 25.0% based on revenue attainment of 0.0% (2014 attainment of $839.2 million measured against a target of $869.4 million). For Ms. McAlindon, whose results were based on the Designed Structures and Solutions Plan, total attainment was 109.0%, with the components consisting of: (1) 33.3% based on business unit adjusted operating income attainment of 99.2% (2014 attainment of $45.1 million measured against a target of $45.2 million); (2) 16.7% based on consolidated adjusted operating income attainment of 156.0% (2014 attainment of $319.7 million measured against a target of $298.1 million); (3) 25.0% based on working capital as percentage of sales attainment of 200.0% (2014 attainment of 11.9% measured against a target of 13.0%); and (4) 25.0% based on revenue attainment of 0.0% (2014 attainment of $619.0 million measured against a target of $657.0 million).

 

 

 

 

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PROXY SUMMARY

 

As a result of strong performance over the past three years, in 2014, the Named Executive Officers (except Mr. Kedrowski, who did not receive a payout in 2014) earned a 200% cash-settled performance unit payout under PolyOne’s 2010 Equity and Performance Incentive Plan (referred to as the “Long-Term Incentive Plan”). The payout was earned by PolyOne exceeding cumulative adjusted earnings per share targets over four, equally-weighted performance periods as noted below.

 

2012 – 2014 Cash-Settled Performance Units

 

Performance Goal: Cumulative Earnings per Share

                         
Performance Periods     Weighting         2012 - 2014  
Target
      2012 - 2014  
Results
        Payout %

January 1, 2012 – December 31, 2012

    25%        $1.11        $1.20      200%

January 1, 2013 – December 31, 2013

    25%        $1.15        $1.39      200%

January 1, 2014 – December 31, 2014

    25%        $1.17        $1.80      200%

January 1, 2012 – December 31, 2014

    25%        $3.42        $4.39      200%

Total Attainment

                          200%

All financial measures (targets and results) reported in the above tables were calculated with adjustments for acquisitions, divestitures and special items pursuant to the terms of the Annual Plan and 2012 - 2014 Long-Term Incentive Plan and as approved by the Board. For information on the terms and conditions of these incentive plans, see the “What We Pay and Why: Elements of Compensation” section of this proxy statement (Page 32).

Executive Compensation Philosophy and Objectives (Page 29)

 

 

Our executive compensation program is designed to achieve the following key objectives:

 

    Attract, Motivate and Retain Top Talent, by competing effectively for the highest quality of people who will determine our long-term success;

 

    Pay-for-Performance, by rewarding individuals when our Company achieves specified strategic operating and financial objectives that maximize shareholder value on both a short-term and long-term basis; and

 

    Align Executive Compensation with Shareholder Interests, by recognizing and rewarding business results and the growth of our stock price through incentive programs.

Some of the compensation best practices we employ to achieve these objectives include:

 

•       We closely align pay and performance under our compensation plans such that, on average, over one-half of the Named Executive Officers’ compensation is performance-based

 

 

•       Our Named Executive Officers are required to comply with significant share ownership requirements

•       Our compensation plans emphasize long-term performance and use a balanced portfolio of cash and equity to reward sustained performance over time

 

 

•       No excise tax gross-ups are provided in the even of a change of control for newly hired Named Executive Officers

•       We provide limited executive benefits to our Named Executive Officers that have a sound benefit to our Company’s business

 

 

•       Our Directors and Named Executive Officers are prohibited from hedging or pledging our securities

•       We have adopted a clawback policy that applies to all executive officers

 

•       We have a cap on potential payments under our short-term and long-term incentive plans in which our Named Executive Officers participate

 

 

 

 

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PROXY STATEMENT

POLYONE CORPORATION

PolyOne Center

33587 Walker Road

Avon Lake, Ohio 44012

PROXY STATEMENT

Dated April 3, 2015

Our Board respectfully requests your proxy for use at the Annual Meeting to be held at PolyOne’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012 at 9:00 a.m. on Thursday, May 14, 2015, and at any adjournments of that meeting. This proxy statement is to inform you about the matters to be acted upon at the meeting.

If you attend the meeting, you may vote your shares by ballot. If you do not attend, your shares may still be voted at the meeting if you sign and return the enclosed proxy card or vote by telephone or over the Internet as described below. Common shares represented by a properly signed proxy card will be voted in accordance with the choices marked on the card. If no choices are marked, the shares will be voted: (1) to elect the nominees listed on pages 8 through 12 of this proxy statement; (2) to approve, on an advisory basis, our Named Executive Officer compensation for the fiscal year ended December 31, 2014; (3) to approve the Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan; (4) to approve the Amended and Restated PolyOne Corporation Senior Executive Annual Incentive Plan; and (5) to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015.

You may revoke your proxy before it is voted by giving notice to us in writing or orally at the meeting. Persons entitled to direct the vote of shares held by the following plans will receive a separate voting instruction card: The PolyOne Retirement Savings Plan and the PolyOne Canada Inc. Retirement Savings Program. If you receive a separate voting instruction card for one of these plans, you must sign and return the card as indicated on the card in order to instruct the trustee on how to vote the shares held under the respective plan. You may revoke your voting instruction card before the trustee votes the shares held by it by giving notice in writing to the trustee.

Shareholders may also submit their proxies by telephone or over the Internet. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. These procedures allow shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. Instructions for voting by telephone and over the Internet are printed on the proxy cards.

We are mailing this proxy statement and the enclosed proxy card and, if applicable, the voting instruction card, to shareholders on or about April 3, 2015. Our telephone number is (440) 930-1000.

 

 

 

 

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ELECTION OF BOARD OF DIRECTORS

 

PROPOSAL 1 — ELECTION OF BOARD OF DIRECTORS

Our Board currently consists of 11 Directors. Pursuant to the Director retirement policy contained in our Corporate Governance guidelines, Gordon D. Harnett will not be nominated for re-election at our Annual Meeting. Thus, following the Annual Meeting and assuming the election of all the Board nominees, our Board will consist of 10 Directors.

Each Director serves for a one-year term until a successor is duly elected and qualified, subject to the Director’s earlier death, retirement or resignation. Our Corporate Governance Guidelines provide that all non-employee Directors will retire from the Board not later than the Annual Meeting immediately following the Director’s 72nd birthday, although the Board may waive this limitation if it determines that such a waiver is in PolyOne’s best interests.

A shareholder who wishes to nominate a person for election as a Director must provide written notice to our Secretary in accordance with the procedures specified in Regulation 12 of our Code of Regulations (“Regulations”). Generally, the Secretary must not receive the notice less than 60 nor more than 90 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s Annual Meeting. The notice must set forth, as to each nominee, the name, age, principal occupation and employment during the past five years, name and principal business of any corporation or other organization in which such occupation and employment were carried on and a brief description of any arrangement or understanding between such person and any others pursuant to which such person was selected as a nominee. The notice must include the nominee’s signed consent to serve as a Director if elected. The notice must set forth the name and address of, and the number of our common shares owned by, the shareholder giving the notice and the beneficial owner on whose behalf the nomination is made and any other shareholders believed to be supporting such nominee.

Following are the nominees for election as Directors for terms expiring in 2016, a description of the business experience of each nominee and the names of other publicly-held companies for which he or she currently serves as a director or has served as a director during the past five years. Each nominee for election as Director was previously elected by our shareholders. The composition of the Board is intended to reflect an appropriate mix of skill sets, experience and qualifications that are relevant to PolyOne Corporation’s business and governance over time.

In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that the nominee should serve as a Director, the Board also believes that all of our Director nominees are individuals of substantial accomplishment with demonstrated leadership capabilities. Each of our Director nominees also has the following personal characteristics, which are required attributes for all Board nominees: high ethical standards, integrity, judgment and an ability to devote sufficient time to the affairs of our Company. The reference below Farah Walter’s name to the term of service as a Director includes the period during which she served as a Director of The Geon Company (“Geon”), one of our predecessors. The information is current as of March 16, 2015.

 

Our Board recommends a vote FOR

all the nominees listed below.

 

 

 

 

LOGO 7


ELECTION OF BOARD OF DIRECTORS

 

Richard H. Fearon

 

 

Age: 59

Director Since: 2004

 

Vice Chairman and Chief Financial and Planning Officer of Eaton, a global manufacturing company, since February 2009. Mr. Fearon served as Executive Vice President, Chief Financial and Planning Officer of Eaton from April 2002 until February 2009. Mr. Fearon served as a Partner of Willow Place Partners LLC, a corporate advisory firm, from 2001 to 2002 and was the Senior Vice President Corporate Development for Transamerica Corporation, a financial services organization, from 1995 to 2000.

 

Qualifications, Attributes, Skills and Experience:

 

We believe that Mr. Fearon’s financial expertise, experience and knowledge of international operations, knowledge of diversified companies and corporate development expertise provide him with the qualifications and skills to serve as a valued member of our Board. Mr. Fearon’s advice with respect to financial issues affecting our Company is specifically valued and utilized, especially in his role as Chair of our Audit Committee. As a sitting executive and leader at a multi-national corporation, Mr. Fearon is particularly equipped to advise our Board on current issues facing our Company.

Gregory J. Goff

 

 

Age: 58

Director Since: 2011

 

President and Chief Executive Officer of Tesoro Corporation, a leading company in the independent refining and marketing business, since May 2010 and Chairman and Chief Executive Officer of Tesoro Logistics, a NYSE-listed master limited partnership that owns, operates and develops crude oil and refined products and logistics assets, since April 2011. Mr. Goff served as Senior Vice President, Commercial of ConocoPhillips Corporation, an integrated energy company, from 2008 to 2010. Mr. Goff also held various other positions at ConocoPhillips from 1981 to 2008. Mr. Goff serves as a director of the American Fuels and Petrochemical Manufacturers and on the National Advisory Board of the University of Utah Business School. From 2008 to 2010, Mr. Goff served on the Board of Directors of DCP Midstream GP, LLC.

 

Qualifications, Attributes, Skills and Experience:

 

We believe that, as a Board member with proven leadership capabilities, Mr. Goff provides a unique perspective on our strategy and operations. Mr. Goff’s deep understanding of the energy industry and specialty chemical businesses provides valuable insight into PolyOne’s strategic planning. His experience as the Chief Executive Officer of a large, independent refining and petroleum products marketing company and his participation as a member of national trade associations provide him with invaluable experience that can enhance our Board.

 

 

 

 

LOGO 8


ELECTION OF BOARD OF DIRECTORS

 

Sandra Beach Lin

 

 

Age: 57

Director Since: 2013

 

Retired President, Chief Executive Officer and Director of Calisolar, Inc. (now Silicor Materials Inc.), a solar silicon company. Ms. Lin served in this role from August 2010 until December 2011. She was Executive Vice President, then Corporate Executive Vice President at Celanese Corporation, a global hybrid chemical company from 2007 until 2010. Ms. Lin currently serves on the Boards of Directors of WESCO International, Inc., American Electric Power Company, Inc. and Interface Biologics Inc. Ms. Lin also serves on the Boards of Directors of the Committee of 200 and Junior Achievement USA.

 

Qualifications, Attributes, Skills and Experience:

 

We believe that Ms. Lin’s extensive senior executive experience, including as a Chief Executive Officer, leading global businesses in multiple industries provides her with valuable skills to serve on our Board. She has a deep understanding of the specialty chemicals industry, a strong operational foundation and wide-ranging international experience. Ms. Lin also serves as a director for two other public companies, which provides her with additional experience she utilizes while serving as a valued member of our Board.

Richard A. Lorraine

 

 

Age: 69

Director Since: 2008

 

Retired Senior Vice President and Chief Financial Officer of Eastman Chemical Company, a specialty chemicals company. Mr. Lorraine served in this capacity from 2003 to 2008. Mr. Lorraine also served as Executive Vice President and Chief Financial Officer of Occidental Chemical Company, a chemical manufacturing company, from 1995 to 2003. Mr. Lorraine serves on the Board of Directors of Carus Corporation.

 

Qualifications, Attributes, Skills and Experience:

 

Mr. Lorraine provides our Board with the broad business perspective that he gained in extensive leadership roles in varying industries. He is particularly equipped to advise our Board and Audit Committee on financial issues affecting our Company due to his prior roles as Chief Financial Officer. In addition, he has a significant international background and in-depth commercial experience. All of these attributes provide Mr. Lorraine with valuable skills that he shares with our Board.

 

 

 

 

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ELECTION OF BOARD OF DIRECTORS

 

Stephen D. Newlin

 

 

Age: 62

Director Since: 2006

 

Executive Chairman of PolyOne since May 2014 and Chairman, President and Chief Executive Officer of PolyOne from 2006 to May 2014. Mr. Newlin served as President — Industrial Sector of Ecolab, Inc., a global leader in cleaning and sanitizing specialty chemicals, products and services, from 2003 to 2006. Mr. Newlin served as President and a Director of Nalco Chemical Company, a manufacturer of specialty chemicals, services and systems, from 1998 to 2001 and was President, Chief Operating Officer and Vice Chairman from 2000 to 2001. Mr. Newlin serves on the Boards of Directors of Black Hills Corporation, Oshkosh Corporation and Univar Corporation. From 2007 to 2012, he also served on the Board of Directors of The Valspar Corporation.

 

Qualifications, Attributes, Skills and Experience:

 

We believe that, due to his prior experience as our Chief Executive Officer, Mr. Newlin is particularly qualified to serve on our Board. He has gained significant experience in the specialty chemical industry, serving in this industry for over 30 years. In addition, in his role as our Chief Executive Officer, he has proven that he is an effective leader. He is also able to contribute his knowledge and experience with respect to international issues as a result of his global work responsibilities and living abroad. Mr. Newlin’s depth of Board of Directors experience, having served on six public company boards, has provided him with the skills necessary to serve as an effective leader of our Board.

Robert M. Patterson

 

 

Age: 42

Director Since: 2014

 

President and Chief Executive Officer of PolyOne since May 2014. Mr. Patterson served as Executive Vice President and Chief Operating Officer of PolyOne from March 2012 until May 2014, as Executive Vice President and Chief Financial Officer from January 2011 until March 2012, and as PolyOne’s Senior Vice President and Chief Financial Officer from May 2008 until January 2011. Prior to joining PolyOne, Mr. Patterson served in leadership roles at Novelis, Inc., an aluminum rolled products manufacturer, and SPX Corporation, a multi-industry manufacturer and developer, after starting his career at Arthur Andersen LLP.

 

Qualifications, Attributes, Skills and Experience:

 

We believe that, as our current Chief Executive Officer, Mr. Patterson is particularly well qualified to serve on our Board, as his past and future service enables him to provide comprehensive knowledge of the various segments of our business and of the critical internal and external challenges we face. Through our robust succession planning process, Mr. Patterson was identified as the right leader to continue our transformation in the future. His responsibility for developing and executing the annual operating plans and strategic plans provide him with the knowledge and experience needed to provide valuable input to our Board.

 

 

 

 

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10


ELECTION OF BOARD OF DIRECTORS

 

William H. Powell

 

 

Age: 69

Director Since: 2008

 

Retired Chairman and Chief Executive Officer of National Starch and Chemical Company, a specialty chemicals company. Mr. Powell served in this capacity from 1999 until his retirement in 2006. Mr. Powell serves on the Boards of Directors of Granite Construction Incorporated and FMC Corporation. From 2007 to 2011, he also served on the Board of Directors of Arch Chemicals, Inc.

 

Qualifications, Attributes, Skills and Experience:

 

We believe that Mr. Powell’s previous employment as a Chief Executive Officer has provided him with the leadership skills that are important in serving as a Director of our Company. His prior employment in the specialty chemicals industry is particularly relevant. This experience gives him the knowledge and insight to provide valuable advice and strategic direction in addressing the issues facing our Company. Mr. Powell also serves as a director of other public companies, which provides him with experiences he can utilize when serving as a member of our Board.

Kerry J. Preete

 

 

Age: 54

Director Since: 2013

 

Executive Vice President, Global Strategy for Monsanto Company, a leading global provider of technology-based solutions and agricultural products that improve farm productivity and food quality, since 2010. Mr. Preete was Monsanto Company’s President, Global Crop Protection Division from 2009 to 2010 and Vice President, International Commercial Business from 2008 to 2009. From 1985 to 2008, Mr. Preete served in various roles of increasing responsibility at Monsanto.

 

Qualifications, Attributes, Skills and Experience:

 

Because of his broad experience at a leading, well-known company, we believe Mr. Preete brings an insightful perspective on running a successful, innovative company. Mr. Preete is specifically adept in not only thinking strategically, but also tactically, and these traits will be valuable to PolyOne as it continues its transformation into the future. Further, his global experience and understanding will assist PolyOne in its plans to operate in different regions and cultures, and we believe his global business acumen is relevant and transferable across industries. Mr. Preete’s operational foundation, strategic expertise and global experience are assets to PolyOne’s Board.

 

 

 

 

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11


ELECTION OF BOARD OF DIRECTORS

 

Farah M. Walters

 

 

Age: 70

Director Since: 1998

 

President and Chief Executive Officer of QualHealth, LLC, a health care consulting firm since 2005. From 1992 until her retirement in June 2002, Ms. Walters was the President and Chief Executive Officer of University Hospitals Health System and University Hospitals of Cleveland. Ms. Walters currently serves on the Board of Directors of Celanese Corporation. From 1993 to 2006, Ms. Walters served on the Board of Directors of Kerr-McGee Corp. From 2003 to 2006, Ms. Walters served on the Board of Directors of Alpharma Inc.

 

Qualifications, Attributes, Skills and Experience:

 

Ms. Walters’ extensive business experience provides her with the attributes and skills that uniquely qualify her to serve as a member of our Board. She has over ten years of experience as a Chief Executive Officer of a $2 billion company and a proven track record of success in a leadership role. Further, she has served on the Board of Directors of other public companies, including those in the chemical industry. Ms. Walters’ business experience has provided her with the necessary background to allow her to provide practical and relevant advice on the issues facing our Company.

William A. Wulfsohn

 

 

Age: 53

Director Since: 2011

 

Chairman and Chief Executive Officer of Ashland Inc., a global leader in providing specialty chemical solutions to customers in a wide range of customer and industrial markets since January 2015. From July 2010 until December 2014, Mr. Wulfsohn was President and Chief Executive Officer of Carpenter Technology Corporation and was a director of Carpenter from April 2009 until December 2014. From 2005 to 2010, he served as Senior Vice President, Coatings of PPG Industries, a global supplier of coatings and specialty products and services, and from 2003 to 2005, as Vice President, Coatings and Managing Director, PPG Europe. Prior to joining PPG, Mr. Wulfsohn worked for Morton International, a diversified wholly-owned subsidiary of chemical company Rohm & Haas, as Vice President and General Manager, Automotive Coatings; for Rohm & Haas, a global specialty materials company, as Vice President, Automotive Coatings Business Director; and for Honeywell, a diversified technology and manufacturing company, as Vice President and General Manager, Nylon System. He also worked as an Associate with McKinsey & Company, a global management consulting firm.

 

Qualifications, Attributes, Skills and Experience:

 

We believe that Mr. Wulfsohn is a valuable contributor to our Board. He is a proven leader, with deep and varied experience in technology and successful business operations. His background in managing operations in Europe and Asia/Pacific provides him with international expertise that can be of value to PolyOne. Further, we believe his experience as a Chief Executive Officer of publicly-traded specialty companies has given him unique skills to assist in providing guidance on PolyOne’s continuing transformation.

 

 

 

 

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12


CORPORATE GOVERNANCE

 

CORPORATE GOVERNANCE

Director Independence

Our Corporate Governance Guidelines provide that a substantial majority of the members of our Board should be “independent.” To be considered independent, the Board, with input and a recommendation from the Nominating and Governance Committee, must affirmatively determine that a given director is free from any business, family or other relationship that would reasonably be expected to interfere with the exercise of independent judgment as a Director. Under categorical independence standards adopted by our Board, the Board must determine that a Director is not independent if he or she fails to meet the independence standards under the listing standards of the New York Stock Exchange (“NYSE”).

In addition, our categorical independence standards provide that the following categories of relationships between an outside Director and the Company will be treated as immaterial for purposes of determining a Director’s independence.

 

    If the Director is an executive officer, other employee or director of any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years where the amount involved in such transaction in any such fiscal year was less than the greater of $1 million or 2% of the organization’s consolidated gross revenues for that year;

 

    If the Director is a director of any organization to which the Company has made, or from which the Company has received payments for property or services, and the director was not involved in the negotiations of the terms of the transaction, did not, to the extent applicable, provide any services directly to the Company, and did not receive any special benefits as a result of the transaction; or

 

    If the Director, or an immediate family member of the Director, serves as an officer, director or trustee of a foundation, university, charitable or other not-for-profit organization, and the Company’s discretionary charitable contributions to the organization, in the aggregate are less than the greater of $1 million or 2% of that organization’s latest publicly available annual consolidated gross revenues.

Our categorical independence standards and the material relationship considerations set forth above are found within our Corporate Governance Guidelines, which are available on our website at www.polyone.com, under “Corporate Governance” on our investor relations page.

Our Board performed its independence review for 2014 earlier this year. In applying the categorical standards set forth above and assessing the materiality of any relationships, the Board affirmatively determined that each of Richard H. Fearon, Gregory J. Goff, Gordon D. Harnett, Sandra B. Lin, Richard A. Lorraine, William H. Powell, Kerry J. Preete, Farah M. Walters and William A. Wulfsohn is independent and meets the categorical independence standards described above, has no material relationship with the Company other than that arising solely from the capacity as a Director and, in addition, satisfies the independence requirements of the NYSE, including the NYSE independence standards applicable to the committees on which each such director serves.

Lead Director

Our independent Directors meet regularly in executive sessions. Our Corporate Governance Guidelines provide that the independent Directors are to select a Lead Director to preside at executive sessions. The Lead Director acts as the key liaison between the independent Directors and the Chief Executive Officer (“CEO”), and also serves as the key liaison between the independent Directors and Mr. Newlin as Executive Chairman. The Lead Director is responsible for coordinating the activities of the other independent Directors and for performing various other duties as may from time to time be determined by the independent Directors. Mr. Harnett has served as our Lead Director since July 2007. Effective May 14, 2015, Mr. Harnett, who is not standing for re-election pursuant to our Director retirement policy is expected to be replaced by Mr. Fearon as Lead Director.

Board Leadership Structure

Mr. Newlin has been the Executive Chairman since May 2014. Mr. Newlin served as Chairman, President and Chief Executive Officer of PolyOne from February 2006 until May 2014. Mr. Patterson, also a Director, has been

 

 

 

 

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CORPORATE GOVERNANCE

 

President and Chief Executive Officer since May 2014. The Board believes that this leadership structure is appropriate for our Company given the experience and active involvement of our independent Directors, our corporate governance practices and our Lead Director’s role. Having a Lead Director role helps to ensure greater communication between management and the independent Directors, increases the independent Directors’ understanding of management decisions and Company operations and provides an additional layer of independent oversight of PolyOne. The Board believes that this approach serves to strike an effective balance between management and independent Director participation in the board process.

Board’s Oversight of Risk

Our Board oversees a company-wide approach to risk management that is designed to support the achievement of our strategic objectives and improve long-term organizational performance, which we believe will ultimately enhance shareholder value. The Board believes that risk management is not only understanding the risks we face and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us as an organization.

Our Board administers its risk oversight function directly and through its Audit Committee and Environmental, Health and Safety Committee. The Audit Committee discusses with management our major financial risk exposures and the steps management has taken to monitor and control such exposures, including our risk assessment and risk management policies. The Environmental, Health and Safety Committee periodically reviews with management the significant risks or exposures faced by PolyOne relating to safety, health, environmental, security and product stewardship standards and practices. Our Board oversees and monitors these committees in exercising their responsibilities relating to risk. Our Board also provides direct oversight on risk management as it relates to our capital structure, our borrowing and repayment of funds, financial policies, management of foreign exchange risk and other matters of financial risk management, including the utilization of financial derivative products, insurance coverage strategies, banking relationships and other financial matters.

