Proposal 2 – Advisory Vote on Compensation of our Named Executive Officers
As required pursuant to Section 14A of the 1934 Act, our shareholders are being given the opportunity to vote to approve, on an advisory, non-binding basis, the compensation of our Named Executive Officers. This proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our Named Executive Officers’ compensation. This vote is not intended to address any specific item of compensation, but rather provide shareholder reaction to our overall executive compensation programs. At the 2017 annual meeting of shareholders, our shareholders voted on an advisory basis in favor of holding advisory votes on the Company’s executive compensation every three years. Following that vote, the Board determined that the advisory vote on the Company’s executive compensation should be held every three years, which most recently occurred at the 2020 annual meeting. Accordingly, the Board asks that you indicate your support of the compensation of our Named Executive Officers as described in the Compensation Discussion and Analysis section and the accompanying compensation tables and other narrative disclosures contained in this proxy statement. Because your vote is advisory, it will not be binding on the Board or the Company. However, the Board will review the voting results and take these results into consideration when making future decisions regarding executive compensation for Quaker Houghton’s management team.
The Company has in the past sought and received approval from its shareholders regarding the incentive plans that are used to attract, motivate, retain, and reward our executives. Those incentive plans, including the Annual Incentive Plan (formerly the “Global Annual Incentive Plan”) and the Long-Term Performance Incentive Plan (the “LTIP”), are a significant part of the compensation that the Company provides to its executives. Both the AIP and LTIP have been approved by the Company’s shareholders at previous annual shareholder meetings. We believe in continued active shareholder engagement, soliciting and responding to feedback to better understand our shareholders’ concerns and the issues on which they are focused. We will continue to ensure that we engage with shareholders as appropriate in the future.
Quaker Houghton compensates its executive officers through a total compensation program consisting of base salary, an annual cash incentive bonus, long-term incentive awards (which may be in the form of equity awards, cash payments or a combination), and a competitive benefits package as explained in this proxy statement. In 2011, 2014, 2017 and 2020, our shareholders overwhelmingly approved, on a non-binding basis, the compensation of our Named Executive Officers. Since those approvals, the Company’s executive team has continued to successfully manage the Company through a very challenging business and global economic environment from the COVID-19 pandemic and its effects in 2020 and 2021, through challenges in 2021 and 2022 including unprecedented raw material price increases, the ongoing inflationary environment, decreased raw material availability, supply chain disruptions, the continued shortage of semiconductors which impacted many of our customers, foreign currency headwinds, China’s COVID-19 lockdown policies, and the effects of the war in the Ukraine. Through its on-going successful efforts, Quaker Houghton has continued to perform well throughout the last several years producing solid top and bottom-line results, and outperforming our markets. For 2022, Quaker Houghton achieved record full year net sales driven by our strategic pricing initiatives to combat the external environment referenced above. The Company also generated positive cash flow for 2022 despite the above challenges, and continued to build on our long-term growth strategy. We ended the year at a net leverage of 3.0 to 1.0. Quaker Houghton is poised to capitalize on its strategic plan to enable new growth opportunities in its core businesses and adjacent markets and to invest in emerging markets around the globe. Lastly, we finished 2022 with non-GAAP earnings per diluted share of $5.87 which was an excellent result overall. In this Proposal 2, we refer to non-GAAP earnings per diluted share and adjusted EBITDA, which are non-GAAP financial measures. A full discussion of our use of non-GAAP earnings per diluted share and adjusted EBITDA to enhance a reader’s understanding of the financial performance of the Company, and a reconciliation of these measures to earnings per diluted share and net income, respectively, can be found in “Non-GAAP Measures” of Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
We believe that our executive compensation programs are structured to support our Company and our business objectives. Our compensation strategy provides opportunities for highly competitive levels of total compensation when merited by performance; creates incentives to perform over a multiple year-period; and aligns interests of the management team with those of our shareholders. Our Compensation and Human Resources Committee works closely with members of management in developing the compensation programs for the Company and reviews studies and analyses provided by outside consultants on compensation trends and issues prior to taking or recommending actions on compensation matters.
We invite you to consider the details of our executive compensation programs by reviewing the Compensation Discussion and Analysis section of this proxy statement, as well as the accompanying compensation tables and narrative disclosures.
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The Board has approved a frequency period of every three years for non-binding shareholder votes on compensation of our Named Executive Officers. As a result, unless the Board determines otherwise, after taking into account the results of the shareholders’ vote on Proposal 3 in this proxy statement, the next such vote will be held at the Company’s 2026 annual meeting.
The Board of Directors recommends that you vote “FOR” approval, on a non-binding basis, of the Company’s compensation of our Named Executive Officers as described in this proxy statement.
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Proposal 3 – Advisory Vote on the Frequency of the Advisory Vote on the Compensation of our Named Executive Officers
Every six years our shareholders have the opportunity to vote, on an advisory, non-binding basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our Named Executive Officers pursuant to Section 14A of the 1934 Act. In particular, we are asking whether the advisory vote should occur every three years, every two years or every year. Shareholders also have the option to abstain from voting on this matter. As described immediately above under “Proposal 2 - Advisory Vote on Compensation of Our Named Executive Officers,” at the 2017 annual meeting of shareholders, our shareholders voted on an advisory basis in favor of holding advisory votes on the Company’s executive compensation every three years. Following that vote, the Board determined that the advisory vote on the Company’s executive compensation should be held every three years, which most recently occurred at the 2020 annual meeting.
Accordingly, the Company asks that you indicate your support for continuing to hold this advisory vote on the Company’s executive compensation every three years. Because your vote is advisory, it will not be binding on the Board or the Company. However, the Board will review the voting results and take these results into consideration when making future decisions regarding executive compensation for Quaker Houghton’s management team.
The Company, the Compensation and Human Resources Committee and the Board believe that it is appropriate and in the best interests of the Company for our shareholders to cast an advisory vote on executive compensation every three years, for the following reasons:
•Shareholder communications will be enhanced by providing a clear, simple means for the Company to obtain information on investor views about our executive compensation philosophy and program and provide investors with sufficient time to evaluate the effectiveness of the program, corporate strategies and Company performance.
•An advisory vote every three years will continue to be the most effective timeframe for the Board and the Company to thoughtfully evaluate and respond to feedback from its shareholders and provide sufficient time to engage in discussions with them.
•As a practical matter, any changes to our executive compensation programs that were responsive to shareholder concerns would not be fully disclosed and reflected in the Compensation Discussion and Analysis and related disclosure of the proxy statement until the second year following an unfavorable advisory vote on the compensation of our Named Executive Officers.
•Our executive compensation programs are focused on measuring performance over an extended period of time, and holding a triennial vote would align more closely with the three-year performance measurement cycle the Company uses to reward long-term performance.
The Board of Directors recommends that you vote “FOR THREE YEARS” as the frequency of future non-binding shareholder advisory votes on compensation of our Named Executive Officers.
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Executive Compensation
Compensation Discussion and Analysis
Introduction
The purpose of this Compensation Discussion and Analysis section is to explain to shareholders and our other stakeholders how and why compensation decisions are made for the executive officers listed in the Summary Compensation Table below. When we use the term “executive officers,” we mean the Named Executive Officers for 2022, as defined by the rules of the SEC, who are Andrew E. Tometich, Shane W. Hostetter, Joseph A. Berquist, Jeewat Bijlani, and Melissa Leneis, as well as the Company’s other senior executive officers.
