clw-def14a_20190513.htm

 

SCHEDULE 14A INFORMATION

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

(Amendment No.     )

Filed by the Registrant                              Filed by a Party other than the Registrant  

Check the appropriate box:

 

Preliminary Proxy Statement

 

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

 

Definitive Proxy Statement

 

 

Definitive Additional Materials

 

 

Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12

 

CLEARWATER PAPER CORPORATION

 

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

 

 

(1)

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(2)

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(3)

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(4)

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(5)

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Fee paid previously with preliminary materials.

 

 

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

 

 

 

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(2)

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Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

Clearwater Paper Corporation 2019

 


CLEARWATER PAPER CORPORATION

ANNUAL MEETING OF STOCKHOLDERS

May 13, 2019

 

NOTICE OF ANNUAL MEETING

AND

PROXY STATEMENT

 

 

 

 

 

Clearwater Paper Corporation 2019

 


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

Date:

Monday, May 13, 2019

 

Time:

9:00 a.m. Pacific

 

Place:

Grand Hyatt, 721 Pine Street, Seattle, Washington 98101

 

Record Date:

March 18, 2019

 

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Annual Meeting of Stockholders, we urge you to vote and submit your proxy in order to ensure the presence of a quorum.  Each attendee must present the proper form of documentation (as described in the section “Annual Meeting Information”) to be admitted.

 

 

 

 

 

 

 

 

 

You may vote your shares in one of four ways:

 

 

 

MAIL

Return the proxy card by mail in the postage paid envelope

 

INTERNET

go to www.proxyvote.com

 

TELEPHONE

call the toll free number

1-800-690-6903

 

IN PERSON

Attend the annual meeting with your ID.

 

Meeting Agenda / Proposals

We are holding this meeting to:

 

elect two directors to the Clearwater Paper Corporation Board of Directors;

 

ratify the appointment of our independent registered public accounting firm for 2019;

 

hold an advisory vote to approve the compensation of our named executive officers; and

 

transact any other business that properly comes before the meeting.

Financial and other information concerning Clearwater Paper is contained in our Annual Report to Stockholders for the fiscal year ended December 31, 2018. This proxy statement and our 2018 Annual Report to Stockholders are available on our website at www.clearwaterpaper.com by selecting “Investor Relations” and then “Financial Information & SEC Filings.” Additionally, and in accordance with SEC rules, you may access our proxy materials at www.proxyvote.com which does not have “cookies” that identify visitors to the site.

 

Notice Regarding the Availability of Proxy Materials

By Order of the Board of Directors,

On or about April 2, 2019 we mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) to most of our stockholders containing instructions on how to access our 2019 Proxy Statement and 2018 Annual Report to Stockholders. Some of our stockholders, including stockholders that hold shares in one of our Clearwater Paper 401(k) Savings Plans, were not mailed the Notice and instead were mailed paper copies of our 2019 Proxy Statement and 2018 Annual Report on or about April 2, 2019.

MICHAEL S. GADD

Senior Vice President, General Counsel

and Corporate Secretary


Clearwater Paper Corporation 2019

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Proxy Statement Summary

This summary highlights important information you will find elsewhere in this Proxy Statement. It is only a summary and you should review the entire Proxy Statement before you vote.

Meeting Information

Date and Time

Location

Record Date

Mailing Date

Monday, May 13, 2019
9:00 a.m. Pacific

Grand Hyatt, 721 Pine Street, Seattle, Washington 98101

March 18, 2019

On or about
April 2, 2019

Meeting Agenda / Proposals

Proposal

Board of Directors’ Recommendation

1. Elect two directors to the Clearwater Paper Corporation Board of Directors

FOR each nominee

2. Ratify the appointment of our independent registered public accounting firm for 2019

FOR

3. Hold an advisory vote to approve the compensation of our named executive officers

FOR

4. Transact any other business that properly comes before the meeting

 

Information regarding our executive compensation program can be found under the “Executive Compensation Discussion and Analysis” section found later in this proxy.

Director Nominees

This table provides a summary of some of the information regarding our two director nominees.  For more information regarding these nominees and our other directors see the “Board of Directors” section later in this Proxy Statement.

Name

Age

Director Since

Current Principal Occupation

Independent

Current Committee Memberships

Other Public Boards

Audit

Compensation

Nominating and Corporate Governance

 

Kevin J. Hunt

67

2013

Director of Energizer Holdings, Inc

Yes

           •

 

1

William D. Larsson

73

2008

Director of Schnitzer Steel Industries, Inc.

Yes

 

         •        

1

Clearwater Paper Corporation 2019

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Corporate Governance Highlights

Independence

The Board currently has 5 members, 4 of whom are independent.

There are three standing committees made up entirely of independent directors.

Independent directors regularly meet without management present.

Board Practices

The Board and its standing committees perform self-evaluations on an annual basis.

Each standing committee operates under a committee charter.

The Board oversees risk management practices.

The Board regularly receives information concerning, and provides input on, succession planning.

The Board has adopted an insider trading policy, a related person policy, corporate governance guidelines, a code of business conduct and ethics, and a code of ethics for senior financial officers.

The Board and its committees met 31 times in 2018.

Leadership Structure

The Chair of the Board and the CEO are separate.

Majority Vote

There is majority voting in uncontested director elections.

Stock Ownership Requirements

We have a comprehensive insider trading policy that covers directors and officers.

We have an anti-hedging and anti-pledging policy for our stock.

Directors and executive officers all are required to satisfy minimum stock ownership requirements.


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TABLE OF CONTENTS

 

Proxy Statement Summary

 

(ii)

 

 

 

2018 Business Highlights

 

1

2018 Sustainability and Safety Success

 

2

 

 

 

INTERNET AVAILABILITY OF ANNUAL MEETING MATERIALS

 

3

 

 

 

ANNUAL MEETING INFORMATION

 

3

 

 

 

CORPORATE GOVERNANCE

 

8

 

 

 

Corporate Governance Guidelines; Code of Business Conduct and Ethics

 

8

Director Independence

 

8

Board Meetings

 

8

Communications with Directors

 

9

Nominees for Director

 

9

Committees of the Board

 

10

Board Leadership Structure

 

10

Board Role in Risk Oversight

 

11

Committee Membership

 

12

Compensation Committee Interlocks and Insider Participation

 

13

Transactions with Related Persons

 

14

 

 

 

BOARD OF DIRECTORS

 

15

 

 

 

Nominees for Election at this Meeting for a Term Expiring in 2022 (Class II)

 

15

Directors Continuing in Office until 2020 (Class III)

 

16

Directors Continuing in Office until 2021 (Class I)

 

16

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

18

 

 

 

COMPENSATION COMMITTEE REPORT

 

21

 

 

 

EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS

 

22

 

 

 

2018 Executive Summary

 

25

2016-2018 Compensation Outcomes

 

26

2018 Executive Compensation Program

 

28

Annual Incentives

 

31

2018 Long-Term Incentives

 

33

Other Compensation Matters

 

39

 

 

 

EXECUTIVE COMPENSATION TABLES

 

42

 

 

 

2018 Compensation

 

42

Post-Employment Compensation

 

46

Potential Payments Upon Termination or Change of Control

 

48

 

 

 

COMPENSATION OF DIRECTORS

 

54

 

 

 

AUDIT COMMITTEE REPORT

 

57

 

 

 

Fees Paid to Independent Registered Public Accounting Firm

 

57

 

 

 

GENERAL INFORMATION

 

58

 

 

 

PROPOSAL 1—ELECTION OF DIRECTORS

 

59

 

 

 

PROPOSAL 2—RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018

 

59

 

 

 

PROPOSAL 3—ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

 

60

 

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2018 Business Highlights

 

Strategic Priorities    
(Goals)

 

2018 Accomplishments

 

 

 

 

Enhance our leading position in at-home private label tissue

•Shelby, NC mill expansion:

oCompleted installation of and began production on two converting lines and warehousing; and

oContinued construction of our new paper machine

•Planned re-launch for ultra-quality tissue, including quality improvement, cost reduction & product transition

 

 

 

Protect our strong SBS paperboard business

•Produced record paperboard shipments

•Implemented price increases to address rising input costs

•Secured supply agreements with existing and new customers

 

 

 

Aggressively reduce our cost structure through robust decision making & processes

•Reduced freight, external warehousing & labor costs

•Implemented SG&A reductions to drive efficiencies & reduce costs

•Sold tissue mill in Ladysmith, Wisconsin to focus on producing premium & ultra-quality tissue for retail market

•Implemented Microsoft O365, companywide, to provide enhanced IT security & user experience  

•Continued focus on achieving full benefits of continuous pulp digester at Lewiston, Idaho site  

 

 

 

Maintain a prudent capital structure, achieve financial model & provide stockholders with attractive returns

•Aggressively managed business to mitigate balance sheet risk & reduce other discretionary capital expenditures

•Proactively restructured bank credit agreements to provide greater operating flexibility

 

 


Clearwater Paper Corporation 2019

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2018 SUSTAINABILITY and safety SUCCESS

 

Sustainability Goals

 

Accomplishments

 

 

 

 

 

Targeted improvements in three key areas—water use, waste and energy use

 

Decreased water consumption:
From our baseline, through 2018, we have achieved a 12% reduction in our water consumption.

Reduced waste-to-landfill:
To date decrease of 74% against long-term goal

 

Decreased energy consumption:
To date decrease of 8% against long-term goal

 

 

 

 

Recognized with two sustainability awards in 2018

 

2018 Leadership in Sustainability Award for Energy Efficiency/Greenhouse Gas (GHG) Reduction

•Presented by the American Forest & Paper Association

•Awarded for our Lewiston, Idaho pulp optimization project

•Project saved more than 100,000 pounds per hour of steam compared to the previous process

•Estimated reduction of 150,000 tons of GHG emissions per year (equivalent to removing approximately 30,000 passenger vehicles from the road)

2018 Diamond Award for Excellence in Environmental Leadership

•Presented by the Arkansas Environmental Federation

•Awarded for our Cypress Bend, Arkansas lime mud and fiber reduction project

•Project resulted in 27,500 tons per year reduction in landfill waste

 

 

 

 

Safety Achievements

•Company-wide lost time injury rate (time away from work due to workplace injuries) lower than industry average

•Implemented targeted leadership audits to deepen engagement in our safety process

Clearwater Paper Corporation 2019

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CLEARWATER PAPER CORPORATION

PROXY STATEMENT

for the

2019 ANNUAL MEETING OF STOCKHOLDERS

This proxy statement is being furnished to stockholders of Clearwater Paper Corporation in connection with the solicitation of proxies by our Board of Directors for use at our 2019 Annual Meeting of Stockholders, which is described below. References to “Clearwater Paper,” “the company,” “we,” “us” or “our” throughout this proxy statement mean Clearwater Paper Corporation.

INTERNET AVAILABILITY OF ANNUAL MEETING MATERIALS

Under Securities and Exchange Commission (“SEC”) rules, we have elected to make our proxy materials available to most of our stockholders over the Internet, rather than mailing paper copies of those materials to each stockholder. On or about April 2, 2019, we mailed to most of our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) directing stockholders to a website where they can access our 2019 Proxy Statement and 2018 Annual Report and view instructions on how to vote via the Internet or by phone. If you received the Notice and would like to receive a paper copy of the proxy materials, please follow the instructions printed on the Notice to request that a paper copy be mailed. Some of our stockholders were not mailed the Notice and were instead delivered paper copies of the documents accessible on the Internet.

ANNUAL MEETING INFORMATION

Date, Time and Place of the Meeting

The 2019 Annual Meeting of Stockholders will be held on Monday, May 13, 2019, at 9:00 a.m., local time, at the Grand Hyatt, 721 Pine Street, Seattle, Washington 98101.

Purpose of the Meeting

The purpose of the meeting is to:

 

elect two directors to our Board;

 

ratify the appointment of our independent registered public accounting firm for 2019;

 

hold an advisory vote to approve the compensation of our named executive officers; and

 

transact any other business that properly comes before the meeting.

Recommendation of the Board of Directors

Our Board unanimously recommends that you vote FOR each director nominee, FOR the ratification of the appointment of our independent registered public accounting firm for 2019, and FOR approval of the compensation of our named executive officers.

Clearwater Paper Corporation 2019

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Who May Vote

Stockholders who owned common stock at the close of business on March 18, 2019, the record date for the Annual Meeting, may vote at the meeting. For each share of common stock held, stockholders are entitled to one vote for as many separate nominees as there are directors to be elected and one vote on any other matter presented.

Proxy Solicitation

Certain of our directors, officers and employees and our proxy solicitor, D.F. King & Co. may solicit proxies on our behalf by mail, phone, fax, e-mail, or in person. We will bear the cost of the solicitation of proxies, including D.F. King’s fee of $6,000 plus out-of-pocket expenses, and we will reimburse banks, brokers, custodians, nominees and fiduciaries for their reasonable charges and expenses to forward our proxy materials to the beneficial owners of Clearwater Paper common stock. No additional compensation will be paid to our directors, officers or employees who may be involved in the solicitation of proxies.