Our Board sets the appropriate “tone at the top” when it comes to risk tolerance and management by fostering a culture of risk-adjusted decision-making throughout PolyOne. Our Board ensures that the risk management processes designed and implemented by our management team are adapted to the Board’s corporate strategy and are functioning as directed. The Board also participates in an ongoing effort to assess and analyze the most likely areas of future risk for the Company by asking our management team to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability.

The Board believes that its leadership structure supports the risk oversight function of the Board, but that the risk oversight function otherwise has no effect on the Board’s leadership structure.

Code of Ethics, Code of Conduct and Corporate Governance Guidelines

In accordance with applicable NYSE listing standards and Securities and Exchange (“SEC”) regulations, the Board has adopted a Code of Ethics, Code of Conduct and Corporate Governance Guidelines. These are also posted and available on our website at www.polyone.com, under “Corporate Governance” on our investor relations page.

Our Corporate Governance Guidelines contain a policy relating to majority voting. Pursuant to the policy, any nominee for election as a Director of the Board who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election in an election of Directors that is not a contested election is expected to tender his or her resignation as a Director to the Board promptly following the certification of the election results. Neither abstentions nor broker non-votes will be deemed to be votes for or withheld from a Director’s election for purposes of the policy, regardless of the rules treating broker non-votes as withheld in uncontested elections of Directors. The Nominating and Governance Committee (without the participation of the affected Director) will consider each resignation tendered under the policy and recommend to the Board whether to accept or reject it. The Board will then take appropriate action on each tendered resignation, taking into account the Nominating and Governance Committee’s recommendation. The Nominating and Governance Committee, in making its recommendation, and the Board, in making its decision, may consider any factors or other information that it considers appropriate, including the reasons (if any) given by shareholders as to why they withheld their votes, the qualifications of the tendering Director and his or her contributions to the Board and to PolyOne, and the results of the

 

 

 

 

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CORPORATE GOVERNANCE

 

most recent evaluation of the tendering Director’s performance by the other members of the Board. The Board will promptly disclose its decision whether to accept or reject the Director’s tendered resignation and, if applicable, the reasons for rejecting the tendered resignation.

Communication with Board

Shareholders and other interested parties who wish to communicate directly with the Board as a group, the non-management or independent Directors as a group, or with any individual Director may do so by writing to the Secretary, PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012. The mailing envelope and letter must contain a clear notation indicating that the enclosed letter is either a “Shareholder-Board of Directors Communication” or an “Interested Party-Board of Directors Communication,” as appropriate.

The Secretary will review all such correspondence and regularly forward to the Board a log and summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or committees of the Board or that she otherwise determines requires their attention. Directors may at any time review a log of all correspondence we receive that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of our internal audit department and handled in accordance with procedures established by the Audit Committee for such matters.

Board and Committees

Board Attendance

The Board met six times during 2014, the calendar year being our fiscal year. Each member of our Board attended at least 75% of the meetings held by our Board and the meetings held by the committees of our Board on which such member served during the period for which he or she served as a Director. Each Director is expected to attend the Annual Meeting. In 2014, all of our Directors serving at that time attended the Annual Meeting.

Board Committees

As of the date of this proxy statement, our Board has 11 Directors and the following four committees: Audit, Compensation, Nominating and Governance and Environmental, Health and Safety. Each committee meets periodically throughout the year, reports its actions and recommendations to the Board, receives reports from senior management, annually evaluates its performance and has the authority to retain outside advisors in its discretion. The primary responsibilities of each committee are summarized below and set forth in detail in each committee’s written charter, which is located on our website at www.polyone.com under “Corporate Governance” on our investor relations page.

 

Audit Committee – Primary Responsibilities and Requirements

 

•    Meets with appropriate financial and legal personnel and independent auditors to review our corporate accounting, internal controls, financial reporting and compliance with legal and regulatory requirements

 

•    Exercises oversight of our independent auditors, internal auditors and financial management

 

•    Appoints the independent auditors to serve as auditors in examining our corporate accounts

 

•    All members of the Audit Committee meet (1) the financial literacy and independence requirements as set forth in the NYSE listing standards; and (2) the requirements of an “audit committee financial expert” as defined by the SEC

 

•    PolyOne’s common shares are listed on the NYSE and are governed by its listing standards

 

NUMBER OF

MEETINGS IN 2014: 9

 

COMMITTEE MEMBERS:

 

R.H. Fearon (C)

G.D. Harnett

S.B. Lin

R.A. Lorraine

 

C Chair of the Committee

 

 

 

 

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CORPORATE GOVERNANCE

 

Compensation Committee – Primary Responsibilities and Requirements  
   

•    Reviews and approves the compensation and other benefits afforded our executive officers and other highly-compensated personnel, and has similar responsibilities with respect to non-employee Directors, except that the Compensation Committee’s actions and determinations for Directors are subject to the approval of the Board

 

•    Works with PolyOne senior management in human resources, legal and finance departments to provide oversight for all of our broad-based compensation and benefit programs and provides policy guidance and oversight on selected human resource policies and practices

 

•    Directly engages the resources of one or more independent outside compensation consultants to assess the competitiveness and overall appropriateness of our executive compensation programs*

 

•    Assesses the independence of its consultants **

 

•    Oversees the process by which the Board annually evaluates the performance of the CEO

 

•    All members of the Compensation Committee have been determined to be independent as defined by the NYSE listing standards

NUMBER OF

MEETINGS IN 2014: 6

 

COMMITTEE MEMBERS:

 

W.H. Powell(C)

G.D. Harnett

K.J. Preete

F.M. Walters

W.A. Wulfsohn

 

 

 

C Chair of the Committee

 

* In 2014, the Compensation Committee, assisted by Towers Watson (the “Consultant”), analyzed competitive market compensation data relating to salary, annual incentives and long-term incentives for our executive officers. In analyzing competitive market data, the Compensation Committee reviewed data from a peer group of similarly-sized United States chemical companies and reviewed data from the Consultant’s Compensation Data Bank and other published surveys. The Consultant then assisted the Compensation Committee in benchmarking base salaries and annual and long-term incentive targets. More detailed information about the compensation awarded to our executive officers in 2014 is provided in the “Compensation Discussion and Analysis” section of this proxy statement. The Consultant maintains regular contact with the Compensation Committee and interacts with management to gather the data needed to prepare reports for Compensation Committee review.
** The Compensation Committee periodically reviews the relationship with the Consultant including the level and quality of services provided, as well as fees for those services. In addition, expenses for other consulting services provided to PolyOne by the Consultant that are not related to executive compensation are monitored to ensure that executive compensation consultant independence is maintained. The Consultant provided us with services under $120,000 that were in addition to the services provided in connection with its advice and recommendations on the amount or form of executive and Director compensation.

The Compensation Committee considered all relevant factors, specifically including six consultant independence factors under Rule 10C-1(b)(4)(i) through (vi) under the Securities Exchange Act of 1934 (referred to as the “Exchange Act”) in assessing the independence of the Consultant. The Compensation Committee reviewed each factor in depth, as well as information provided by the Consultant that related to and was responsive to each factor, which assisted in the assessment. Upon completing this assessment, the Compensation Committee also determined that no “conflicts of interest have been raised by the work performed by the Consultant.”

 

 

 

 

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CORPORATE GOVERNANCE

Nominating and Governance Committee – Primary Responsibilities and Requirements  

 

•    Identify individuals qualified to become Board members, consistent with criteria approved by the Board*

 

•    Select, or recommend that the Board select, the Director nominees for the next Annual Meeting

 

•    Consider and recommend to the Board annual Committee assignments

 

•    Develop, review and recommend to the Board corporate governance guidelines applicable to PolyOne and directorship practices

 

•    Oversee the annual evaluation of the Board

 

•    All members of the Nominating and Governance Committee have been determined to be independent as defined by the NYSE listing standards

 

NUMBER OF MEETINGS IN 2014: 3  

 

COMMITTEE MEMBERS:

 

G.D. Harnett (C)

R.H. Fearon

G.J. Goff

R.A. Lorraine

F.M. Walters

 

C Chair of the Committee

 

* The Nominating and Governance Committee will consider shareholder suggestions for nominees for election to our Board. A shareholder that wishes to suggest a Director candidate for consideration by the Nominating and Governance Committee should follow the same procedures described for shareholder nominations for Director on page 7. The Nominating and Governance Committee uses a variety of methods for identifying and evaluating nominees for Directors, including third-party search firms, recommendations from current Board members and recommendations from shareholders. Nominees for election to the Board are selected on the basis of the following criteria:

 

    Business or professional experience;

 

    Knowledge and skill in certain specialty areas such as accounting and finance, international markets, physical sciences and technology or the polymer or chemical industry;

 

    Personal characteristics such as ethical standards, integrity, judgment, leadership and the ability to devote sufficient time to our affairs;

 

    Substantial accomplishments with demonstrated leadership capabilities;

 

    Freedom from outside interests that conflict with our best interests;

 

    The diversity of backgrounds and experience each member will bring to the Board; and

 

    Our needs from time to time.

While neither the Nominating and Governance Committee nor the Board has a formal policy with respect to the consideration of diversity in identifying Director nominees, they do consider diversity when evaluating potential Board nominees. We consider diversity to include differences in race, gender and national origin, as well as differences in viewpoint, background, experience and skills. The Nominating and Governance Committee believes that having a diverse Board leads to more innovation, unique thinking and better governance. At the end of 2014, approximately 18% of our Board members were female; however, upon the retirement of Mr. Harnett effective May 14, 2015, this percentage will be 20%. Diversity is a key characteristic that we will consider, and instruct any third-party search firm we use to consider, in searches for future Board members.

The Nominating and Governance Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent Directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. The Nominating and Governance Committee has established these criteria that any Director nominee, whether suggested by a shareholder or otherwise, should satisfy. A nominee for election to the Board who is suggested by a shareholder will be evaluated by the Nominating and Governance Committee in the same manner as any other nominee for election to the Board. Finally, if the Nominating and Governance Committee determines that a candidate should be nominated for election to the Board, the Nominating and Governance Committee will present its findings and recommendation to the full Board for approval.

 

 

 

 

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CORPORATE GOVERNANCE

 

Environmental, Health and Safety Committee – Primary Responsibilities and Requirements  

 

•    The Environmental, Health and Safety Committee exercises oversight with respect to our environmental, health, safety, security and product stewardship policies and practices and our compliance with related laws and regulations

 

NUMBER OF MEETINGS IN 2014: 2  

 

 

COMMITTEE MEMBERS:

 

G.J. Goff (C)

S.B. Lin

S.D. Newlin

R.M. Patterson

K.J. Preete

C Chair of the Committee

 

The Board and each Committee also conduct an annual self-evaluation and

each Board member completes an assessment of his or her peers.

 

 

 

 

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NON-EMPLOYEE DIRECTOR COMPENSATION

 

2014 NON-EMPLOYEE DIRECTOR COMPENSATION

In the first half of 2014, we paid our non-employee Directors an annual retainer of $185,000 (payable in quarterly installments in arrears) consisting of a cash retainer of $85,000 and an award of $100,000 in value of fully vested common shares. In 2014, the Compensation Committee analyzed competitive market data provided by the Consultant relating to both the cash retainer and the equity award value. These compensation elements were benchmarked against PolyOne’s peer group as well as other applicable general industries. This analysis demonstrated that the Directors’ compensation was below the median of our peer group. As a result, and effective as of the third quarter of 2014, the Board increased the annual retainer to $200,000 (payable in quarterly installments in arrears) consisting of $90,000 in cash and $110,000 in value of fully vested common shares, to better align the Directors’ cash retainer and equity award value with current market levels.

We pay individual meeting fees only as follows: $2,000 for each unscheduled Board and committee meeting attended; and $1,000 for participation in each unscheduled significant telephonic Board and committee meeting. In addition, the Lead Director and chairpersons of the following committees receive the additional fixed annual cash retainers (payable in quarterly installments in arrears) listed below, which were not increased in 2014. We reimburse Directors for expenses associated with each meeting attended.

 

Role     Annual Cash Retainers  

Lead Director

  $25,000

Chair, Audit Committee

  $16,000

Chair, Compensation Committee

  $12,500

Chair, Environmental, Health and Safety Committee

  $10,000

Chair, Nominating and Governance Committee

  $10,000

Non-employee Directors may defer payment of all or a portion of their annual cash retainer under our Deferred Compensation Plan for Non-Employee Directors (“Deferred Compensation Plan”) which was amended and restated effective May 20, 2014. Directors may also elect to have their cash retainer converted into our common shares. These shares, as well as the annual retainer consisting of fully vested common shares, may also be deferred under the Deferred Compensation Plan. In 2014, we awarded shares to Directors under our Deferred Compensation Plan as well as our Long-Term Incentive Plan, as amended (and as defined herein). Deferred compensation, whether in the form of cash or common shares, is held in trust for the participating Directors. Interest is earned on the cash amounts and dividends, if any, on the deferred common shares accrued for the benefit of the participating Directors.

2014 Non-Employee Directors Compensation Table

 

Name   

  Fees Earned or Paid in Cash  

(a)

($)

    

  Stock Awards  

(b)

($)

    

  Total  

($)

C.A. Cartwright

     35,467         37,363       72,830

R.H. Fearon

     103,500         105,000             208,500

G.J. Goff

     93,791         105,000       198,791

G.D. Harnett

     123,427         105,000       228,427

S.B. Lin

     87,500         105,000       192,500

R.A. Lorraine

     87,500         105,000       192,500

W.H. Powell

     99,073         105,000       204,073

K.J. Preete

     87,500         105,000       192,500

F.M. Walters

     87,500         105,000       192,500

W.A. Wulfsohn

     87,500         105,000       192,500

 

 

 

 

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NON-EMPLOYEE DIRECTOR COMPENSATION

 

Fees Earned or Paid in Cash (column (a))

Non-employee Directors may defer payment of all or a portion of their $85,000 annual cash retainer (payable in quarterly installments in arrears), which was increased to $90,000 in the third quarter of 2014, as well as meeting and committee chairperson fees into the Deferred Compensation Plan. Fees are prorated based upon time served as a Director or committee chairperson in any applicable quarter.

Stock Awards (column (b))

Our non-employee Directors’ stock compensation consisted of an annual award (payable in quarterly installments in arrears) of $100,000, which was increased to $110,000 in the third quarter of 2014, in value of fully vested common shares, which the Directors could elect to defer. We determined the number of shares to be granted each quarter by dividing the dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter. We used the following quarterly per share fair market values, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), in calculating the number of shares: March 31, 2014 — $36.425 (686 shares); June 30, 2014 — $41.930 (596 shares); September 30, 2014 — $35.930 (765 shares); and December 31, 2014 — $38.410 (715 shares). Shares are prorated based upon time served as a Director in any applicable quarter.

Option Awards Outstanding and Fully-Vested Deferred Shares

As of December 31, 2014, there were no outstanding stock options held by non-employee Directors. The number of fully-vested deferred shares held in an account for each Director at the end of the fiscal year is set forth below. Stock option exercises conducted by our Directors in 2014 are set forth in the next following table below.

 

Name       

Deferred Stock Awards:  
Number of Deferred  Shares(1)  

(#)  

C.A. Cartwright (2)

      24,596

R.H. Fearon

      —  

G.J. Goff

      —  

G.D. Harnett

      103,263

S.B. Lin

      7,673

R.A. Lorraine

      53,248

W.H. Powell

      46,859

K.J. Preete

      2,878

F.M. Walters

      26,070

W.A. Wulfsohn

      13,757

 

(1) Dividends paid on shares held in the Deferred Compensation Plan are reinvested in shares of PolyOne stock through a dividend reinvestment feature of the Plan. The number of deferred shares reflects shares acquired through dividend reinvestment from 2011 through 2014 (including the fourth quarter dividend declared on October 8, 2014 to shareholders of record on December 15, 2014, which was paid on January 7, 2015).
(2) Dr. Cartwright retired from service on the Board in 2014. The first of five annual retirement distributions of 6,179 shares was made from the Deferred Compensation Plan on August 1, 2014. Dr. Cartwright’s remaining shares of 24,596 will be distributed in equal, annual installments through 2018.

 

 

 

 

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NON-EMPLOYEE DIRECTOR COMPENSATION

 

2014 Option Exercises

 

Name  

Number of Shares Acquired on Exercise

(#)

   

Value Realized on Exercise

($)

C.A. Cartwright

    —        —  

R.H. Fearon

    —        —  

G.J. Goff

    —        —  

G.D. Harnett

    6,000      173,670

S.B. Lin

    —        —  

R.A. Lorraine

    —        —  

W.H. Powell

    —        —  

K.J. Preete

    —        —  

F.M. Walters

    6,000      181,080

W.A. Wulfsohn

    —        —  

 

 

 

 

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OWNERSHIP OF POLYONE SHARES

 

OWNERSHIP OF POLYONE SHARES

Beneficial Ownership of Our Common Shares

The following table shows the number of our common shares beneficially owned on March 2, 2015 (including shares the individuals have a right to acquire within 60 days of that date) by each of our Directors, each of the executive officers named in the 2014 Summary Compensation Table on page 43 (the “Named Executive Officers”) and by all Directors and executive officers as a group.

 

Name    Number of Shares
Owned(1)
     Right to Acquire
Shares
    

Total Beneficial

Ownership

 

Richard H. Fearon

     79,630         —           79,630   

Gregory J. Goff

     13,540         —           13,540   

Gordon D. Harnett

     175,321 (3)       —           175,321   

Sandra B. Lin

     9,676 (3)       —           9,676   

Richard A. Lorraine

     53,248 (3)       —           53,248   

William H. Powell

     87,896 (3)       —           87,896   

Kerry J. Preete

     6,623 (3)       —           6,623   

Farah M. Walters

     158,427 (3)       —           158,427   

William A. Wulfsohn

     13,757 (3)       —           13,757   

Robert M. Patterson

     198,363         60,099 (4)       258,462   

Stephen D. Newlin

     224,352         43,079 (4)       267,431   

Bradley C. Richardson

     7,000         760 (4)       7,760   

John V. Van Hulle

     64,225         17,671 (4)       81,896   

Julie A. McAlindon

     22,090         2,729 (4)       24,819   

Michael E. Kahler

     42,563         29,338 (4)       71,901   

Thomas J. Kedrowski(2)

     31,669         —           31,669   

Kenneth M. Smith(2)

     80,374         —           80,374   

23 Directors and executive officers as a group

     1,393,941         224,544         1,618,485   

 

(1) Except as otherwise stated in the following notes, beneficial ownership of the shares held by each individual consists of sole voting power and sole investment power, or of voting power and investment power that is shared with the spouse or other immediate family member of the individual or with certain trusts. It includes an approximate number of shares credited to the Named Executive Officers’ accounts in our Retirement Savings Plan (as defined herein), a tax-qualified defined contribution plan. The number of common shares allocated to these individuals from the Retirement Savings Plan is provided by the administrator in a statement for the period ending March 2, 2015, based on the market value of the applicable units held by the individual. Additional common shares may have been allocated to the accounts of participants in the Retirement Savings Plan since the date that the last statement was received from the administrator. No Director or executive officer beneficially owned, on March 2, 2015, more than 1% of our outstanding common shares. As of that date, the Directors and executive officers as a group beneficially owned approximately 1.8% of the outstanding common shares.
(2) Mr. Kedrowski served as PolyOne’s Executive Vice President Global Operations and Process Improvement until September 5, 2014. Mr. Smith served as PolyOne’s Senior Vice President and Chief Information and Human Resources Officer until his retirement on June 6, 2014. Beneficial ownership information for the number of shares owned for Messrs. Kedrowski and Smith is based on information contained in the last Form 4 with respect to PolyOne filed by each individual. Messrs. Kedrowski and Smith had no outstanding and exercisable stock-settled stock appreciation rights (“SARs”) as of March 2, 2015.
(3) With respect to the Directors, beneficial ownership includes shares held under the Deferred Compensation Plan for Non-Employee Directors as follows: G.D. Harnett, 103,263 shares; S.B. Lin, 7,673 shares; R.A. Lorraine, 53,248 shares; W.H. Powell, 46,859 shares; K.J. Preete, 2,878 shares; F.M. Walters, 9,983 shares; and W.A. Wulfsohn, 13,757 shares.

 

 

 

 

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OWNERSHIP OF POLYONE SHARES

 

(4) Includes the number of shares that would be acquired if the individuals’ outstanding and exercisable stock-settled stock appreciation rights were exercised within 60 days of March 2, 2015 at $40.36, the closing market price of PolyOne’s common shares on March 2, 2015.

The following table shows information relating to all persons who, as of March 2, 2015, were known by us to beneficially own more than five percent of our outstanding common shares based on information provided in Schedule 13Gs and 13Ds filed with the SEC:

 

Name and Address    Number of
Shares
    

%

of Shares

 

BlackRock, Inc.
55 East 52nd Street
New York, New York 10022(1)

     7,981,846         8.8

The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, Pennsylvania 19355(2)

     5,683,459         6.25

 

(1) As of December 31, 2015, based upon information contained in an amendment to the Report on Schedule 13G filed with the SEC by BlackRock, Inc., which reported that BlackRock, Inc., together with certain of its affiliates, had sole voting power with respect to 7,593,825 of these shares and sole dispositive power with respect to all of these shares.
(2) As of December 31, 2015, based upon information contained in an amendment to the Report on Schedule 13G filed with the SEC by The Vanguard Group, Inc., which reported that The Vanguard Group, Inc., together with certain of its affiliates, had sole voting power with respect to 124,580 of these shares, sole dispositive power with respect to 5,566,379 of these shares and shared dispositive power with respect to 117,080 of these shares.

Stock Ownership Guidelines for Non-Employee Directors

The purpose of our stock ownership guidelines (referred to as the “Guidelines”) is to better align our Directors’ financial interests with those of our shareholders by requiring our Directors to own a minimum level of our shares. In order to reflect the Board’s commitment to share ownership, the required share ownership level for non-employee Directors is a minimum of 12,500 shares.

The Directors are expected to make continuing progress towards compliance with the Guidelines and to comply fully within five years of becoming subject to the Guidelines. For purposes of our Guidelines, the following types of share ownership and equity awards are included as shares owned: shares directly held; shares and phantom shares held in our deferral plans; and restricted stock units. As of the date of this proxy statement, all Directors are either meeting, or are on track to meet, the Guidelines. All Directors are required to retain 100% of all shares obtained through us, as compensation for services provided to us, with such percentage to be calculated after any reduction in the number of shares to be delivered as a result of any taxes and exercise costs relating to the shares (if applicable). This requirement to retain 100% of all shares obtained from us ceases once the Director has met the Guidelines, as long as the Guidelines continue to be met. These policies, as they relate to our Named Executive Officers, are set forth in the “Other Aspects of Our Compensation Programs” section of this proxy statement.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that certain of our officers, our Directors and persons who own more than 10% of a registered class of our equity securities file reports of ownership and changes in ownership with the SEC. These officers, Directors and greater than 10% shareholders are required by SEC rules to furnish us with copies of all forms they file. Based solely on our review of the copies of such forms received by us and written representation from certain reporting persons, we believe that, during 2014 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to those officers, Directors and 10% shareholders were satisfied.

 

 

 

 

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ADVISORY VOTE

 

PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Exchange Act, our Board is submitting a “Say on Pay” proposal for shareholder consideration. While the vote on Named Executive Officer compensation is non-binding and solely advisory in nature, our Board and the Compensation Committee will review the voting results. If there are a significant number of negative votes, we will seek to understand the concerns that influenced the vote and expect to address them in making future decisions about our executive compensation programs.

Currently, advisory “Say on Pay” votes are scheduled to be held once every year. The next advisory vote on Named Executive Officer compensation is expected to occur at our 2016 Annual Meeting.

As described more fully in the “Compensation Discussion and Analysis” section of this proxy statement, the Compensation Committee of our Board has structured our executive compensation program to achieve the following key objectives:

 

Objective    How Our Executive Compensation Program Achieves This Objective

Attract, Motivate and Retain Management

   Competing effectively to attract, motivate and retain a management team that leads in setting and achieving the overall goals and objectives of PolyOne.
   

Pay-For-Performance

   Setting a significant portion of each Named Executive Officer’s total compensation in the form of variable compensation that is earned when pre-established financial and annual performance goals are achieved.
   