Executive Summary
The Company is engaged in highly specialized businesses with a broad global footprint, requiring a management team with unique skills and knowledge. Quaker Houghton’s Compensation and Human Resources Committee (the “Committee”) believes that our Total Rewards programs must be competitive in order to attract and retain high-performing executives with the requisite skill set and performance orientation and has implemented executive compensation programs designed to incentivize high performance.
In 2022, Quaker Houghton’s executive team successfully managed the Company through unprecedented raw material price increases, the ongoing inflationary environment, decreased raw material availability, supply chain disruptions, the continued shortage of semiconductors which impacted many of our customers, foreign currency headwinds, China’s COVID-19 lockdown policies, and the effects of the war in the Ukraine, while continuing to outperform the market and successfully service our customers globally. 2022 results include:
•Record net sales of $1,943.6 million, a 10% increase compared to the prior year, primarily reflecting the results of our strategic pricing initiatives.
•Positive full year operating cash flow of $42 million.
•Earnings per diluted share and non-GAAP earnings per diluted share of $(0.89) and $5.87, respectively, for 2022, compared to $6.77 and $6.85, respectively, for 2021, despite the macroeconomic backdrop above.
•Net leverage of 3.0 to 1.0 at year-end.
In this Compensation Discussion and Analysis, we refer to adjusted EBITDA, non-GAAP earnings per share and adjusted net income, which are non-GAAP financial measures. A full discussion of our use of non-GAAP financial measures to enhance a reader’s understanding of the financial performance of the Company, and a reconciliation of these measures to the GAAP measures can be found on pages 31 to 36 in “Non-GAAP Measures” of Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, provided with this proxy statement.
For 2022 compensation decisions, Quaker Houghton refined the performance metrics used under our Annual Incentive Plan (the “AIP”). The AIP provides eligible employees with the opportunity to earn an annual incentive award based upon financial metrics as well as other metrics including market share/new business wins, ESG, individual performance and operational goals. Adjusted EBITDA is a key financial performance objective for the AIP, but the AIP also now incorporates other financial, safety, ESG and personal performance measures, as further described below.
Except for the changes explained below, Quaker Houghton’s overall compensation strategy and specific programs have not materially changed over the past several years. We have overall sought to maintain a consistent year-over-year approach to ensure that our compensation remains predictable and transparent to our employees and shareholders, competitive to the market, and fair and reasonable. In particular, we have continued to:
•use benchmarks for total direct compensation and long-term compensation designed to mitigate the possibility of inappropriate risk taking on the part of executives;
•align senior level compensation with the long-term success of the Company by ensuring that the higher the position within management the more an executive’s compensation is incentive-pay dependent and the more the executive’s incentive pay is long-term oriented; and we reward long-term performance with stock-based compensation measured by total shareholder return to align the interests of management directly with our shareholders.
Consistent with this approach, we have sought and have received approval from our shareholders for incentive plans that we use to attract, motivate, retain and reward our executives.
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The Committee continually reviews our executive compensation programs to ensure they achieve the desired goals of aligning our compensation practices to performance and pay practices in our industry to achieve sustainable shareholder value creation. The Committee has again determined that the Company’s current compensation programs are not likely to encourage excessive risk taking. In reaching that conclusion, the Committee considered key design elements of our compensation programs, including that they (i) employ a balanced mix of components of salary and annual and long-term incentives not overly-weighted to short-term incentives, (ii) use multiple performance factors preventing an overemphasis on any one metric, (iii) are measured against peers to ensure that they are competitive and reasonable, and (iv) provide incentive awards that are capped at 200% of target.
In addition, at the Company’s 2020 annual meeting of shareholders, the shareholders overwhelmingly voted, on an advisory basis, to approve the Company’s compensation of our Named Executive Officers. In 2023, the shareholders will again vote on an advisory basis on the compensation of our Named Executive Officers and on the frequency of such advisory voting. Given the significant level of support received in the recent 2020 advisory vote, the Board of Directors and Committee have not made any material changes to our executive compensation policies since that time.
In making decisions about fiscal 2022 salaries and performance targets, the Committee also considered 2021 corporate performance. Factors affecting the key components of our executive compensation programs for 2022 were:
•Adjusted EBITDA. Adjusted EBITDA is a key financial metric for the Company’s annual cash incentive awards (the calculation for purposes of setting these targets is explained in greater detail below). Adjusted EBITDA as a financial metric replaced the Company’s former key financial metric of adjusted net income. Performance with respect to this metric for fiscal 2022 was below target level for the AIP with an earned result of 22%, primarily due to unprecedented raw material price increases, the ongoing inflationary environment, decreased raw material availability, supply chain disruptions, the continued shortage of semiconductors which impacted many of our customers, and the effects of the war in the Ukraine. This result was a strong achievement overall given the external environment throughout 2022.
•Operational and Market Share Metrics. Continuing for 2022, global safety performance and market share wins were also key performance metrics. These two specific measures were key performance measures under the AIP for the Company’s annual cash incentive awards. Our safety results greatly exceeded target in almost all regions and business segments with an overall blended result of 117% of target and were a record safety performance for Quaker Houghton with an all-time low on recordable incidents and a record low TRIR (total recordable incident rate). On our market share results we exceeded our target of net new business wins for the year, resulting in a 150% of target result for the Company.
•ESG and Personal Performance Metrics. An ESG metric and an Individual Performance metric were key performance targets and were key performance metrics under the AIP for the Company’s annual cash incentive awards and our results met the parameters in each of these areas earning 100% of the target award as further explained below, with personal performance metrics results ranging from zero to 200% of target.
•Quaker Houghton’s Stock Performance. Long-term incentives make up a significant portion of each of the Named Executive Officer’s compensation. In order to align the Named Executive Officers’ incentives with our shareholder returns, the value to be earned on a portion of our long-term awards is directly linked to the performance of our stock. A portion of the equity component of these incentives is tied to stock performance and the number of shares, if any, earned pursuant to the performance stock unit portion of the long-term incentive awards is based on our total shareholder return (which we define as the year-over-year stock price increase or decrease plus dividends paid) as compared to a specific peer group. For the performance stock unit component of our long-term incentive program, Quaker Houghton’s three-year total shareholder return of 6% resulted in a Peer Group (defined further below) ranking at the 22nd percentile. As a result of this three-year total shareholder return, the performance criteria for the 2020-2022 PSUs was not met and resulted in no payout of shares for the three-year period ending December 31, 2022.
•Benchmarking. Based on our review of competitive benchmarking for compensation and our results of operations, we rewarded our Named Executive Officers with salary and/or incentive compensation increases in 2022 as described further below.
General Philosophy
Quaker Houghton, like many companies of similar size, relies on a small group of leaders who have the requisite skills and knowledge to enable us to achieve our business strategies, operate as a globally integrated whole and deliver value to our shareholders.
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To attract and retain talented senior level managers, we have adopted a compensation approach that:
•provides opportunities for competitive levels of total compensation when merited by performance;
•creates incentives to perform over a multiple-year period; and
•aligns interests of the management team with those of our shareholders.
Quaker Houghton compensates its executive leadership team (including our executive officers) through a total compensation package. For 2022, this package consisted of a mix of base salary, an annual cash incentive bonus, long-term equity award incentives and a competitive benefits package comprising of medical, life, disability and retirement components using both qualified and non-qualified programs, where appropriate.