Tabulation of Votes—Inspector of Election

Broadridge Financial Solutions, Inc., or Broadridge, will act as the inspector of election at the Annual Meeting and we will reimburse reasonable charges and expenses related to the tabulation of votes.

Voting

You may vote your shares in one of several ways, depending upon how you own your shares.

Shares registered directly in your name with Clearwater Paper (through our transfer agent, Computershare):

 

Via Internet: Go to www.proxyvote.com and follow the instructions. You will need to enter the Control Number printed on the Notice you received or if you received printed proxy materials, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card.

 

By Telephone: Call toll-free 1-800-690-6903 and follow the instructions. You will need to enter the Control Number printed on the Notice you received or if you received printed proxy materials, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card.

 

In Writing: If you received printed proxy materials in the mail and wish to vote by mail, complete, sign, and date your proxy card, and return it in the postage paid envelope that was provided to you, return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY, 11717, or provide it or a ballot distributed at the Annual Meeting directly to the Inspector of Election at the Annual Meeting when instructed.

Shares held in a Clearwater Paper 401(k) Savings Plan (through Fidelity Management Trust Company):

 

Via Internet: If you are a participant in the Clearwater Paper Represented 401(k) Plan or the Clearwater Paper 401(k) Plan (which we refer to as the “401(k) Savings Plans”), go to www.proxyvote.com and follow the instructions. You will need to enter the Control Number printed on the voting instruction form you received.

 

By Telephone: Call toll free 1-800-690-6903 and follow the instructions. You will need to enter the Control Number printed on the voting instruction form you received.

 

In Writing: Complete, sign, and date the proxy card that was mailed to you and return it in the envelope that was provided to you or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY, 11717.

Clearwater Paper Corporation 2019

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IMPORTANT NOTE TO 401(K) SAVING PLANS PARTICIPANTS: Broadridge, our proxy agent, must receive your voting instructions by 11:59 p.m., Eastern Daylight Time, on May 8, 2019, in order to tabulate the voting instructions of 401(k) Savings Plans participants who have voted and communicate those instructions to the 401(k) Savings Plans trustee, who will ultimately vote your shares.

If the 401(k) Savings Plan trustee does not timely receive voting directions from a 401(k) Savings Plans participant or beneficiary, the participant or beneficiary shall be deemed to have directed the 401(k) Savings Plan trustee to vote his or her company stock account in accordance with the pro rata percentage of voting directions received for the allocated stock. Conversely, if voting directions are timely received, they will proportionally control how unallocated or undirected company stocks are voted.

Shares held in “street” or “nominee” name (through a bank, broker or other nominee):

 

You may receive a Notice of Internet Availability of Proxy Materials or a separate voting instruction form from your bank, broker or other nominee holding your shares. You should follow the instructions in the Notice or voting instructions provided by your broker or nominee in order to instruct your broker or other nominee on how to vote your shares. The availability of telephone or Internet voting will depend on the voting process of the broker or nominee. To vote in person at the Annual Meeting, you must obtain a proxy, executed in your favor, from the holder of record.

 

If you are the beneficial owner of shares held in “street name” by a broker, then the broker, as the holder of record of the shares, must vote those shares in accordance with your instructions. If you do not give instructions to the broker, then your broker can vote your shares for “discretionary” items but cannot vote your shares for “non-discretionary” items.

If you vote via the Internet, by telephone or return a proxy card by mail, but do not select a voting preference, the persons who are authorized on the proxy card, voting instruction forms and through the Internet and telephone voting facilities to vote your shares will vote FOR each director nominee, FOR the ratification of the appointment of our independent registered public accounting firm for 2019 and FOR advisory approval of the vote on the compensation of our named executive officers. If you have any questions or need assistance in voting your shares, please contact D.F. King & Co. toll-free at 1-800-578-5378 or Robin Yim, Vice President, Investor Relations at 1-509-344-5906.

Revoking your Proxy

If you are a stockholder of record, you may revoke your proxy at any time before the Annual Meeting by giving our Corporate Secretary written notice of your revocation by mailing to Clearwater Paper Corporation, Corporate Secretary, 601 West Riverside Avenue, Suite 1100, Spokane WA, 99201 and by submitting a later-dated proxy, or you may revoke your proxy at the Annual Meeting by voting by ballot. Attendance at the meeting, by itself, will not revoke a proxy. If shares are registered in your name, you may revoke your proxy by telephone by calling 1-800-690-6903 and following the instructions or via the Internet by going to www.proxyvote.com and following the instructions.

If your shares are held in one of the 401(k) Savings Plans (through Fidelity Management Trust Company), you may revoke your proxy by telephone by calling 1-800-690-6903 and following the instructions or via the Internet by going to www.proxyvote.com and following the instructions. Broadridge, our proxy agent, must receive your revocation by 11:59 p.m., Eastern Daylight Time, on May 8, 2019, in order for the revocation to be communicated to the 401(k) Savings Plans trustee.

If you are a stockholder in “street” or “nominee” name, you may revoke your voting instructions by informing the bank, broker or other nominee in accordance with that entity’s procedures for revoking your voting instructions.

Clearwater Paper Corporation 2019

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Quorum

On March 18, 2019, the record date, we had 16,515,156 shares of common stock outstanding. Voting can take place at the Annual Meeting only if stockholders owning a majority of the total number of shares issued and outstanding and entitled to vote on the record date are present either in person or by proxy. Abstentions and broker non-votes will both be treated as present for purposes of determining the existence of a quorum.

Votes Needed

The affirmative vote of a majority of the common stock present in person or by proxy at the Annual Meeting and entitled to vote is required to elect each of the nominees for director listed in Proposal 1 and to ratify the appointment of our independent registered public accounting firm as set forth in Proposal 2.

The votes presented in Proposal 3 is an advisory vote and therefore are not binding on the company, our Compensation Committee or our Board of Directors. We, however, value the opinions of our stockholders. The Compensation Committee will, as it did with respect to previous stockholder advisory votes regarding named executive officer compensation, take into account the result of the advisory vote when determining future executive compensation.

The inspector of election will tabulate affirmative and negative votes, abstentions and broker non-votes. For Proposals 1 and 2 withheld votes and abstentions will have the same effect as negative votes. Broker non-votes will not be counted in determining the number of shares entitled to vote.

Majority Vote Standard in Uncontested Director Elections

We have adopted majority voting procedures for the election of directors in uncontested elections. In an uncontested election, each nominee is elected by the vote of a majority of the voting power of the capital stock issued and outstanding, present in person or by proxy and entitled to vote for the election of directors. As provided in our bylaws, an “uncontested election” is one in which the number of nominees equals the number of directors to be elected in such election.

In accordance with our bylaws, our Board of Directors may nominate or elect as a director only persons who agree to tender, promptly following his or her election or re-election to the Board, an irrevocable resignation that will be effective upon (i) the failure of the candidate to receive the required vote at the next annual meeting at which he or she faces re-election and (ii) the acceptance by the Board of such resignation.

If an incumbent director fails to receive the required vote for re-election in an uncontested election, the Nominating and Governance Committee determines whether such director’s resignation should be accepted and makes a recommendation to the Board, which makes the final determination whether to accept the resignation. The Board must publicly disclose its decision within 90 days from the date of certification of the election results. If a director’s resignation is accepted by the Board, then the Board may fill the resulting vacancy or may decrease the size of the Board.

Annual Meeting Attendance

We cordially invite and encourage all of our stockholders to attend the meeting. Persons who are not stockholders may attend only if invited by us. You should be prepared to present photo identification for admittance.

 

If you are a stockholder of record, you must bring a copy of the Notice or proxy card in order to be admitted to the meeting.

 

If you hold your shares through one of the 401(k) Savings Plans, you must bring your proxy card in order to be admitted to the meeting.

Clearwater Paper Corporation 2019

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If you own shares in “street” or “nominee” name, you must bring proof of beneficial ownership (e.g., a current broker’s statement) in order to be admitted to the meeting.

If you do not provide photo identification and comply with the other procedures outlined above, you may not be admitted to the Annual Meeting.

Other Matters Presented at Annual Meeting

We do not expect any matters, other than those included in this proxy statement, to be presented at the 2019 Annual Meeting. If other matters are presented, the individuals named as proxies will have discretionary authority to vote your shares on such matters.


Clearwater Paper Corporation 2019

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CORPORATE GOVERNANCE

Corporate Governance Guidelines; Code of Business Conduct and Ethics

We have established a corporate governance program to help guide our company and our employees, officers and directors in carrying out their responsibilities and duties as well as to set standards for their professional conduct. Our Board has adopted Corporate Governance Guidelines, or Governance Guidelines, which provide standards and practices of corporate governance that we have designed to help contribute to our success and to assure public confidence in our company. The company’s Governance Guidelines may be found on the company’s website at www.clearwaterpaper.com under “Investor Relations,” then “Corporate Governance.” In addition, all standing committees of the Board operate under charters that describe the responsibilities and practices of each committee.

We have adopted a Code of Business Conduct and Ethics, or Ethics Code, which provides ethical standards and corporate policies that apply to all of our directors, officers and employees. Our Ethics Code requires, among other things, that our directors, officers and employees act with integrity and the highest ethical standards, comply with laws and other legal requirements, engage in fair competition, avoid conflicts of interest, and otherwise act in our best interests. We have also adopted a Code of Ethics for Senior Financial Officers that applies to senior management and provides for accurate, full, fair and timely financial reporting and the reporting of information related to significant deficiencies in internal controls, fraud and legal compliance.

We have established procedures for confidentially and anonymously reporting concerns and potential violations regarding accounting, internal controls and auditing matters, as well as concerns regarding, or potential violations of, our ethics codes and other matters.

Director Independence

The role of our Board is to oversee and provide policy guidance on our business and affairs. The Board believes that it will best serve our stockholders if the majority of its members are independent. As of March 18, 2019, our Board had five members, four of whom are outside (non-employee) directors. The Chair of our Board, Alexander Toeldte, is an outside director. With the exception of Linda K. Massman, who serves as our current President and Chief Executive Officer, the Board has determined that none of our directors or their immediate family members have a material relationship with the company (either directly or as a partner, stockholder or officer of an organization that has a relationship with us), and none of our directors or their immediate family members are employees of our independent registered public accounting firm, KPMG LLP. All of our outside directors are independent within the meaning of the New York Stock Exchange, or NYSE, listing standards and our Director Independence Policy.

Our Board meets regularly in executive session without members of management present and as the Board or its individual members deem necessary. Mr. Toeldte, as the Chair, presides over these sessions. Each standing committee of the Board also meets in executive session regularly and as the committee or its individual members deem necessary. Our directors are also invited to attend the meetings of committees of which they are not members, and regularly do so.

Board Meetings

Our Board and its committees met a total of 31 times in 2018. All directors attended all meetings of the Board and all meetings of Board committees for which they were a committee member during 2018, except for one committee meeting missed by a single member of that committee and three Board meetings missed by a director for medical reasons. The Board does not have a policy requiring director attendance at annual meetings of our stockholders. However, all of our directors attended our 2018 annual stockholders meeting and we anticipate that all will attend our 2019 annual stockholders meeting.

Clearwater Paper Corporation 2019

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Communications with Directors

Stockholders and interested parties may contact our directors to provide comments, to report concerns, or to ask a question, by mail at the following address:

Corporate Secretary

Clearwater Paper Corporation

601 West Riverside Ave., Suite 1100

Spokane, Washington 99201

Stockholders and interested parties may also communicate with our directors as a group by using the form on our website at www.clearwaterpaper.com, by selecting “Investor Relations,” then “Corporate Governance” and “Contact the Board.” All communications received will be processed by our Corporate Secretary. We forward all communications, other than those that are unrelated to the duties and responsibilities of the Board, to the intended director(s).

Our Audit Committee has established procedures to address concerns and reports of potential irregularities or violations regarding accounting, internal controls and auditing matters. Employees may make such reports on a confidential and anonymous basis. All such reports are directed through an independent, third-party hotline provider and are routed directly to the Chair of the Audit Committee. The procedures and hotline number are available by going to our public website at www.clearwaterpaper.com, and selecting “Investor Relations,” then “Corporate Governance,” and “Procedures for the Reporting of Questionable Accounting and Auditing Matters.” Our employees may also access the procedures and hotline number through our intranet site.

Nominees for Director

Our Nominating and Governance Committee, or Nominating Committee, is responsible for identifying, evaluating, recruiting and recommending qualified candidates to our Board for nomination or election. The Board nominates directors for election at each annual meeting of stockholders and elects new directors to fill vacancies if they occur.