Align Executive Compensation with Shareholders’ Interests

   Focusing incentive programs on the critical performance measures that determine PolyOne’s overall success and reward executives for the attainment of short-term results, balanced with the need for sustainable long-term success.

We urge shareholders to read the “Compensation Discussion and Analysis” section of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives. We also encourage you to review the 2014 Summary Compensation Table and other related compensation tables and narratives in the “Executive Compensation” section of this proxy statement, which provide detailed information regarding the compensation of our Named Executive Officers. The Board and the Compensation Committee believe that the policies and procedures described and explained in the “Compensation Discussion and Analysis” section of this proxy statement are effective in achieving our business goals and the compensation of our Named Executive Officers reported in the “Executive Compensation” section of this proxy statement has supported and contributed to the Company‘s recent and long-term success.

 

Our Board recommends a vote FOR Proposal 2 to

approve, on an advisory basis, our Named Executive Officer

compensation.

We believe you should vote “FOR” our Named Executive Officer compensation program and approve the following resolution because the compensation actually earned by our Named Executive Officers for our 2014 performance was aligned with both our pay-for-performance objectives, our Company’s performance and shareholder interests.

“RESOLVED, that the compensation paid to PolyOne’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

COMPENSATION DISCUSSION AND ANALYSIS

2014 Named Executive Officers

Robert M. Patterson(1)

President and Chief Executive Officer

Stephen D. Newlin(1)

Executive Chairman

Bradley C. Richardson

Executive Vice President and Chief Financial Officer

John V. Van Hulle

Senior Vice President and President, Global Color,

Additives and Inks

Julie A. McAlindon

Senior Vice President and President, Designed Structures

and Solutions

Michael E. Kahler

Senior Vice President and Chief Commercial Officer

Thomas J. Kedrowski

Former Executive Vice President, Global Operations and

Process Improvement

Kenneth M. Smith

Former Senior Vice President and Chief Information

and Human Resources Officer

 

(1) Mr. Patterson became President and Chief Executive Officer upon Mr. Newlin’s retirement from such position effective May 15, 2014, at which time Mr. Newlin became Executive Chairman.

 

    

This section of the proxy statement explains how the Compensation Committee oversees our executive compensation programs and discusses and analyzes the compensation earned by our Named Executive Officers.

This Compensation Discussion and Analysis is composed of four parts:

 

  Executive Summary Highlights of 2014 compensation practices impacting our Named Executive Officers and how their pay is tied to Company performance.

 

  Executive Compensation Philosophy and Objectives  A discussion of our compensation philosophy and the peer group, market data and processes used to set our Named Executive Officer compensation.

 

  What We Pay and Why: Elements of Compensation  Details on our executive compensation programs and the individual compensation of our Named Executive Officers.

 

  Other Aspects of Our Compensation Programs A discussion of other benefits, significant compensation decisions and governance processes related to our executive compensation programs and practices.
 

 

Executive Summary

This section highlights significant Compensation Committee and Company actions that occurred in 2014. In addition, it illustrates the relationship between our Named Executive Officers’ compensation and how we measure Company performance.

Leadership Transition. On May 15, 2014, Mr. Newlin retired as President and Chief Executive Officer and became Executive Chairman. Mr. Patterson became our President and Chief Executive Officer as of Mr. Newlin’s retirement. Mr. Patterson served as Executive Vice President and Chief Operating Officer of PolyOne from March 2012 until May 2014, as Executive Vice President and Chief Financial Officer from January 2011 until March 2012, and as Senior Vice President and Chief Financial Officer from May 2008 until January 2011. In connection with the leadership transition and Mr. Patteron’s promotion to CEO, the Compensation Committee revised his compensation package as described in the “Other Aspects of Our Compensation Programs” section of this proxy statement. In addition, Mr. Patterson was granted 100,000 performance shares as described in the “What We Pay and Why:

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Elements of Compensation” section of this proxy statement, and as set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

Also in connection with the leadership transition, the Company and Mr. Newlin executed a letter agreement (the “Letter Agreement”) that modified Mr. Newlin’s existing employment agreement. The terms of the Letter Agreement revised Mr. Newlin’s compensation and benefits package and modified his outstanding long-term incentive awards. These revisions and modifications are described in the “Other Aspects of Our Compensation Programs” and “Potential Payments Upon Termination or Change of Control” sections of this proxy statement.

In addition, Mr. Smith retired from his position as Senior Vice President and Chief Information and Human Resources Officer on June 6, 2014. The compensation and benefits that he received as a result of his retirement are described in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.

Finally, Mr. Kedrowski separated from service as Executive Vice President, Global Operations and Process Improvement on September 5, 2014. The compensation and benefits that he received as a result of his separation from service are described in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.

How Pay is Tied to Company Performance. Our compensation programs are designed to: (1) attract and retain talented executives; (2) reward employees for generating consistent improvement in Company performance; and (3) align compensation with the interests of our shareholders with the ultimate goal of improving long-term shareholder value. We believe that executive compensation, both pay opportunities and pay actually earned, should be tied to Company performance, which we view in two primary ways:

 

    The Company’s operating performance, including results against both our long-term and short-term growth targets; and

 

    Return to shareholders over time.

How our compensation programs contribute to our Company’s success is described below.

Key 2014 Company Performance Results.(1) PolyOne delivered strong performance results in 2014. The Compensation Committee believes that Mr. Patterson and our other Named Executive Officers have performed extremely well in a challenging global environment and that their compensation is commensurate with this performance. The chart below sets forth key Company results over the previous calendar year (dollar amounts below are in millions, except per share amounts).

 

                                
Measure    2013      2014       Change  

Stock Price Per Share(2)

   $ 35.35       $ 37.91        7

Adjusted Earnings Per Share

   $ 1.31       $ 1.80        37

Adjusted Operating Income(3)

   $ 262       $ 320        22

Revenue

   $ 3,771       $ 3,836        2

Working Capital as a Percentage of Sales

     10.7%         9.9%        (7 %) 

 

(1) Adjusted earnings per share and adjusted operating income for consolidated PolyOne reported in this proxy statement differ from what is reported under United States GAAP. See Appendix A for a reconciliation of non-GAAP financial measures to our results as reported under GAAP.
(2) Represents our closing stock price on the last trading day of the applicable fiscal year.
(3) Our specialty platform adjusted operating income represents 65% of our segment adjusted operating income, up from 2% in 2005.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

In addition, we have achieved twenty-one consecutive quarters of strong double-digit adjusted earnings per share growth. Since our transformation began in 2006, our earnings per share has grown at a compounded annual growth rate of 40%. We attained a record-level 2014 year-end adjusted earnings per share of $1.80. Our stock price has also increased 204% from 2010 to 2014.

 

LOGO

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Return to Shareholders. Delivering twenty-one consecutive quarters of strong double-digit adjusted earnings per share expansion along with regularly establishing new, record levels of profit and profitability have created shareholder value in excess of the overall market. These accomplishments were driven by our aggressive goal setting and our relentless efforts to execute our well-defined four pillar strategy of specialization, globalization, commercial excellence and operational excellence.

2014 Financial Results Under Incentive Plans and Pay-for-Performance. Compensation awarded to our Named Executive Officers for 2014 reflected PolyOne’s strong financial results, which is in line with our compensation program’s emphasis on pay-for-performance.

 

    Above Target Payout under our Annual Plan: The Annual Plan uses adjusted operating income, working capital as a percentage of sales and revenue to drive desired behavior that impacts shareholder value. Due to our strong 2014 performance, the Named Executive Officers participating in the corporate Annual Plan received a 2014 payout based on 141.5% attainment (except Mr. Kedrowski who did not receive a payment due to his separation from service). Mr. Van Hulle received a 2014 Annual Plan payout based on 120.3% attainment resulting from our Global Color, Additives and Inks business performance. Ms. McAlindon received a 2014 Annual Plan payout based on 109.0% attainment resulting from our Designed Structures and Solutions business performance. The description set forth on pages 34-35 highlights the key financial results that were used in determining payouts to our Named Executive Officers under our Annual Plan for 2014.

 

    200% Attainment for 2012 – 2014 Cash-Settled Performance Units: We used adjusted earnings per share as the performance measure for this award in order to drive improvements in shareholder value. Due to strong performance over the past three years, the Named Executive Officers (except Mr. Kedrowski who did not receive a payout due to his separation from service) received a payout under the 2012 - 2014 Long-Term Incentive Plan cash-settled performance units based on 200% attainment. The description set forth on page 35 highlights the key financial results that were used in determining payouts to our Named Executive Officers for 2014.

We are pleased with our accomplishments in 2014, and are well-positioned to continue our transformation into a high performing global specialty company. We believe our executive compensation programs described in this Compensation Discussion and Analysis and in the accompanying tables played a vital role in driving the strong financial results noted above, and appropriately align pay and performance.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Listening to Shareholders. At the 2014 Annual Meeting, we held our fourth annual advisory vote on Named Executive Officer compensation. 87% of the votes cast were in favor of this advisory proposal. The Compensation Committee considered the voting results and viewed them as continued support of our executive compensation programs. As a result, the Compensation Committee made no material changes in the structure of our compensation programs or pay-for-performance philosophy based on the voting results for the proposal. At the 2015 Annual Meeting, we will again hold an advisory vote to approve the Named Executive Officer compensation. The Compensation Committee expects to consider the results from this year’s and future advisory votes on Named Executive Officer compensation.

Executive Compensation Practices and Programs. The executive compensation practices and programs described below and in the accompanying tables played a vital role in driving strong financial results and aligning pay with performance for 2014 and are intended to attract and retain a highly experienced, successful team to manage PolyOne. Our practices and programs are directly linked to our key business objectives and are designed to create value for our shareholders.

 

We align shareholder interests with our executive compensation

ü     Ensure that the majority of executive pay is based on objective, challenging financial goals and Company performance.

   
We avoid excessive risk while fostering sustainable Company growth

ü     Utilize maximums on potential payments, include retention vehicles in our compensation programs, provide multiple performance targets and maintain robust Board and management processes to identify risk, which includes a risk assessment of executive compensation programs that is performed each year.

   
 

ü     Stock ownership guidelines required for all Named Executive Officers.

   
 

ü     Evaluate annual and aggregate dilution from stock awards prior to our annual equity award grants.

   
We adhere to executive compensation best practices

ü     No excise tax gross-up for “excess parachute payments” under Section 280G of the Internal Revenue Code of 1986, as amended (“Code”) in any new management continuity agreements or for financial planning benefits.

   
 

ü     In 2015, we adopted a clawback policy applicable to all executive officers.

   
 

ü     Prohibit Named Executive Officers from hedging or pledging our securities.

 

ü     The Compensation Committee uses an independent consultant to help assess compensation practices that impact Named Executive Officer compensation.

2014 Pay-for-Performance Analysis. As described more fully below, we believe that the majority of each Named Executive Officer’s compensation should be linked directly to our performance and the creation of shareholder value. The following chart compares cumulative TSR on our common shares against the cumulative total return of the S&P 500 Index and the S&P Mid Cap Chemicals Index for the five-year period December 31, 2009 to December 31, 2014, assuming in each case a fixed investment of $100 and reinvestment of all dividends. Starting in 2010, our performance has exceeded the S&P 500 Index as well as the S&P Mid Cap Chemicals Index.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

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We believe that the returns to shareholders shown in the graph above indicate that our pay-for-performance philosophy, compensation plan design and selected performance measures are working, and have resulted in performance that has provided increased value to our shareholders over both the short and long-term.

We also believe that the compensation of our Named Executive Officers has been commensurate with our performance results. The Company has been highly effective at driving margin growth in the transformation of PolyOne to a high performing global specialty company. By refocusing the sales force on value and profits versus volumes, and emphasizing specialty businesses versus those more commodity in nature, Mr. Patterson and our senior management team have driven substantial earnings growth.

Executive Compensation Philosophy and Objectives

Our executive compensation programs reward our officers’ performance, are specifically linked to our achievement of strategic operating and financial goals, and are designed to be competitive in the marketplace. Our executives are rewarded for performance that meets or exceeds our strategic goals, without encouraging excessive risk-taking that could have a detrimental impact on our long-term results and the interests of our shareholders. We believe the design of our compensation plans and the relative mix of compensation elements successfully motivate our executives to improve our overall corporate performance and the profitability of the specific business unit(s) for which they are responsible, thus maximizing shareholder value. The main objectives of our executive compensation programs are to:

 

    Attract, motivate and retain a highly qualified and successful management team to lead PolyOne in setting and effectively executing upon our strategic goals and objectives;

 

    Foster a pay-for-performance culture by rewarding the achievement of specified strategic operating and financial objectives that maximize shareholder value; and

 

    Ensure our goals and objectives are aligned with the interests of our shareholders by recognizing and rewarding business results and the growth of our stock price through incentive programs.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Consultant. Our executive compensation programs are approved and overseen by the Compensation Committee, which is composed entirely of independent Directors. The Compensation Committee retained the Consultant in 2014 to assist with assessing the competitiveness and overall appropriateness of our executive compensation programs. The Compensation Committee worked with the Consultant and considered input from members of senior management to help ensure that our executives, including our Named Executive Officers, receive market competitive compensation programs that reward business results.

As described below, the Consultant assisted the Compensation Committee by (1) benchmarking compensation so we could align base salaries, annual incentive targets and long-term incentive targets with our competitive market pay philosophy discussed below, (2) providing guidance on incentive plan design, (3) monitoring and communicating trends in executive compensation to the Compensation Committee, (4) assisting with our proxy statement disclosures and (5) assessing our Board’s compensation.

Competitive Market Pay Information and Benchmarking. We designed our compensation programs to be competitive with companies of comparable size and industry with whom we compete for executive talent. We analyze competitive market compensation data annually relating to salary, annual incentives and long-term incentives. The Compensation Committee generally manages individual components of compensation and initially targets total direct compensation relative to the median (50th percentile) of the competitive market data. However, the Compensation Committee considers other factors as well, such as the responsibilities, performance, contributions and experience of each Named Executive Officer and compensation in relation to other employees to determine final total compensation amounts. As a result, we do not set total direct compensation or the component parts at levels to achieve a mathematically precise market position. For 2014, Mr. Patterson’s compensation was set below the market median, which is aligned with the Compensation Committee’s intention to move Mr. Patterson’s pay toward the market median as he gains experience as CEO. We also periodically analyze competitive compensation market data relating to retirement benefits and other benefits. The Compensation Committee obtains advice and recommendations from the Consultant in these and other areas of total compensation.

In analyzing competitive market data for the purpose of determining the market median for 2014, we drew from three independent sources. We first reviewed proxy statement disclosures of a peer group of similarly-sized United States chemical companies to establish an estimate of market compensation for our senior executives. This approach provided insight into specific practices at business competitors or companies facing similar operating challenges.

We annually evaluate the composition of our compensation peer group, giving specific consideration to company size, global presence, and specialty chemical focus. We also look at the frequency with which these companies were used as peers by other companies in our industry and which companies had identified PolyOne as a peer. Each of the companies constituting our peer group met a majority of the primary criteria that were established. Based on this review, we determined that the existing compensation peer group was appropriate for 2014 and thus remained unchanged from the previous year. The group consists of the following 18 companies:

 

PolyOne Peer Group

 

Albemarle Corporation

Cytec Industries Inc. International Flavors & Fragrances Inc.

A. Schulman, Inc.

Eastman Chemical Company Rockwood Holdings, Inc.(1)

Ashland, Inc.

Ecolab, Inc. RPM International Inc.

Axiall Corporation

Ferro Corporation The Scotts Miracle-Gro Company

Cabot Corporation

FMC Corporation Sigma-Aldrich Corporation(2)

Celanese Corporation

H.B. Fuller Company The Valspar Corporation

 

(1) Rockwood Holdings, Inc. was acquired by Albemarle in January 2015, and will be removed from the peer group going forward.
(2) Sigma-Aldrich’s shareholders gave approval in December 2014 to be acquired by Merck KGaA and will be removed from the peer group going forward.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Summary financial and operating statistics for our 2014 peer group is summarized below:

 

Factor   

Median Peer Group  

  Comparator 2013 Financials  

  2014 PolyOne
Results

Company Revenue

   $3.2 billion     $3.8 billion

Total Asset Size

   $4.1 billion     $2.7 billion

Employee Numbers

   6,000     6,900

The second and third independent sources of data that we used to augment the peer proxy analysis was the Consultant’s analysis of competitive market data relating to (1) the broader chemical industry and (2) other applicable general industries using the following surveys: the Consultant’s executive compensation database; the Consultant’s Top Management Compensation Survey and Mercer’s Executive Compensation Survey. To obtain comparability based on company size, the Consultant’s analysis either referenced a specific sample of comparably-sized companies or calibrated the pay of a broad sample of companies against company size. PolyOne did not select the companies that comprise any of these survey groups.

Review of 2014 Named Executive Officer Compensation. Management and the Compensation Committee annually review the specific pay disclosures of our peer group and the broad-based survey data provided by the Consultant. Management uses this data to develop recommendations for the Compensation Committee’s review regarding eligibility and award opportunities as well as performance measures and goals for our long-term and short-term incentive plans commencing in the following year. The Compensation Committee also considers this information when making compensation decisions and aligning each of the pay elements with our compensation objectives and relative market practices.

The Compensation Committee and management annually review and consider tally sheets, which are developed by our Human Resources department to provide greater context for the compensation of our Named Executive Officers. The tally sheets provide information regarding each Named Executive Officer’s base salary, annual incentives, and long-term incentives.

Annually, the CEO recommends, for the Compensation Committee’s review and approval, specific base salary and incentive target opportunity adjustments for the other Named Executive Officers, if an adjustment is warranted. The CEO makes his recommendations in conjunction with the marketplace data. He does not participate in any discussions with the Compensation Committee involving his own compensation. With guidance from the Consultant regarding market pay levels and based on a rigorous review of 2013 performance and our compensation philosophy, the Compensation Committee determined the appropriate pay levels for Mr. Patterson for 2014, taking into account his recent promotion to the position of Chief Executive Officer.

What We Pay and Why: Elements of Compensation

Our executive compensation programs are designed to recognize an executive’s scope of responsibilities, leadership ability and effectiveness in achieving key performance goals and objectives. As an executive’s level of responsibility within PolyOne increases, so does the percentage of total compensation of our Named Executive Officers that is linked to performance in the form of variable compensation. Thus, the majority of the total direct compensation is performance-based and not guaranteed. We also provide various retirement and benefit programs and modest, business-related benefits. The chart below provides a picture of all elements of the total direct compensation provided to our Named Executive Officers (referred to as NEOs). Detailed information follows the chart below.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

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Base Salary. Base salaries for our Named Executive Officers were individually determined by the Compensation Committee after consideration of:

 

    The CEO’s recommendations (for all Named Executive Officers other than the CEO);

 

    Breadth, scope and complexity of the executive’s role;

 

    Internal equity (in other words, employees with similar responsibilities, experience and historical performance are rewarded comparably);

 

    Current compensation;

 

    Tenure in position;

 

    Market pay levels and trends around merit increases;

 

    Relative position of the Named Executive Officer’s salary to the market median for their role; and

 

    Individual performance.

The Compensation Committee made the following decisions related to base salaries for our Named Executive Officers in 2014: Mr. Patterson’s base salary was increased to $800,000 (a 45% increase from his 2013 salary of $551,000 due to a merit increase and his promotion to CEO); Mr. Newlin’s base salary remained at $1,050,000 (the same as his salary in 2013); Mr. Richardson’s base salary was increased to $540,000 (a 4% merit increase from his 2013 salary of $520,000); Mr. Van Hulle’s base salary was increased to $435,000 (a 4% merit increase from his 2013 salary of $420,000); Ms. McAlindon’s base salary was increased to $315,000 (a 5% merit increase from her 2013 salary of $300,000); Mr. Kahler’s base salary was increased to $352,260 (a 3% merit increase from his 2013 salary of $342,000); and neither Mr. Kedrowski or Mr. Smith received a salary increase in 2014 and their salaries in 2014 were $400,000 and $380,000, respectively.

The amounts listed above were base salaries in effect on December 31 of each applicable year. For Messrs. Patterson, Richardson, Van Hulle and Kahler, and for Ms. McAlindon, actual salary received as shown in the 2014 Summary Compensation Table of this proxy statement was prorated based on base salary rates in effect before and after the changes. Based on the competitive market data provided by the Consultant, we determined that the 2014 salaries of the Named Executive Officers were within a range of 13% above to 20% below the 2014 market medians for comparable positions (Mr. Smith was excluded from this analysis due to his retirement). The Compensation Committee does not target a specific percentile or data point in assessing pay competitiveness. Individual opportunities varied based on length of time with PolyOne, individual performance and level of leadership

 

 

 

 

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responsibility within the Company. This strategy is consistent with our competitive market pay philosophy discussed in the “Executive Compensation Philosophy and Objectives” section of this proxy statement.

Annual Incentive. We pay an annual incentive in accordance with our Annual Plan to (1) reward our Named Executive Officers for achieving specific performance objectives that would advance our profitability; (2) drive key business results; and (3) recognize individuals based on their contributions to those results. The Named Executive Officers’ 2014 individual annual incentive opportunities that were approved by the Compensation Committee and as in effect as of December 31, 2014 are: Mr. Patterson – 100% (a 30% increase from the 2013 annual incentive opportunity of 70%); Mr. Newlin – 110% (no increase from 2013); Mr. Richardson – 65% (no increase from 2013); Messrs. Van Hulle, Kahler, Kedrowski and Smith – 55% (no increase from 2013); and Ms. McAlindon – 55% (a 5% market increase from 2013). Mr. Patterson’s annual incentive target opportunity was increased effective May 2014, reflecting relevant market annual incentive target opportunities for CEOs and Mr. Patterson’s tenure in the position. We expect Mr. Patterson’s target opportunity to increase over time as he gains experience in his role, consistent with target annual incentive opportunities for comparably positioned CEOs.

For Mr. Patterson and Ms. McAlindon, actual incentive payments as shown in the 2014 Summary Compensation Table of this proxy statement were prorated based on the annual incentive target opportunities and eligible earnings in effect before and after the changes.

Based on the competitive market data provided by the Consultant, we determined that the 2014 Annual Plan target opportunities for the Named Executive Officers were within a range of at market to 15% below the 2014 market median for comparable positions (Mr. Smith was excluded from this analysis due to his retirement). The Compensation Committee does not target a specific percentile or data point in assessing pay competitiveness. Individual opportunities varied based on length of time with PolyOne, individual performance and level of leadership responsibility within the Company. This strategy is consistent with our competitive market pay philosophy discussed in the “Executive Compensation Philosophy and Objectives” section of this proxy statement.

The Compensation Committee determined, after a thorough evaluation of possible plan designs and performance measures (described below), that we would maintain the same fundamental Annual Plan design in 2014 that we used in 2013. The Compensation Committee’s evaluation demonstrated that these performance measures are the most critical elements of PolyOne’s performance for both 2013 and 2014 and, when combined, contribute to sustainable growth.

The 2014 Annual Plan performance measures are described below.

 

    Adjusted Operating Income. Adjusted operating income is defined as business unit and/or total Company operating income excluding special items (which consist of non-recurring items as set forth in our quarterly earnings releases).

 

    Revenue. Revenue represents business unit or total Company net trade sales to third parties.

 

    Working Capital as a Percentage of Sales. Working capital as a percentage of sales is calculated by taking the average 13 months of business unit or total Company working capital divided by the sum of 12 months of 2014 business unit or total Company sales, where working capital equals (1) trade accounts receivable (2) plus inventory (3) minus trade accounts payable. The calculation includes all continuing operations.

The performance measures for the 2014 Annual Plan were weighted as outlined in the charts below.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

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(1) Mr. Van Hulle and Ms. McAlindon’s adjusted operating income performance goals are based two-thirds on business unit-specific results and one-third on consolidated PolyOne results.

The Annual Plan, as it relates to the Named Executive Officers, contains a “negative discretion” feature. If threshold attainment levels are achieved, then Named Executive Officers are eligible for payments up to the maximum permitted under the Annual Plan provisions. Payouts are capped at 200% of a participant’s award amount at target. The Compensation Committee may use its negative discretion to make a final determination of the amount to be paid.