Administrative Practices
The Committee is responsible for overseeing and developing the Total Rewards and Human Capital programs for the Company. Consistent with its charter, the Committee is composed solely of “independent” members of our Board under our Corporate Governance Guidelines and the listing standards of the NYSE. Five members of our Board, Donald R. Caldwell, Jeffry D. Frisby, William H. Osborne, Robert H. Rock (Chair) and Ramaswami Seshasayee currently sit on the Committee. However, the terms of Messrs. Caldwell and Rock will end at the 2023 Annual Meeting of Shareholders. The Committee’s responsibilities include the evaluation of, approval of, and recommendation to Quaker Houghton’s Board with respect to the plans, policies and programs related to the compensation of the Company’s executive officers employing, in the Committee’s discretion, an outside compensation consultant. In fulfilling its duties, the Committee considers the recommendations of the CEO as it relates to the compensation of the other executive officers and works closely with members of management, including the CEO who provide the necessary information and coordinate with the Committee’s outside consultant(s), when appropriate, to ensure that the Committee is sufficiently informed when taking or recommending action on compensation matters. As discussed below, the Committee considers benchmarking data before making such decisions. The Committee’s charter describes in full the Committee’s authority, responsibilities and specific powers and can be accessed on the Company’s website at https://www.quakerhoughton.com under the heading Investors/Corporate Governance.
All compensation to certain of our executive officers over the $1 million limit is nondeductible (subject to exceptions for certain grandfathered arrangements). Compensation paid to certain executive officers exceeded the Section 162(m) limitation and a portion of this compensation is not deductible by Quaker Houghton.
Benchmarking Data
The Committee has the authority to engage independent advisors to assist it in carrying out its responsibilities. To assist Quaker Houghton in establishing a total direct compensation package comprising base salary, an annual cash incentive bonus and long-term incentives, the Committee has since 2015 engaged Willis Towers Watson (“WTW"), a leading global professional services company with specific expertise in the areas of benefits, talent management, rewards, and risk and capital management, as an independent consultant on compensation issues. Management had no role in selecting the Committee’s compensation consultant. In addition, WTW has, from time to time, provided the Committee with executive compensation studies and analyses, as well as benchmarking data and counsel on compensation issues as needed or desired.
The Committee has assessed the independence of WTW pursuant to SEC rules and concluded that WTW’s work for the Committee (and the work for the Company as referenced above) do not raise any conflict of interest.
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COMPENSATION DISCUSSION AND ANALYSIS | |
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Due to our size and diversity of our businesses around the world, we have not identified one specific peer group that is appropriate to use in defining market total direct compensation for our executive officers. Our primary benchmarks for 2022 total direct compensation for our executive officers were derived from compensation information provided by WTW that is a blend of Peer Group (as defined below) compensation data and broader group data comprising a composite of credible, published executive compensation surveys. The Peer Group includes companies in the chemicals industry of similar size (as measured by revenue and market capitalization) and was referenced by the Committee in making total direct compensation decisions for 2022. This peer group includes the following 15 companies: Albemarle Corporation, Ferro Corporation, GCP Applied Technologies, Inc., H.B. Fuller Company, Ingevity Corporation, Innospec Inc., Kraton Corporation, Minerals Technologies Inc., NewMarket Corporation, OMNOVA Solutions Inc., Rayonier Inc., Sensient Technologies Corporation, Stepan Company, Venator Materials PLC, and W. R. Grace & Co. (collectively, the “Peer Group”). We generally aim to benchmark total direct compensation to the market 50th percentiles of this Peer Group. We believe the philosophy of targeting total direct compensation to the market 50th percentiles reduces the possibility of excessive risk taking on the part of executives in order to achieve performance targets at the maximum levels. This approach is the starting point of the analysis as other factors are taken into consideration, including experience, breadth of responsibilities, tenure in the position, whether the position held is for succession planning purposes, overall individual performance and internal equity. We do not assign a particular weight to any of these factors but do exercise discretion.
In determining 2022 compensation for the Named Executive Officers, the Committee used the benchmarking data WTW had previously provided and various other factors, as described above. Messrs. Hostetter and Tometich’s targeted total direct compensation was below the 25th percentile of benchmark levels. Mr. Berquist's targeted total direct compensation for 2022 was between the 25th and 50th percentile of benchmark levels. Mr. Bijlani's and Ms. Leneis’ targeted total direct compensation was between the 50th and 75th percentile of the WTW data. Although the Committee closely analyzes the data provided by WTW, it exercises its discretion in the weight it assigns to this data in making individual compensation decisions.
Total compensation earned in 2022 for each Named Executive Officer is reflected in the Summary Compensation Table below.
Allocating Between Current and Long-Term Compensation
The Committee, in seeking to ensure the appropriate focus on performance and risk, has developed, in consultation with WTW, guidelines for executive officers for allocating the desired total direct compensation among base salary, an annual cash incentive bonus and long-term incentives. As a general philosophy, these guidelines provide that the higher the position within management the more the executive’s total compensation is dependent on incentive pay and the more the executive’s incentive pay is equity-based and long-term oriented. This design aims to better align senior level compensation with the long-term success of the Company and with the interests of shareholders. These guidelines are reviewed regularly to ensure their marketplace competitiveness.
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The charts below illustrate the 2022 pay mix and the target total direct compensation components for Mr. Tometich and our other named executive officers:
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COMPENSATION DISCUSSION AND ANALYSIS | |
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Base Salary
Each year, the Committee reviews the base salaries of our executive officers. The Committee’s final determination of salary levels is based on a number of factors, including market data reported by WTW, specific position responsibilities and scope, experience and tenure, current job performance and Quaker Houghton’s overall financial results. A Named Executive Officer’s performance and achievement of individual goals established by the Committee are taken into consideration for salary determinations. In the case of some of our foreign-based executive officers, salary increases may be a result of legal mandates of a particular country or region which influence the final determinations of the Committee even when similar increases were not granted to officers of comparable positions residing in the United States. Based on its analysis of all of the factors referenced above, in 2022, the Committee approved salary increases for each of the Named Executive Officers, effective April 1, 2022, except for Ms. Leneis who joined the Company in early July 2022. Mr. Tometich’s salary is described below under the heading “Chief Executive Officer Compensation.” The other Named Executive Officers’ base salary increases and total base salary received for 2022 are described in the table below:
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Named Executive Officer | Initial 2022 Base Salary Rate ($) | New 2022 Base Salary Rate ($) | 2022 Year-End Total Base Salary Received ($) |
Shane W. Hostetter | 390,000 | 413,400 | 407,190 |
Joseph A. Berquist | 500,000 | 517,500 | 512,856 |
Jeewat Bijlani | 435,135 | 500,000 | 464,459 |
Melissa Leneis(1) | 455,000 | — | 217,000 |
(1)Salary is based on the salary received upon Ms. Leneis’ appointment as our Senior Vice President and Chief Human Resources Officer (“CHRO”) on July 5, 2022.
Annual Cash Incentive Bonus
The second component of the total direct compensation package is our annual cash incentive bonus plan (the AIP). All AIP bonuses are subject to the discretion of the Committee.
The AIP is intended to provide employees of Quaker Houghton or its subsidiaries with an opportunity to receive incentive bonuses based on the achievement of pre-established goals. The AIP is designed to:
•align rewards with the business strategy and culture of Quaker Houghton, putting emphasis on individual, team and company contributions;
•increase the transparency of how rewards are calculated; and
•allow flexibility for Company functions and business units to align.