Our Board strives to find directors who are experienced and dedicated individuals with diverse backgrounds, perspectives and skills. Our Governance Guidelines contain membership criteria that call for candidates to be selected for their character, judgment, diversity of experience, business acumen and ability to act on behalf of all stockholders. In addition, we expect each director to be committed to enhancing stockholder value and to have sufficient time to effectively carry out his or her duties as a director. Our Nominating Committee also seeks to ensure that a majority of our directors are independent under NYSE rules as well as our policies, and that one or more of our directors is an “audit committee financial expert” under SEC rules.

Prior to our annual meeting of stockholders, our Nominating Committee identifies director nominees by first evaluating the current directors whose terms will expire at the annual meeting and who are willing to continue in service. These candidates are evaluated based on the criteria described above, the candidate’s prior service as a director, and the needs of the Board for any particular talents and experience. If a director no longer wishes to continue in service, if the Nominating Committee decides not to re-nominate a director, or if a vacancy is created on the Board because of a resignation or an increase in the size of the Board or other event, then the committee considers whether to replace such director or to decrease the size of the Board. If the decision is to replace a director, then the Nominating Committee considers various candidates for Board membership, including those suggested by committee members, by other Board members, a director search firm engaged by the committee, or our stockholders. Prospective nominees are evaluated by the Nominating Committee based on the membership criteria described above and set forth in our Governance Guidelines.

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A stockholder who wishes to recommend a prospective nominee to the Board for consideration by the Nominating Committee must notify our Corporate Secretary in writing at our principal executive office located at 601 West Riverside Avenue, Suite 1100, Spokane, WA 99201. Each notice must include the information about the prospective nominee as would be required if the stockholder were nominating a person to the Board under our Amended and Restated Bylaws, or bylaws. Such notice must be delivered to our offices by the deadline relating to stockholder proposals to be considered for inclusion in our proxy materials, as described under “General Information—Stockholder Proposals for 2020” in this proxy statement.

Each notice delivered by a stockholder who wishes to recommend a prospective nominee to the Board for consideration by the Nominating Committee generally must include the following information about the prospective nominee:

 

the name, age, business address and residence address of the person;

 

the principal occupation of the person;

 

the number of shares of Clearwater Paper common stock owned by the person;

 

a statement whether the person, if elected, intends to tender an irrevocable resignation effective upon (i) such person’s failure to receive the required vote for re-election and (ii) acceptance of such resignation by the Board;

 

a description of all compensation and other relationships during the past three years between the stockholder and the person;

 

any other information relating to the person required to be disclosed pursuant to Section 14 of the Exchange Act, and

 

the person’s written consent to serve as a director if elected.

The Nominating Committee may require any prospective nominee recommended by a stockholder to furnish such other information as the Nominating Committee may reasonably require to determine the eligibility of such person to serve as an independent director or that could be material to a stockholder’s understanding of the independence, or lack thereof, of such person.

The foregoing is only a summary of the detailed requirements set forth in our bylaws regarding director nominations by stockholders that would apply when a stockholder wishes to recommend a prospective nominee to the Board for consideration by the Nominating Committee. A more detailed description of the information that must be provided as to a prospective nominee is set forth in Article 3 of our bylaws, which are available on our website at www.clearwaterpaper.com by selecting “Investor Relations” and then “Corporate Governance.”

Committees of the Board

Our Board currently has three standing committees, as described below. The current charters of each of these committees are available on our website at www.clearwaterpaper.com by selecting “Investor Relations” and then “Corporate Governance.”

Board Leadership Structure

The Board has elected to appoint one of its independent members to serve as Chair. Our Chair, Alexander Toeldte, acts as the lead independent director and, among other responsibilities, provides an independent contact to allow the other directors to communicate their views and concerns to management as well as presides over non-management executive sessions of Board meetings. Our Board believes that an independent Chair with prior corporate governance experience combined with a President and CEO who manages the day-to-day operations of our company while also serving as a director, provides our Board with an optimal balance in terms of leadership structure at this point in time.

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In the future, the Board may elect to have the role of Board Chair and CEO performed by the same person, as other companies in our industry do. If we were to adopt that structure, the Board would appoint one of its independent members to serve as Vice Chair, who would act as the lead independent director and, among other responsibilities, provide an independent contact to allow the other directors to communicate their views, and concerns to management as well as preside over non-management executive sessions of Board meetings.

Board Role in Risk Oversight

One of the responsibilities of our Board is to provide oversight of our risk management practices to ensure appropriate risk management systems are employed throughout the company. Management, which is responsible for the day-to-day assessment and mitigation of our risks, utilizes an enterprise risk management, or ERM, program, which is an enterprise-wide program designed to enable effective and efficient identification and management of critical enterprise risks and to facilitate the incorporation of risk considerations into decision making. To assist and strengthen management’s risk assessment and mitigation efforts, we have a Risk Management Committee whose management members represent a company-wide perspective and provide subject matter expertise as part of our ERM process. Through the ERM process, management identifies, monitors and manages risks and regularly reports to the Board or a committee of the Board as to the assessment and management of risks.

The Board’s standing committees support the Board by regularly addressing various issues within their respective areas of oversight. The Audit Committee’s responsibilities include reviewing and overseeing major financial risk exposures and the steps management has taken to monitor and control these exposures. Management, on a regular basis, provides the committee with its assessment and mitigation efforts in regards to particular risks facing the company that have been identified through the ERM process or other processes. Our Audit Committee also reviews with our independent auditors the adequacy and effectiveness of our internal controls over financial reporting. Additionally, our Vice President, Internal Audit provides the Audit Committee with regular updates on our systems of internal controls over financial reporting, and our General Counsel reviews with the committee significant litigation, claims and regulatory and legal compliance matters.

The Compensation Committee assists the Board in fulfilling its risk management oversight responsibilities associated with risks arising from our compensation policies and programs. Each year management and the Compensation Committee review whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on the company. The Nominating Committee assists the Board in fulfilling its risk management oversight responsibilities associated with risks related to corporate governance structures and processes. Each of the committee chairs, as appropriate, reports to the full Board at regular meetings concerning the activities of the committee, any significant issues it has discussed and the actions taken by the committee.

The Board’s role in risk oversight is consistent with its leadership structure. We believe that our Board’s leadership structure facilitates its oversight of our risk management practices by combining the day-to-day knowledge of our business possessed by our President and CEO as a member of the Board, with the independence provided by our Chair and independent Board committees.

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Committee Membership

The following table shows the membership of each committee as of March 18, 2019:

 

 

 

 

 

 

 

Nominating

 

 

Audit

 

Compensation

 

and Governance

Name

 

Committee

 

Committee

 

Committee

Kevin J. Hunt

 

X

 

X (Chair)

 

 

William D. Larsson

 

X (Chair)

 

 

 

X

Linda K. Massman

 

 

 

 

 

 

John P. O'Donnell

 

 

 

X

 

X

Alexander Toeldte (Chair of the Board)

 

X

 

X

 

X (Chair)

Meetings in Fiscal 2018

 

10

 

5

 

4

 

Audit Committee  

Current Members:

William D. Larsson* (Chair) (since December 2009 and Chair since May 2017)
Kevin J. Hunt* (since September 2018)
Alexander Toeldte* (since January 2019)

Others Who Served in 2018:

Boh A. Dickey* (until his retirement at 2018 annual meeting)
Beth E. Ford** (until her resignation on September 1, 2018)
Richard D. Peach* (until his resignation on December 31, 2018)

* Audit Committee financial expert as defined by NYSE and SEC rules.
** Financially literate as defined by SEC rules.

Each member has been determined by the Board to be independent within the meaning of the NYSE listing standards and our Director Independence Policy.

Description and Key Responsibilities:

Assists the Board in its oversight of our accounting, financial reporting and internal control matters.

Oversees the quarterly review and annual audit of our financial statements (as more fully described in its charter.)

Exercises sole authority to select, compensate and terminate our independent registered public accounting firm as well as the committee’s own consultants and advisors.

Oversees the selection, compensation and termination of our Vice President, Internal Audit.

Oversees and administers our Related Person Transactions Policy. See “Transactions with Related Persons” below.

Pre-approves the independent registered public accounting firm’s audit fees and non-audit services and fees in accordance with criteria adopted by the committee.

 

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Compensation Committee

Current Members:

Kevin J. Hunt (Chair) (since January 2013 and Chair since May 2016)
John P. O’Donnell (since April 2016)
Alexander Toeldte (since May 2017)

Each member has been determined by the Board to be independent within the meaning of the NYSE listing standards and our Director Independence Policy.

Description and Key Responsibilities:

Oversees our executive compensation and benefits programs, including establishing the performance measurements and targets for executive officers’ incentive pay.

Annually reviews and approves executive compensation.

Coordinates with our Board Chair the annual performance review of our Chief Executive Officer.

Reviews the “Executive Compensation Discussion and Analysis” contained in this proxy statement and recommends its inclusion to the full Board for approval.

Oversees sole authority to select, compensate and terminate its own compensation consultants or other advisors.

 

  Nominating and Governance Committee

Current Members:

Alexander Toeldte (Chair) (since April 2016 and Chair since September 2018)
William D. Larsson (since January 2019)
John P. O’Donnell (since May 2018)

Others Who Served in 2018:

Beth E. Ford (until her resignation on September 1, 2018)

Each member has been determined by the Board to be independent within the meaning of the NYSE listing standards and our Director Independence Policy.

Description and Key Responsibilities:

Identifies, evaluates, recruits and recommends to the Board nominees for election as directors.

Develops and recommends to the Board corporate governance principles.

Oversees the evaluation of the Board and assists in the evaluation of management.

Director succession planning is also a focus of the Nominating Committee with striking a balance between board refreshment and the need for new or additional skill sets with maintaining the institutional knowledge about our business and operating history.

Exercises sole authority to select, compensate and terminate its own consultants and advisors.

Compensation Committee Interlocks and Insider Participation

Kevin J. Hunt, John P. O’Donnell, and Alexander Toeldte served as members of our Compensation Committee during 2018. All are outside directors, and none of our named executive officers served as a

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director or as a member of a compensation committee of any business entity employing any of our directors during 2018.  

Transactions with Related Persons

Securities laws require us to disclose certain business transactions that are considered related person transactions. In order to comply with these requirements, our Board has adopted a Related Person Transactions Policy that applies to our directors and executive officers, any beneficial owner of more than 5% of our voting stock, any immediate family member of any of the foregoing persons, and any entity that employs any of the foregoing persons, or in which any of the foregoing persons is a general partner, principal or 10% or greater beneficial owner. Transactions covered by this policy are those in which (a) we or any of our subsidiaries participate, (b) the amount involved exceeds $120,000, and (c) any related person had, has or will have a direct or indirect material interest, as defined in the policy.

Any proposed related person transaction is reviewed by our Audit Committee at its next regularly scheduled meeting, unless our General Counsel and Corporate Secretary determines that it is not practicable or desirable to wait until the next scheduled meeting for a particular transaction, in which case the Chair of the Audit Committee has the authority to review and consider the proposed transaction. Only those transactions determined to be fair and in our best interests are approved, after taking into account all factors deemed relevant by the Audit Committee, or its Chair, as the case may be. If the Chair approves any related person transaction, then that approval is reported to the Audit Committee at its next regularly scheduled meeting.

We did not conduct any transactions with related persons in 2018 that would require disclosure in this proxy statement or that required approval by the Audit Committee pursuant to the policy described above.

 

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BOARD OF DIRECTORS

Our Board of Directors is divided into three classes serving staggered three-year terms. The average tenure of our directors is 5.6 years.  At the Annual Meeting, our stockholders will be asked to elect two individuals to serve as directors until the 2022 Annual Meeting. See “Proposal No. 1—Election of Directors.” Our bylaws require our directors to be elected by a majority vote of the shares of common stock present or represented by proxy and entitled to vote at the Annual Meeting.

Below are the names and ages of our five directors as of the date of this proxy statement, the year each of them became a director, each director’s principal occupation or employment for at least the past five years, and other public company directorships held by each director during the past five years. Unless authority is withheld, the persons named as proxies in the voting materials made available to you or in the accompanying proxy will vote for the election of the nominees listed below. We have no reason to believe that any of these nominees will be unable to serve as a director. If any of the nominees becomes unavailable to serve, however, the persons named as proxies will have discretionary authority to vote for a substitute nominee.

Nominees for Election at this Meeting for a Term Expiring in 2022 (Class II)

Kevin J. Hunt

Mr. Hunt (age 67) has been a director since January 2013. From January 2013 to January 2014 he served as a consultant to ConAgra Foods, Inc., which acquired Ralcorp Holdings Inc. in January 2013. Mr. Hunt served as President, CEO and a Director of Ralcorp Holdings Inc., a producer of private-brand foods and food service products from January 2012 to January 2013. He served as Co-CEO and President of Ralcorp from 2003 until 2012 and as a director from 2004 until the company’s acquisition. Prior to that period, Mr. Hunt was Corporate Vice President and President of Bremner Food Group. Mr. Hunt served as an advisory director of Berkshire Partners, a private equity firm, from 2013 to 2015. He served as a director of Vi Jon, a manufacturer of private label personal care products owned by Berkshire Partners, from 2012 to 2017. Mr. Hunt has served as a director of Energizer Holdings, Inc. (NYSE: ENR), a manufacturer of primary batteries and portable lighting products, since its spin-off from Edgewell Personal Care Company in July 2015 and is a member of its Nominating and Compensation Committee. In August 2018, he began serving as a senior advisor for CH Guenther and Sons, a leading producer of branded and private-label food products. Our Nominating and Governance Committee believe his experience with private label consumer product companies, financial expertise, strategical thinking and both management and board experience make him an asset to our Board.