We set aggressive performance goals in 2014 under the Annual Plan that focused our efforts on those factors that we believed were critical to our ongoing success, including profitable growth, earnings improvement, cash generation from working capital, efficiencies in our operations and the continued implementation of our overall four pillar strategy of globalization, specialization, commercial excellence and operational excellence. First, our 2014 adjusted operating income performance goals were aggressive and were set in accordance with our strategic plan framework. The attainment levels for each Named Executive Officer are set forth below (dollars in millions). We viewed the targeted level of performance for this metric as very challenging to achieve, and the actual level of performance reflects exceptional results.

Next, the 2014 Annual Plan maintained revenue as a performance measure in order to encourage profitable revenue growth. The 2014 revenue performance goals were set in accordance with our strategic plan framework. The revenue attainment levels for each Named Executive Officer are set forth below.

Finally, the 2014 working capital as a percentage of sales performance goals were set in accordance with our strategic plan framework and were intended to maintain our strong working capital performance. In 2014, we were able to sustain our strong performance from the previous year by maintaining a world-class performance working capital as a percentage of sales. The working capital as a percentage of sales attainment levels for each Named Executive Officer are set forth below (dollars in millions). Progress against the working capital as a percentage of sales metric is reflected by lower levels of working capital, so results that are less than target are viewed as exceeding target performance.

 

Corporate Plan (Patterson, Newlin, Richardson, Kahler, Smith)(1)  
Measure       Weighting     2014
Targets
    2014
Results
          Attainment
      %
 

Consolidated Adjusted Operating Income

    50.0   $ 298.1      $ 319.7        156.0

Working Capital as a % of Sales

    25.0     10.8%        9.9%        200.0

Revenue

    25.0   $ 3,903.7      $ 3,832.7        54.2

Total Attainment

                            141.5

 

(1) Mr. Kedrowski did not receive a payout under the Annual Plan for 2014 due to his separation from service.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Mr. Van Hulle and Ms. McAlindon have responsibility for business unit-specific results and while their adjusted operating income performance goals are weighted 50% overall, they are based two-thirds on business unit-specific results and one-third on consolidated PolyOne adjusted operating income results. For Mr. Van Hulle, whose results were based on the Global Color, Additives and Inks Plan, total attainment was 120.3%, with the components consisting of: (1) 33.3% based on business unit adjusted operating income attainment of 133.0% (2014 attainment of $123.4 million measured against a target of $119.3 million); (2) 16.7% based on consolidated adjusted operating income attainment of 156.0% (2014 attainment of $319.7 million measured against a target of $298.1 million); (3) 25.0% based on working capital as percentage of sales attainment of 200.0% (2014 attainment of 10.0% measured against a target of 10.7%); and (4) 25.0% based on revenue attainment of 0.0% (2014 attainment of $839.2 million measured against a target of $869.4 million). For Ms. McAlindon, whose results were based on the Designed Structures and Solutions Plan, total attainment was 109.0%, with the components consisting of: (1) 33.3% based on business unit adjusted operating income attainment of 99.2% (2014 attainment of $45.1 million measured against a target of $45.2 million); (2) 16.7% based on consolidated adjusted operating income attainment of 156.0% (2014 attainment of $319.7 million measured against a target of $298.1 million); (3) 25.0% based on working capital as percentage of sales attainment of 200.0% (2014 attainment of 11.9% measured against a target of 13.0%); and (4) 25.0% based on revenue attainment of 0.0% (2014 attainment of $619.0 million measured against a target of $657.0 million). The Annual Plan, as it applies to the Named Executive Officers, was designed to potentially permit compliance with Code Section 162(m). A more detailed discussion of Code Section 162(m) appears in the “Tax Considerations” section of this proxy statement.

On March 6, 2015, our Board unanimously approved and adopted, subject to the approval of the shareholders at the 2015 Annual Meeting, the Amended and Restated PolyOne Corporation Senior Executive Annual Incentive Plan (the “Restated Annual Plan”). If approved by the shareholders, future short-term incentive plan awards are expected to be made in accordance with the Restated Annual Plan.

Long-Term Incentive. We provide long-term incentive compensation to our Named Executive Officers, to directly tie the interests of these individuals to the interests of our shareholders. We also believe that long-term incentive compensation is an important retention tool. At the Annual Meeting in May 2010, our shareholders approved the Long-Term Incentive Plan under which we can provide long-term incentive awards to our executives. At the Annual Meeting in May 2012, our shareholders approved the first amendment to the Long-Term Incentive Plan (referred to as the “Amended Long-Term Incentive Plan”). The 2014 awards were granted under the Amended Long-Term Incentive Plan.

On March 6, 2015, our Board unanimously approved and adopted, subject to the approval of the shareholders at the 2015 Annual Meeting, the Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan (the “Restated Long-Term Incentive Plan”). If approved by the shareholders, future Long-Term Incentive Plan awards are expected to be granted under the Restated Long-Term Incentive Plan.

The individual long-term incentive target opportunities provided to our Named Executive Officers, which are reflected as a percentage of base salary, are established with consideration of our competitive market pay philosophy discussed in the “Executive Compensation Philosophy and Objectives” section of this proxy statement and are intended to reward the Named Executive Officers for achieving specific performance objectives. The awards granted for 2014 under the Amended Long-Term Incentive Plan are based upon our closing stock price on December 31, 2013. The accounting value of each award is determined using the grant date of the award. The value of the grant varies as the stock price increases or decreases in the interim.

The Named Executive Officers’ 2014 individual long-term incentive opportunities that were approved by the Compensation Committee and as in effect as of February 2014 (the grant date of our annual long-term incentive awards) are: Mr. Patterson – 150% (no increase from 2013); Mr. Newlin – 350% (no increase from 2013); Mr. Richardson – 135% (no increase from 2013); Messrs. Van Hulle, Kahler, Kedrowski and Smith – 100% (no increase from 2013); and Ms. McAlindon – 90% (a 20% market increase from 2013). Mr. Patterson’s 2014 annual long-term incentive award was granted in February 2014, which was prior to his promotion to CEO, and, therefore, was based on his target opportunity as our Executive Vice President and Chief Operating Officer.

 

 

 

 

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Based on 2014 competitive market data provided by the Consultant, we determined that the individual target opportunities granted to the Named Executive Officers in 2014 ranged from 5% to 35% below the 2014 market median for comparable positions (Mr. Smith was excluded from this analysis in 2014 due to his retirement). The Compensation Committee does not target a specific percentile or data point in assessing pay competitiveness. Individual opportunities varied based on length of time with PolyOne, individual performance and level of leadership responsibility within the Company. This strategy is consistent with our competitive market pay philosophy discussed in the “Executive Compensation Philosophy and Objectives” section of this proxy statement.

Awards Granted in 2014. On February 11, 2014, we granted awards under the Amended Long-Term Incentive Plan as part of our annual program. After a thorough evaluation of other possible vehicles, the Compensation Committee elected to retain the same three compensation vehicles and weightings that we used in 2013 for the Amended Long-Term Incentive Plan, which are listed below. We maintained this plan design to continue to provide a balance between the relative values of the three compensation vehicles while efficiently using the shares available under the Amended Long-Term Incentive Plan. Of these three vehicles, the cash-settled performance units and the SARs have performance conditions, as described in detail below. Both the cash-settled performance units and the SARs are additionally subject to time-based vesting. The restricted stock units (“RSUs”) are time-based awards that vest in their entirety on the third anniversary of the grant date.

 

LOGO

The Compensation Committee also granted special one-time equity awards in 2014 under the Amended Long-Term Incentive Plan to reward specific accomplishments of various Named Executive Officers and to drive performance relating to specific performance measures deemed critical by the Compensation Committee. These one-time grants are listed in the 2014 Grants of Plan-Based Awards table of this proxy statement and are described below.

Cash-Settled Performance Units. Cash-settled performance units provide an opportunity for employees to receive a cash bonus if specified performance measures are met for a pre-defined performance period. On February 11, 2014, we granted cash-settled performance units under the Amended Long-Term Incentive Plan to all Named Executive Officers, except Mr. Smith who was retiring in June 2014, as part of our annual long-term incentive program. The Compensation Committee maintained adjusted earnings per share as the 2014 performance measure in order to drive improvements in shareholder value. In 2014, we utilized the following four performance periods and relative weightings to drive annual performance as well as cumulative performance. Requiring annual, as well as cumulative, performance goals ensures that adjusted earnings per share growth is a constant and visible incentive goal for our Named Executive Officers to achieve each year.

 

Performance Period   Weighting

January 1, 2014 through December 31, 2014

  25%

January 1, 2015 through December 31, 2015

  25%

January 1, 2016 through December 31, 2016

  25%

January 1, 2014 through December 31, 2016

  25%

 

 

 

 

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The attainment level for the cash-settled performance units will be certified at the end of the three-year performance period. We established threshold, target and maximum adjusted earnings per share goals for each of the above listed performance periods. Participants will earn, for the applicable performance period: (1) 100% of the target award of cash-settled performance units upon attainment of the target performance level; (2) 50% of the target award upon attainment of the threshold performance level or (3) 200% of the target award upon attainment of the maximum (or greater) performance level. If final performance falls between the threshold and target or between target and maximum, earned award amounts will be interpolated. If threshold performance is not achieved, then no award will be paid to the participants for the applicable performance period. The cash-settled performance units generally do not vest and pay out until the payment date in order to serve as a retention vehicle. The payment date will be a date in 2017 determined by the Compensation Committee, which shall occur no later than March 15, 2017.

We do not disclose the specific adjusted forward-looking earnings per share goals that we established for the cash-settled performance units granted in 2014 in this proxy statement because (1) these goals relate to executive compensation to be earned and/or paid in future years and do not affect a fair understanding of the Named Executive Officers’ compensation for 2014 and (2) we believe that disclosure of such goals while the applicable performance period is ongoing would cause us competitive harm. However, we disclose such goals in future proxy statements once the applicable performance periods have ended as part of our discussion and analysis about the amounts earned by the Named Executive Officers under these awards. In setting the applicable target levels, the Compensation Committee considered how achievement of the performance goals could be impacted by events expected to occur in the coming years. When establishing the specific goals for the adjusted earnings per share performance metric, we specifically considered how likely it will be for us to achieve the goals. We believe that the threshold goals have been established at levels that should be appropriately difficult to attain, and that the target goals will require considerable and increasing collective effort on the part of our employees, including our Named Executive Officers, to achieve. Achievement of the maximum goal is considered to be a stretch goal given current market conditions. The performance unit grants made in 2014 for the Named Executive Officers are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

Stock-Settled Stock Appreciation Rights. On February 11, 2014, we granted performance-based stock-settled SARs under the Amended Long-Term Incentive Plan to all Named Executive Officers, except Mr. Smith who was retiring in June 2014, as part of our annual long-term incentive program. The SARs, when exercised by the Named Executive Officers, are settled in our common shares and have an exercise price equal to the closing market price of our common shares on the grant date. However, the SARs are subject to an appreciation cap of 200% of the initial grant date closing stock price. To continually reinforce our ongoing commitment to enhancing shareholder value, the 2014 awards initially vest one-third upon achieving each of the following stock price hurdles and maintaining them for thirty consecutive trading days: 10%, 15% and 20% increase respectively over the initial grant date closing stock price of $35.07. The 10% and 15% stock price hurdles were achieved in 2014. The SARs also are subject to additional time-based vesting requirements that lapse one-third on each of the first three anniversaries of the grant date, generally subject to the Named Executive Officer’s continued employment. They have an exercise term of ten years. The SARs granted in 2014 to the Named Executive Officers are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

Restricted Stock Units. To promote share ownership and enhance the retention of our executives, we also granted time-based RSUs on February 11, 2014 under the Amended Long-Term Incentive Plan to all Named Executive Officers as part of our annual long-term incentive program. The RSUs vest on the third anniversary of the grant date and are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

One-Time Awards. The Compensation Committee granted special one-time awards to Named Executive Officers in 2014 to reward specific achievements and to drive performance relating to specific performance measures deemed critical by the Compensation Committee. The amount of these awards was subjectively determined by the Compensation Committee without reference to market data, but at levels that the Compensation Committee determined through its deliberations to be appropriate to reward and drive the behavior noted above.

On March 13, 2014, we granted a one-time award of 25,000 RSUs and 25,000 performance shares to Mr. Van Hulle. The awards were intended to recognize Mr. Van Hulle’s significant contributions to the Global Color, Additives and Inks business since 2011 and as an incentive to stay with the Company following the leadership transition. The

 

 

 

 

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vesting and other conditions of the RSU grant are substantially similar to the RSU grants made on February 11, 2014, except that there is no prorated vesting upon retirement. Mr. Van Hulle’s performance shares will be earned contingent upon the Global Color Additives and Inks Business (consolidated with Spartech) reaching a specified operating income goal by the close of the 2016 fiscal year (the “Performance Goal”). If the Performance Goal is achieved and Mr. Van Hulle has been in the continuous employ of PolyOne as of the grant date, then the performance shares shall become non-forfeitable and fully vested on March 13, 2017. The RSUs and performance shares granted to Mr. Van Hulle are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

On May 15, 2014, we granted 100,000 performance shares to Mr. Patterson under the Amended Long-Term Incentive Plan. The award was intended to recognize Mr. Patterson’s promotion to Chief Executive Officer and encourage continued strong performance under his leadership. 50,000 performance shares will be earned contingent upon achieving a specified earnings per share goal by the calendar year ending in 2018 (the “2018 Performance Goal”). If the 2018 Performance Goal is achieved, then 50,000 performance shares shall become non-forfeitable and fully vested on May 15, 2019, if Mr. Patterson has remained in continuous employment with the Company. The remaining 50,000 performance shares will be earned contingent upon achieving a specified earnings per share goal by the calendar year ending in 2023 (the “2023 Performance Goal”). If the 2023 Performance Goal is achieved, then the remaining 50,000 performance shares shall become non-forfeitable and fully vested on May 15, 2024, if Mr. Patterson has remained in continuous employment with the Company. These performance shares granted to Mr. Patterson are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

On May 15, 2014, we granted a one-time award of 600 RSUs to Mr. Smith. The award was in exchange for him executing a 2-year non-compete agreement upon retirement. The award was modified on the grant date to waive the requirement that Mr. Smith remain in the employ of the Company through the vesting date (May 15, 2017). The other conditions of this grant are substantially similar to the RSU grants made on February 11, 2014. This award is also set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

On October 9, 2014, we granted a one-time award of 12,000 RSUs to Ms. McAlindon. The award was intended to recognize her significant contributions with regard to PolyOne’s acquisition of Spartech and its continued successful integration with PolyOne as well as to encourage retention. The vesting and other conditions of this grant are substantially similar to the RSU grants made on February 11, 2014. This award is also set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

We do not disclose the Performance Goal for Mr. Van Hulle’s performance share award or the 2018 Performance Goal or the 2023 Performance Goal for Mr. Patterson’s performance share award in this proxy statement because (1) these goals relate to executive compensation to be earned and paid in future years and do not affect a fair understanding of the Named Executive Officers’ compensation for 2014, and (2) we believe that disclosure of such goals while the applicable performance periods are ongoing would cause us competitive harm. However, we expect to disclose such goals in future proxy statements once the applicable performance periods have ended as part of our discussion and analysis about the amounts earned by the Named Executive Officers under these awards. In designing these one-time awards, the Compensation Committee considered how achievement of the performance goals could be impacted by events expected to occur in the coming years and how likely it will be for us to achieve the goals. We believe that the goals for these performance share awards have been established at levels that will require considerable effort on the part of the Named Executive Officer recipients to achieve, and represent stretch goals given current market conditions.

Actions Taken on Awards Granted in Prior Years. In February 2015, the Compensation Committee reviewed, certified and approved the attainment level of cash-settled performance units granted at the start of 2012 for the three year performance period of January 1, 2012 through December 31, 2014. The four, equally weighted performance periods listed below were used in order to drive annual as well as cumulative performance. The cash-settled performance units were earned by achieving performance goals related to our cumulative adjusted earnings per share over each performance period. For retention purposes, the performance units could not be paid until the end of the vesting period, which began on January 1, 2012 and ended on the payment date as approved by Compensation Committee. The Named Executive Officers (except Mr. Kedrowski who did not receive a 2014 payout) received a cash payout based on achieving 200% of the target level performance for this goal, reflected below.

 

 

 

 

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2012 – 2014 Cash-Settled Performance Units

 

Performance Goal: Cumulative Earnings per Share*

 

  

  

Performance Periods   Weighting     2012 - 2014
Minimum
    2012 - 2014
Target
    2012 - 2014
Maximum
    2012 - 2014
Results
   

  Payout

  %

 

January 1, 2012 – December 31, 2012

    25     $1.07        $1.11        $1.17        $1.20        200

January 1, 2013 – December 31, 2013

    25     $1.06        $1.15        $1.28        $1.39        200

January 1, 2014 – December 31, 2014

    25     $1.04        $1.17        $1.39        $1.80        200

January 1, 2012 – December 31, 2014

    25     $3.16        $3.42        $3.83        $4.39        200

Total Attainment

            200

 

* All financial measures (performance measures and results) reported in the table above were calculated with adjustments for acquisitions, divestitures and special items pursuant to the terms of the plans and as approved by the Board.

Actual payouts of the cash-settled performance units granted in 2012 to the Named Executive Officers under the Long-Term Incentive Plan are set forth in the “Non-Equity Incentive Plan Compensation” column of the 2014 Summary Compensation Table of this proxy statement.

All equity awards outstanding as of December 31, 2014 are set forth in the Outstanding Equity Awards at 2014 Fiscal Year-End table of this proxy statement.

Other Aspects of Our Compensation Programs

The Compensation Committee, with support from management, also considers, adopts, reviews and revises executive officer benefit programs, promotions, and any individual agreements impacting the compensation and benefits of our Named Executive Officers. In addition, the Compensation Committee also oversees the governance of our compensation practices. The following section describes significant activities relating to the above that occurred in 2014.

Retirement Benefits. We offer the following retirement benefits to eligible employees and eligible Named Executive Officers as specified below. Additional details about these plans, as they apply to the Named Executive Officers, are included in the “2014 Pension Benefits” and “2014 Nonqualified Deferred Compensation” sections of this proxy statement.

 

    A defined contribution retirement benefit available to eligible United States employees (as defined in the plan document) through an Internal Revenue Code tax-qualified profit sharing/401(k) plan (referred to as the “Qualified Savings Plan”);

 

    An unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan (referred to as the “PolyOne Supplemental Retirement Benefit Plan”), but without the Internal Revenue Code contribution and earnings limitations;

 

    An employer-funded Internal Revenue Code tax-qualified defined benefit pension plan (referred to as the “Qualified Pension Plan”), as well as an unfunded, nonqualified defined benefit pension plan (referred to as the “Benefit Restoration Plan”), under which Mr. Smith is eligible, along with certain other employees, to receive frozen benefits. In addition, since becoming retirement eligible (55 years of age with 10 years of service), Mr. Smith is eligible, along with certain other employees, to receive retiree medical benefits prior to becoming medicare eligible for which he will be required to pay 100% of the notional annual premium; and

 

    A supplemental retirement benefit for Mr. Newlin that provides annual supplemental retirement payments, payable in the form of a 15-year certain and continuous life annuity, conditioned upon his execution of a release and waiver and upon a “Qualifying Separation from Service” (as such term is defined herein).

 

 

 

 

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Other Benefits. We provide other benefits to the Named Executive Officers that we believe are necessary to compete for executive talent. The additional benefits for the Named Executive Officers generally consist of a benefit allowance (which has been phased out for newly hired executive officers), limited reimbursement of expenses for financial planning and tax preparation, global travel health benefits and an annual physical examination. The specific amounts attributable to the 2014 other benefits provided to the Named Executive Officers are set forth in the “All Other Compensation” column of the 2014 Summary Compensation Table of this proxy statement. The benefit allowance and reimbursement of expenses for financial planning/tax preparation are treated as taxable income to the Named Executive Officers and are not grossed up by PolyOne. Tax gross-ups are provided for imputed income for spouse/guest travel.

We also provide other benefits such as medical, dental, life insurance and disability coverage to each United States based Named Executive Officer, which are identical to the benefits provided to all other eligible United States-based employees (as defined in the plan document). We provide vacation and paid holidays to all employees, including the Named Executive Officers. The Named Executive Officers were eligible for the following vacation periods in 2014: Mr. Patterson — four weeks; Mr. Newlin — five weeks; Mr. Richardson — four weeks; Mr. Van Hulle — four weeks; Ms. McAlindon — four weeks; Mr. Kahler — four weeks; Mr. Kedrowski — four weeks and Mr. Smith — five weeks.

Compensation Package of CEO. In connection with the leadership transition and effective as of his promotion to CEO, the Compensation Committee set Mr. Patterson’s base salary at $800,000 per year and increased his target annual incentive opportunity to 100% of his base salary. In addition, his long-term incentive plan target opportunity was increased to 325% of his base salary. For 2014, Mr. Patterson’s compensation was set below the market median, which is aligned with the Compensation Committee’s intention to move Mr. Patterson’s pay toward the market median as he gains experience as CEO. The Compensation Committee also granted Mr. Patterson 100,000 performance shares in connection with his promotion, as described in the “What We Pay and Why: Elements of Compensation” section of this proxy statement. These performance shares are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement.

Employment Agreement with Named Executive Officer. Mr. Newlin is a party to an employment agreement with us, as described below. We do not maintain employment agreements with any of the other Named Executive Officers, although each of our Named Executive Officers is a party to a management continuity agreement, the details of which are described below and are set forth in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.

On February 6, 2006, we entered into an agreement with Mr. Newlin, under which he served as our Chairman, President and Chief Executive Officer. We entered into this agreement in order to attract Mr. Newlin to PolyOne and set the terms of his employment. The agreement provided for specified equity awards that were intended to serve as an inducement to join PolyOne, set an initial base salary and provided for his participation in our various long-term incentive and benefit plans in effect during the term of his employment. In addition, the agreement provided for certain payments upon termination of employment, as described more fully in “Potential Payments Upon Termination or Change of Control” section of this proxy statement. Mr. Newlin’s employment agreement was amended and restated as of July 16, 2008, to provide for a supplemental retirement benefit, as described in the “2014 Pension Benefits” section of this proxy statement. Mr. Newlin’s employment agreement was further amended and restated, effective May 15, 2014, in connection with his retirement as CEO, such amendment is referred to as the Letter Agreement.

Under the Letter Agreement, Mr. Newlin will be entitled to receive an annual salary equal to his current salary ($1,050,000) until May 15, 2015, at which time his salary will be reduced to $655,850. He is also entitled to receive an annual incentive award for 2014 (as earned) under the Letter Agreement, but is not eligible for awards under the Annual Plan thereafter. Further information regarding the Letter Agreement is detailed in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.

Departure of Former Executive. PolyOne and Mr. Kedrowski agreed that Mr. Kedrowski would step down from his position as Executive Vice President of Global Operations and Process Improvement effective September 5, 2014. In conjunction with his departure, Mr. Kedrowski received the benefits that he was entitled to under the

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Severance Plan (as defined herein) and PolyOne and Mr. Kedrowski executed an executive severance agreement and release (the “Severance Agreement”). The compensation and benefits that Mr. Kedrowski received and the terms of the Severance Agreement are set forth in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.

Retirement of Former Executive. On June 6, 2014, Mr. Smith retired from his position as Senior Vice President and Chief Information and Human Resources Officer. The compensation and benefits that Mr. Smith received as a result of his retirement are set forth in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.

Tax Considerations. Cash compensation, such as base salary and annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsored deferral plan. Deferrals under Internal Revenue Code tax-qualified plans, such as a 401(k) plan, do not affect our current tax deduction. Deferrals under supplemental executive deferral plans delay our tax deduction until the deferred amount (and any accumulation thereon) is paid. Stock-settled SARs are generally taxable as ordinary income when exercised, RSUs are generally taxable as ordinary income when they vest, and cash-settled performance units are generally taxable when paid. We realize a tax deduction at those specified times. The Compensation Committee reviews potential tax implications before making decisions regarding compensation.