Overview of Performance Metrics
The AIP is comprised of financial metrics, as well as other metrics, including new business wins, ESG, individual performance and operational goals. Target incentive opportunities are based on a percentage of an employee’s annual base salary with component bonus opportunity ranging from 0% up to a maximum of 200%.
Financial Metrics
Financial goals are determined at the beginning of the year based on the budget for the coming year with the target bonus for the global corporate financial component set at or around budgeted consolidated adjusted EBITDA. For the regional and Global Specialty Business corporate components, the goals were set using a metric of profit before tax (“PBT”) or similar direct earnings measure for certain Global Specialty Businesses.
For 2022, the Company had one global corporate financial goal of adjusted EBITDA, which applied to all AIP participants, and was established at three levels: (1) threshold (set at 90% of the target, the level at which the bonus pool began to accumulate); (2) target; and (3) maximum. Achievement at or below the threshold level of adjusted EBITDA will typically result in no payout for this global component of the corporate financial goals. The Committee selected a target adjusted EBITDA level of $306.1 million, which was approved by the Board, because of its correlation to the 2022 budgeted adjusted EBITDA. The Committee determined based on 2022 performance, which included adjusted EBITDA for the year ended December 31, 2022 of $257 million, that an award of 22% of this target award opportunity was earned for this component.
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Regional financial goals for the Company’s three regions (Americas, EMEA, and the APAC region) were based on a target PBT calculation and were measured against the regional budget for the respective region. This regional component of the AIP’s corporate financial goals applies to all AIP participants in the region in which they are located. As with the global financial component, there are three levels of payout for regional financial performance, except that the threshold is set at 80% of the target. The Committee determined that:
•an award of 86% of the target award opportunity was earned for the Americas region based on actual PBT performance of $71 million versus a target PBT of $73 million;
•an award of 0% of target was achieved for the EMEA region based on actual PBT performance of a $4 million loss (attributable mainly to an EMEA impairment charge in the 4th quarter of 2022) versus a target PBT of $38 million for this component, and
•an award of 22% of target was earned for the APAC region based on actual PBT performance of $54 million versus a target PBT of $64 million.
The financial component of the AIP for our Global Specialty Business applies to all AIP participants in any of the Global Specialty Businesses (Grease, Coatings, Mining, Off-Shore, Metal Finishing and Container) regardless of geographic location. This component is based on the global financial results for the business in which each AIP participant resides and is based on a budgeted PBT calculation for each particular specialty business and measured against such budget for the year. This component has the same levels as the regional component discussed directly above: (1) threshold (set at 80% of the target, the level at which the bonus pool began to accumulate); (2) target; and (3) maximum. The Committee determined based on 2022 performance that awards earned equated to payments ranging from 46% to 200% of target depending on the individual business lines.
Net New Business Gains, ESG, Individual Performance and Operational Metrics
For 2022, the targets and performances of the net new business, safety/operational, ESG and individual performance metrics were set and measured through December 31, 2022. Under the AIP, annual cash incentive bonuses had historically been determined based on achievement of both corporate financial and individual objectives. Beginning in 2020, in place of individual goals, the Company selected integration metrics for their relationship to driving our new culture after the Combination and to allow flexibility for the combined businesses and functions to align. In 2022, the Company replaced the integration metric with two new metrics, an individual performance factor and a global ESG measure for the Company’s 2023 Sustainability goals. The Company set the following target goals for these metrics for 2022.
Regional / Global Net New Business Gains
The Company’s regional, global and Global Specialty Businesses market share gain goals are applicable to AIP participants based on the region in which they are located and whether they have a global role. For purposes of the AIP there are three regions: Americas, EMEA and APAC, and this metric is based on the percentage of revenue from new business gains in the region less business losses (the net new business rate). For the Global Specialty Business, this metric is based on new business gains, less business losses for each business independently in that segment. Target level is market share gains of 2%, net of any losses year-over-year. The Committee determined that market share gains were between 2% and 4% in each of the Americas, EMEA and APAC and accordingly, 150% was earned for this metric by participants in those regions. The Committee also determined that awards of 150% of target were earned by participants with global roles based on market share gains of between 2% and 4%.
Regional / Global Safety Performance
The Company’s safety goals apply to all AIP participants. Target level is achieved when the total recordable incident rate (“TRIR”) is below target, which was set at the most recently available American Chemistry Council median occupational illnesses and injuries (“OII”) rate, and the Company targets are shown in the table below. OII is defined as the number of employees per 100 full-time employees who have been involved in a recordable illness or injury.
The Company targeted having an overall global OII rate of 0.34 and achieved an excellent 0.32 OII rate. For purposes of the regions, the Americas, and APAC each had a specific OII goal and met or exceeded its respective target goal. The EMEA region achieved 86% of its target goal for this component. Given the geographic reach of the GSB business segments, their goals and results were part of the overall global goals and performance as listed below. Achievement of an OII rate equal to or better than the target will result in a target payout as described below.
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| Target OII/TRIR | Achieved OII/TRIR | Payout |
Global and GSB | ≤.34 | 0.32 | 117% of target payout |
Regional – EMEA | ≤.50 | 0.53 | 86% of target payout |
Regional – APAC | ≤.26 | 0.14 | 200% of target payout |
Regional – Americas | ≤.29 | 0.28 | 110% of target payout |
Global ESG
The Company’s Composite ESG goals apply to all AIP Participants. This metric is based on the qualitative achievement of stated targets. The Company implemented this ESG measure in 2022 to further align executive and senior leadership incentives with our sustainability goals. Target level is achieved when planned global organization ESG targets are met and the composite measurement includes performance against stated Quaker Houghton goals. Considerations for achievement above and below target will depend on the quantitative and qualitative input of the Sustainability and Governance Committees provided to the Compensation and Human Resource Committee. The Committee determined that all participants earned an award of 100% of the target award for this metric.
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Metric | Target | Achievement |
Renewable Energy | Increase Renewable/Nuclear energy usage by 10% (from 42% to 52% by end of 2022) | 100% target met |
Diversity | 2030 Goal: increase female representation as a percentage of the total employee population to 25%-27% | Female representation increased to 23.5% in 2022 |
Supplier Assessment | Implementation of supplier assessment tool completed in May 2022 | 100% target met |
Personal Performance
The Company’s personal performance metric applies to all AIP participants based on each employee’s personal performance rating. To increase linkage to pay-for-performance, the Company has added an individual performance factor. Employees with successful performance will receive target achievement. The Named Executive Officers earned an individual component of between 50% and 200% of the personal performance component of the overall AIP payouts.
Weighting Matrix
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| Financial Metrics | Net New Business, Safety, ESG. and Individual Performance Metrics |
Role | Global Financial (Adjusted EBITDA) | Regional/Business Financial (PBT) | Regional / Global / GSB Net New Business | Regional/Global Safety | Global Composite ESG | Individual Performance |
Global Role | 60% | – | 10% | 10% | 10% | 10% |
Regional Role | 30% | 30% | 10% | 10% | 10% | 10% |
Global Specialty Business | 30% | 30% | 10% | 10% | 10% | 10% |
The above chart indicates the weighting for each AIP participant of the financial and other metrics based on the Company’s performance.