William D. Larsson

Mr. Larsson (age 73) has been a director since December 2008. Mr. Larsson served as Senior Vice President and CFO of Precision Castparts Corp., an industrial manufacturing company, from August 2000 until his retirement in December 2008. Mr. Larsson serves as a director and chair of the Nominating and Corporate Governance Committee and is a member of the Audit Committee of Schnitzer Steel Industries, Inc. (NASDAQ: SCHN), a manufacturer of recycled metal products. Mr. Larsson served as lead director of Schnitzer Steel from 2008 to 2014. Our Nominating and Governance Committee believe his experience as a founding director, as a financial expert, and experience as a lead independent director of another company make him an asset to our Board.

The Board and Nominating and Governance Committee considered that Mr. Larsson will have reached the age of retirement under our Corporate Governance Guidelines prior to the Annual

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Meeting and accordingly would not be eligible to be nominated for re-election to the Board at the Annual meeting absent a waiver of the Corporate Governance Guidelines age limit. The Board and Nominating and Governance Committee considered Mr. Larsson’s expertise, his extensive experience with the Company, his position as a founding Board member, as well as the needs of the Company and the benefit his continued service on the Board could provide and decided to waive the age limit with respect to Mr. Larsson this year to allow for his nomination for election at the Annual Meeting.

Directors Continuing in Office until 2020 (Class III)

John P. O’Donnell

Mr. O’Donnell (age 58) has been a director since April 2016.  Mr. O’Donnell has served as President and CEO of Neenah, Inc. (NYSE: NP), a global specialty materials company, since May 2011 and as a director since November 2010. He served as Neenah Inc.’s COO from June 2010 to May 2011 and as President, Fine Paper from 2007 to June 2010. Mr. O'Donnell was employed by Georgia-Pacific Corporation from 1985 until 2007 and held increasingly senior management positions in the Consumer Products division where he served as President of the North American Retail Business from 2004 through 2007, and as President of the North American Commercial Tissue business from 2002 through 2004. Our Nominating and Governance Committee believe Mr. O’Donnell’s leadership and consumer product paper industry experience make him an asset to our Board.

Directors Continuing in Office until 2021 (Class I)

Linda K. Massman

Ms. Massman (age 52) has been a director since January 2013. Ms. Massman has served as President and CEO of Clearwater Paper since January 1, 2013 and served as President and COO from November 2011 to December 2012. Ms. Massman served as CFO and Senior Vice President, Finance from May 2011 to November 2011, and as CFO and Vice President, Finance from December 2008 to May 2011. From September 2008 to December 2008, Ms. Massman served as Vice President of Potlatch Corporation pending completion of the spin-off of Clearwater Paper Corporation. From May 2002 to August 2008, Ms. Massman was Group Vice President, Finance and Corporate Planning, for SUPERVALU Inc., a grocery retail company. Ms. Massman has served as a director of TreeHouse Foods, Inc. (NYSE:THS) since 2016 and is a member of its Audit Committee.  She served as a member of their Nominating and Governance Committee from 2016 to 2018. Ms. Massman also served as a Director for Black Hills Corporation (NYSE: BKH), an energy company, from 2015 to 2018 and was a member of its Compensation Committee. In 2017, Ms. Massman served as board chair for the American Forest & Paper Association, the national trade association of the forest products industry. Our Nominating and Governance Committee believe Ms. Massman’s extensive experience with our Company and financial background make her an asset to our Board.

Alexander Toeldte

Mr. Toeldte (age 59) has been a director since April 2016.   Mr. Toeldte has served as the Chairman of Jitasa, Inc., a privately held provider of software and accounting services for non-profit organizations, since 2014 and is a member of its Compensation Committee. He served as a director of Xerium Technologies, Inc. (NYSE:XRM), a global provider of industrial consumable products and services from 2016 until the company’s sale in 2018 and was a member of its

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Compensation Committee and Governance Committee. He served as an operating director at Paine & Partners, LLC, a private equity firm from 2015 to 2016. Mr. Toeldte served as President, CEO and a director of Boise Inc., a paper manufacturer, from February 2008 to 2013 and at Boise Cascade and as its Executive Vice President, paper, packaging and newsprint segments from October 2005 to 2008.  Mr. Toeldte’s previous experience includes serving as Executive Vice President of Fonterra Co-operative Group from 2001 to 2003, a New Zealand based global dairy company, and CEO of Fonterra Enterprises.  Mr. Toeldte served in various capacities with Fletcher Challenge Limited Group from 1999 to 2001, a New Zealand based group with holdings in paper, forestry, building materials, and energy, including as CEO of Fletcher Challenge Building from 2000 to 2001 and Fletcher Challenge Paper from 1999 to 2000, as well as Group CFO in 1999.  He also served as Chair of the board of Fletcher Challenge Canada. Mr. Toeldte served as a partner at McKinsey & Company from 1986 to 1999 in Toronto, Brussels, Montreal, and Stockholm, and as Chairman of the American Forest & Paper Association in 2012. Our Nominating and Governance Committee believe Mr. Toeldte’s experience in the consumer products and paper industries, financial expertise, and leadership experience make him an asset to our Board.  

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE TWO NOMINEES FOR DIRECTOR.

 


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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

This table shows the number of shares of common stock beneficially owned, by each owner of more than 5% of common stock, each of our directors, each executive officer for whom compensation is reported in this proxy statement, and all directors and executive officers as a group. Except for our 5% holders, the table shows beneficial ownership as of March 7, 2019. The number of shares reported is based on data provided to us by the beneficial owners of the shares. The percentage ownership data is based on 16,515,156 shares of common stock outstanding as of March 7, 2019. Under SEC rules, beneficial ownership includes shares over which the person or entity exercises voting or investment power and also any shares that the person or entity has the right to acquire within 60 days of March 7, 2019. Except as noted, and subject to applicable community property laws, each owner has sole voting and investment power over the shares shown in this table.

 

 

Amount and Nature of

Common Stock

Beneficially Owned

 

 

 

 

 

Number of

Shares

Beneficially

Owned

 

Percent of

Class

 

Common

Stock

Units (1)

 

Stockholders Owning More Than 5%

 

 

 

 

 

 

 

BlackRock, Inc.

55 East 52nd Street

New York, NY 10055

 

2,476,961

(2)

15.00%

 

 

 

 

 

 

 

 

 

 

 

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA  19355

 

1,749,020

(3)

10.59%

 

 

 

 

 

 

 

 

 

 

 

Dimensional Fund Advisors LP

 

1,359,634

(4)

8.23%

 

 

 

Building One, 6300 Bee Cave Road

 

 

 

 

 

 

 

Austin, TX 78746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

T. Rowe Price Associates, Inc.

100 E. Pratt Street

Baltimore, MD 21202

 

1,013,609

(5)

6.14%

 

 

 

 

 

 

 

 

 

 

 

Goldman Sachs & Co. LLC and

Goldman Sachs Group, Inc.

200 West Street

New York, NY  10282

 

1,037,896

(6)

6.28%

 

 

 

 

 

 

 

 

 

 

 

Directors and Named Executive Officers

 

 

 

 

 

 

 

Kevin J. Hunt

 

-

 

*

 

13,306

(7)

William D. Larsson

 

1,000

 

*

 

56,614

(7)

Linda K. Massman

 

435,311

(8)

2.60%

 

 

 

John P. O'Donnell

 

-

 

*

 

7,756

(7)

Alexander Toeldte

 

-

 

*

 

7,756

(7)

Michael S. Gadd

 

112,955

(9)

*

 

 

 

John D. Hertz

 

75,369

(10)

*

 

 

 

Arsen S. Kitch

 

17,720

(11)

*

 

 

 

Kari G. Moyes

 

26,127

(12)

*

 

 

 

Directors and Executive Officers as a Group

 

 

 

 

 

 

 

(10 persons)

 

668,482

 

3.97%

 

323,663

 

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*

Less than 1%

(1)

Represents vested common stock units as of March 7, 2019, as well as those that will vest within 60 days of March 7, 2019. These stock units are not actual shares of common stock and have no voting power. In the case of our directors, these stock units are credited, along with any accrued dividend equivalents, on a one-for-one basis with common stock pursuant to our Deferred Compensation Plan for Directors (see “Compensation of Directors”). The annual deferred awards to non-employee directors are converted to cash and paid upon separation from service as a director.

(2)

Based on the stockholders’ Schedule 13G/A filed on January 24, 2019 with the SEC, the stockholder serves as a parent holding company registered under the Investment Advisors Act, with sole dispositive power over all of these shares and sole voting power over 2,424,998 of these shares of common stock as of December 31, 2018. The Schedule indicates that sole dispositive power over all these shares is held as of December 31, 2018, by the following subsidiaries of Blackrock, Inc.: BlackRock Advisors, LLC; BlackRock Investment Management (UK) Limited; BlackRock Asset Management Canada Limited; BlackRock Investment Management (Australia) Limited; BlackRock (Netherlands) B.V.; BlackRock Fund Advisors; BlackRock Asset Management Ireland Limited; BlackRock Institutional Trust Company, National Association; BlackRock Financial Management, Inc.; BlackRock Asset Management Schweiz AG, and BlackRock Investment Management, LLC. BlackRock Fund Advisors beneficially owns 5% or more of the total shares owned by BlackRock, Inc.

(3)

Based on the stockholders’ Schedule 13G/A filed on February 11, 2019 with the SEC, the stockholder (The Vanguard Group – 23-1945930) serves as an investment advisor registered under the Investment Advisors Act, with sole dispositive power over 1,726,851 of these shares, shared dispositive power over 22,169 of these shares, sole voting power over 17,173 of these shares and shared voting power over 7,890 of these shares of common stock as of December 31, 2018. The Schedule indicates that all these shares are held by various individuals and institutional investors including Vanguard Fiduciary Trust Company, which owns 14,279 shares and Vanguard Investments Australia, Ltd, which owns 10,784 shares of common stock as of December 31, 2018.

(4)

Based on the stockholders’ Schedule 13G/A filed on February 8, 2019 with the SEC, the stockholder serves as an investment advisor registered under the Investment Advisors Act, with sole dispositive power over all of these shares, and sole voting power over 1,296,208 of these shares of common stock as of December 31, 2018 (subject to the provisions of Note 1 of such 13G/A), however, Dimensional Fund Advisors LP expressly disclaims beneficial owner of such securities.

(5)

Based on the stockholders’ Schedule 13G/A filed on February 14, 2019 with the SEC, the stockholder serves as an investment advisor and an investment company registered under the Investment Advisors Act, with sole dispositive power over all of these shares and sole voting power over 280,444 of these shares of common stock as of December 31, 2018. The schedule indicates that these shares are held as of December 31, 2018, by various individual and institutional clients, including T. Rowe Price Small-Cap Value Fund, Inc. For the purpose of the reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price Associates, Inc. is deemed to be a beneficial owner of such securities; however, T. Rowe Price Associates, Inc. and T. Rowe Price Small-Cap Value Fund, Inc. expressly disclaims that it is, in fact, the beneficial owner of such securities.

(6)

Based on the stockholders’ Schedule 13G filed on February 7, 2019 with the SEC, the stockholder serves as an investment advisor, broker or dealer and a parent holding company registered under the Investment Advisors Act, with shared dispositive and shared voting power over all of these shares of common stock as of December 31, 2018. The schedule indicates that these shares are held as of December 31, 2018, by Goldman Sachs & Co. LLC and Goldman Sachs Group, Inc. (the “Goldman Sachs Reporting Units”). For the purpose of the reporting requirements of the Securities Exchange Act of 1934, the Goldman Sachs Reporting Units are deemed to be the beneficial owners

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of such securities; however, they expressly disclaim that they are, in fact, the beneficial owners of such securities.

(7)

Includes 3,805 common stock units that will vest within 60 days of March 7, 2019.

(8)

Includes (i) 232,918 shares of common stock exercisable under vested stock options and (ii) 33,663 shares of common stock that are in Ms. Massman’s deferred account.

(9)

Includes (i) 68,472 shares of common stock held in a trust over which Mr. Gadd shares voting and investment power with his spouse, (ii) 53 shares of common stock held in Mr. Gadd’s individual account under our 401(k) employee savings plan, and (iii) 33,475 shares of common stock exercisable under vested stock options.

(10)

Includes 42,498 shares of common stock exercisable under vested stock options.

(11)  Includes 13,829 shares of common stock exercisable under vested stock options.