Management and the Compensation Committee are aware of Code Section 162(m), which generally disallows a federal income tax deduction to publicly traded companies for compensation in excess of $1 million per year paid to a company’s Chief Executive Officer and the company’s three other most highly compensated executive officers, other than the company’s Chief Financial Officer, who are employed as of the end of the year. The $1 million deduction limit generally does not apply to compensation that satisfies Section 162(m)’s requirements for qualified performance-based compensation. The Compensation Committee generally intends for our incentive programs to qualify for the performance-based pay exemption. It also reserves the right, however, to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives.

The Compensation Committee believes that Section 162(m) is only one of several relevant considerations in setting compensation. The Compensation Committee also believes that Section 162(m) should not be permitted to compromise its ability to design and maintain executive compensation arrangements that, among other things, are intended to attract, motivate and retain a highly qualified and successful management team to lead PolyOne. As a result, the Compensation Committee retains the flexibility to provide compensation it determines to be in the best interests of PolyOne and its shareholders even if that compensation ultimately is not deductible for tax purposes. Moreover, even if we intend to grant compensation that qualifies as performance-based compensation for purposes of Section 162(m), we cannot guarantee that such compensation will so qualify or ultimately will be deductible by us.

Accounting Considerations. When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan period, management and the Compensation Committee review and consider the accounting implications of a given award, including the estimated expense and dilutive considerations. With consideration of the accounting treatment associated with an incentive plan design, management and the Compensation Committee may alter or modify the incentive award if the award (and the related accounting consequences) were to adversely affect our financial performance.

Stock Ownership and Retention Guidelines. In order to better align the financial interests of our executives with those of our shareholders, we believe our executives should own a meaningful number of shares of PolyOne stock. We have adopted Guidelines specifying a minimum level of stock ownership for all executives, including all Named Executive Officers.

The current Guidelines require all executives, including the Named Executive Officers, to retain 100% of all net shares obtained through PolyOne as compensation for services provided. This requirement will cease when the Guidelines have been met, provided that an officer can only divest of a number of shares such that the Guidelines continue to be met. In general, shares counted toward required ownership include shares directly held, shares and phantom shares held in our retirement or deferral plans, RSUs and performance shares (if the applicable performance criteria are met). The specific levels of stock ownership for the Named Executive Officers are noted in the following

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

table. Executives are expected to accumulate the specified shares within five years of their becoming subject to the Guidelines. These policies, as they relate to our Directors, are discussed in the “Stock Ownership Guidelines for Directors” section of this proxy statement.

 

     

Stock
Ownership
Target

(in shares)

    

Prorated Stock
Ownership
Target

(in shares)

    

Multiple
of

Salary(2)

     Total Share
Ownership
as of 3/2/15
     Value of
Total Share
Ownership
3/2/15(2)
     Value of Share
Ownership as a
Multiple of Base
Salary
 

R.M. Patterson

     125,000         N/A         6.3         246,496       $ 9,948,579         12.4   

S.D. Newlin

     62,500         N/A         2.4         426,832       $ 17,226,940         16.4   

B.C. Richardson(1)

     45,000         18,000         1.3         40,993       $ 1,654,477         3.1   

J.V. Van Hulle

     20,000         N/A         1.9         104,107       $ 4,201,759         9.7   

J.A. McAlindon(1)

     20,000         8,000         1.0         46,352       $ 1,870,767         5.9   

M.E. Kahler

     20,000         N/A         2.3         55,710       $ 2,248,456         6.4   

 

(1) Mr. Richardson has been with PolyOne less than five years and Ms. McAlindon has been subject to the stock ownership requirement for less than five years. The stock ownership targets for Mr. Richardson and Ms. McAlindon have been reduced to reflect that they are not yet required to reach 100% of the Guidelines.
(2) Calculated using PolyOne’s March 2, 2015 closing stock price of $40.36.

Timing with Respect to Equity Award Grants. We have adopted a policy with respect to the timing of the grant of equity awards, which provides that equity awards are granted pursuant to approval by the Board or the Compensation Committee or, pursuant to authority delegated by the Board or the Compensation Committee to the Chief Executive Officer. Such grants generally should be made at times when PolyOne is not in possession of material non-public information; and not made during a “blackout period,” which is the period of time that is in close proximity to the release of financial or material non-public information. The policy further provides that, to the extent practicable, annual grants to existing employees should be approved at regularly scheduled meetings and that the grant price for any stock option or SAR shall not be less than the fair market value of PolyOne’s common shares on the grant date (which is defined as the closing price of our common shares on the grant date).

Clawback Policy. In March 2015, our Board adopted a clawback policy that, upon any act of fraud, dishonesty or recklessness in the performance of an executive officer’s duties that contributed to the Company’s material noncompliance with any financial reporting requirements resulting in a material accounting restatement, would generally require such executive officer to repay all incentive-based compensation that he or she received in excess of what would have been paid if the restated financial statements had originally been prepared without such material accounting restatement.

Prohibition on Hedging or Pledging Our Securities. PolyOne’s trading policy currently provides that, consistent with our philosophy to encourage long-term investments, Directors, officers and certain other employees of PolyOne are prohibited from hedging or pledging our securities.

 

 

 

 

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EXECUTIVE COMPENSATION

The following tables, narrative and footnotes discuss the compensation of our Named Executive Officers.

2014 Summary Compensation Table

The following table sets forth the compensation earned by, and the compensation opportunity granted to, those serving as our Chief Executive Officer and our principal financial officer during 2014, our three other most highly compensated executive officers serving as of December 31, 2014, and two of our former executive officers for the fiscal years ended December 31, 2014, December 31, 2013 and December 31, 2012, as applicable.

 

Name and
Principal Position (a)

  Year
(b)
    Salary
($)
(c)
    Bonus
($)
(d)
    Stock
Awards
($)
(e)
    Option
Awards
($)
(f)
    Non-Equity
Incentive
Plan
Compensation
($)
(g)
    Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(h)
    All Other
Compensation
($)
(i)
    Total
($)
(j)
 

Robert M. Patterson, President and Chief Executive Officer

    2014        702,846        —          4,041,574        288,093        1,334,946        —          108,667        6,476,126   
    2013        546,292        —          1,580,236        332,481        1,177,619        —          109,279        3,745,907   
    2012        513,461        —          318,498        338,997        1,071,941        —          94,919        2,337,817   

Stephen D. Newlin, Executive Chairman

    2014        1,050,000        —          1,276,548        1,278,853        3,692,325        2,028,725        292,176        9,618,627   
    2013        1,040,846        —          3,812,040        1,483,710        4,649,890        161,443        285,550        11,433,479   
    2012        978,846        —          1,519,440        1,611,627        4,081,699        1,273,625        274,428        9,739,665   

Bradley C. Richardson, Executive Vice President and Chief Financial Officer(1)

    2014        521,538        —          245,490        244,528        479,685        —          49,947        1,541,188   
    2013        50,000        —          606,400        —          56,485        —          3,250        716,135   

John V. Van Hulle, Senior Vice President and President, Global Color, Additives and Inks(2)

    2014        421,154        —          1,984,794        146,155        485,657        —          72,651        3,110,411   

Julie A. McAlindon, Senior Vice President and President, Designed Structures and Solutions(2)

    2014        310,385        —          508,317        109,616        239,365        —          51,814        1,219,497   

Michael E. Kahler, Senior Vice President and Chief Commercial
Officer(2)

    2014        345,946        —          119,238        119,453        462,433        —          77,970        1,125,040   

Thomas J. Kedrowski, Former Executive Vice President, Global Operations and Process Improvement

    2014        307,954        —          1,039,396 (3)      139,128 (3)      —          —          1,169,734        2,656,212   
    2013        398,139        —          1,411,752 (3)      161,367 (3)      646,981 (3)      —          67,533        2,685,772   
    2012        350,615        —          151,944 (3)      161,857 (3)      593,368 (3)      —          57,769        1,315,554   

Kenneth M. Smith, Former Senior Vice President and Chief Information and Human Resources Officer

    2014        235,307        —          660,511 (4)      147,216 (5)      322,962        476,066        161,690        2,003,752   
    2013        370,769        —          521,154 (4)      148,371 (5)      629,618        0        79,723        1,749,635   
    2012        359,615        —          151,944 (4)      161,857 (5)      612,645        249,773        77,626        1,613,461   

 

(1) Compensation for Mr. Richardson is provided only for 2013 and 2014 as he was hired as our Executive Vice President and Chief Financial Officer in November 2013.
(2) Compensation for Messrs. Van Hulle and Kahler and Ms. McAlindon is provided only for 2014 because they were not Named Executive Officers in 2012 or 2013.
(3) In connection with Mr. Kedrowski’s departure, PolyOne modified certain RSUs previously granted to Mr. Kedrowski in 2012, 2013 and 2014 that would have otherwise been forfeited under the terms of the applicable grant agreements. The incremental value of the modified RSUs as reported in Mr. Kedrowski’s 2014 “Stock Awards” column is $899,116. The modified awards and details regarding their value are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement and in its accompanying footnotes. In addition, pursuant to the terms of his applicable grant agreements, Mr. Kedrowski forfeited $151,944 in reported value of his 2012 RSUs, $785,502 in reported value of his 2013 RSUs, $626,250 in reported value of his 2013 performance shares and $140,280 in reported value of his 2014 RSUs upon his separation from service. The forfeiture values represent the aggregate grant date fair value of those awards determined pursuant to FASB ASC Topic 718, but such amounts have not been deducted from the amounts appearing in column (e) above.

In addition, Mr. Kedrowski forfeited all unvested SARs and cash-settled performance units pursuant to the terms of the applicable grant agreements. Thus, the amounts reported in column (f) above do not reflect the amounts

 

 

 

 

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Mr. Kedrowski actually received, as he forfeited $55,068 in reported value of his 2012 SARs, $108,766 in reported value of his 2013 SARs and $139,128 in reported value of his 2014 SARs. Additionally, the amounts reported in column (g) of the 2014 Summary Compensation Table do not reflect payments that Mr. Kedrowski will actually receive, as he forfeited $207,600 in reported value of his 2012 of his cash-settled performance units (reflected at a 200% attainment), $120,000 in reported value of his 2013 cash-settled performance units (reflected at target attainment), and $120,000 in reported value of his 2014 cash-settled performance units (reflected at target attainment).

 

(4) In connection with his retirement, PolyOne modified certain RSUs previously granted to Mr. Smith in 2012, 2013 and 2014 that would have otherwise been forfeited under the terms of the applicable grant agreements. The incremental value of the modified RSUs as reported in Mr. Smith’s 2014 “Stock Awards” column is $628,948. The modified awards and details regarding their value are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement and in its accompanying footnotes.

 

(5) In connection with his retirement, PolyOne modified certain SARs previously granted to Mr. Smith in 2012 and 2013 that would have otherwise been forfeited under the terms of the applicable grant agreements. The incremental value of the modified SARs as reported in Mr. Smith’s 2014 “Option Awards” column is $147,216. The modified awards and details regarding their value are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement and in its accompanying footnotes.

Bonus (column (d))

No amounts are reported in this column because PolyOne paid annual incentives to the Named Executive Officers based upon pre-determined performance metrics. These payments, which were made under the PolyOne’s Annual Plan, are reported in column (g) “Non-Equity Incentive Plan Compensation”.

Stock Awards (column (e))

The amounts reported in the “Stock Awards” column consist of, for 2014, time-vested stock-settled RSUs (including special one-time RSU awards and the modification value for certain RSUs granted to Messrs. Kedrowski and Smith) granted to specific Named Executive Officers as well as special one-time performance share awards granted to specific Named Executive Officers. These awards are described more fully in the “What We Pay and Why: Elements of Compensation” and “Potential Payments Upon Termination or Change of Control” sections of this proxy statement.

The amounts reported for 2014 represent the aggregate grant date fair value of those stock awards determined pursuant to FASB ASC Topic 718. Accordingly, this column includes amounts for awards that have not yet vested, as well as for awards that were later cancelled (such as upon an executive’s separation from service). For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. The performance shares reported in this column do not have a minimum or maximum value as they are paid only at target if earned.

PolyOne cautions that the amounts reported for these awards may not represent the amounts that the Named Executive Officers will actually realize from these awards. To what extent a Named Executive Officer realizes value will depend on our stock price and continued employment. The value actually received upon a release of RSUs to the Named Executive Officers in 2014 is reflected in the 2014 Option Exercises and Stock Vested table of this proxy statement.

Option Awards (column (f))

The amounts reported in the “Option Awards” column consist of, for 2014, stock-settled SARs with time and performance based vesting requirements as well as a SAR appreciation cap that were granted to the Named Executive Officers under our Amended Long-Term Incentive Plan, including the modification value for certain SARs granted to Mr. Smith. The amounts reported for 2014 represent the grant date fair value of the SARs granted to each of the Named Executive Officers, calculated in accordance with FASB ASC Topic 718. Accordingly, this column includes amounts for awards that have not yet vested, as well as for awards that were later cancelled (such as upon an executive’s separation from service). For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal

 

 

 

 

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EXECUTIVE COMPENSATION

 

year ended December 31, 2014. These awards are described more fully in the “What We Pay and Why: Elements of Compensation” and “Potential Payments Upon Termination or Change of Control” sections of this proxy statement.

PolyOne cautions that the amounts reported for these awards may not represent the amounts that the Named Executive Officers will actually realize from the awards. To what extent a Named Executive Officer realizes value will depend on our stock price and continued employment. The value actually received by the Named Executive Officers as a result of exercising SARs during 2014 is reflected in the 2014 Option Exercises and Stock Vested table of this proxy statement.

Non-Equity Incentive Plan Compensation (column (g))

The amounts reported in the “Non-Equity Incentive Plan Compensation” column for 2014 include amounts earned by Named Executive Officers (as applicable) under the 2014 Annual Plan (and paid in February 2015), and cash-settled performance units granted on February 14, 2012 under the 2012 - 2014 Long-Term Incentive Plan (and paid in February 2015). The terms of the Annual Plan and the 2012 - 2014 Long-Term Incentive Plan cash-settled performance units are described more fully in the “What We Pay and Why: Elements of Compensation” section of this proxy statement. The amounts earned by the Named Executive Officers under both plans (as applicable) are: Mr. Patterson – $902,346 (Annual Plan) and $432,600 (cash-settled performance units); Mr. Newlin – $1,634,325 (Annual Plan) and $2,058,000 (cash-settled performance units); Mr. Richardson – $479,685 (Annual Plan); Mr. Van Hulle – $278,657 (Annual Plan) and $207,000 (cash-settled performance units); Ms. McAlindon – $181,045 (Annual Plan) and $58,320 (cash-settled performance units); Mr. Kahler – $269,233 (Annual Plan) and $193,200 (cash-settled performance units); and Mr. Smith – $154,692 (Annual Plan) and $168,270 (cash-settled performance units).

Change in Pension Value and Nonqualified Deferred Compensation Earnings (column (h))

The amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column for 2014 are comprised entirely of changes in pension values between December 31, 2013 and December 31, 2014.

Mr. Newlin is entitled to a supplemental retirement benefit under his Letter Agreement as described more fully in the “2014 Pension Benefits” section of this proxy statement. The amount listed for him for 2014 represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2013 actuarial present value from the December 31, 2014 actuarial present value) of the annual benefit payment that will be payable as a 15-year certain and continuous life annuity upon Mr. Newlin’s Qualifying Separation from Service (as such term is defined herein).

Mr. Smith participated in the Qualified Pension Plan and the Benefit Restoration Plan that existed prior to PolyOne’s formation in 2000 through the consolidation of Geon and M.A. Hanna Company (“M.A. Hanna”). The amount listed for him represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2013 actuarial present value from the December 31, 2014 actuarial present value) of Mr. Smith’s accumulated benefits under the Qualified Pension Plan and the Benefit Restoration Plan.

All Other Compensation (column (i))

The amounts reported in the “All Other Compensation” column for 2014 reflect, for each Named Executive Officer, the sum of (1) the amounts contributed by PolyOne to the Qualified Savings Plan and the PolyOne Supplemental Retirement Benefit Plan, which are calculated on the same basis for all participants, including the Named Executive Officers, (2) limited tax gross-ups, (3) amounts paid or accrued relating to a Named Executive Officer’s separation from service; and (4) the incremental cost to PolyOne of all other executive benefits that are required to be reported by SEC rules. The material provisions of the Qualified Savings Plan and the PolyOne Supplemental Retirement Benefit Plan are described in the “2014 Pension Benefits” section of this proxy statement.

 

 

 

 

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EXECUTIVE COMPENSATION

 

The narrative following the table below describes these components of All Other Compensation:

 

Name

   Company
Contributions to
Qualified Savings Plan
($)
     Company Contributions
to PolyOne Supplemental
Retirement Benefit Plan
($)
     Tax
Gross-ups

($)
     Payments Upon
Separation from
Service

($)
     Other
Benefits
($)
 

R.M. Patterson

     16,900         71,985         —           —           19,782   

S.D. Newlin

     16,900         180,693         22,131         —           72,452   

B.C. Richardson

     16,900         20,672         —           —           12,375   

J.V. Van Hulle

     16,900         31,922         6,478         —           17,351   

J.A. McAlindon

     16,900         11,115         8,693         —           15,106   

M.E. Kahler

     16,900         26,454         5,055         —           29,561   

T.J. Kedrowski

     16,900         23,096         —           1,114,128         15,610   

K.M. Smith

     16,900         19,057         —           104,230         21,503   

Company Contributions to Qualified Savings Plan. PolyOne makes matching contributions on behalf of the Named Executive Officers in accordance with the Qualified Savings Plan. PolyOne also makes a retirement contribution in an amount equal to 2% of eligible earnings, subject to Internal Revenue Code limitations.

Company Contributions to PolyOne Supplemental Retirement Benefit Plan. PolyOne makes matching contributions on behalf of all eligible participants, including the Named Executive Officers, under the PolyOne Supplemental Retirement Benefit Plan. PolyOne also makes a retirement contribution in an amount equal to 2% of eligible earnings.

Tax Gross-ups. PolyOne provides a reimbursement for taxes incurred when a spouse/guest travels for business purposes as it is sometimes necessary for spouses to accompany the executives to business functions. These taxes are incurred because of the Internal Revenue Service’s rules governing business travel by spouses/guests and PolyOne reimburses the associated taxes.

Payments Upon Separation from Service. This column represents amounts that Messrs. Kedrowski and Smith received upon their separation from service. Mr. Kedrowski received the following payments pursuant to the Executive Severance Plan: $824,000 representing 24 months of salary continuation, a payment equal to the amount calculated under the Annual Plan as earned in 2014 of $228,566 (which was paid in 2015 at the same time as all Named Executive Officer Annual Plan payments), a payment of $14,262 for accrued but unused vacation, 24 months of accrued post-separation medical, vision and dental coverage reimbursements estimated to be $39,000 and accrued post-separation outplacement services totaling $8,300. Details regarding Mr. Kedrowski’s separation from service are further described in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.

In connection with his retirement, PolyOne modified certain cash-settled performance units previously granted to Mr. Smith in 2012 and 2013, which would have otherwise been forfeited under the terms of the applicable grant agreements. The incremental value of the modified cash-settled performance units Mr. Smith received is $104,230. The modified awards and details regarding their value are set forth in the 2014 Grants of Plan-Based Awards table of this proxy statement and in its accompanying footnotes.

Other Benefits. Certain additional limited benefits are made available to executives, including the Named Executive Officers. The aggregate incremental value of those benefits is included for each Named Executive Officer in the “All Other Compensation” column of the 2014 Summary Compensation Table, but the individual values for each item are not required to be disclosed under SEC rules because none exceeded the greater of $25,000 or 10% of the total amount of personal benefits for each Named Executive Officer. In general, these benefits include a nominal benefit allowance (used by each Named Executive Officer except Mr. Richardson), taxable reimbursement to the Named Executive Officers for financial planning (used by each Named Executive Officer except Mr. Kedrowski) and reimbursement for the incremental value of spouse/guest travel expenses (used by Messrs. Newlin, Van Hulle and Kahler and Ms. McAlindon). PolyOne also makes available executive physicals to all Named Executive Officers (used by each Named Executive Officer except Mr. Van Hulle). Finally, Global CARE Insurance (Critical Care Air Rescue and Evacuation), which provides supplemental medical services and medical transportation related to business travel, is provided to all Named Executive Officers.

 

 

 

 

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EXECUTIVE COMPENSATION

 

2014 Grants of Plan-Based Awards

 

Name (a)

  Grant
Date (b-1)
    Grant
Approval
Date (b-2)
    Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards
    Estimated Future Payouts
Under Equity Incentive
Plan Awards
    All Other Stock
Awards:
Number of
Shares of Stock
or Units
(#)
(h)
    Exercise or
Base Price of
Option Awards
($/Sh)
(i)
    Grant Date
Fair Value
of Stock and
Option/SAR
Awards
($)
(j)
 
      Threshold
($)
(c)
    Target
($)
(d)
    Maximum
($)
(e)
    Threshold (#)
(f)
    Target
(#)
(g)
       

R.M. Patterson

        318,850        637,700        1,275,400             
        123,975 (1)      247,950 (1)      495,900 (1)           
    2/11/2014        2/11/2014              6,833        20,500 (3)        35.07        288,093   
    2/11/2014        2/11/2014                  8,200 (7)        287,574   
    5/15/2014        3/6/2014                50,000 (4)          1,877,000   
    5/15/2014        3/6/2014                50,000 (4)          1,877,000   

S.D. Newlin

        577,500        1,155,000        2,310,000             
        551,250 (1)      1,102,500 (1)      2,205,000 (1)           
    2/11/2014        2/11/2014              30,333        91,000 (3)        35.07        1,278,853   
    2/11/2014        2/11/2014                  36,400 (7)        1,276,548   

B.C. Richardson

        169,500        339,000        678,000             
        105,300 (1)      210,600 (1)      421,200 (1)           
    2/11/2014        2/11/2014              5,800        17,400 (3)        35.07        244,528   
    2/11/2014        2/11/2014                  7,000 (7)        245,490   

J.V. Van Hulle

        115,818        231,635        463,270             
        63,000 (1)      126,000 (1)      252,000 (1)           
    2/11/2014        2/11/2014              3,467        10,400 (3)        35.07        146,155   
    2/11/2014        2/11/2014                  4,200 (7)        147,294   
    3/13/2014        3/6/2014                25,000 (5)          918,750   
    3/13/2014        3/6/2014                  25,000 (8)        918,750   

J.A. McAlindon

        83,048        166,096        332,192             
        40,500 (1)      81,000 (1)      162,000 (1)           
    2/11/2014        2/11/2014              2,600        7,800 (3)        35.07        109,616   
    2/11/2014        2/11/2014                  3,100 (7)        108,717   
    10/9/2014        10/9/2014                  12,000 (8)        399,600   

M.E. Kahler

        95,135        190,270        380,540             
        51,300 (1)      102,600 (1)      205,200 (1)           
    2/11/2014        2/11/2014              2,833        8,500 (3)        35.07        119,453   
    2/11/2014        2/11/2014                  3,400 (7)        119,238   

T.J. Kedrowski

        80,766        161,531        323,062             
        60,000 (1)      120,000 (1)      240,000 (1)           
    2/11/2014        2/11/2014              3,300        9,900 (3)        35.07        139,128   
    2/11/2014        2/11/2014                  4,000 (7)        140,280   
    10/8/2014        10/1/2014                  758 (9)        26,257   
    10/8/2014        10/1/2014                  12,484 (9)        432,446   
    10/8/2014        10/1/2014                  3,623 (9)        125,501   
    10/8/2014        10/1/2014                  9,091 (9)        314,912   

K.M. Smith

        54,662        109,323        218,646             
        11,183 (2)      22,365 (2)      44,730 (2)           
        29,750 (2)      59,500 (2)      119,000 (2)           
    5/15/2014        5/15/2014                1,929 (6)        14.61 (6)      49,584   
    5/15/2014        5/15/2014                4,400 (6)        23.08 (6)      97,632   
    2/11/2014        2/11/2014                  900 (7)        31,563   
    5/15/2014        5/15/2014                  600 (10)        22,524   
    5/15/2014        5/15/2014                  824 (11)        30,917   
    5/15/2014        5/15/2014                  9,082 (11)        340,945   
    5/15/2014        5/15/2014                  3,665 (11)        137,582   
    5/15/2014        5/15/2014                  2,583 (11)        96,980   

 

 

 

 

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Estimated Future Payouts Under Non-Equity Incentive Plan Awards (columns (c), (d) and (e))

The amounts located in the first row for each Named Executive Officer represent the cash-based award opportunities granted to the Named Executive Officer in 2014 under the Annual Plan. The actual amount earned for 2014 is included in the “Non-Equity Incentive Plan Compensation” column (column (g)) of the 2014 Summary Compensation Table of this proxy statement.