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Payout for 2022
As discussed above, in 2022, the Company underperformed in some of the financial metrics listed above due primarily to unprecedented increases in raw material costs, the inflationary environment, global supply chain and logistics cost pressures the Company experienced throughout 2022 and the war in the Ukraine. Several of the GSB segments exceeded their financial targets. In addition, the Company met each of the net new business, ESG and personal performance metrics listed above. As a result, AIP plan participants with an Americas regional role achieved 78% of their target award opportunity, participants with an EMEA regional role achieved an award of 50% of their target award opportunity, and participants with an APAC regional role achieved an award of 68% of their target award opportunity. Participants in the various Global Specialty Business units achieved an award percentage between 67% and 113% of target award opportunity, respectively. Participants with Global roles achieved 60% of their target opportunity. Mr. Berquist has a mix of Global and Global Specialty Business responsibilities and achieved 60% of his total target award opportunity. The Named Executive Officers earned an award between 55% and 78% of their target award opportunity, based on all of the AIP results above.
Bonuses under the AIP may be paid in cash or in shares of Quaker Houghton common stock, although we generally have paid this bonus in cash. All payouts for 2022 were made in cash. Mr. Tometich had a target and maximum incentive opportunity equal to 100% and 200%, respectively, of his year-end 2022 base salary. Messrs. Berquist and Bijlani had target and maximum incentive opportunities equal to 65% and 130% of their year-end 2022 base salary respectively. Mr. Hostetter had a target and maximum incentive opportunity equal to 65% and 130% of his 2022 year-end base salary. Ms. Leneis had a target and maximum incentive opportunity equal to 65% and 130%, respectively, of her year-end 2022 base salary. Messrs. Berquist, Bijlani, Hostetter, and Ms. Leneis each respectively were awarded and paid $201,825, $253,500, $147,791 and $207,025 as their 2022 AIP bonuses.
Long-Term Incentives
In 2022, the Committee again reviewed current trends in long-term compensation practices with WTW. The most recent review confirmed that Quaker Houghton’s practices were generally consistent with those of other public companies and are as follows:
•Provide for three types of awards (performance-dependent stock unit awards (“PSUs”), restricted stock and options) to senior executives, including the Named Executive Officers, but limit awards for lower level executives and senior management to PSUs and restricted stock.
•The PSU portion of the Company’s 2016 LTIP is performance-based. The performance criteria for the PSU is a single metric, relative total shareholder return (“TSR”) over the applicable period as compared to the S&P MidCap 400 Index (Materials Group). By tying this award to shareholder value, it allows a market metric to be used as a performance measure without accounting complications. For these purposes, TSR is calculated by using the one-month average stock price at the end of the performance period, divided by the sum of (a) one-month average stock price at the beginning of the performance period, and (b) plus any dividends paid over that period.
•Restricted stock is time-based and vests at the end of three years assuming continued employment of the grantee. These restricted shares are eligible for dividends payable, prior to and after vesting, at the time dividends are paid generally.
•Options are time-based and vest in three approximately equal installments over a three-year period commencing with the anniversary of the date of grant.
Our shareholders approved the 2016 LTIP at our 2016 annual meeting of shareholders. The long-term incentive awards discussed in this Compensation Discussion and Analysis section of this proxy statement were awarded under the LTIP.
The starting point for determining the Named Executive Officers’ LTIP award is to first determine the percentage of base pay for each position at the 50th percentile of market comparables.
Similar to the other components of total direct compensation, other factors in determining the actual percentage of base salary are taken into consideration such as experience, breadth of responsibilities, tenure in the position, whether the position held is for succession planning purposes, overall individual performance and internal equity. Based on recommendations from the Committee’s outside compensation consultants as to typical plan design, in prior years the Committee divided the total LTIP award into three components, allocated equally (based on fair value) to stock options, restricted stock and PSUs (assuming target performance for the PSU portion).
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COMPENSATION DISCUSSION AND ANALYSIS | |
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Under the LTIP, in 2020, the Named Executive Officers (at that time) were awarded options, time-based restricted stock and PSUs for the 2020-2022 performance period. Payout of the PSU portion of the 2020-2022 grant was dependent upon achieving a pre-determined targeted performance over the three-year period based on the Company’s TSR as compared to the TSR of the S&P MidCap 400 Index (Materials Group). The threshold for the TSR target was relative performance at the 30th percentile of the comparison group, target was at the 50th percentile and maximum was at the 85th percentile. For the 2020-2022 period, Quaker Houghton’s TSR of 6% equated to a ranking in the 22nd percentile of the comparison group resulting in no payout for this award year for the second year in a row after several years of a maximum payout award for previous plan years.
Under the LTIP, stock options, restricted stock, PSUs, long-term cash payments, and other types of awards can be made to participants. In March 2022 (similar to the award in 2020 and 2021), the Company included PSUs as a component of its LTIP for the 2022-2024 performance period. These awards will be settled in common shares subject to the achievement of market-based and time-based vesting conditions. The number of fully vested shares that may ultimately be issued as settlement for each award may range from 0% up to 200% of the target award, subject to the achievement of the Company’s TSR relative to the performance of the S&P MidCap 400 Materials Group, over the three-year period from January 2022 to December 2024. The LTIP is intended to assist us in attracting, retaining and motivating employees, non-employee directors and consultants through the use of compensation that rewards long-term performance. The use of stock-based compensation in our long-term incentive plan balances the cash-based annual incentive bonus. The Committee believes that stock ownership by management and equity-based performance compensation arrangements are useful tools to align the interests of management with those of our shareholders and long-term performance of the Company. Under the LTIP, a three-year performance period is used. Generally, employees selected as award recipients hold key positions impacting the long-term success of Quaker Houghton and its subsidiaries. These awards are based on overlapping three-year performance periods.
In the first quarter of 2022, the Committee selected participants for the 2022-2024 performance period, including all of the Named Executive Officers (other than Ms. Leneis, who was added as a participant upon her election as CHRO in July 2022). The specific amount of each award was determined with reference to market data provided by WTW, as well as the relative position and role of each executive officer within the Quaker Houghton organizational structure, influence on long-term results, past practice, performance factors independent of the terms and amounts of awards previously granted and policy targets for the mix of compensation between base salary, annual and long-term incentives. The Committee determined that the use of a percentage of base salary as the basis for LTIP awards has at times caused internal inequity issues. To mitigate this dynamic, the Committee has begun to use market data related to base salary with application of an absolute value in making awards determination for similarly valued positions of Senior Vice President, Chief Financial Officer for Mr. Hostetter; Executive Vice President, Chief Strategy Officer and Managing Director Global Specialty Businesses for Mr. Berquist; Senior Vice President – Managing Director, Americas for Mr. Bijlani; and Senior Vice President and Chief Human Resources Officer for Ms. Leneis. The comparative data indicated that the CEO’s LTIP target awards percentage should be higher than the other Named Executive Officers because his leadership role in the global organization and level of responsibility and experience warrants the greater percentage opportunity. The Committee agreed with the proposed recommendations for total LTIP valuation of each executive. The value of the target award at the grant date for Mr. Tometich was 210% of base salary while for the other Named Executive Officers the range was 90% to 132% of base salary.