(12)  Includes 21,943 shares of common stock exercisable under vested stock options.  

 

 

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COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors has reviewed and discussed the Executive Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the committee recommended to the Board that the Executive Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our 2018 Annual Report on Form 10-K.

 

The Compensation Committee Members:

 

Kevin J. Hunt, Chair

John P. O’Donnell

Alexander Toeldte


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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS

The following portion of our proxy statement discusses and analyzes the 2018 compensation programs and decisions applicable to the following executive officers of the company, which we sometimes refer to as the “named executive officers” or “NEOs”:

Named Executive Officer

 

Title

Linda K. Massman

 

President and Chief Executive Officer

John D. Hertz

 

Senior Vice President, Finance and Chief Financial Officer

Arsen S. Kitch

 

Senior Vice President, General Manager, Consumer Products Division

Michael S. Gadd

 

Senior Vice President, General Counsel and Corporate Secretary

Kari G. Moyes

 

Senior Vice President, Human Resources

TABLE OF CONTENTS

RESPONSE TO THE 2018 SAY ON PAY VOTE

23

Key Areas of Feedback

23

Changes in Response

23

 

 

2018 EXECUTIVE SUMMARY

25

 

 

2016-2018 COMPENSATION OUTCOMES

26

Strong Links Between Pay and Performance, and Payout History

26

2016-2018 CEO Target Pay vs Realized Pay

27

 

 

2018 EXECUTIVE COMPENSATION PROGRAM

28

Compensation Philosophy

28

Compensation Element Summary Table

28

Executive Compensation Practices

29

What We Do

29

What We Don’t Do

29

2018 Executive Compensation Peer Group

29

2018 NEO Incentive-Based Compensation

30

 

 

2018 ANNUAL INCENTIVES

31

2018 AIP Design

31

2018 AIP Payout

31

 

 

2018 LONG-TERM INCENTIVES

33

2018 LTIP Design

33

2018 LTIP Performance Share Payout

34

 

 

2019 COMPENSATION APPROACH

35

LTIP Changes for 2019

35

 

 

OTHER COMPENSATION RELATED MATTERS

35

Compensation Committee Process

35

Compensation Components

37

Other Compensation Matters

39

 

 

EXECUTIVE COMPENSATION TABLES

42

2018 Compensation

42

Compensation of Chief Executive Officer and CEO Pay Ratio

44

Post-Employment Compensation

46

Potential Payments Upon Termination or Change of Control

48

 

 

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Response to the 2018 Say on Pay Vote

 

In 2018, our proposal to approve our executive compensation program received majority support from our stockholders by a narrow margin, with 53% voting in favor. We were disappointed by the vote outcome, a substantial decline from our track record of +90% since our first vote in 2011. In response, the Chair of our Compensation Committee and members of the executive and investor relations team undertook a comprehensive stockholder outreach initiative to determine concerns and collect input on executive compensation and other governance matters. As a result of that engagement, we spoke with stockholders representing over 50% of our outstanding shares and with proxy advisors ISS and Glass Lewis.

 

Overall, our discussions with stockholders centered around five areas:

 

Our equity mix for long-term incentives;

 

Our performance targets and related disclosure of incentive performance targets and associated payouts;

 

Our peer groups for compensation benchmarking;  

 

Our peer group used for the TSR performance measurement, as well as our TSR performance markers; and

 

CEO pay in connection with recent Company performance.

 

Although there was not a consensus view across these areas from our stockholders, the input we received informed the following actions with respect to our 2018 and 2019 executive pay programs, (each covered in more detail in the sections that follow):

 

KEY AREAS OF FEEDBACK

CHANGES IN RESPONSE

Percentage of Equity Mix Tied to Explicit Performance Objectives

Increased the weighting of PSUs in our equity mix to 70% from 40% (2019):

We increased the weighting of performance shares (“PSUs”) for our 2019 grant to 70% PSUs and 30% RSUs (from 40% PSUs, 30% RSUs, and 30% Stock Options) for named executive officers and other senior management.

The committee eliminated stock options from our go-forward program to recognize that, while some stockholders consider stock options to be inherently performance-based, others voiced a preference for additional equity awards with explicit performance requirements beyond stock price appreciation.

The increase to 70% performance shares addresses the universal stockholder preference for performance-based awards as well as the views of many regarding options.

Goal Rigor within the Annual and Long-term Incentive Plans and Related Disclosure

AIP Targets (2018):
For 2018, we set our EBITDA target goal meaningfully above prior year actual. Going forward, we will continue to be mindful in considering the relationship between our incentive opportunities and our performance targets, particularly when targets are set below prior year results.

 

Increased the target performance goal in our relative TSR modifier (2019):

For 2019, we increased the required percentile to have PSUs modified above target to the 55th percentile (from the 50th percentile) in order to strive for and encourage above-median performance.

Enhanced our performance-based goal disclosure and reviewed our performance-based goal setting approach (2018 and 2019):

We have provided more information to highlight the rigor in our performance targets, including disclosure of the full range of performance targets (from threshold to maximum).

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KEY AREAS OF FEEDBACK

CHANGES IN RESPONSE

Appropriateness of our Pay and Relative TSR Peer Groups




















 

Reset our compensation peer group (2018 and 2019):

Our independent compensation consultants reevaluated the composition of our executive pay peer group in light of our change in market capitalization. As a result, the committee modified our peer group to encompass smaller companies with which we are more closely aligned by revenue and market cap.

We believe the updated group will further ensure that pay remains appropriate with our competitive market going forward. We also note that the updated peer group carries a higher degree of overlap with the peer groups used by proxy advisors.

 

Reset our Relative TSR peer group (2019):

Similar to the update to compensation peer group, the committee updated the Company’s relative TSR comparator group to better reflect the Company’s current size.  

Specifically, the 2019 long-term incentive program will measure TSR relative to the S&P SmallCap 600 Index (from the S&P MidCap 400 in 2018). We continue to look to an index given the limited number of pure-play competitors of comparable scale for robust performance comparison.

 

CEO Pay in Connection With Recent Company Performance

We provided no increase to CEO compensation (2018 and 2019):

In light of year-over-year performance, the Compensation Committee set our CEO’s 2018 target level of pay to the same level as 2017 and her reported pay for 2018 was lower than it was for 2017. Our CEO’s 2018 base pay remained the same as 2017.

Further, our CEO’s salary and target bonus opportunity will remain at the same level with no increases in 2019.

 

Lowered the 2019 CEO equity grant value (2019):

We reduced the CEO’s 2019 equity grant value by 10% from 2018 levels with consideration to recent Company performance, as well as our updated peer group.  

We also note that CEO realized pay has meaningfully declined in light of our recent share price performance – see page 27 for further discussion.

 

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2018 Executive Summary

Performance and CEO compensation highlights for 2018 are as follows:

Our CEO compensation for 2018 is heavily performance based.

Despite the 2018 AIP EBITDA target being higher than 2017 results, our 2018 results did not match
2017 results. In addition, our 2018 TSR was down. Accordingly, our CEO’s 2018 AIP bonus was less,
her options are “underwater” and her 2016-2018 performance shares did not result in 2018 payouts.

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Our CEO’s target compensation did not change from 2017 to 2018 (see table below).

Year over Year Compensation

Type

2017

2018

Actual Salary*

$915,385

$925,000

Actual Annual Incentive (AIP)

$770,000

$529,600

Target Long Term Incentive**

(LTIP)

$2,500,000

$2,500,000

Total Pay

$4,185,385

$3,954,600

*We set annual base pay at $925,000 in the beginning of 2017, which did not go into effect until March of 2017, and did not raise it in 2018.

**LTIP reflects the value that the Compensation Committee intended to deliver to our CEO, consisting of performance shares (assuming target performance), RSUs, and stock options.

 

2016-2018 Compensation Outcomes

Strong Links between Pay and Performance, and Payout History

Our named executive officers’ performance-based variable compensation represents the majority of their total compensation.  This variable compensation, for the past three years, saw a direct and significant reduction, specifically:

 

2 out of 3 performance share awards resulted in zero payout;

 

2 out of 3 annual incentive payments were below target; and

 

all stock option awards had an “underwater” exercise price at the end of the year.


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20162018 CEO Target Pay vs. Realized Pay

During the 2016-2018 period, when our TSR was -43.2%, our CEO’s realized pay was 54% lower than average target pay, demonstrating the strong link between pay outcomes and company stock price performance.  Specifically, our CEO’s realized pay was directly and significantly reduced by:

 

below-target annual incentive pay outcomes;

 

below-threshold or zero performance share pay outcomes; and

 

all three of her outstanding option grants remained “underwater” at year end.

 

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2018 Executive Compensation Program

Compensation Philosophy

Our compensation philosophy remains consistent and straightforward—pay our executives competitive and fair compensation that is linked to individual and company performance. The objectives of our executive compensation program are to attract, retain, motivate, and reward executives in order to enhance the long-term profitability of the company, foster stockholder value creation, and align executives’ interests with those of our stockholders.

 

Our Compensation Committee works with its independent compensation consultant, Semler Brossy and management, and ultimately uses its judgement, in the design of and selection of performance metrics used in our executive compensation program.  The committee strives to identify the financial and operational levers that will help us achieve our overall business strategy and direction as well as align with stockholders’ interests.  We have consistently included discrete and distinct financial metrics in both our cash-based compensation programs and in our equity-based compensation programs to link our compensation to company performance.

 

Compensation Element Summary Table

2018 Element of Pay

Overview

Key Benchmarks/

Performance Metrics

Changes for 2019

 

 

 

 

Annual

Salary

Fixed Cash compensation meant to attract and retain executives by balancing at-risk compensation

•The Compensation Committee targets base salaries with reference to our compensation peer group as well as level of experience, job performance, and long-term potential and tenure

 

 

 

 

 

Annual Incentive Plan (AIP)

Links executive compensation to annual financial, operational, and strategic performance by awarding cash bonuses for achieving pre-defined targets

•For executives not in charge of a business unit:

-75% Company EBITDA

-25% Company-wide Strategic Metrics

•For executives in charge of a business unit:

-40% Company EBITDA

-30% Company-wide Strategic Metrics

-30% Division EBITDA

 

 

 

 

 

Long-Term Incentive Plan (LTIP)

Performance Shares

(40% of LTIP)

Intended to reward employees when the company performs in-line with long-term strategic direction and achieves total stockholder returns that exceed those of our applicable comparator index

•‘Cliff” vest at end of three-year performance period, subject to performance and continued employment

-60% Free Cash Flow

-40%ROIC

•Payout modifier is applied based on relative TSR compared to the S&P MidCap 400 Index (excluding companies classified as members of the GICS® Financials sector)

--25% payout modification for performance at or below the 25th percentile

-No payout modification for performance at median

-+25% modification for performance at or above the 75th percentile

-Linear interpolation between percentile markers (i.e., performance at the 37.5th percentile results in a -12.5% payout modification)

•Increased the weighting of performance shares in the overall mix to 70% from 40%

•Increased the target performance level of the rTSR modifier to the 55th percentile from median

•Changed the comparator group to the S&P SmallCap 600 Index to better reflect our current size

•Reweighted Free Cash Flow and ROIC to 70% and 30%, respectively

 

 

 

 

 

 

 

 

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Compensation Element Summary Table

2018 Element of Pay

Overview

Key Benchmarks/

Performance Metrics

Changes for 2019

 

 

 

 

Stock Options

(30% of LTIP)

Intended to encourage absolute stock performance and long-term value creation directly aligned with value delivered to our stockholders

•Vest ratably over a three-year period, subject to continued employment, with a 10-year expiration term

•Eliminated stock options and replaced entirely with performance shares

 

 

 

 

Restricted Stock Units

(30% of LTIP)

Intended to recruit and retain key employees while aligning interests of executives with long-term best interests of our stockholders

•Vest ratably over a three-year period, subject to continued employment

 

Executive Compensation Practices

What We Do:

 

Commit to oversight, evaluation and continuous improvement of our executive pay design and administration.

 

 

Target executive compensation mix to favor performance-based compensation. 

 

 

Set executive compensation targets on a case-by-case basis using competitive market data with a range of opportunities above and below target to reflect actual performance.

 

 

Measure executive compensation levels and targets against other similarly-sized companies, both in and outside our industry.

 

 

Utilize key measures tied to operational, financial and share performance.

 

 

Require stock ownership by executives to further align our executives’ and stockholders’ interests.

 

 

Prohibit short selling, purchasing on margin, pledging of company stock or other company securities, and buying or selling puts or calls in company stock or other company securities. 

 

 

Provide for broad clawbacks in stock incentive and annual incentive plans.

 

 

What We Don’t Do:

 

X

Provide perks to executive officers.

 

 

X

Provide for excise tax gross-ups in executive compensation plans.

 

 

X

Provide for outstanding equity awards to payout after a change of control absent a termination of employment - RSUs and option awards require a “double trigger”.