 

(1) Cash-Settled Performance Units. The amounts located in the second row for each Named Executive Officer represent the cash-settled performance units granted in 2014 to the Named Executive Officer under the Amended Long-Term Incentive Plan as part of the February 11, 2014 annual long-term incentive award. Mr. Smith did not receive a cash-settled performance unit grant in 2014 in anticipation of his retirement. Each performance unit is equal in value to $1.00. These cash-settled performance units are subject to achieving specified performance goals over the performance period from January 1, 2014 to December 31, 2016. The cash-settled performance units will be paid in cash, if earned, contingent upon the Named Executive Officer remaining in continuous employment through the payment date, which shall be in 2017.

For purposes of both the Annual Plan and the cash-settled performance units, we established threshold, target and maximum goals. Participants will earn, for the applicable performance period: (1) 100% for the target award upon attainment of the target performance level; (2) 50% of the target award upon attainment of the “threshold” performance level or (3) 200% of the target award upon attainment of the “maximum” (or greater) performance level. If final performance falls between the threshold and target or between target and maximum, earned award amounts will be interpolated. If threshold performance is not achieved, then no award will be paid to the participants.

 

(2) Modification of Cash-Settled Performance Units in Connection with Retirement. These amounts represent modified awards of cash-settled performance units that were previously granted to Mr. Smith and would have been forfeited upon his retirement on June 6, 2014 in accordance with the terms of their applicable grant agreements. The amounts that would have been forfeited are as follows: 59,500 of the cash-settled performance units originally granted on February 15, 2013 and 22,365 of the cash-settled performance units originally granted on February 14, 2012. The modifications were based upon the period of time that Mr. Smith was employed by PolyOne from the original grant date of the award through May 15, 2014 (the modification date).

The awards that were originally granted to Mr. Smith on February 15, 2013 remain subject to achieving specified performance goals over the performance period from January 1, 2013 to December 31, 2015 and will be paid in cash, if earned. The threshold, target and maximum goals are the same as those described in footnote 1 to the 2014 Grants of Plan-Based Awards table above. The modified award’s incremental value of $59,500 is included in the “All Other Compensation” column (column (i)) of the 2014 Summary Compensation Table of this proxy statement. The cash-settled performance units originally granted to Mr. Smith on February 14, 2012 were paid out on February 13, 2015 as a result of achieving 200% attainment under the award. The modified award’s incremental value of $44,730 is included in the “All Other Compensation” column (column (i)) of the 2014 Summary Compensation Table of this proxy statement.

Estimated Future Payouts Under Equity Incentive Plan Awards (columns (f) and (g))

 

(3) Stock Appreciation Rights. These amounts represent stock-settled SARs granted to the Named Executive Officers on February 11, 2014 as part of our 2014 long-term incentive award under the Amended Long-Term Incentive Plan. The SARs initially vest in one-third increments upon attaining each of the following stock price hurdles for thirty consecutive trading days: 10%, 15% and 20% increase, respectively, over the initial grant date closing stock price of $35.07. The first two stock price hurdles were attained in 2014. The SARs are also subject to time-based vesting, which lapses in one-third increments on each of the first three anniversaries of the grant date, generally subject to the officer’s continued employment and have an exercise term of ten years. The SARs are also subject to an appreciation cap of 200% of the initial grant date closing stock price. Due to his retirement effective June 6, 2014, Mr. Smith did not receive a 2014 SAR award.

“Threshold” refers to the minimum number of shares underlying the SAR award that will vest upon reaching the threshold level of performance, which is satisfaction of the first stock price hurdle. Threshold equates to vesting in one-third of the SAR award. If threshold performance is not attained, then the participant will not vest in any of the SARs for the 2014 award. “Target” refers to the number of shares underlying the SARs that will vest upon satisfaction of all of the stock price hurdles under the 2014 grant. The SARs do not have a “maximum” level of attainment as a participant cannot receive SARs in excess of the initial award.

 

 

 

 

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(4) One-Time Grant of Performance Shares for Promotion to CEO. On May 15, 2014, we granted 100,000 performance shares to Mr. Patterson under the Amended Long-Term Incentive Plan. This grant is described in detail in the “What We Pay and Why: Elements of Compensation” section of this proxy statement.

 

(5) One-Time Grant of Performance Shares. On March 13, 2014, we granted 25,000 performance shares to Mr. Van Hulle under the Amended Long-Term Incentive Plan. This grant is described in detail in the “What We Pay and Why: Elements of Compensation” section of this proxy statement.

 

(6) Modification of Stock Appreciation Rights in Connection with Retirement. These amounts represent modified awards of SARs that were previously granted to Mr. Smith and would have been forfeited upon his retirement on June 6, 2014 in accordance with the terms of the applicable grant agreements. The modified SARs represent the unvested portion of the following SARs: 4,400 of the SARs originally granted on February 15, 2013 and 1,929 of the SARs originally granted on February 14, 2012. The unvested portion was based upon the period of time that Mr. Smith was employed by PolyOne from the original grant date of the award through May 15, 2014 (the modification date). The SARs granted to Mr. Smith on February 15, 2013 vest in one-third increments upon attaining each of the following stock price hurdles for thirty consecutive trading days: 10%, 15% and 20% increase, respectively, over the initial grant date closing stock price of $23.08. All stock price hurdles were attained during 2013. The SARs granted to Mr. Smith on February 14, 2012 vest in one-third increments upon attaining each of the following stock price hurdles for thirty consecutive trading days: 10%, 15% and 20% increase respectively, over the initial grant date closing stock price of $14.61. All stock price hurdles were attained during 2012. The SARs have an exercise term of ten years.

The SARs do not have a “threshold” level of attainment, as all of the performance criteria have been met.

All Other Stock Awards: Number of Shares of Stock or Units (RSUs) (column (h))

 

(7) Annual Grant of RSUs. These amounts represent stock-settled RSUs granted to the Named Executive Officers on February 11, 2014 as part of our annual long-term incentive award under the Amended Long-Term Incentive Plan. The RSUs vest on the third anniversary of the grant date. For Mr. Kedrowski, this award was modified and a portion was forfeited. The actual award retained by Mr. Kedrowski following his separation from service is described in footnote 9 to this 2014 Grants of Plan-Based Awards table below. For Mr. Smith, this award was modified and the portion that was subject to forfeiture upon his retirement on June 6, 2014 was fully vested by the Compensation Committee on May 15, 2014. The modified award is described in footnote 11 to this 2014 Grants of Plan-Based Awards table below. The RSUs have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The dividend equivalent rights are subject to the same restrictions as the underlying RSUs.

 

(8) One-Time Grant of RSUs in Connection with Performance and Retention. These amounts represent stock-settled RSUs granted to Mr. Van Hulle and Ms. McAlindon under the Amended Long-Term Incentive Plan. The RSUs vest on the third anniversary of the grant date and are in all respects in accordance with the Amended Long-Term Incentive Plan, as well as the specific terms and conditions approved by the Compensation Committee for the annual grants of RSUs made on February 11, 2014, with the exception of the provision for prorated vesting upon retirement for Mr. Van Hulle. The RSUs have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The dividend equivalent rights are subject to the same restrictions as the underlying RSUs. These grants are described in detail in the “What We Pay and Why: Elements of Compensation” section of this proxy statement.

 

(9)

Award Modification in Connection with Separation. These amounts represent modified awards of RSUs that were previously granted to Mr. Kedrowski that would have been forfeited upon his separation from service. The modified RSUs represent a prorated portion of the following RSUs: 758 of the RSUs originally granted on February 11, 2014, 12,484 of the RSUs originally granted on March 13, 2013, 3,623 of the RSUs originally

 

 

 

 

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EXECUTIVE COMPENSATION

 

granted on February 15, 2013 and 9,091 of the RSUs originally granted on February 14, 2012. The proration was based upon the period of time that Mr. Kedrowski was employed by PolyOne from the original grant date of the award through his last day of employment. The awards continue to vest in full on the third anniversary of their original grant date.

A substantial portion of Mr. Kedrowski’s unvested long-term incentive awards were forfeited as a result of his separation from service under the terms of his applicable grant agreements. For details regarding the long-term incentive awards that Mr. Kedrowski forfeited, see footnote (3) to the 2014 Summary Compensation Table of this proxy statement.

 

(10) One-Time Grant of RSUs in Connection with Retirement. This amount represents a one-time grant of stock-settled RSUs to Mr. Smith under the Amended Long-Term Incentive Plan. The RSUs have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The dividend equivalent rights are subject to the same restrictions as the underlying RSUs. This grant is described in detail in the “What We Pay and Why: Elements of Compensation” section of this proxy statement.

 

(11) Modification of RSUs in Connections with Retirement. These amounts represent modified awards of RSUs that were previously granted to Mr. Smith that would have been forfeited upon his retirement on June 6, 2014 in accordance with the terms of their applicable grant agreements. The modified RSUs represent the unvested portions of the following RSUs: 824 of the RSUs originally granted on February 11, 2014, 9,082 of the RSUs originally granted on March 13, 2013, 3,665 of the RSUs originally granted on February 15, 2013 and 2,583 of the RSUs originally granted on February 14, 2012. The unvested portions were based upon the period of time that Mr. Smith was employed by PolyOne from the original grant date of the award through May 15, 2014 (the modification date). The awards will be released in full on the third anniversary of their original grant date.

Exercise or Base Price of Option Awards (column (i))

In setting the base price of these SARs, we followed the practice of using our closing stock price on the grant date. This practice complies with the Amended Long-Term Incentive Plan. For Mr. Smith’s modified SARs, the amount in this column represents the closing stock price on the grant date of the original award.

Grant Date Fair Value of Stock and Option Awards (column (j))

The amounts in this column represent the grant date fair value of each equity-based award, computed in accordance with FASB ASC Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Narrative Disclosure Relating to the 2014 Summary Compensation Table and the 2014 Grants of Plan-Based Awards Table

For more information regarding the employment agreement with Mr. Newlin, the Severance Agreement with Mr. Kedrowski and the retirement of Mr. Smith, refer to the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.

 

 

 

 

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EXECUTIVE COMPENSATION

 

Outstanding Equity Awards at 2014 Fiscal Year-End

 

    Option Awards     Stock Awards  

Name
(a)

  Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
(b)
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
(c)
    Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
    Option
Exercise
Price
($)
(e)
    Option
Expiration
Date
(f)
    Number of
Shares or
Units of Stock
Units of Stock
That Have Not
Vested
(#)
(g)
    Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)
(h)
    Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights that Have
Not Vested
(#)
(i)
    Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
that Have Not Vested
($)
(j)
 

R.M. Patterson

    —          —          —          —          —          22,473  (1)      851,951        —          —     
    —          —          —          —          —          14,462  (2)      548,254        —          —     
    —          —          —          —          —          25,396  (3)      962,762        —          —     
    —          —          —          —          —          8,275  (4)      313,705        —          —     
    —          —          —          —          —          —          —          25,396  (12)      962,762   
    —          —          —          —          —          —          —          50,349  (13)      1,908,731   
    —          —          —          —          —          —          —          50,349  (13)      1,908,731   
    30,500  (15)      —          —          14.81        2/16/2021        —          —          —          —     
    32,533  (16)      16,267  (16)      —          14.61        2/14/2022        —          —          —          —     
    10,233  (17)      20,467  (17)      —          23.08        2/15/2023        —          —          —          —     
    —          13,666  (18)      6,834  (18)      35.07        2/11/2024        —          —          —          —     

S.D. Newlin

    —          —          —          —          —          107,208  (1)      4,064,255        —          —     
    —          —          —          —          —          64,162  (2)      2,432,381        —          —     
    —          —          —          —          —          101,586  (5)      3,851,125        —          —     
    —          —          —          —          —          36,732  (4)      1,392,510        —          —     
    —          77,333  (16)      —          14.61        2/14/2022        —          —          —          —     
    45,667  (17)      91,333  (17)      —          23.08        2/15/2023        —          —          —          —     
    —          60,666  (18)      30,334  (18)      35.07        2/11/2024        —          —          —          —     

B.C. Richardson

    —          —          —          —          —          20,230  (6)      766,919        —          —     
    —          —          —          —          —          7,064  (4)      267,796        —          —     
    —          11,600  (18)      5,800  (18)      35.07        2/11/2024        —          —          —          —     

J.V. Van Hulle

    —          —          —          —          —          10,721  (1)      406,433        —          —     
    —          —          —          —          —          6,416  (2)      243,231        —          —     
    —          —          —          —          —          4,238  (4)      160,663        —          —     
    —          —          —          —          —          25,228  (7)      956,393        —          —     
    —          —          —          —          —          —          —          25,228  (14)      956,393   
    5,367  (15)      —          —          14.81        2/16/2021        —          —          —          —     
    7,766  (16)      7,767  (16)      —          14.61        2/14/2022        —          —          —          —     
    4,567  (17)      9,133  (17)      —          23.08        2/15/2023        —          —          —          —     
    —          6,934  (18)      3,466  (18)      35.07        2/11/2024        —          —          —          —     

J.A. McAlindon

    —          —          —          —          —          2,783  (1)      105,504        —          —     
    —          —          —          —          —          3,666  (2)      138,978        —          —     
    —          —          —          —          —          2,534  (8)      96,064        —          —     
    —          —          —          —          —          3,128  (4)      118,582        —          —     
    —          —          —          —          —          12,034  (9)      456,209        —          —     
    —          2,000  (16)      —          14.61        2/14/2022        —          —          —          —     
    —          5,200  (17)      —          23.08        2/15/2023        —          —          —          —     
    —          5,200  (18)      2,600  (18)      35.07        2/11/2024        —          —          —          —     

M.E. Kahler

    —          —          —          —          —          10,721  (1)      406,433        —          —     
    —          —          —          —          —          6,416  (2)      243,231        —          —     
    —          —          —          —          —          3,431  (4)      130,069        —          —     
    16,100  (15)      —          —          14.81        2/16/2021        —          —          —          —     
    15,533  (16)      7,767  (16)      —          14.61        2/14/2022        —          —          —          —     
    4,567  (17)      9,133  (17)      —          23.08        2/15/2023        —          —          —          —     
    —          5,666  (18)      2,834  (18)      35.07        2/11/2024        —          —          —          —     

T.J. Kedrowski

    —          —          —          —          —          9,117  (10)      345,625        —          —     
    —          —          —          —          —          3,633  (10)      137,727        —          —     
    —          —          —          —          —          12,519  (10)      474,595        —          —     
    —          —          —          —          —          760  (10)      28,812        —          —     

K.M. Smith

    —          —          —          —          —          10,721  (1)      406,433        —          —     
    —          —          —          —          —          6,416  (2)      243,231        —          —     
    —          —          —          —          —          15,238  (3)      577,673        —          —     
    —          —          —          —          —          908  (4)      34,422        —          —     
    —          —          —          —          —          604  (11)      22,898        —          —     
    —          7,767  (16)      —          14.61        2/14/2022        —          —          —          —     
    4,567  (17)      9,133  (17)      —          23.08        2/15/2023        —          —          —          —     

 

 

 

 

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(1) Represents stock-settled RSUs that were granted on February 14, 2012 and vest in full on the third anniversary of the grant date. The RSUs include shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(2) Represents stock-settled RSUs that were granted on February 15, 2013 and vest in full on the third anniversary of the grant date. The RSUs include shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(3) Represents stock-settled RSUs that were granted on March 13, 2013 and vest in full on the third anniversary of the grant date. The awards include shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(4) Represents stock-settled RSUs that were granted on February 11, 2014 and vest in full on the third anniversary of the grant date. The RSUs include shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(5) Represents a one-time stock-settled RSU award that was granted on March 8, 2013 and vests in full on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(6) Represents a one-time stock-settled RSU award that was granted on November 11, 2013 and vests in full on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(7) Represents a one-time stock-settled RSU award that was granted on March 13, 2014 and vests in full on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(8) Represents a one-time stock-settled RSU award that was granted on July 10, 2013 and vests in full on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(9) Represents a one-time stock-settled RSU award that was granted on October 9, 2014 and vests in full on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(10) Represents modified stock-settled RSUs previously provided to Mr. Kedrowski that were modified on October 8, 2014 in connection with his Severance Agreement. The modified RSUs include shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate and vest in full on the third anniversary of the original grant date. See the 2014 Grants of Plan-Based Awards table of this proxy statement for more information about the modified awards for Mr. Kedrowski as a result of his separation from service.
(11) Represents a one-time stock-settled RSU award that was granted on May 15, 2014. The award will be released to Mr. Smith on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.
(12) Represents a one-time performance share award that was granted on March 13, 2013. The performance shares will be earned contingent upon achieving specific synergies resulting from PolyOne’s acquisition of Spartech (the “Synergy Goal”). If the Synergy Goal is achieved, then the performance shares vest in full on March 31, 2016. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate.

 

 

 

 

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(13) Represents a grant of performance shares on May 15, 2014. If the 2018 Performance Goal is achieved and Mr. Patterson has remained in continuous employment with the Company, then 50,000 performance shares shall become non-forfeitable and fully vested on May 15, 2019. If the 2023 Performance Goal is achieved and Mr. Patterson has remained in continuous employment with the Company, then the remaining 50,000 performance shares shall become non-forfeitable and fully vested on May 15, 2024. Both awards include shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate. This award is described in detail in the “What We Pay and Why: Elements of Compensation” section of this proxy statement.
(14) Represents a grant of performance shares on March 13, 2014. If the Performance Goal is achieved and Mr. Van Hulle has remained in continuous employment with the Company, then the performance shares shall become non-forfeitable and fully vested on March 13, 2017. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate. This award is described in detail in the “What We Pay and Why: Elements of Compensation” section of this proxy statement.
(15) Represents stock-settled SARs granted on February 16, 2011 that vested in one-third increments on each of the first three anniversaries of the grant date.
(16) Represents stock-settled SARs granted on February 14, 2012 that vest in increments upon the attainment of target prices (based on PolyOne’s closing stock price and sustained for thirty consecutive trading days) for our common shares as follows: one-third at $16.07; one-third at $16.80; and one-third at $17.53. The stock price hurdles were attained in 2012. The SARs are now subject to time-based vesting that lapse in one-third increments on each of the first three anniversaries of the grant date.
(17) Represents stock-settled SARs granted on February 15, 2013 that vest in increments upon the attainment of target prices (based on PolyOne’s closing stock price and sustained for thirty consecutive trading days) for our common shares as follows: one-third at $25.39; one-third at $26.54; and one-third at $27.70. The stock price hurdles were attained in 2013. The SARs are now subject to time-based vesting that lapse in one-third increments on each of the first three anniversaries of the grant date.
(18) Represents stock-settled SARs granted on February 11, 2014 that vest in increments upon the attainment of target prices (based on PolyOne’s closing stock price and sustained for thirty consecutive trading days) for our common shares as follows: one-third at $38.58; one-third at $40.33; and one-third at $42.08. The first two stock price hurdles were attained in 2014. The SARs are also subject to time-based vesting that lapse in one-third increments on each of the first three anniversaries of the grant date.

Number of Securities Underlying Unexercised Options (#) Exercisable (column (b))

This column shows the fully vested and exercisable SARs held by the Named Executive Officers as of December 31, 2014.

Number of Securities Underlying Unexercised Options (#) Unexercisable (column (c))

This column shows the unvested and unexercisable SARs held by the Named Executive Officers as of December 31, 2014.

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (column (d))

This column shows shares underlying unexercised SARs awarded under the Amended Long-Term Incentive Plan that have not been earned as an applicable stock price hurdle has not been met.

Option Exercise Price (column (e))

This column shows the base price for each SAR reported in columns (b), (c) and (d).

Option Expiration Date (column (f))

This column shows the expiration dates for each SAR reported in columns (b), (c) and (d).

 

 

 

 

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Number of Shares or Units of Stock That Have Not Vested (column (g))

This column shows the unvested RSUs held by the Named Executive Officers as of December 31, 2014. The RSUs have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The amounts in this column include all dividend equivalents declared from 2012 through 2014 attributable to the awards (including the 4th quarter dividend declared on October 8, 2014 to shareholders of record on December 15, 2014, which was paid on January 7, 2015).

Market Value of Shares or Units of Stock That Have Not Vested (column (h))

The market value is determined based on the closing stock price of our common shares on December 31, 2014 ($37.91).

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (column (i))

This column shows the performance shares held by the Named Executive Officers as of December 31, 2014 that have not vested and have not been earned. The performance shares have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The amounts in this column include all dividend equivalents declared in 2013 and 2014 attributable to the awards (including the 4th quarter dividend declared on October 8, 2014 to shareholders of record on December 15, 2014, which was paid on January 7, 2015).

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (column (j))

The market value is determined based on the closing stock price of our common shares on December 31, 2014 ($37.91).

2014 Option Exercises and Stock Vested

 

     Option Awards      Stock Awards  

Name (a)

   Number of Shares
Acquired on Exercise
(#) (b)
     Value Realized on
Exercise
($) (c)
     Number of Shares
Acquired on Vesting
(#) (d)
     Value Realized
on Vesting
($) (e)
 

R.M. Patterson

     —          —           17,268        622,356   

S.D. Newlin

     129,967        2,778,565         89,754        3,234,758   

B.C. Richardson

     —          —           —          —     

J.V. Van Hulle

     —           —           9,202         331,675   

J.A. McAlindon

     6,000         120,258         2,378         85,714   

M.E. Kahler

     —          —           9,202        331,675   

T.J. Kedrowski

     18,100        454,968         9,202        331,675   

K.M. Smith

     31,633         739,523         9,202         331,675   

Option Awards (columns (b) and (c))

Column (b) reports exercises of SARs during 2014 on an aggregate basis. The value realized on exercise (column (c)) was computed by determining the difference between the closing stock price of the underlying securities at exercise and the exercise price of the SARs. All of Mr. Newlin’s transactions involved SARs that were exercised pursuant to a trading plan established under Rule 10b5-1 of the Exchange Act.

Stock Awards (columns (d) and (e))

Column (d) reports the vesting and release of RSUs during 2014 on an aggregate basis. All of the stock awards that vested and were released in 2014 were granted on February 16, 2011 and released on February 16, 2014. The amounts in this column include shares awarded through the dividend equivalent right feature of the Amended Long-Term Incentive Plan.

 

 

 

 

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The value realized on release (column (e)) was computed by multiplying the number of vested RSUs, including the corresponding dividend equivalent rights, by the closing stock price of the underlying securities on the trading day prior to the vesting date, in accordance with the Amended Long-Term Incentive Plan. Column (e) also includes cash-in-lieu of equity received by each Named Executive Officer, as we do not release partial shares resulting from dividend equivalents.