Under the LTIP, with respect to the 2022-2024 performance period. Mr. Tometich received a long term incentive grant consisting of a target PSU opportunity of 3,138 units, 3,138 shares of restricted stock, and 10,189 options, totaling 210% of his base salary. Mr. Hostetter received a target PSU opportunity of 691 units, 691 shares of restricted stock, and 2,244 options, totaling 90% of his base salary. Mr. Berquist received a target PSU opportunity of 934 units, 934 shares of restricted stock and 3,032 options, totaling 97% of his base salary. Mr. Bijlani received a target PSU opportunity of 691 units, 691 shares of restricted stock, and 2,244 options totaling 74% of his base salary. Mr. Bijlani received an additional grant in 2022 reflecting a market adjustment for his position, which consisted of an additional 902 shares of restricted stock. Upon her appointment as CHRO, Ms. Leneis received a target PSU opportunity of 1,404 units, 1,404 shares of restricted stock and 4,231 options, totaling 132% of her base salary. Ms. Leneis also received a special grant of 7,023 shares of restricted stock upon her appointment as CHRO, which vests one year from her July start date.
The exercise price of options awarded under the LTIP is not less than 100% of the “fair market value” of a share of Quaker Houghton common stock on the date the option was granted, which is defined as the last sale price for a share of common stock as quoted on the NYSE for that date or, if not reported on the NYSE for that date, as quoted on the principal exchange on which the common stock is listed or traded, and if no such sales are made on that date, then on the next preceding date on which there are such sales.
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| COMPENSATION DISCUSSION AND ANALYSIS |
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Under the LTIP, with respect to the 2023-2025 performance period, Mr. Tometich received a long-term incentive grant consisting of a target PSU opportunity of 7,264 units, 4,843 shares of restricted stock, totaling 248% of his base salary. Ms. Leneis received a target PSU opportunity of 2,661 units, 1,774 shares of restricted stock, totaling 165% of her base salary. Mr. Hostetter received a target PSU opportunity of 1,862 units and 1,241 shares of restricted stock, totaling 123% of his base salary. Mr. Berquist received a target PSU opportunity of 2,328 units, 1,552 shares of restricted stock, totaling 129% of his base salary. Mr. Bijlani received a target PSU opportunity of 2,162 units, 1,441 shares of restricted stock, totaling 130% of his base salary.
Comparative Stock Price Performance Graph
The following graph compares the cumulative total return (assuming reinvestment of dividends) from December 31, 2017 to December 31, 2022 for (i) Quaker Houghton’s common stock, (ii) the S&P MidCap 400 Index (the “MidCap Index”), and (iii) the S&P 400 Materials Group Index (the “Materials 400 Group Index”). The graph assumes the investment of $100 on December 31, 2017 in each of Quaker Houghton’s common stock, the stocks comprising the MidCap Index and the Materials Group Index, respectively. The comparison of the Materials 400 Group Index was added in 2021 to provide a closer comparison to the MidCap Index comparison.
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| 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 |
Quaker Chemical Corporation | $ | 100.00 | | $ | 118.90 | | $ | 110.99 | | $ | 172.48 | | $ | 158.13 | | $ | 115.58 | |
S&P MidCap 400 Index | 100.00 | | 88.92 | | 112.21 | | 127.54 | | 159.12 | | 138.34 | |
S&P 400 Materials Group Index | 100.00 | | 79.63 | | 96.25 | | 106.50 | | 140.82 | | 136.97 | |
Chief Executive Officer Compensation
The Committee generally uses the same factors in determining the compensation of the CEO as it does for the other executive officers. The Committee considers CEO compensation in the Peer Group and the benchmarking data provided by WTW as a starting point for determining competitive compensation. The Committee then, in consultation with the CEO, develops Company performance objectives for the CEO and periodically assesses the performance of the CEO. The Committee also evaluates how much the CEO should be compensated in relation to the other Company executives, but the Committee has not adopted any formula linking the level of CEO compensation to that of other executives.
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COMPENSATION DISCUSSION AND ANALYSIS | |
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Mr. Tometich’s base salary as of December 31, 2022 was $800,000. Additionally, given the Company’s performance in 2022, especially Mr. Tometich’s performance during the year navigating extreme inflationary pressures, the raw material cost escalation environment, the war in the Ukraine, as well as market data for comparable positions from WTW, the Board, based on the recommendation of the Committee, has awarded him an increase in his base salary, effective, March 1, 2023 to $880,000.
The Committee determined this increase to be appropriate given the overall Company performance and that it and the awards discussed in the following paragraphs align Mr. Tometich’s total direct compensation generally within comparable market data.
In 2022, Mr. Tometich’s total bonus potential under the AIP was 100% of his base salary at target and 200% of his base salary at maximum. For 2022, Mr. Tometich was awarded 100% of his personal target award opportunity and overall received 60% of his total AIP award opportunity based on the overall results described above, resulting in a total AIP bonus award of $480,000.
For the 2022-2024 performance period, Mr. Tometich received a long-term incentive grant opportunity with a value at target equal to $1,680,000, consisting of a target PSU opportunity of approximately 3,138 units, 3,138 shares of restricted stock and 10,189 options. As referenced above, with respect to the 2023-2025 performance period, Mr. Tometich received a long-term incentive grant consisting of a target PSU opportunity of 7,264 units and 4,843 shares of restricted stock, totaling 248% of his base salary.
Based on Mr. Tometich’s level of responsibility, experience, market data and the Company’s performance, the Committee determined that Mr. Tometich’s pay is in an appropriate range in absolute terms and as compared to the other executive officers.
For more information on the terms of Mr. Tometich’s employment and compensation, please refer to the section titled “Mr. Tometich’s Employment Agreement.”
Stock Ownership Policy
To align the interests of our executive officers with the interests of our shareholders, each of the Named Executive Officers must maintain a minimum ownership in Quaker Houghton stock. For the CEO, the minimum is five times his base salary. In July of 2022, we increased the required minimum ownership level for our other Named Executive Officers from one and one-half times to two and one-half times the executive’s base salary. The ownership levels must be attained by the end of five years after the later of the appointment of the person as an executive officer (including the Named Executive Officers) or the date the policy was modified. All of the Company’s Named Executive Officers as of June 30, 2022 were in compliance with the stock ownership policy as of that date, noting that Messrs. Tometich and Hostetter, who were recently appointed to their respective positions did not on that date satisfy the minimum ownership levels. The Committee reviews the ownership levels once per year typically in the mid-year time frame. The Company has a hedging policy, which is described under “Employee, Officer and Director Hedging” earlier in this proxy statement.
Severance and Change in Control Benefits
The Committee believes that appropriate severance and change in control benefits are an important part of the total compensation benefits package because they enhance our ability to compete for talent and foster stability in our management. Quaker Houghton has entered into employment agreements with each of our Named Executive Officers, pursuant to which severance benefits are payable to each of them under certain circumstances and has also entered into change in control agreements with each of them pursuant to which the executive officers will receive certain benefits if they are terminated within a specified period following a change in control of Quaker Houghton. In determining amounts payable, the Committee seeks to provide severance benefits sufficient to allow our executives time to find a comparable position elsewhere and change in control benefits sufficient to induce our executives to support a change in control transaction fully and remain with us despite any risk of termination after the transaction.
Mr. Tometich’s Employment Agreement
Mr. Tometich is employed pursuant to an employment agreement that permits Quaker Houghton or Mr. Tometich to terminate Mr. Tometich’s employment on 90 days’ written notice, with or without cause or reason. In accordance with the terms of the employment agreement, the Board reviews and adjusts Mr. Tometich’s base salary from time to time. Mr. Tometich’s employment agreement provides that he is eligible to participate in our AIP and LTIP, as well as other benefit programs generally available to full-time U.S. employees.