 

2018 Executive Compensation Peer Group

Our independent compensation consultant, Semler Brossy annually reviews our compensation peer group based on objective criteria with the goal of ensuring that it is reflective of the size of our company and the competitive environment in which we operate. Understanding that our market capitalization has substantially changed, and in recognition that company size is often highly correlated with executive pay, our Compensation Committee made substantial changes to our peer group based on Semler Brossy’s recommendation.

Based on their recommendation for fiscal year 2018, we removed two companies (Sonoco Products Co. and Packaging Corp. of America) and added six new companies (Resolute Forest Products Inc., Verso Corp., Multi-Color Corp., Ferro Corp., Mercer International, Inc., and Intertape Polymer Group, Inc.) increasing our overall peer group size to 18 companies. The companies removed were no longer reflective of our size, while another was subject to merger and acquisition activities, as noted below. New companies were selected with consideration to comparability in company size and industry (paper products and paper packaging and adjacent industries, including metal, glass, and containers, and specialty chemicals). The changes have placed us near the median in terms of revenue and closer to more companies in market value

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The committee will continue to monitor pay for our executive officers with an emphasis on company performance and appropriate competitive benchmarks, including our updated peer group.

Company Name (1)

 

GICS Sub-Industry

 

Revenue

(In millions)(2)

 

Market

Capitalization

(In millions)(3)

Graphic Packaging Holding Co.

 

Paper Packaging

 

$5,625

 

$3,302

Domtar Corp.

 

Paper Products

 

$5,409

 

$2,210

Silgan Holdings, Inc.

 

Metal & Glass Containers

 

$4,374

 

$2,613

Bemis Co., Inc.

 

Paper Packaging

 

$4,091

 

$4,178

Greif, Inc.

 

Metal & Glass Containers

 

$3,874

 

$1,940

Resolute Forest Products, Inc.*

 

Paper Products

 

$3,722

 

$720

AptarGroup, Inc.

 

Metal & Glass Containers

 

$2,706

 

$5,909

Verso Corp.*

 

Paper Products

 

$2,626

 

$774

Multi-Color Corp.*

 

Commercial Printing

 

$1,693

 

$720

P.H. Glatfelter Co.

 

Paper Products

 

$1,642

 

$427

Ferro Corp.*

 

Specialty Chemicals

 

$1,594

 

$1,306

Innospec, Inc.

 

Specialty Chemicals

 

$1,436

 

$1,508

Mercer International, Inc.*

 

Paper Products

 

$1,383

 

$680

Neenah, Inc.

 

Paper Products

 

$1,038

 

$994

Schweitzer-Mauduit International, Inc.

 

Paper Products

 

$1,028

 

$771

Intertape Polymer Group, Inc.*

 

Metal & Glass Containers

 

$1,003

 

$996

OMNOVA Solutions, Inc.

 

Specialty Chemicals

 

$765

 

$329

Myers Industries, Inc.

 

Metal & Glass Containers

 

$568

 

$534

25th Percentile

 

 

 

$1,124

 

$720

Median

 

 

 

$1,668

 

$995

75th Percentile

 

 

 

$3,836

 

$2,142

Clearwater Paper Corporation

 

Paper Products

 

$1,732

 

$401

Percentile Rank

 

 

 

53rd percentile

 

4th percentile

(1)KapStone Paper & Packaging Corp. was removed from the peer group due to M&A activity.

(2)Represents revenues for the most recent four quarters as reported by each company as of December 31, 2018.

(3)Share price as of December 31, 2018, using the most recently disclosed shares outstanding.

 

*

Company is new addition to the peer group

 

2018 NEO Incentive-Based Compensation Consistent with our performance-based compensation philosophy, our CEO’s 2018 target compensation was weighted 79% in the form of incentive-based compensation, and the average of our other named executive officers’ 2018 total compensation was similarly weighted 63%. The components of this incentive-based target compensation are shown in the following charts:

 

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2018 Annual Incentives

2018 AIP Design

Focus on Performance and Responsibilities. Because our executive officers are responsible for our overall financial and operational performance, 100% of their annual cash bonus was based on company and division, rather than individual performance, for 2018. The Compensation Committee established the targets for these performance measures taking into consideration overall business conditions and our expectations for the period, in order to align payout opportunities and performance. For 2018, we set our EBITDA target goal meaningfully above prior year actual. Going forward, we will continue to be mindful in considering the relationship between our incentive opportunities with our performance targets, particularly when targets are set below prior year results.

AIP Performance Measures.  For 2018, the company performance measures for executives that are not in charge of a business unit were:

75% of Target - Based on Company EBITDA $ Performance

25% of Target - Based on Company-wide Strategic Metrics Performance

 

For executives in charge of a business unit, performance measures were:

40% of Target - Based on Company EBITDA $ Performance

30% of Target - Based on Company-wide Strategic Metrics Performance

30% of Target - Based on Division EBITDA $ Performance

 

We used EBITDA to measure financial performance to focus participants on generating income and cash flow by both increasing revenues and controlling costs. We used company-wide strategic metrics to focus participants on achieving and delivering on strategic goals. The performance scales for the EBITDA components 2018 annual cash bonuses and the corresponding performance modifiers as a percentage of target were as follows:

 

Company and Division EBITDA $

Performance Level

 

Performance Modifier

(Percentage of Target Bonus)

Below Threshold

 

0% x Target Bonus

Threshold

 

50% x Target Bonus

Target

 

100% x Target Bonus

Maximum

 

200% x Target Bonus

 

The performance modifiers increase or decrease depending on the payout ratio determined by the committee for performance between threshold and target levels and between target and maximum levels. There would have been no funding of the annual bonus plan if EBITDA performance was below the threshold level and therefore no annual award payment to participants. The most that could be paid out to participants in the annual incentive plan, is 200% of target based on performance. This metric can be reduced but cannot be increased.

 

2018 AIP Payout

AIP Performance 2018.  Consistent with our pay-for-performance philosophy and as a result of a focus on controlling costs, increasing revenues, and delivering on strategic goals, we paid annual bonus awards for executives and all other eligible employees for 2018 at an average of 78.2% of target, corresponding to company performance targets established under our annual incentive plan:

 

 

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2018 EBITDA PERFORMANCE MEASURES

 

As determined by the committee, company EBITDA is as follows:

 

 

Company

 

 

EBITDA $

2018 Threshold

 

$165.6 Million

2018 Target (1)

 

$207.0 Million

2018 Actual (2)

 

$176.7 Million

2018 Maximum

 

$227.7 Million

Approved Percentage of Target

 

63%

 

(1)

For purposes of establishing 2018 company Target EBITDA, and the calculation of year-end results, the Compensation Committee adjusted for expenses expected to be incurred by the company in connection with adjusting directors’ phantom equity compensation for purposes of mark-to-market accounting requirements, and reorganization related expenses associated with selling, and general and administrative cost control measures.

(2)

For purposes of measuring 2018 company EBITDA, the committee adjusted for expenses incurred by the company in connection with the mark-to-market directors equity award accounting adjustments, reorganization related expenses associated with selling, general and administrative cost control measures, goodwill impairment and certain other expenses not indicative of core operating performance. The 2018 EBITDA for the company shown in the table is presented in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading Non-GAAP Measures, in our Annual Report on Form 10-K, filed on March 18, 2019, which we refer to as our 10-K, by taking our net earnings, and adding net interest expense, income taxes, depreciation and amortization and $176.7 million of net expenses related to the items listed above.

 

As determined by the committee, division EBITDA is as follows:

 

 

CPD

 

PPD

 

 

EBITDA $

 

EBITDA $

2018 Threshold

 

$82.8 Million

 

$123.8 Million

2018 Target

 

$103.6 Million

 

$154.8 Million

2018 Actual (1)

 

$58.1 Million

 

$168.7 Million

2018 Maximum

 

$113.9 Million

 

$170.3 Million

Approved Percentage of Target

 

0%

 

190%

 

(1)

For purposes of measuring 2018 Division EBITDA, the committee adjusted for expenses incurred by the company in connection with the reorganization related expenses associated with selling, general and administrative cost control measures for both CPD EBITDA and PPD EBITDA, and for CPD EBITDA only also adjusted for consumer products reorganization related expenses, gain on divested assets and goodwill impairment. The 2018 EBITDA for each division shown in the table is presented in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading Discussion of Business Segments, and Note 19 Segment Information in the Notes to the Consolidated Financial Statements, in our Annual Report on Form 10-K, filed on March 18, 2019, which we refer to as our 10-K, by taking net earnings for each division, and related to the items listed above adding for CPD EBITDA $57.8 million in depreciation and amortization, $2.0 million reorganization related expenses associated with selling, general and administrative cost control

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measures, $1.0 million for consumer products reorganization related expenses, ($24.0 million) gain on divested assets, $195.1 million goodwill impairment, and adding for PPD EBITDA, $37.8 million in depreciation and amortization and $0.5 million reorganization related expenses associated with selling, general and administrative cost control measures.

Strategic Metrics (25% of target for executives that are not in charge of a business unit, and 30% of target for executives in charge of a business unit).

The committee selected four components for the Strategic Metrics portion of the AIP performance metric for named executive officers and other senior managers:

 

replacement of lost customer margin including through increased or optimized volume;

 

performance of the Shelby expansion project;

 

performance of the Lewiston pulp optimization project; and

 

asset optimization including sale and relocation of assets, reduction of internal freight and warehouse costs, and restructuring of manufacturing sites.

 

As determined by the committee, the results in 2018 of the approved percentage of target for the strategic components of our AIP were 40%.

2018 Long-Term Incentives

2018 LTIP Design

Focus on Performance, Retention and Recruitment. In 2018, we continued to link long-term incentives directly to our strategic initiatives and related financial performance with the inclusion of FCF and ROIC performance. We focused on stockholder return by awarding performance shares and focused on stock price growth by granting stock options to our executive officers. We awarded RSUs also to focus on stock price growth as well as for talent retention purposes. Weighting 70% of long-term-awards to performance shares and stock options aligns equity incentives with company performance and, ultimately, with stockholder value creation. Our named executive officers received their 2018 long-term incentive plan awards in the following proportions:

 

 

Percentage of LTIP Award

LTIP Participant

RSUs

Options

Performance Shares

Executive Officers

30%

30%

40%

 

Performance Measures.  For 2018, we used two metrics for performance shares granted for the 2018-2020 period to named executive officers and relative TSR as a modifier:

 

60% - Performance Share Award Based on Free Cash Flow Performance (1)(3)

40% - Performance Share Award Based on ROIC Performance (2)(3)

          Performance Modified on relative TSR (-25% / 0% / +25%) (3)

 

 

(1)

Cumulatively calculated as a GAAP operating cashflow less certain maintenance capital per year over the three-year performance period. Additional detail regarding the Free Cash Flow performance metric will not be disclosed until the end of the performance period given that the goal detail is confidential and competitive in nature. Such disclosure could cause competitive harm. The target-level goals can be characterized as strong performance, meaning that based on historical performance, although attainment of this performance level is uncertain, it can be reasonably anticipated that target performance may be achieved, while the threshold goals are more likely to be achieved and the maximum goals represent more aggressive levels of performance.

 

(2)

Measured over the three-year period to focus on the delivery of financial results from our strategic initiatives and related capital expenditures. The final ROIC calculation will be the average of three one-year ROIC results for each year of the performance period. Additional detail regarding the ROIC performance metric will not be disclosed until the end of the performance period given that the goal detail is confidential and competitive in nature. Such disclosure could cause competitive harm. The target-level goals can be characterized as strong performance, meaning that based on historical performance, although attainment of this performance level is uncertain, it can be reasonably anticipated that target performance may be achieved, while the threshold goals are more likely to be achieved and the maximum goals represent more aggressive levels of performance.

 

(3)

A twenty-five percent performance modifier shall be applied to the combined performance measures for relative total stockholder return, using as the selected comparison group the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector) to focus on delivery of value to our stockholders.  

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For the three-year performance period beginning January 1, 2018 and ending December 31, 2020, the relative TSR performance scale to apply the TSR modifier to the corresponding number of shares earned as a percentage of target were set by the Compensation Committee as follows:

 

Performance Level

 

Total Stockholder Return

Percentile Rank

Versus S&P MidCap 400® Index

 

Award Payout

Modifier

Threshold

 

25th percentile

 

-25%

Target

 

50th percentile

 

0%

Maximum

 

75th percentile

 

+25%

For the performance that is intermediate, the percentage of annual payout modifier shall be determined by interpolation. For additional Long-Term Incentive Plan details see “Other Compensation Related Matters”, pages 37-39.

2018 LTIP Performance Share Payout

During the three-year performance period for performance share awards granted in 2016 (for the 2016-2018 performance period), we had a -43.2% TSR compared to a 31.9% median TSR for the S&P MidCap 400® Index (excluding those companies classified as members of the GICS® Financials sector). This placed us in the 10th percentile for performance compared to the index group during this period, resulting in no payout for the performance shares.