2014 Pension Benefits

 

Name

  

Plan Name

   Number of Years
Credited Service
(#)
     Present Value of
Accumulated
Benefit

($)
   

Payments During
Last Fiscal Year
($)

R.M. Patterson

   N/A      —           —        —  

S.D. Newlin

   Supplemental retirement benefit under employment agreement, as amended      —           9,381,104 (1)    —  

B.C. Richardson

   N/A      —           —        —  

J.V. Van Hulle

   N/A      —           —        —  

J.A. McAlindon

   N/A      —           —        —  

M.E. Kahler

   N/A      —           —        —  

T.J. Kedrowski

   N/A      —           —        —  

K.M. Smith

  

PolyOne Merged Pension Plan

The Geon Company Section 401(a)(17)
Benefit Restoration Plan

    

 

17.4

17.4

  

  

    

 

805,920

1,105,191

(2)(3) 

(2)(4) 

 

—  

21,075

 

(1) Although lump-sum payments are not allowed under the terms of the arrangement, the Present Value of Accumulated Benefit shown above for Mr. Newlin is the lump-sum value as of December 31, 2014 of the annual benefit payment earned as of December 31, 2014 that will be payable under Mr. Newlin’s Letter Agreement providing for a 15-year certain and continuous life annuity upon Mr. Newlin’s Qualifying Separation from Service (as such term is defined herein). The assumptions used to determine the lump-sum value are a discount rate of 3.95% and a post-retirement mortality using the RP-2014 White Collar Mortality Table described in Internal Revenue Service Regulation §1.430(h)(3). No pre-retirement decrements are assumed.
(2) Although lump-sum payments are not allowed under either plan, the Present Value of Accumulated Benefit shown above for Mr. Smith is the lump-sum value as of December 31, 2014 of the monthly pension benefit earned as of December 31, 2014 that would be payable under that plan for Mr. Smith’s life beginning at age 62 (the earliest age prior to the normal retirement age of 65 when benefits can commence unreduced for early retirement). With the exception of the portion of Mr. Smith’s Benefit Restoration Plan that has already been distributed, the assumptions used to determine the lump-sum value are a discount rate of 3.95% and a post-retirement mortality rate using the RP-2014 White Collar Mortality Table. No pre-retirement decrements are assumed.
(3) Mr. Smith’s Present Value of Accumulated Benefit includes four additional years of pension service. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $620,884 instead of the $805,920 shown in the table. Subsequent earnings under the qualified and nonqualified plan were frozen effective March 20, 2009.
(4) Mr. Smith’s Present Value of Accumulated Benefit includes four additional years of pension service. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $842,084 instead of the $1,105,191 shown in the table. Subsequent earnings under the qualified and nonqualified plan were frozen effective March 20, 2009.

Mr. Smith is eligible, along with certain other employees, to receive pension payments under the Qualified Pension Plan, as well as the Benefit Restoration Plan. These plans existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna and generally benefited all nonunion employees of Geon.

 

 

 

 

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The Benefit Restoration Plan provides benefits that are in addition to those offered under the Qualified Pension Plan. Benefits are calculated under a formula similar to that of the Qualified Pension Plan, but without the compensation and benefit limits imposed by the Internal Revenue Code. The benefits under the Benefit Restoration Plan are offset by benefits provided under the Qualified Pension Plan. The Qualified Pension Plan makes available a pension that is paid from funds in trust provided through contributions by us. Any pension benefit provided under the Benefit Restoration Plan is paid from our general assets.

The amount of Mr. Smith’s pension depends on a number of factors including monthly Final Average Earnings (“FAE”) and years of benefit service to us (“Benefit Service”). FAE is determined based on the highest four consecutive calendar years of an employee’s earnings. Earnings include salary, overtime pay, holiday pay, vacation pay and certain incentive payments including annual cash bonuses, but exclude awards under long-term incentive programs and the match contributed by us in the qualified savings plans. The Qualified Pension Plan provides a monthly lifetime benefit equal to 1.15% times FAE times Benefit Service plus 0.45% times FAE in excess of 2002 Covered Compensation (as defined by the Internal Revenue Code) times Benefit Service limited to 35 years.

A retirement-eligible employee can elect to commence vested benefit payments as early as age 55 in lieu of waiting to age 65. However, the benefit described above is subject to reduction in recognition of the additional payments that are received because of early commencement. The reduction for early retirement is determined differently depending on whether the employee terminated employment before or after attaining age 55. If an employee terminates employment on or after age 55 and commences his or her benefit before age 62, the benefit payments would be reduced by 0.5% per month. If an employee terminates employment before age 55 and commences his or her benefit before age 65, the reduction is more severe and is determined on an actuarially equivalent basis. No reduction will occur if an employee (1) terminates employment on or after age 55 and commences his or her benefit on or after age 62 or (2) terminates employment before age 55 and commences his or her benefit at age 65.

The normal form of payment provides that an employee will receive his or her benefit in a lifetime payment with a minimum of 60 monthly payments guaranteed. Married participants receive payments in an actuarially equivalent 50% joint and survivor form. Other actuarially equivalent monthly lifetime forms of payments are available if elected by a married participant with spousal agreement. Lump-sum payments are not available.

In general, if a married, vested participant dies prior to commencing his pension benefit, then the spouse is eligible to receive the benefit that would have otherwise been payable had the participant terminated employment on the day he died, survived to his normal retirement date and elected a 50% joint and survivor form of payment and then immediately died. The 50% joint and survivor form provides the surviving spouse with monthly lifetime payments at the participant’s normal retirement age equal to 50% of the benefit that otherwise would have been payable. Payments can begin prior to the participant’s normal retirement age but may be reduced for early commencement.

The Qualified Pension Plan and Benefit Restoration Plan were frozen to new entrants effective December 31, 1999. Benefit Service was frozen effective December 31, 2002 in both plans and, effective March 20, 2009, earnings under both plans were frozen for all participants. We decided to freeze these plans following a comprehensive retirement benefits review, during which the Compensation Committee examined whether our retirement programs were consistent with PolyOne goals, including fairness to all associates and competitiveness in the marketplace. We annually assess our retirement programs for market competitiveness as well as relevant business conditions.

Messrs. Patterson, Richardson, Van Hulle, Kahler, and Kedrowski as well as Ms. McAlindon do not participate in a defined benefit plan with PolyOne.

We offer a defined contribution retirement benefit to all eligible PolyOne participants through the Qualified Savings Plan. The Qualified Savings Plan provides employees with individual retirement accounts funded by (1) an automatic PolyOne-paid contribution of 2% of employee eligible earnings, and (2) an employer-paid match on employee contributions dollar-for-dollar on the first 3% of earnings the employee contributes plus $0.50 per dollar on the next 3% of earnings the employee contributes. The Internal Revenue Code limits employee contributions to the Qualified Savings Plan to $17,500 ($23,000 for participants over age 50) and earnings upon which employee/employer contributions are limited to $260,000 in 2014.

 

 

 

 

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The PolyOne Supplemental Retirement Benefit Plan is an unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan, but without the Internal Revenue Code contribution and earnings limitations. Together, these plans are intended to provide the Named Executive Officers with retirement income equivalent to that provided to all other employees who are not impacted by the Internal Revenue Code limitations under the Qualified Savings Plan. As a result, the Named Executive Officers can expect a retirement income that replaces a portion of their income while employed, similar to that received by all other employees participating in the Qualified Savings Plan who are not impacted by the Internal Revenue Code limitations.

During 2008, the Compensation Committee reviewed Mr. Newlin’s total compensation package among the peer companies and across the broader general industry. The Compensation Committee determined that it was in the best interests of PolyOne and our shareholders to provide a supplemental retirement benefit for him that would be competitive with industry practices and serve as an additional retention vehicle. Mr. Newlin’s employment agreement (which provides for the terms of Mr. Newlin’s employment) was amended and restated on February 21, 2008 to comply with Code Section 409A, further amended and restated on July 16, 2008 to include certain retirement benefits, and further amended and restated on March 6, 2014 by the Letter Agreement in connection with his retirement as President and Chief Executive Officer and transition to Executive Chairman, effective May 15, 2014.

Specifically, the Letter Agreement provides that Mr. Newlin will be entitled to annual supplemental retirement payments upon a Qualifying Separation from Service (as defined below), payable in the form of a 15-year certain and continuous life annuity, conditioned upon Mr. Newlin’s execution of a release and waiver. If Mr. Newlin dies or incurs a disability prior to a Qualifying Separation from Service (as defined below), he or his designated beneficiary will be entitled to certain supplemental retirement payments. Generally, the definition of a Qualifying Separation from Service is if Mr. Newlin’s employment is involuntarily terminated other than for Serious Cause (as defined in his Letter Agreement) or Mr. Newlin terminates employment for good reason following a change of control of PolyOne. In addition, he and his eligible dependents will have access to the same retiree medical benefits made available to all retirement eligible employees under our standard retiree medical benefit program, to the extent we continue to maintain such programs for the benefit of our retirees and their eligible dependents. Notwithstanding the foregoing, Mr. Newlin will forfeit his rights to receive the supplemental retirement payments and retiree medical benefits if he engages in any conduct prohibited by his non-competition agreement or any acts that constitute fraud, embezzlement, or disclosure of confidential information or deliberate dishonesty.

2014 Nonqualified Deferred Compensation

 

Name

   Aggregate
Balance at
12/31/2013
($)(1)
     Executive
Contributions
in Last FY
($)(2)
     Registrant
Contributions
in Last FY
($)(3)
     Aggregate
Earnings
in Last FY
($)(4)
     Aggregate
Withdrawals/
Distributions
($)
    Aggregate
Balance at
Last FYE
($)(1)(5)
 

R.M. Patterson

     1,686,376         187,620         71,985         125,403         —          2,071,384   

S.D. Newlin

     1,991,132         164,893         180,693         38,519         —          2,375,237   

B.C. Richardson

     13,433         98,105         20,672         2,616         —          134,826   

J.V. Van Hulle

     448,275         41,971         31,922         46,749         —          568,917   

J.A. McAlindon

     10,247         —           11,115         579         —          21,941   

M.E. Kahler

     289,004         22,519         26,454         15,200         —          353,177   

T.J. Kedrowski

     275,494         15,292         23,096         21,489         —          335,371   

K.M. Smith

     639,181         15,691         19,057         22,512         169,255 (6)      527,186   

 

(1) Includes amounts reported as compensation for the Named Executive Officers in our summary compensation tables for previous years. Mr. Smith also had a balance in a frozen nonqualified deferred compensation plan sponsored by our predecessor company, Geon. The Geon Company Section 401(a)(17) Benefit Restoration Plan account balance and distribution are reflected in this table. The following aggregate amounts of executive and employer contributions were included in our summary compensation tables for fiscal years 2006 - 2013.

 

 

 

 

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Name

   Executive Contributions
FY 2006 - 2013
($)
     Registrant Contributions
FY 2006 - 2013
($)
 

R.M. Patterson

     883,790         243,377   

S.D. Newlin

     880,830         965,118   

B.C. Richardson

     10,000         3,250   

J.V. Van Hulle

     —           —     

J.A. McAlindon

     —           —     

M.E. Kahler

     8,836         10,239   

T.J. Kedrowski

     60,964         90,895   

K.M. Smith

     156,112         193,409   

 

(2) These reflect actual amounts earned by the Named Executive Officers in 2014 that have been deferred on a voluntary basis. The amounts reflected in this column are included in the 2014 Summary Compensation Table of this proxy statement as follows:

 

Name

   2014 “Salary”
Column

($)
     2014 “Non-Equity Incentive
Plan Compensation” Column

($)
 

R.M. Patterson

     92,712         94,908   

S.D. Newlin

     53,307         111,586   

B.C. Richardson

     88,308         9,797   

J.V. Van Hulle

     21,392         20,579   

J.A. McAlindon

     —           —     

M.E. Kahler

     17,600         4,919   

T.J. Kedrowski

     11,607         3,685   

K.M. Smith

     8,418         7,273   

 

(3) This column contains contributions by us in the last fiscal year under the PolyOne Supplemental Retirement Benefit Plan, which provides for benefits in excess of amounts permitted to be contributed under our qualified retirement plan, as follows: (a) our cash contributions in amounts equal to 100% on the first 3% of employee contributions plus 50% on the next 3% of employee contributions (the “Company Match”) limited to 4.5% of eligible earnings, and (b) a retirement contribution by us in an amount equal to 2% of eligible earnings (the “Retirement Contribution”). The following table breaks out the contributions made by us in 2014 under each of the types of contributions described above:

 

Name

   Company Match
($)
     Retirement Contribution
($)
 

R.M. Patterson

     49,836         22,149   

S.D. Newlin

     125,095         55,598   

B.C. Richardson

     14,311         6,361   

J.V. Van Hulle

     22,100         9,822   

J.A. McAlindon

     5,109         6,006   

M.E. Kahler

     18,314         8,140   

T.J. Kedrowski

     14,810         8,286   

K.M. Smith

     13,193         5,864   

All of these amounts are included in the “All Other Compensation” column (column (i)) of the 2014 Summary Compensation Table of this proxy statement.

 

 

 

 

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(4) Because amounts included in this column do not include above-market or preferential earnings, none of these amounts are included under the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column (column (h)) of the 2014 Summary Compensation Table of this proxy statement.
(5) A portion of the balance reflected in the table represents amounts earned by the Named Executive Officers, which they have elected to defer on a voluntary basis.
(6) Mr. Smith was entitled to a distribution of $50,643 from the PolyOne Supplemental Retirement Benefit Plan as well as a distribution of $118,612 from the Benefit Restoration Plan.

We currently offer participation in a nonqualified deferred compensation retirement plan, called the PolyOne Supplemental Retirement Benefit Plan, to specified employees that include the Named Executive Officers. This plan is an unfunded, nonqualified plan that provides benefits similar to our Qualified Savings Plan, but without Internal Revenue Code contribution and earnings limitations. The Named Executive Officers are permitted to elect to defer up to 50% of their salary and annual bonus into the plan. The amounts deferred are credited to accounts selected by the executive that mirror the investment alternatives available in our qualified retirement plan, except that participants cannot elect the PolyOne stock fund with respect to amounts deferred under the nonqualified plan. Each Named Executive Officer who is a participant in the PolyOne Supplemental Retirement Benefit Plan is 100% vested in that portion of his account that is attributable to elective deferrals and the Company Match. Further, Named Executive Officers who are participants in the plan are vested in the Retirement Contribution (as defined above) upon three years of service. A Named Executive Officer’s vested accounts will commence to be paid to such executive within 30 days of the date of the executive’s termination of employment with us in the form of payment selected by the executive (lump-sum payment or payment in installments over a period not exceeding 10 years) on an election form received by us.

The PolyOne Supplemental Retirement Benefit Plan and the frozen plan are subject to the rules of Code Section 409A, which restricts the timing of distributions. Thus, payment, or commencement of payment, to the Named Executive Officers of their accounts may need to be delayed by six months following the executive’s separation from service with us.

Potential Payments Upon Termination or Change of Control

Summary of Potential Payments

Except for Messrs. Kedrowski and Smith, our Named Executive Officers’ employment may be terminated under several possible scenarios. In certain of these scenarios, our plans, agreements, arrangements or typical practices would provide severance benefits in varying amounts to the executive. We do not have employment agreements with our Named Executive Officers other than Mr. Newlin. We do have management continuity agreements (“Continuity Agreements”) with each of our Named Executive Officers that provide for specified benefits upon a termination of employment following a change of control, and each of our Named Executive Officers (other than Mr. Newlin) participate in our Executive Severance Plan. Further, other Company plans, agreements and arrangements may provide for specified benefits upon a change of control (or for acceleration of such benefits). Severance and other benefits that are payable upon a termination of employment or upon a change of control are described below. The table following this narrative discussion summarizes the amounts payable upon termination or a change of control under certain circumstances to our current Named Executive Officers, assuming that the executive’s employment terminated on December 31, 2014.

Management Continuity Agreements

We have entered into Continuity Agreements with all of our elected corporate officers, including each of the Named Executive Officers. The Continuity Agreements serve to encourage these key executives to carry out their duties and provide continuity of management in the event of a “change of control” of PolyOne. For these purposes, “change of control” has the meaning ascribed to such term in the Continuity Agreement. The Named Executive Officers are generally provided with severance protection for a period of two or three years (depending on the executive) should his or her employment be terminated either by us without cause or by the executive for good reason (as defined in the Continuity Agreements) following a change of control. The Continuity Agreements are automatically renewed each year unless we give prior notice of termination and do not provide any assurance of continued employment.

 

 

 

 

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If a change of control occurs and the Named Executive Officer’s employment is terminated by us or a successor for reasons other than “cause” or is terminated voluntarily by the individual for “good reason,” then the Continuity Agreements generally provide that the individual would be entitled to receive:

 

    A lump-sum payment equal to two or three years (depending on the executive) of the base salary in effect prior to the change of control;

 

    A lump-sum payment equal to two or three times (depending on the executive) the executive’s targeted annual incentive amount in effect prior to the change of control;

 

    Employee health and welfare benefits for up to two or three years (depending on the executive) at active employee rates;

 

    An allowance equal to one year of financial planning/tax preparation that the executive was entitled to receive prior to the change of control;

 

    A lump-sum payment equal to the employer contributions required to be made to certain retirement plans on behalf of the executive for the year of the change of control or the year of termination;

 

    A tax gross-up for any excise tax due under the Internal Revenue Code for any so-called “golden parachute” payments made under the agreements (but only for Named Executive Officers with “grandfathered” Continuity Agreements). In 2011, the Compensation Committee eliminated the tax gross-up benefit for so called “excess parachute payments” under Code Section 280G from the Continuity Agreements provided to Named Executives Officers who were hired in or who had Continuity Agreements amended in 2011 and thereafter.

For these purposes “cause” and “good reason” have the meanings ascribed to such terms in the Continuity Agreements. None of the agreements contain a single trigger or a modified single trigger for benefits.

To the extent a payment or benefit that is paid or provided under a Continuity Agreement would also be paid or provided under the terms of another plan, program, agreement, arrangement or legal requirement, the executive would be entitled to payment under the Continuity Agreement or such other applicable plan, program, agreement, arrangement or legal requirement, whichever provides for greater benefits, but would not be entitled to benefits under both the Continuity Agreement and such other plan, program, agreement, arrangement or legal requirement.

In addition, in order to receive payment and benefits under the Continuity Agreement, the Named Executive Officer must execute a release of claims against PolyOne and comply with confidentiality, non-compete and non-solicitation covenants for two or three years, depending on the executive.

Executive Severance Plan

Effective May 25, 2006, and as amended most recently effective May 15, 2014, the Compensation Committee adopted the Executive Severance Plan. The Executive Severance Plan provides for severance payments upon certain terminations of employment to our Named Executive Officers and other elected officers who are expected to make substantial contributions to our success and thereby provide for stability and continuity of operations. All of the Named Executive Officers participate in the Executive Severance Plan except Mr. Newlin, whose severance benefits are provided through his Letter Agreement.

The Executive Severance Plan provides that, if PolyOne terminates the employment of a Named Executive Officer for any reason other than cause, death or disability, then the Named Executive Officer will be entitled to receive:

 

    Salary continuation payments in an amount equal to two times the Named Executive Officer’s base salary;

 

    A payment in an amount equal to the Named Executive Officer’s annual bonus under the Annual Plan as earned for the year in which the separation occurs;

 

 

 

 

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    Reimbursement for the costs previously paid by us for continued coverage for two years in our medical, dental and vision plans, plus any taxes imposed as a result of such reimbursement; and

 

    Fees for outplacement benefits for a period of 12 months.

We do not have to make payments to Named Executive Officers under the Executive Severance Plan if they are entitled to receive payment under a Continuity Agreement discussed above. In addition, in order to receive payments under the Executive Severance Plan, the Named Executive Officer must execute a release of claims against us and is subject to confidentiality, non-compete, non-solicitation and non-disparagement covenants during the two-year severance period.

Employment Agreement with Mr. Newlin

We have entered into an employment agreement with Mr. Newlin, pursuant to which he serves as our Executive Chairman, and formerly served as our Chairman, President and Chief Executive Officer. No other Named Executive Officer executed an employment agreement. The agreement provides that if (1) Mr. Newlin’s employment is terminated by us without Serious Cause (as defined below), (2) Mr. Newlin is not otherwise entitled to receive benefits under his Continuity Agreement (discussed above), (3) Mr. Newlin agrees to standard non-compete and non-solicitation covenants for a period of 36 months following the date of termination and (4) Mr. Newlin executes a release of claims against PolyOne, he will be entitled to 36 months of salary continuation, car allowance and financial planning/tax preparation allowance, an annual incentive amount as earned for the year in which the termination of employment occurs and reimbursement for the costs previously paid by us while Mr. Newlin was employed for the continued coverage in our medical and dental plans for 24 months (but not life insurance, short-term disability or long-term disability), plus any taxes imposed as a result of such reimbursement.

Mr. Newlin is also entitled to supplemental retirement benefits under his employment agreement if his employment is involuntarily terminated other than for Serious Cause or if Mr. Newlin terminates employment for “good reason” (as defined above) following a change of control. For this purpose, Serious Cause has the meaning ascribed to such term in the PolyOne Employee Transition Plan as amended from time to time, and also includes any breach of the employment agreement or certain other agreements between us and Mr. Newlin. These supplemental retirement benefits are described more fully in the “2014 Pension Benefits” section of this proxy statement.

In connection with his retirement as President and Chief Executive Officer and transition to Executive Chairman, Mr. Newlin’s employment agreement was amended, via Letter Agreement effective May 15, 2014. In addition to various changes to his compensation as described in the “Other Aspects of Our Compensation Programs” section of this proxy statement, the Letter Agreement also provides Mr. Newlin with five years of furnished office space and an administrative assistant in the event he retires from the Company. If Mr. Newlin is terminated for any reason other than for Serious Cause, then the Company will waive the requirement that he be in the continuous employ of the Company in order for his outstanding long-term incentive awards to become non-forfeitable. The Letter Agreement also eliminates any term in his outstanding long-term incentive awards that provides for prorated vesting and/or payment of an award upon separation from service or for forfeiture of the awards if his employment is terminated before a specified time. The modification reflects the Company’s strong performance over Mr. Newlin’s tenure and the Company’s desire to maintain a strong alignment of interest between Mr. Newlin and shareholders by allowing him to retain his outstanding equity while serving as our Executive Chairman.

Mr. Newlin will be entitled to substantially the same severance benefits as described above if he terminates his employment for “Good Reason,” which is generally defined as a material diminution in authority, duties or responsibilities or any action or inaction by the Company that constitutes a material breach of Mr. Newlin’s Letter Agreement.

Severance Agreement with Former Executive

PolyOne and Mr. Kedrowski agreed that Mr. Kedrowski would step down from his position as Executive Vice President of Global Operations and Process Improvement effective September 5, 2014. In conjunction with his departure, Mr. Kedrowski received the benefits that he was entitled to under the Executive Severance Plan. The benefits include: $824,000 representing 24 months of salary continuation, a payment equal to the amount calculated under the Annual Plan as earned in 2014 of $228,566, a payment of $14,262 for accrued but unused vacation,

 

 

 

 

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24 months of accrued post-separation medical, vision and dental coverage reimbursements totaling approximately $39,000 and accrued post-separation outplacement services totaling $8,300. Any of the above noted items that are deemed to be deferred compensation pursuant to Code Section 409A are subject to a six month delay, and will be paid the first day of the seventh month following his separation from service.

PolyOne and Mr. Kedrowski executed the Severance Agreement whereby Mr. Kedrowski provided a release of claims, and an acknowledgement that he remains subject to certain confidentiality, non-competition and non-interference obligations.

A portion of Mr. Kedrowski’s unvested long-term incentive awards were forfeited as a result of his separation from service pursuant to the terms of the applicable grant agreements. For details regarding the awards that were forfeited, see the description in footnote 3 to the 2014 Summary Compensation Table of this proxy statement. Effective October 8, 2014, PolyOne modified certain RSUs previously granted to him, which would have otherwise been forfeited under the terms of his applicable grant agreements upon his separation from service. For details regarding the modified awards, see the description in footnote 9 to the 2014 Grants of Plan-Based Awards table of this proxy statement.

Retirement of Former Executive

On June 6, 2014, Mr. Smith retired from his position as Senior Vice President and Chief Information and Human Resources Officer. In accordance with the 2014 Annual Plan, Mr. Smith received a payout of his short-term incentive based upon his eligible earnings in 2014. In consideration of Mr. Smith’s 25 years of service to the Company, including his significant contributions since our transformation began in 2006, the continued employment requirement of Mr. Smith’s unvested long-term incentive awards was waived; such awards will otherwise be governed by the standard terms of each award, including any performance criteria. See the 2014 Grants of Plan-Based Awards table of this proxy statement for more information. Mr. Smith retained his vested equity awards, which will be governed by the standard terms of each award. See the Outstanding Equity Awards at 2014 Fiscal Year-End table of this proxy statement for more information. Mr. Smith’s retirement benefits will consist of those benefits accrued and vested under the standard terms and conditions of the plans in which he participated. See the “2014 Pension Benefits” section of this proxy statement for more information.