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| COMPENSATION DISCUSSION AND ANALYSIS |
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Mr. Tometich’s employment agreement provides that upon the termination of his employment for any reason other than (i) by Quaker Houghton for “cause,” or (ii) his death, Quaker Houghton will pay Mr. Tometich severance consisting of 18 months of salary and bonus at target paid biweekly over an eighteen month period, provided Mr. Tometich signs a release within 45 days of receipt or separation of service. Continuation of all medical and dental coverage will also be available for this period as well as reasonable outplacement assistance for one year following the separation from service. Mr. Tometich’s employment agreement contains a confidentiality and an 18-month non-competition and non-solicitation provision, in the event of termination for any reason (other than his death).
In case of termination of employment because of death, Quaker Houghton will not be obligated to make any further payments under the employment agreement except for amounts accrued as of the date of Mr. Tometich’s death, except that Quaker Houghton will pay a death benefit equal to 100% of base salary in effect on the day before death and 50% of base salary in each of the four years thereafter.
“Cause” is defined under Mr. Tometich’s employment agreement as willful and material breach of the terms of his employment agreement (after having received notice thereof and a reasonable opportunity to cure or correct) or Quaker Houghton’s policies, or dishonesty, fraud, willful malfeasance, gross negligence or other gross misconduct, in each case relating to the performance of Mr. Tometich’s duties to Quaker Houghton that is materially injurious to the Company, or a conviction of or guilty plea to a felony or nolo contendere to a felony.
Mr. Tometich’s change in control agreement provides that Mr. Tometich is entitled, if terminated (other than for disability, death, by us for “cause,” or by the executive officer other than for “good reason”) within two years following a change in control, to severance in an amount equal to two times the sum of his highest annualized base salary plus an amount equal to the average of the total annual amounts paid to Mr. Tometich under all applicable annual incentive compensation plans during the applicable three calendar-year period described in the change in control agreement, excluding from the average any year in which no amounts were paid. In general, this three-year period would be expected to be the year of termination and the prior two years (if Mr. Tometich has received a bonus in the year of his termination of employment) or, otherwise, the three calendar years prior to the year of his termination of employment.
In addition, Mr. Tometich would be entitled to receive (i) earned but unpaid base salary through the termination at the rate in effect on the date of termination or, if higher, at the rate in effect at any time during the 90-day period preceding the change in control; (ii) any unpaid bonus or annual incentive payable to the executive in respect of the calendar year ending prior to the termination; (iii) the pro rata portion of any and all unpaid bonuses and annual incentive awards for the calendar year in which the termination occurs based on mid/target performance; and (iv) the pro rata portion of any and all awards under the Company’s LTIP for the performance period(s) in which the termination occurs, which would have been payable had the target level performance been achieved for the performance period. Mr. Tometich would also be entitled to one year of outplacement services and participation in the Company’s medical, dental and life insurance programs as if still employed for a period of 24 months. In addition, the benefits and payments would be discontinued if Mr. Tometich violates the confidentiality provisions of his change in control agreement (at any time) or the non-compete provisions of the change in control agreement (during employment or the one-year period thereafter). To the extent the severance allowance, together with any other payments contingent upon a change in control, exceed the limits under Code section 280G (generally, three times the individual’s average annual compensation for the prior five years), the severance allowance would be reduced to the extent necessary to avoid the disallowance of a deduction under Code section 280G or imposition of the excise tax under Code section 4999 (assuming reduction of the severance allowance is the least economically detrimental to the executive). The Committee believes that providing benefits for Mr. Tometich’s termination within two years following a change in control is fair because he has the broadest responsibility and accountability in ensuring the success of our business and would be crucial to retain in any change in control. This is consistent with our philosophy of tying compensation to level of responsibility and influence over the Company’s results and performance. See the discussion under the caption “Potential Payments Upon Termination or Change in Control” in this proxy statement. These benefits will be paid or provided only if Mr. Tometich signs a general release of claims unless prohibited by local law.
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COMPENSATION DISCUSSION AND ANALYSIS | |
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Other Named Executive Officers
Messrs. Hostetter, Berquist, Bijlani and Ms. Leneis are each entitled to severance under their respective employment agreements if the Company terminates their employment (other than in the case of termination for “cause” (for those agreements where “cause” is defined), disability, death or retirement) equal to 12 months base salary at their then current rate of salary. In addition, under her employment agreement Ms. Leneis’s severance would also include 12 months of the target incentive of the AIP for the year of termination. In the case of Messrs. Hostetter, Berquist and Bijlani and Ms. Leneis, “cause” generally means: (i) willful and material breach of their memorandum of employment; (ii) dishonesty, fraud, willful malfeasance, gross negligence or other gross misconduct, in each case relating to the performance of duties which is materially injurious to Quaker Houghton; or (iii) conviction of or plea of guilty or nolo contendere to a felony. Messrs. Hostetter, Berquist, Bijlani and Ms. Leneis are also entitled to reasonable outplacement assistance under their respective employment agreements. Messrs. Hostetter’s, Berquist’s, Bijlani’s and Ms. Leneis’ severance payments are contingent upon signing a form of release satisfactory to Quaker Houghton. None of the Named Executive Officers are entitled to severance under their employment agreements if they terminate their employment voluntarily, even if for “good reason”. Under their respective employment agreements, Messrs. Hostetter, Berquist and Bijlani and Ms. Leneis would receive any severance payments in semi-monthly installments. See also the discussion under the caption “Termination Other than for Cause, Disability, Death or Retirement” in this proxy statement.
Quaker Houghton has entered into change in control agreements with each of its Named Executive Officers. Under these agreements (Mr. Tometich’s is described above), the officers, other than Mr. Tometich are entitled, if terminated (other than for disability, death, by us for “cause,” or by the executive officer other than for “good reason”) within two years following a change in control, to severance in an amount equal to 1.5 times the sum of their highest annualized base salary plus an amount equal to the average of the total annual amounts paid to the executive under all applicable annual incentive compensation plans during the applicable three calendar-year period described in the change in control agreements, excluding from the average any year in which no amounts were paid. In general, this three-year period would be expected to be the year of termination and the prior two years (if the executive received a bonus in the year of the executive’s termination of employment) or, otherwise, the three calendar years prior to the year of such executive officer’s termination of employment. See the discussion under the caption “Potential Payments Upon Termination or Change in Control” in this proxy statement. In addition, these executive officers are entitled to receive (i) earned but unpaid base salary through the termination at the rate in effect on the date of termination or, if higher, at the rate in effect at any time during the 90-day period preceding the change in control; (ii) any unpaid bonus or annual incentive payable to the executive in respect of the calendar year ending prior to the termination; (iii) the pro rata portion of any and all unpaid bonuses and annual incentive awards for the calendar year in which the termination occurs based on target performance for Messrs. Hostetter, Berquist, Bijlani and Ms. Leneis; and (iv) the pro rata portion of any and all awards under the Company’s LTIP for the performance period(s) in which the termination occurs, which would have been payable had the target level performance been achieved for the performance period.
In addition to the amounts described above, our other Named Executive Officers are also entitled to one-year outplacement services and participation in our medical, dental and life insurance programs as if still employed for a period of 18 months. These benefits would be paid or provided only if the executive officer signs a general release of claims unless prohibited by local law. In addition, the benefits and payments would be discontinued if the executive officer violates the confidentiality provisions of such executive officer’s respective change in control agreement (at any time) or the non-compete provisions of the change in control agreement (during employment or the one-year period thereafter). To the extent the severance allowance, together with any other payments contingent upon a change in control, exceed the limits under Code section 280G (generally, three times the individual’s average annual compensation for the prior five years), the severance allowance would be reduced to the extent necessary to avoid the disallowance of a deduction under Code section 280G or imposition of the excise tax under Code section 4999 (assuming reduction of the severance allowance is the least economically detrimental to the executive).