2016-2018 TSR PERFORMANCE SHARE PERIOD: ZERO PAYOUT

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2019 Compensation Approach

The chart below reflects our CEO’s incentive compensation for 2019 including changes to LTIP design. For the second year in a row, we did not increase our CEO’s salary in 2019. The CEO’s 2019 target annual incentive will also remain flat with 2019.

LTIP Changes for 2019. For our 2019 LTIP, we eliminated stock options from our equity mix and significantly increased the weighting of performance shares in our overall equity mix to 70%. Our named executive officers, including our CEO, received their 2019 long-term incentive plan awards as detailed above. We changed the FCF component to 70% of the metric to focus on debt reduction, with the remaining 30% tied to ROIC.

 

We continue to use relative TSR modifier for the performance shares we granted for the 2019-2021 period, and they will be measured against the S&P SmallCap 600® Index (rather than the S&P MidCap 400® Index excluding companies classified as members of the GICS® Financials sector) to better reflect our current market cap. We have also increased the required percentile ranking for a target modifier outcome to the 55th percentile (from the 50th percentile) in order to strive for and encourage above median performance.

 

Performance Level

 

Total Stockholder Return

Percentile Rank

Versus S&P SmallCap 600® Index

 

 

Award Payout

Modifier

Threshold

 

25th percentile

 

-25%

Target

 

55th percentile

 

0%

Maximum

 

75th percentile

 

+25%

Other Compensation Related Matters

Compensation Committee Process

Compensation Oversight. The Compensation Committee’s primary responsibility is the oversight of our executive compensation and benefits programs. The committee’s responsibilities include determining and approving annual performance measurements for our executive officers’ incentive pay and reviewing, determining and approving their compensation packages. As a part of the annual compensation decision process, the Compensation Committee considers overall company and individual performance as well as performance against specific pre-established financial goals, achievement of strategic initiatives, performance relative to financial markets, and a risk/control and compliance assessment.

 

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Management Input. As part of our process for establishing executive compensation, our CEO and our Senior Vice President, Human Resources, or SVP-HR, provide information and make recommendations to the Compensation Committee. Our CEO and SVP-HR provide the Compensation Committee with a detailed review of the actual results for the company compared to the performance measures set at the beginning of the year under our annual incentive plan. Our CEO provides to the committee performance evaluations of the executives who report to her; and recommendations regarding (i) changes to base salaries as well as target amounts for annual cash bonuses and equity awards for each executive officer, excluding her own; (ii) compensation packages for executives being hired or promoted; and (iii) proposed company performance targets.

 

Recommendations regarding target and actual executive compensation components are based on the principal duties and responsibilities of each position, competitor pay levels within our industry in both regional and national markets and at comparable companies, and internal pay equity, as well as on individual performance considerations.

 

Compensation Consultant. The Compensation Committee has engaged Semler Brossy Consulting Group, LLC, or Semler Brossy, to advise the committee on executive compensation matters as well as the competitive design of the company’s long-term and annual incentive programs. The Nominating Committee has also engaged Semler Brossy to advise that committee on director compensation matters. Semler Brossy does not advise any of our executive officers as to their individual compensation and does not perform other compensation related services for the company.

 

The Compensation Committee’s independent consultant performs an annual competitive market assessment of each executive officer’s compensation package that the committee uses to analyze each component of such compensation as well as each executive officer’s compensation in the aggregate. The intent of these assessments is to evaluate the proper balance and competitiveness of our executive officers’ compensation, as well as the form of award used to accomplish the objective of each component. The committee is also advised, on an annual basis, as to target performance measures and other executive compensation matters by its compensation consultant.

 

Ultimately, decisions about the amount and form of executive compensation under our compensation program are made by the Compensation Committee alone and may reflect factors and considerations other than the information and advice provided by its consultant or management.

 

Establishing Compensation. At meetings held in the first quarter of each year, the Compensation Committee typically takes the following actions relating to the compensation for our executive officers, and in some cases other senior employees:

 

approves any base salary increases;

 

approves the payment of cash awards under our annual incentive plan for the prior year’s performance;

 

approves the settlement of any performance-based equity awards previously issued under our long-term incentive program;

 

establishes the performance measures and approves the target award opportunity for cash awards under our annual incentive plan for the current year;

 

establishes the performance measures for any performance-based equity awards under our long-term incentive program;

 

approves the threshold and maximum levels of performance under our annual and long-term incentive plans, including performance shares, as well as the payouts for achieving those levels of performance; and

 

approves the grant of performance shares and any other equity awards, such as options or restricted stock units that vest based on continued employment, under our long-term incentive program.

 

Competitive Market Assessments. The committee conducts an annual review of each of our executive officers’ compensation and, in connection with these assessments, analyzes competitive data provided by

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its compensation consultant. In the fourth quarter of 2018, Semler Brossy performed such an assessment for the committee. Consistent with their approach in prior years, Semler Brossy’s 2018 market assessments compared the compensation of our named executive officers with that of companies in the forest products industry as well as manufacturing companies of similar size in terms of revenue and market capitalization. They also utilized market data from relevant published survey sources, including surveys from Mercer, Aon Hewitt and Willis Towers Watson for market data on paper and allied products companies, manufacturing companies, and/or general industry companies of similar size. In its competitive assessments, Semler Brossy gathered competitive compensation data that was adjusted, where feasible and appropriate, to the revenues of the company. See “2018 Executive Compensation Peer Group” pages 29-30. The competitive assessments were based on executive positions that are comparable to those of our executive officers.  As part of the review and modification of our executive compensation program for 2018, Semler Brossy provided the Compensation Committee with analyses of our annual incentive plan and long-term incentive plan.

 

Individual Performance.  The committee adjusts compensation on a case-by-case basis taking into account competitive market data, job performance, long-term potential, experience, potential recruitment needs and retention. Total direct compensation (defined as base salary plus short- and long-term incentives) earned by our executives may vary based on these factors.

Compensation Components

We balance our executive total direct compensation among three components: base salary, short-term or annual cash incentives, and long-term, equity-based incentives.

 

Base Salary. The Compensation Committee reviews and approves annual salaries for our executives on a case-by-case competitive pay data provided by its compensation consultant. The committee also takes into account the executive’s level of experience, job performance, long-term potential and tenure.

 

Annual Incentives. Our annual incentive program links executive compensation to annual company financial and operational performance by awarding cash bonuses for achieving pre-defined targets that are set at the beginning of the year.

 

Annual Incentive Plan Mechanics. The target cash bonus amount for our named executive officers is determined as a set percentage of his or her base salary.  That percentage is determined at the beginning of the year by the Compensation Committee based in part on the annual market assessment of our executives’ compensation performed by the committee’s compensation consultant. After the end of the year, actual financial performance is calculated, and the results are compared to the pre-approved, objective performance measures. Earned awards are paid in cash in the first quarter of the year following the applicable performance year. If an executive officer does not meet his or her stock ownership requirement at that time, awards are paid 50% in cash and 50% in stock. Executive officers may also elect to defer annual incentive awards pursuant to our management deferred compensation program. Under our annual cash incentive program, when measuring final results, the Compensation Committee may make appropriate adjustments to take into account certain events that occur during the performance period, including items the committee determines are extraordinary or otherwise not indicative of the company’s core performance. The committee did not exercise this discretionary authority in 2018.

 

Long-Term Incentives. Our long-term incentive program, comprised of a mix of performance shares, stock options, and restricted stock units, aligns our executive officers with the interests of our stockholders by driving stock performance in both relative and absolute terms, and links compensation to the strategy intended to drive that stock performance.  Target long-term incentive awards for our named executive officers are determined at the beginning of the year by the Compensation Committee based in part on the annual market assessment of our executives’ compensation performed by the committee’s compensation consultant.

 

Performance Shares. Performance shares represent the contingent right to receive a varying number of shares of common stock based on objective company-wide financial metrics as well as TSR, performance

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over a three-year period relative to a performance measure identified at the time the share grants are awarded. The objective financial metrics are tied to our strategic direction and determined at the beginning of the year. TSR is comprised of the change in a company’s stock price from the beginning of the performance period compared to the end of the performance period and includes all cash and stock dividends paid on shares of common stock during such period. The company’s stock price at the beginning and end of a performance period is measured over a fixed period of time, currently the final forty trading days in the year prior to the start of the performance period and the final forty trading days in the final year of the performance period. We use performance shares to serve three key objectives: first, to reward employees when the company performs in-line with its long-term strategic direction and achieves total stockholder returns that exceed those of the applicable index; second to encourage employees to focus on enhancing long-term stockholder value; and third to align management’s interests with stockholders’ interests. The committee awards annual performance share grants to our executive officers in the first quarter of each year.

 

Stock Options (eliminated for 2019). Stock options represent the contingent right, but not the obligation, to buy a certain amount of shares of the company at a predetermined price. These option grants generally vest over a three-year period subject to continued employment. We use stock options to focus on absolute stock performance, that is, purely on increasing our stock price to align the interests of executives with those of our stockholders and to help recruit and retain key employees. We also believe that stock options help foster a longer-term orientation towards company performance among our officers and other key personnel as well as enhance retention as a result of the vesting period. The committee awards annual stock option grants to our executive officers in the first quarter of each year. The committee has determined to remove stock options from the company’s long-term incentive program starting in 2019.

 

Restricted Stock Units. The committee awards annual RSU grants in the first quarter of each year. RSUs represent the contingent right to receive a fixed number of shares of common stock in the future if the employee remains employed through the applicable vesting period. We use RSUs to help recruit and retain key employees and to align the interests of executives with those of our stockholders. These RSU grants generally vest over a three-year period subject to continued employment. We believe that RSUs help foster a long-term ownership mentality among our officers and other key personnel as well as enhance retention as a result of the vesting period. Additionally, these awards encourage recipients to take actions aimed at increasing the underlying value of the shares associated with RSUs over the vesting period since RSUs cannot be paid out until fully vested.

Long-Term Incentive Plan Mechanics

 

Long-Term Incentive Opportunities. The committee establishes long-term incentive values for each executive officer annually, taking into consideration competitive long-term equity incentive opportunities, equity usage and stockholder dilution. The Compensation Committee’s consultant performs an annual assessment of competitive long-term equity incentive opportunities to assist the committee in establishing the long-term incentive values for each executive officer. The grant values, which generally are then converted to a target number of performance shares, stock options and RSUs based on the average closing price for our common stock over a fixed period of time prior to the date of grant. The actual number of equity awards granted are further subject to an increase or decrease at the Compensation Committee’s discretion, based upon assessment of an individual executive’s past contributions and potential future contributions to the company.

 

Timing of Long-Term Incentive Awards. Compensation Committee meetings are scheduled well in advance and are not coordinated with the release of any material, non-public information. The grant date for annual equity awards is the day of the Compensation Committee meeting at which the awards are approved. However, for executive officers who are hired during the year, the committee may approve an equity award in advance of, and subject to the executive commencing employment, in which case the grant date is the executive’s start date. For the purpose of converting the dollar value of a grant into a set number of shares, the committee may approve the use of the price of our common stock as of the grant

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date or the use of an average trading price over a set period. For stock option grants, the exercise price is set at the closing price on the date of grant.

 

Limitations on and Adjustments to Long-Term Awards. The Compensation Committee reserves the right to reduce or eliminate any performance share award to an employee, or to all senior employees as a group, if it determines that TSR has been insufficient, or if our financial or operational performance has been inadequate.

Other Compensation Matters

Officer Stock Ownership Guidelines. In the interest of promoting and increasing equity ownership by

our senior executives and to further align our executives’ long-term interests with those of our stockholders, we have adopted the following stock ownership guidelines:

 

Title

 

Value of Clearwater Paper Equity Holdings

 

 

 

Chief Executive Officer

 

5x Base Salary

Division President

 

2x Base Salary

Senior Vice President

 

2x Base Salary

 

Each executive must acquire, within five years of his or her becoming an executive officer, at least the equity value shown above. Each of our named executive officers has met his or her current equity ownership requirements. Shares held in a brokerage account, an account with our transfer agent, an account with our stock plan administrator or in our 401(k) Plan, common stock units owned as a result of deferred awards made under our incentive programs, and any vested RSUs, all count towards the ownership requirement. Shares subject to unvested RSUs, unexercised options or unearned performance shares, however, do not count toward the ownership guidelines. The value of the shares held by an officer will be measured by the greater of the value of the shares at the (i) time acquired or fully vested or (ii) the applicable annual measurement date, based on the twenty-day average closing price of our stock before that measurement date. The stock ownership of all our named executive officers as of March 7, 2019, is presented on pages 18-20. See “Security Ownership of Certain Beneficial Owners and Management.” If an executive does not meet his or her ownership requirement or the ownership requirement is not maintained after it is initially met, incentive awards to be made under our annual incentive program are paid 50% in cash and 50% in stock, and any performance share award that is earned, on an after-tax basis, must be retained to the extent necessary to meet the stock ownership guidelines.