Annual Plan

All of our Named Executive Officers participate in the Annual Plan. The Annual Plan provides that, if a change of control occurs, we are required to pay each participant an interim lump-sum cash payment equal to the product of the number of months that have elapsed in the calendar year in which the change of control occurs and one-twelfth of the participant’s target annual incentive award opportunity in effect prior to the change of control. We have the obligation to make a final payment under the terms of the Annual Plan for the plan year in which the change of control occurs, but may offset the amount of any interim payment made. For these purposes “change of control” has the meaning ascribed to such term in the Annual Plan. In addition, the Annual Plan provides for a payout, as earned, upon the death, disability or retirement of a participant, including the Named Executive Officers.

Long-Term Incentive Awards

Each of the grant agreements evidencing outstanding awards of RSUs, stock options, SARs, cash-settled performance units and performance shares provide that the vesting of such award will accelerate upon a change of control. For this purpose, a “change of control” is defined in the Amended Long-Term Incentive Plan. The grant agreements also provide for prorated vesting upon death, disability and retirement, as those terms are defined in the grant agreements, with the exception of Mr. Newlin’s outstanding awards, which were modified by his Letter Agreement to eliminate any prorated vesting provisions, as well as the March 13, 2013 performance shares granted to Mr. Patterson, the May 15, 2014 performance shares granted to Mr. Patterson, and the March 13, 2014 performance shares and RSUs granted to Mr. Van Hulle (all of which do not provide for prorated vesting upon retirement).

Retirement Benefits

Mr. Newlin’s supplemental retirement benefit under his Letter Agreement also has provisions relating to the termination of his employment with us. These payments are described more fully in the disclosure provided in connection with the “2014 Pension Benefits” section of this proxy statement.

 

 

 

 

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The PolyOne Supplemental Retirement Benefit Plan that is made available to all of our Named Executive Officers has provisions relating to the termination of employment with PolyOne. These payments are described more fully in the disclosure provided in the “2014 Nonqualified Deferred Compensation” section of this proxy statement.

Payments and Benefits Upon Termination — As of the End of Fiscal Year 2014

The following table summarizes the amounts payable to the Named Executive Officers (except for Messrs. Kedrowski and Smith) upon termination under specified circumstances or upon a change of control. The data below assumes that each triggering event listed in the tables occurred on December 31, 2014 and that the stock price for our common shares is $37.91, the closing stock price of our common shares on December 31, 2014.

 

Name

 

Benefits and Payments

  Voluntary
Termination
($)
    Retirement (1)
($)
    Disability
($)
    Death
($)
    Involuntary
Termination
with Cause
($)
    Involuntary
Termination
without
Cause
($)
    Termination
without
Cause or for
Good Reason
Following a
Change of
Control
($)
 

R.M. Patterson

  Cash Severance Benefit (2)     —          —          —          —          —          1,600,000        4,800,000   
  Annual Incentive for Year of Termination     —          —          902,346        902,346        —          902,346        902,346   
  Cash-Settled Performance Units (3)     —          —          680,550        680,550        —          —          928,500   
  Restricted Stock Units (4)     —          —          1,832,408        1,832,408        —          —          2,676,667   
  Performance Shares (5)     —          —          925,216        925,216        —          —          4,780,249   
  Unexercisable Stock Options/SARs (4)     —          —          626,643        626,643        —          —          740,744   
  Health and Welfare Benefits (6)     —          —          —          —          —          59,808        89,712   
  Financial Planning Services (8)     —          —          —          —          —          —          13,000   
  Outplacement Benefits     —          —          —          —          —          8,300        —     
  Lump Sum for Defined Contribution Plans     —          —          —          —          —          —          312,000   
  Excise Tax Gross-up (9)     —          —          —          —          —          —          5,410,466   

S.D. Newlin

  Cash Severance Benefit (2)     —          —          —          —          —          3,150,000        6,615,000   
  Annual Incentive for Year of Termination     —          1,634,325        1,634,325        1,634,325        —          1,634,325        1,634,325   
  Cash-Settled Performance Units (3)     —          4,263,000        4,263,000        4,263,000        —          4,263,000        4,263,000   
  Restricted Stock Units (4)     —          11,740,306        11,740,306        11,740,306        —          11,740,306        11,740,306   
  Unexercisable Stock Options/SARs (4)     —          3,414,792        3,414,792        3,414,792        —          3,414,792        3,414,792   
  Health and Welfare Benefits (6)     —          —          —          —          —          51,960        77,940   
  Other Benefits (7)     —          —          —          —          —          72,000        —     
  Financial Planning Services (8)     —          —          —          —          —          39,000        13,000   
  Lump Sum for Defined Contribution Plans     —          —          —          —          —          —          429,980   
  Excise Tax Gross-up (9)     —          —          —          —          —          —          —     
  Incremental Pension Benefit (10)     —          —          —          —          —          —          —     

B.C. Richardson

  Cash Severance Benefit (2)     —          —          —          —          —          1,080,000        1,782,000   
  Annual Incentive for Year of Termination     —          —          479,685        479,685        —          479,685        479,685   
  Cash-Settled Performance Units (3)     —          —          70,193        70,193        —          —          210,600   
  Restricted Stock Units (4)     —          —          370,279        370,279        —          —          1,034,703   
  Unexercisable Stock Options/SARs (4)     —          —          21,883        21,883        —          —          49,416   
  Health and Welfare Benefits (6)     —          —          —          —          —          54,144        54,144   
  Financial Planning Services (8)     —          —          —          —          —          —          10,000   
  Outplacement Benefits     —          —          —          —          —          8,300        —     
  Lump Sum for Defined Contribution Plans     —          —          —          —          —          —          115,830   

 

 

 

 

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Name

 

Benefits and Payments

  Voluntary
Termination
($)
    Retirement (1)
($)
    Disability
($)
    Death
($)
    Involuntary
Termination
with Cause
($)
    Involuntary
Termination
without
Cause
($)
    Termination
without
Cause or for
Good Reason
Following a
Change of
Control
($)
 

J.V. Van Hulle

  Cash Severance Benefit (2)     —          —          —          —          —          870,000        1,348,500   
  Annual Incentive for Year of Termination     —          —          278,657        278,657        —          278,657        278,657   
  Cash-Settled Performance Units (3)     —          —          329,000        329,000        —          —          453,000   
  Restricted Stock Units (4)     —          —          846,303        846,303        —          —          1,766,746   
  Performance Shares (5)     —          —          256,507        256,507        —          —          956,403   
  Unexercisable Stock Options/SARs (4)     —          —          292,580        292,580        —          —          345,926   
  Health and Welfare Benefits (6)     —          —          —          —          —          54,144        54,144   
  Financial Planning Services (8)     —          —          —          —          —          —          10,000   
  Outplacement Benefits     —          —          —          —          —          8,300        —     
  Lump Sum for Defined Contribution Plans     —          —          —          —          —          —          87,650   

J.A. McAlindon

  Cash Severance Benefit (2)     —          —          —          —          —          630,000        976,500   
  Annual Incentive for Year of Termination     —          —          181,045        181,045        —          181,045        181,045   
  Cash-Settled Performance Units (3)     —          —          127,319        127,319        —          —          202,320   
  Restricted Stock Units (4)     —          —          305,565        305,565        —          —          915,362   
  Unexercisable Stock Options/SARs (4)     —          —          114,771        114,771        —          —          145,868   
  Health and Welfare Benefits (6)     —          —          —          —          —          52,848        52,848   
  Financial Planning Services (8)     —          —          —          —          —          —          10,000   
  Outplacement Benefits     —          —          —          —          —          8,300        —     
  Lump Sum for Defined Contribution Plans     —          —          —          —          —          —          63,470   

M.E. Kahler

  Cash Severance Benefit (2)     —          —          —          —          —          704,520        1,638,009   
  Annual Incentive for Year of Termination     —          —          269,233        269,233        —          269,233        269,233   
  Cash-Settled Performance Units (3)     —          —          293,800        293,800        —          —          395,400   
  Restricted Stock Units (4)     —          —          580,749        580,749        —          —          779,738   
  Unexercisable Stock Options/SARs (4)     —          —          290,189        290,189        —          —          340,532   
  Health and Welfare Benefits (6)     —          —          —          —          —          33,024        49,536   
  Financial Planning Services (8)     —          —          —          —          —          —          10,000   
  Outplacement Benefits     —          —          —          —          —          8,300        —     
  Lump Sum for Defined Contribution Plans     —          —          —          —          —          —          106,470   
  Excise Tax Gross-up (9)     —          —          —          —          —          —          —     

 

(1) Retirement is generally defined as the executive’s attainment of age 55 with 10 years of service or age 58 with 5 years of service. Pursuant to the terms of the Letter Agreement, in the case of Mr. Newlin, a voluntary termination would be deemed a retirement for purposes of his outstanding equity awards and other benefits.
(2) Cash severance benefits are payable (a) in the event of an involuntary termination without cause, under either the Executive Severance Plan or, in the case of Mr. Newlin, his Letter Agreement, or (b) in the event of an involuntary termination following a change of control, under the Continuity Agreement.
(3) Except for Mr. Newlin, cash-settled performance units granted in 2014 and 2013 reflect a prorated target amount in cases of retirement, disability or death. Mr. Newlin’s awards reflect the full value award at target in cases of retirement, disability, death and involuntary termination without cause as a result of the modifications to his awards per the terms of his Letter Agreement. For cash-settled performance units granted in 2012, awards reflect actual attainment. In the case of involuntary termination following a change of control, awards granted in 2014 and 2013 reflect the full value award at target and awards granted in 2012 reflect actual attainment for all Named Executive Officers.
(4) Except for Mr. Newlin, RSUs and Unexercisable Stock Options/SARs granted in 2014, 2013 and 2012 reflect a prorated amount of the award in cases of retirement, disability or death. Mr. Newlin’s awards reflect the full value in cases of retirement, disability, death and involuntary termination without cause as a result of the modifications to his awards per the terms of his Letter Agreement. In the case of involuntary termination following a change of control, all of these awards reflect their full value.

 

 

 

 

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(5) Performance shares granted in 2013 and 2014 reflect a prorated amount in cases of disability or death. In the case of involuntary termination following a change of control, all awards reflect their full value.
(6) Continuation of health and welfare benefits are provided under the Executive Severance Plan or, in the case of Mr. Newlin, his Letter Agreement, in the event of an involuntary termination without cause, or the Continuity Agreement in the event of an involuntary termination following a change of control.
(7) Mr. Newlin’s Letter Agreement provides for continuation of certain benefits following an involuntary termination without cause. The Letter Agreement also provides for five years of the use of furnished PolyOne Corporation office space and an administrative assistant in the event of Mr. Newlin’s voluntary termination.
(8) Continuation of financial planning benefits are provided under the terms of the Continuity Agreements, or in the case of Mr. Newlin, his Letter Agreement.
(9) Represents the amount of excise tax that would be imposed on the executive under Code Section 280G and a tax gross-up amount relating to the payment of such tax. We eliminated the tax gross-ups for excise taxes imposed under Code Section 280G from any Continuity Agreements provided to Named Executive Officers who were hired in or who had Continuity Agreements amended in 2011 and thereafter. Messrs. Richardson and Van Hulle and Ms. McAlindon are not provided a Code Section 280G gross-up benefit under their Continuity Agreements; instead, their severance benefits will be reduced in the event that an excise tax would be imposed on them under Code Section 280G in an amount sufficient to eliminate the excise tax.
(10) Mr. Newlin is the only Named Executive Officer disclosed in this table that is entitled to a pension benefit. The supplemental retirement benefit is provided pursuant to his Letter Agreement. As there was no acceleration or enhancement of Mr. Newlin’s pension benefit upon a triggering event, the amount was reported as zero. Details regarding Mr. Newlin’s pension benefits are described in the “2014 Pension Benefits” section of this proxy statement.

Compensation Committee Interlocks and Insider Participation

During 2014, none of our executive officers was a member of the board of directors or compensation committee of any other company where the relationship would be construed to constitute a committee interlock within the meaning of the rules of the SEC.

Policy on Related Person Transactions

Under our Guidelines for Ethical Business Conduct, we prohibit all employees, including our officers and non-employee Directors from engaging in activities that would impact their ability to carry out their duties in an independent, objective fashion. We also have adopted a written “Policy for Review of Transactions Between the Company and Its Directors, Executive Officers and Other Related Persons.” This policy requires an initial review by our Chief Legal Officer, Chief Financial Officer and Ethics and Compliance Officer, in consultation with each other (the “Reviewing Team”), of all transactions, arrangements or relationships with us in which any Director, executive officer or other related person (including immediate family members of all related persons) has a direct or indirect material interest, and which involve $50,000 or more. Further, the Audit Committee must review and approve any transaction that the Reviewing Team determines may be required to be disclosed pursuant to Item 404 of Regulation S-K under the Exchange Act or any similar provision. In reviewing the related person transactions, the Reviewing Team and the Audit Committee consider the following factors: (1) whether the transaction is in conformity with our Guidelines for Ethical Business Conduct and is in our best interests; (2) whether the transaction would be in the ordinary course of our business; (3) whether the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party; (4) the disclosure standards set forth in Item 404 of Regulation S-K under the Exchange Act or any similar provision; and (5) whether the transaction could call into question the status of any Director or Director nominee as an independent director under the NYSE rules.

Risk Assessment of the Compensation Programs

As part of the Compensation Committee’s annual governance process, in December 2014 we conducted a formal assessment of our compensation programs to ensure that they do not create risks that are reasonably likely to have a material adverse effect on PolyOne. With guidance from the Consultant, our Internal Audit and Human

 

 

 

 

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Resources groups completed the initial risk assessment of our compensation programs, including those that extend beyond the executive officers. The assessment was reviewed by our legal department and the Consultant, with these groups providing additional analysis and validation of the results. The results of the compensation risk assessment were presented to the Compensation Committee at its December 2014 meeting. The areas we considered in determining that our compensation programs do not pose a material risk to PolyOne included our:

 

•       Compensation Philosophy

•       Payout Curves

•       Clawback Policy

•       Compensation Plan Design

•       Weightings of Incentive Plan Measures

•       Anti-Hedging/Anti-Pledging Policies

•       Balanced Pay Mix

•       Compensation Plan Governance and Oversight

•       Stock Ownership Requirements

•       Timing on Incentive Payouts

•       Selection of Performance Measures

•       Pay-for-Performance Validation

As a result of the assessment, the Compensation Committee concluded that our compensation structures are appropriate and no material risks were identified. Several process improvements have been made as a result of the assessment that will continue to ensure the appropriate level of oversight is in place for these programs.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth in this proxy statement with management. Based on this review and discussion, the Compensation Committee has recommended to the Board the inclusion of the Compensation Discussion and Analysis in this proxy statement and in PolyOne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

The Compensation Committee

of the Board of Directors

William H. Powell, Chairperson

Gordon D. Harnett

Kerry J. Preete

Farah M. Walters

William A. Wulfsohn

 

 

 

 

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AMENDED AND RESTATED EQUITY PLAN

 

PROPOSAL 3 — APPROVAL OF THE AMENDED AND RESTATED POLYONE CORPORATION 2010 EQUITY AND PERFORMANCE INCENTIVE PLAN

On March 4, 2010, our Board unanimously approved and adopted, subject to the approval of our shareholders at the 2010 annual meeting, the PolyOne Corporation 2010 Equity and Performance Incentive Plan (the “Equity Plan”). On May 12, 2010, our shareholders approved the Equity Plan, which became effective on that date. The Equity Plan affords the Compensation Committee of our Board the ability to design compensatory awards that are responsive to our needs, and includes authorization for a variety of awards designed to advance our interests and long-term success by encouraging stock ownership among our Directors, officers and other employees.

On March 9, 2012, our Board unanimously approved and adopted, subject to the approval of our shareholders at the 2012 Annual Meeting, the First Amendment to the Equity Plan (the “First Amendment”). On May 9, 2012, our shareholders approved the First Amendment, which became effective on that date. The First Amendment increased the maximum number of common shares that could be issued or transferred with respect to awards under the Equity Plan by 2,000,000 shares and increased certain other numerical common share limits contained in the Equity Plan. The Equity Plan, as amended, is referred to as the Amended Equity Plan.

On March 6, 2015, our Board unanimously approved and adopted, subject to the approval of our shareholders at the 2015 Annual Meeting, the Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan (the “Restated Plan”).

Our principal reason for amending and restating the Amended Equity Plan is to increase the number of common shares available for issuance or transfer under the Amended Equity Plan. The Restated Plan will increase the maximum number of shares available for awards from 5,000,000 common shares, par value $0.01 per share, to 6,200,000 common shares, an increase of 1,200,000 common shares (or 1.35% of our outstanding common shares as of March 2, 2015). Shareholder approval of the Restated Plan is also intended to constitute approval of the material terms of the Restated Plan for qualified performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). This approval is intended to preserve our ability to potentially design certain types of awards under the Restated Plan so that they may be able to satisfy the requirements for “performance-based compensation,” and may permit us to benefit from certain tax deductions, under Section 162(m) of the Code.

The Restated Plan also includes various other substantive changes and non-substantive and conforming changes. The material changes are described under the heading “Material Changes to the Amended Equity Plan” below, which is followed by a description of the highlights of the Restated Plan and then a summary description of the entire Restated Plan.

The affirmative vote of a majority of the common shares voting on this proposal 3 is required for approval of the amendment and restatement, provided that the total number of common shares cast with respect to proposal 3 represents over 50% in interest of all common shares entitled to vote on the proposal.

The following summary of the material provisions of the Restated Plan is not intended to be exhaustive and is qualified in its entirety by the terms of the Restated Plan, a copy of which is set forth as Appendix B to this proxy statement.

 

 

 

 

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AMENDED AND RESTATED EQUITY PLAN

 

Why We Believe You Should Vote for this Proposal 3

Share Increase

The Restated Plan authorizes the Compensation Committee to provide equity-based compensation in the form of stock options, SARs, restricted stock, restricted stock units RSUs, performance shares, performance units, common shares, and dividend equivalents for the purpose of providing our nonemployee directors, and our officers and other key executives and employees (and those of our subsidiaries), and certain nonemployees who perform employee functions, incentives and rewards for service and/or performance. Some of the key features of the Restated Plan that reflect our commitment to effective management of equity and incentive compensation are set forth below in this subsection.

We believe that our future success depends in part on our ability to attract, motivate and retain high quality employees and directors and that the ability to provide equity-based and incentive-based awards under the Restated Plan is critical to achieving this success. We would be at a severe competitive disadvantage if we could not use stock-based awards to recruit and compensate our nonemployee directors, officers and other employees.

The use of common shares as part of our compensation program is also important to our continued success because we believe it fosters a pay-for-performance culture that is an important element of our overall compensation philosophy. We believe that equity compensation motivates directors and employees to create shareholder value because the value such individuals realize from their equity compensation is based on our stock price performance. Equity compensation also aligns the compensation interests of our directors and employees with the investment interests of our shareholders and promotes a focus on long-term value creation, because our equity compensation awards are subject to vesting and/or performance criteria.

As of March 2, 2015, only 960,927 shares remained available for issuance under the Amended Equity Plan. The additional number of shares requested in the Restated Plan should provide for grants for at least the next three years. If the Restated Plan is not approved, however, we may be compelled to increase significantly the cash component of our nonemployee director and employee compensation, which may not necessarily align director or employee compensation interests with the investment interests of our shareholders as well as equity-based awards. Replacing equity awards with cash would also increase cash compensation expense and use cash that would be better utilized if reinvested in our businesses or returned to our shareholders.

The following includes aggregated information regarding the overhang and dilution associated with the Amended Equity Plan and the potential overhang or dilution that would result if our proposed share increase under the Restated Plan is approved. This information is as of March 2, 2015. As of that date, there were 89,179,123 common shares outstanding:

 

    Outstanding full-value awards (restricted stock, RSUs,and performance shares), assuming that the outstanding awards achieve maximum performance: 920,177 shares (1.03% of our outstanding common shares);

 

    Outstanding stock options and SARs: 1,774,223 shares (1.99% of our outstanding common shares) (outstanding stock options and SARs have an average exercise price of $24.60846 and an average remaining term of 7.29 years);

 

    Total common shares subject to outstanding awards, as described above (full-value awards, stock options and SARs): 2,694,400 shares (3.02% of our outstanding common shares);

 

    Total common shares available for future awards under the Amended Equity Plan: 960,927 shares (1.08% of our outstanding common shares);

 

    The total number of common shares subject to outstanding awards (2,694,400 shares), plus the total number of shares available for future awards, under the Amended Equity Plan (960,927 shares), represents a current overhang percentage of 4.10% (in other words, the potential dilution of our shareholders represented by the Amended Equity Plan);

 

    Proposed additional common shares available for future issuance under the Restated Plan: 1,200,000 shares (1.35% of our outstanding common shares - this percentage reflects the dilution of our shareholders that would occur if the Restated Plan is approved); and

 

 

 

 

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AMENDED AND RESTATED EQUITY PLAN

 

    The total common shares subject to outstanding awards (2,694,400 shares), plus the total shares available for future awards under the Amended Equity Plan as of that date (960,927 shares), plus the proposed additional shares available for future issuance under the Restated Plan (1,200,000 shares), represent a total fully-diluted overhang of 4,855,327 shares (5.44%) under the Restated Plan.

Based on the closing price on the NYSE for our common shares on March 2, 2015 of $40.36 per share, the aggregate market value as of that date of the 1,200,000 additional common shares requested for issuance under the Restated Plan was $48,432,000.

In 2012, 2013 and 2014, we granted awards under the Equity Plan and the Amended Equity Plan covering 1,361,303, 978,152 and 682,527 common shares, respectively. Based on our year-end basic weighted average common shares outstanding for those three years of 89,442,020, 95,114,402 and 89,338,258, respectively, for the three-year period 2012-2014, our average burn rate was 1.10% (individual year’s burn rates were 1.52% for 2012, 1.03% for 2013 and .76% for 2014).

In determining the number of shares to request for approval under the Restated Plan, our management team worked with Morrow & Co. LLC, our proxy solicitor and the Compensation Committee to evaluate a number of factors including our recent share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating our proposal for the Restated Plan.

If the Restated Plan is approved, we intend to utilize the shares authorized under the Restated Plan to continue our practice of incentivizing key individuals through annual equity grants. We currently anticipate that the shares requested in connection with the approval of the Restated Plan combined with the shares available for future awards will last for about three years, based on our historic grant rates and the approximate current stock price, but could last for a longer or shorter period of time if actual practice does not match historic rates or our stock price changes materially. As noted below, the Compensation Committee would retain full discretion under the Restated Plan to determine the number and amount of awards to be granted under the Restated Plan, subject to the terms of the Restated Plan, and future benefits that may be received by recipients under the Restated Plan are not determinable at this time.

We believe that we have demonstrated a commitment to sound equity compensation practices in recent years. We recognize that equity compensation awards dilute shareholder equity, so we have carefully managed our equity incentive compensation. Our equity compensation practices are intended to be competitive and consistent with market practices, and we believe our historical share usage has been responsible and mindful of shareholder interests, as described above.

Section 162(m)

In addition to increasing the maximum number of shares available under the Amended Equity Plan, the Restated Plan continues to enable us to structure certain awards so that they may be able to qualify as “qualified performance-based compensation” under Section 162(m) of the Code. If our equity awards qualify as “qualified performance-based compensation” for purposes of Section 162(m) of the Code, then we would generally be able to receive a federal income tax deduction for certain compensation paid to our Chief Executive Officer and the other three most highly compensated executive officers (other than our Chief Financial Officer) in excess of $1 million for any taxable year. While we believe it is in the best interests of the company and our shareholders to have the ability to potentially grant “qualified performance-based compensation” under Section 162(m) of the Code, we may decide to grant compensation that will