 

Limitations on Securities Trading. Pursuant to our Insider Trading Policy, directors, officers and other employees are prohibited from engaging in short sales of company securities, pledging company securities, purchasing company securities on margin, and engaging in transactions in puts, calls or other derivatives trading on an exchange in regard to company securities.

 

Annual Incentive and Long-term Incentive Clawbacks.  The company has the right to cancel or adjust the amount of any annual incentive or any equity award if our financial statements on which the calculation or determination of the award was based are subsequently restated due to error or misconduct and, in the judgment of the committee, the financial statements as restated would have resulted in a smaller or no award if such information had been known at the time the award had originally been calculated or determined. In addition, in the event of such a restatement, we may require an employee who received an award to repay the amount by which the award as originally calculated or determined exceeds the award as adjusted, although we may be unable to compel the repayment of an annual incentive award made to an ex-employee for years prior to 2014.

 

Executive Severance and Change of Control Plans. The Compensation Committee believes that our Executive Severance Plan and our Change of Control Plan provide tangible benefits to the company and our stockholders, particularly in connection with recruiting and retaining executives in a change of control situation. We do not provide for excise tax gross-ups upon a change of control. We do not view our change of control benefits or post-termination benefits as core elements of compensation due to the fact

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that a change of control or other triggering event may never occur. Our objectives in having the Executive Severance Plan and Change of Control Plan are consistent with our compensation objectives to recruit, motivate and retain talented and experienced executives. In addition, we believe these plans provide a long-term commitment to job stability and financial security for our executives and encourage retention of those executives in the face of the uncertainty and potential disruptive impact of an actual or potential change of control. Our change of control policies ensure that the interests of our executives will be materially consistent with the interests of our stockholders when considering corporate transactions and are intended to reassure executives that they will receive previously deferred compensation and that prior equity grants will be honored because decisions as to whether to provide these amounts are not left to management and the directors in place after a change of control. Our change of control and post-termination benefits are not provided exclusively to the named executive officers but are also provided to certain other management employees. Severance and change of control benefits are discussed in detail on pages 48-53. See “Potential Payments Upon Termination or a Change of Control.”

 

Section 162(m).  Section 162(m) of the Internal Revenue Code, or the Code, generally disallows a tax deduction to public companies for annual compensation in excess of $1 million paid to the CEO and certain other named executive officers. Prior to 2018, however, companies could deduct compensation above $1 million if it was “performance-based compensation” within the meaning of the Code. While the Compensation Committee considered the effect of this rule in developing and implementing our compensation program, in order to preserve the committee’s flexibility, we did not adopt a policy that all applicable compensation must qualify as deductible under Section 162(m). The Section 162(m) deduction for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, except for certain amounts payable pursuant to written binding contracts in effect on November 2, 2017. As a result, it is uncertain whether compensation that the Compensation Committee intended to structure as performance-based compensation under Section 162(m) will be deductible. Further, the committee reserves the right to modify compensation that was initially intended to be exempt from the Section 162(m) deduction limit if it determines that such modifications are consistent with our business needs.

 

The Role of Stockholder Advisory Vote. At our annual meeting in 2019, our stockholders will again be provided the opportunity to cast a non-binding advisory vote to approve the compensation of our named executive officers. This vote is set forth in Proposal 3 in this proxy statement. The Compensation Committee, as it did last year, will consider the outcome of the vote when making future compensation decisions regarding our named executive officers.

 

Salaried Retirement Benefits. The company sponsors a Salaried Retirement Plan, or Retirement Plan, which provides a pension to salaried employees of Clearwater Paper as of December 15, 2010, including some of our named executive officers. This plan is discussed in detail on pages 46-47. See “Post Employment Compensation.” We closed the Retirement Plan to new participants effective December 15, 2010 and froze the accrual of further benefits for current participants under the plan as of December 31, 2011. In lieu of further accrual of benefits under the Retirement Plan, we are providing enhanced 401(k) contributions to provide a competitive and sustainable retirement benefit to the prior plan participants and new salaried employees.

 

401(k) Plan. Under the Clearwater Paper 401(k) Plan, or the 401(k) Plan, in 2018 we made matching contributions equal to 70% of a salaried employee’s contributions up to 6% of his or her annual cash compensation, subject to applicable tax limitations. Eligible employees who elect to participate in this plan are 100% vested in the matching contributions upon completion of two years of service. All eligible nonunion employees of Clearwater Paper and its subsidiaries, including our named executive officers, are permitted to make voluntary pre-tax and after-tax contributions to the plan, subject to applicable tax limitations. The employee contributions are eligible for matching contributions as described above. Additionally, in 2018 we made enhanced contributions to employees’ accounts under the 401(k) Plan of 3.5% of an employee’s eligible annual compensation.  These contributions are 100% vested.

 

Supplemental Benefit Plan. Our Clearwater Paper Salaried Supplemental Benefit Plan, or Supplemental Plan, provides retirement benefits to our salaried employees, including our named executive officers,

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based upon the benefit formulas of our Retirement Plan and 401(k) Plan. Benefits under the Supplemental Plan are based on base salary and annual bonus, including any such amounts that the employee has elected to defer, and are computed to include amounts in excess of the IRS compensation and benefit limitations applicable to our qualified plans. Otherwise, these benefits are calculated based on the qualified plan formulas and do not augment the normal benefit formulas applicable to our salaried employees. These plans are discussed in detail on page 47. See “Summary of Plan Benefits.”

 

To appropriately align with the change to the Retirement Plan and the introduction of the enhanced 401(k) Plan benefits, the portion of the Supplemental Plan based on the Retirement Plan benefit formula was frozen as of December 31, 2011, and the portion of the Supplemental Plan based on the 401(k) Plan benefit formula includes any enhanced 401(k) contributions that would exceed the IRS compensation and benefit limits.

 

Personal Benefits. We do not provide perquisites or other personal benefits to our officers or senior employees, with the exception of certain relocation expenses. Salaried employees, including named executive officers, who participate in our relocation program receive a restoration payout on certain of the relocation benefits provided.

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EXECUTIVE COMPENSATION TABLES

2018 Compensation

2018 Summary Compensation Table 

Name and Principal Position

 

Year

 

Salary

($)

 

Bonus

($)(1)

 

Stock

Awards

($)(2)

 

Option

Awards

($)(2)

 

Non-Equity

Incentive Plan

Compensation

($)(3)

 

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($)(4)

 

All Other

Compensation

($)(5)

 

Total

($)

Linda K. Massman

 

2018

 

$925,000

 

 

 

$1,642,557

 

$818,233

 

$529,600

 

$0

 

$130,515

 

$4,045,905

President and Chief

 

2017

 

$915,385

 

 

 

$1,453,798

 

$849,779

 

$770,000

 

$55,382

 

$152,736

 

$4,197,080

Executive Officer

 

2016

 

$866,346

 

 

 

$1,183,417

 

$1,289,537

 

$1,068,200

 

$30,014

 

$223,468

 

$4,660,983

John D. Hertz

 

2018

 

$512,115

 

 

 

$361,355

 

$179,997

 

$190,700

 

$0

 

$60,315

 

$1,304,483

Senior Vice President, Finance

 

2017

 

$496,154

 

 

 

$311,113

 

$181,858

 

$271,200

 

$0

 

$67,656

 

$1,327,981

and Chief Financial Officer

 

2016

 

$477,404

 

 

 

$309,292

 

$204,187

 

$382,500

 

$0

 

$87,412

 

$1,460,795

Arsen S. Kitch(6)

 

2018

 

$324,226

 

$89,860

 

$213,502

 

$106,387

 

$78,600

 

$0

 

$39,184

 

$851,759

Senior Vice President, Gen'l Mgr,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Products Division

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael S. Gadd

 

2018

 

$433,077

 

 

 

$285,781

 

$142,387

 

$161,300

 

$0

 

$51,111

 

$1,073,656

Senior Vice President, General

 

2017

 

$422,115

 

 

 

$244,235

 

$142,787

 

$230,700

 

$47,796

 

$62,589

 

$1,150,223

Counsel and Corporate Secretary

 

2016

 

$406,538

 

 

 

$247,441

 

$163,350

 

$325,800

 

$27,218

 

$106,214

 

$1,276,562

Kari G. Moyes

 

2018

 

$333,077

 

 

 

$223,390

 

$111,263

 

$124,000

 

$0

 

$37,151

 

$828,881

Senior Vice President,

 

2017

 

$323,077

 

 

 

$197,694

 

$115,574

 

$149,400

 

$0

 

$46,186

 

$831,930

Human Resources

 

2016

 

$312,404

 

 

 

$195,342

 

$128,958

 

$211,800

 

$0

 

$56,645

 

$905,149

(1)

Amount for 2018 represents a cash bonus paid to Mr. Kitch for his performance regarding our reorganization efforts associated with selling, general and administrative cost control measures.

(2)

The stock awards column shows the aggregate grant date fair value of the RSUs and the performance shares granted to all of our named executive officers, and the option awards column shows the grant date fair value of stock options granted to all of our named executive officers. In accordance with FASB ASC Topic 718, the grant date fair value reported for all RSUs and performance shares was computed by multiplying the number of shares subject to each RSU and performance share award by the closing price of Clearwater Paper’s stock on the grant date. We determined the grant date fair value for all stock options using the Black-Scholes model in accordance with FASB ASC Topic 718. The assumptions underlying FASB ASC Topic 718 valuations performed for performance shares and stock options are discussed in Note 15 to our audited financial statements included in our 10-K.

Following is the value as of the grant date of the performance shares granted to our named executive officers by us in 2018 and in 2017, assuming the highest level of performance would have been or will be achieved (resulting in settlement of 200% of the shares subject to the award) in each case based on Clearwater Paper’s closing stock price on the applicable grant date.  Ms. Massman (2018 - $1,877,219, and 2017 - $1,708,289), Messrs. Hertz (2018 - $412,999, and 2017 – $365,584), Kitch (2018 - $244,024), Gadd (2018 - $326,639, and 2017 - $287,042) and Ms. Moyes (2018 - $255,259, and 2017 - $232,335).

(3)

This column shows cash bonuses earned under our annual incentive plan. Annual bonuses relating to performance in 2018 were actually paid in 2019.

(4)

Represents the aggregate annual change in the actuarial present value of accumulated pension benefits under all of our defined benefit and actuarial pension plans. No portion of the amounts shown in this column is attributable to above market or preferential earnings on deferred compensation. In 2018, the following named executive officers had a loss in pension value in the following amounts:  Ms. Massman ($24,117) and Mr. Gadd ($18,614).

(5)

All Other Compensation Table below for additional information:

Name

 

Company Contributions

 

 

401(k)

 

Supplemental

401(k)(a)

Linda K. Massman

 

$17,776

 

$112,739

John D. Hertz

 

$14,915

 

$45,400

Arsen S. Kitch

 

$20,821

 

$18,364

Michael S. Gadd

 

$14,411

 

$36,700

Kari G. Moyes

 

$20,770

 

$16,380

 

(a)

Allocations made under the 401(k) Plan supplemental benefit portion of our Supplemental Plan.  

 

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(6)

Mr. Kitch was not a named executive officer prior to 2018, so no data is provided for 2016 or 2017 in this table.

Grants of Plan-Based Awards for 2018 

Name

 

Grant

Date

 

Estimated Possible Payouts Under

Non-Equity Incentive Plan Awards(1)

 

Estimated Future Payouts Under

Equity Incentive Plan Awards(2)

 

All Other

Stock Awards:

Number of

Shares of

Stocks or

Units

(#)(3)

 

All Other

Option Awards:

Number of

Securities

Underlying

Options

(#)(4)

 

Exercise or Base Price of Option

Awards

($/Sh)(5)

 

Grant Date

Fair Value of

Stock and

Option

Awards

($)(6)

 

 

 

 

Threshold

($)

 

Target

($)

 

Maximum

($)

 

Threshold

(#)(7)

 

Target

(#)

 

Maximum

(#)

 

 

 

 

 

 

 

 

Linda K. Massman

 

 

 

$346,875

 

$925,000

 

$1,850,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3/5/2018

 

 

 

 

 

 

 

0

 

25,063

 

50,126

 

 

 

 

 

 

 

$938,609

 

 

3/5/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,391

 

$37.45

 

$818,233

 

 

3/5/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

18,797

 

 

 

 

 

$703,948

John D. Hertz

 

 

 

$124,913

 

$333,100

 

$666,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3/5/2018

 

 

 

 

 

 

 

0

 

5,514

 

11,028

 

 

 

 

 

 

 

$206,499

 

 

3/5/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,405

 

$37.45

 

$179,997

 

 

3/5/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

4,135

 

 

 

 

 

$154,856

Arsen S. Kitch

 

 

 

$73,955

 

$211,300

 

$422,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3/5/2018

 

 

 

 

 

 

 

0

 

3,258

 

6,516

 

 

 

 

 

 

 

$122,012

 

 

3/5/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,332

 

$37.45

 

$106,387

 

 

3/5/2018