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| COMPENSATION DISCUSSION AND ANALYSIS |
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In the change in control agreements “cause” generally means: (i) the willful and material breach of the employment agreement between the executive and Quaker Houghton (after having received notice and the reasonable opportunity to correct); (ii) dishonesty, fraud, willful malfeasance, gross negligence or other gross misconduct, in each case relating to the performance of the executive’s employment with Quaker Houghton which is materially injurious to Quaker Houghton; or (iii) conviction of or plea of guilty to a felony. “Good reason” includes, other than by reason of executive’s death or disability: (i) any reduction in the executive’s base salary from that provided immediately before the “covered termination” or, if higher, immediately before a change in control; (ii) any reduction in the executive’s bonus opportunity (including cash or noncash incentives) or increase in the goals or standards required to accrue that opportunity, as compared to the opportunity and goals or standards in effect immediately before the change in control; (iii) a material adverse change in the nature or scope of the executive’s authorities, powers, functions or duties from those in effect immediately before the change in control; (iv) a reduction in the executive’s benefits from those provided immediately before the change in control, disregarding any reduction under a plan or program covering employees generally that applies to all employees covered by the plan or program; or (v) the executive being required to accept a primary employment location which is more than 25 miles from the location at which they were primarily employed during the 90-day period prior to a change in control.
Other Benefits on Termination
In addition to the payments and benefits discussed above, the executive officers are entitled to the payments and benefits that are available to all employees on termination of employment, including vested benefits under the Company’s qualified defined benefit retirement plan and 401(k) plan, short-term and long-term disability benefits (in the event of disability) and life insurance benefits (in the case of death).
Perquisites and Other Benefits
As a general matter, the Company does not provide perquisites to its executive officers, other than an allowance for financial planning services. In Asia and Europe, consistent with regional compensation practices, cars are provided to mid and upper level managers. For more details on these perquisites, please refer to footnote 3 to the Summary Compensation Table.
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| COMPENSATION COMMITTEE REPORT | |
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Compensation Committee Report
The Compensation and Human Resources Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis section included above with management and, based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and in Quaker Houghton’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for filing with the SEC.
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| Compensation and Human Resources Committee |
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| Robert H. Rock, Chair |
| Donald R. Caldwell |
| Jeffry D. Frisby |
| William H. Osborne |
| Ramaswami Seshasayee |
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Executive Compensation Tables
Summary Compensation Table
The table below summarizes the total compensation awarded to, paid to, or earned by each of our executive officers who are named in the table. In this proxy statement, we sometimes refer to this group of individuals as our “Named Executive Officers.”
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Name and Principal Position (a) | Year (b) | Salary ($)(c) | Bonus ($)(d) | Stock Awards(1) ($)(e) | Option Awards(1) ($)(f) | Non-Equity Incentive Plan Compensation(2) ($)(g) | All Other Compensation(3) ($)(h) | Total ($)(i) |
Andrew E. Tometich Chief Executive Officer and President | 2022 | 800,000 | 550,000 | | 1,136,866 | | 559,987 | | 480,000 | | 28,150 | | 3,555,003 | |
2021 | 163,077 | 286,894 | | 2,005,432 | | — | | — | | 1,567 | | 2,456,970 | |
Shane W. Hostetter Executive Vice President, Chief Financial Officer (4) | 2022 | 407,190 | 20,000 | | 250,342 | | 123,330 | | 147,791 | | 21,423 | | 970,076 | |
2021 | 353,200 | 20,000 | | 204,739 | | 100,956 | | 215,280 | | 20,228 | | 914,403 | |
Joseph A. Berquist Executive Vice President, Chief Commercial Officer (4)
| 2022 | 512,856 | — | | 338,379 | | 166,639 | | 201,825 | | 26,404 | | 1,246,103 | |
2021 | 451,668 | — | | 411,738 | | 89,969 | | 311,350 | | 25,599 | | 1,290,324 | |
2020 | 398,628 | — | | 201,674 | | 86,662 | | 370,690 | | 24,029 | | 1,081,683 | |
Jeewat Bijlani Executive Vice President, Chief Strategy Officer (4) | 2022 | 464,459 | — | | 380,230 | | 123,330 | | 253,500 | | 24,692 | | 1,246,211 | |
2021 | 431,286 | — | | 281,709 | | 89,969 | | 226,270 | | 28,443 | | 1,057,677 | |
2020 | 398,628 | — | | 201,674 | | 86,662 | | 373,002 | | 20,909 | | 1,080,875 | |
Melissa Leneis Executive Vice President, Chief Human Resources Officer (4)
| 2022 | 217,000 | 150,000 | 1,458,171 | | 199,957 | | 207,025 | | 16,313 | | 2,248,466 | |
(1)The amounts in columns (e) and (f) reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for equity awards of restricted stock and PSUs granted under the Company’s LTIP excluding the effect of estimated forfeitures. Assumptions used in the calculation of these amounts are included in Note 8 of Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The grant date fair value of restricted stock is calculated using the closing price of the Company’s common stock on the NYSE on the grant date. The grant date fair value of the PSUs reflected in column (e) are the target payouts based on the probable outcome of the performance condition, determined as of the grant date, and are disclosed in the “Grants of Plan-Based Awards” table in this proxy statement. The maximum potential values as of the grant date of the 2022-2024 PSUs granted in 2022 assuming the highest level of performance are as follows: $1,154,784 for Mr. Tometich; $254,288 for Mr. Hostetter; $343,712 for Mr. Berquist; $254,288 for Mr. Bijlani and $516,672 for Ms. Leneis.
(2)The amounts in column (g) are incentive cash bonuses earned in 2022 and payable in 2023 under the AIP ($480,000 for Mr. Tometich; $147,791 for Mr. Hostetter; $201,825 for Mr. Berquist; $253,500 for Mr. Bijlani; and $207,025 for Ms. Leneis).
(3)Includes employer contributions during 2022 by the Company to the Named Executive Officers pursuant to the Company’s Retirement Savings Plan: $11,481 for Mr. Tometich; $18,300 for Mr. Hostetter; $19,250 for Mr. Berquist; $19,592 for Mr. Bijlani, and $9,150 for Ms. Leneis.
Includes dividends paid in 2022 on time-based restricted stock awards: $8,669 for Mr. Tometich; $2,748 for Mr. Hostetter; $7,154 for Mr. Berquist; $5,100 for Mr. Bijlani; and $7,163 for Ms. Leneis
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| 2023 Proxy Statement | 45 |
Includes the costs associated with financial planning services in 2022 of $8,000 for Mr. Tometich and $375 for Mr. Hostetter.
(4)Mr. Hostetter served as Senior Vice President, Chief Financial Officer since April 2021 and effective March 1, 2023 serves as Executive Vice President, Chief Financial Officer. Mr. Berquist served as Executive Vice President, Chief Strategy Officer, and Managing Director, Global Specialty Businesses since September 2021, and served as interim Managing Director EMEA since August 2022, and effective January 1, 2023 serves as the Executive Vice President, Chief Commercial Officer. Mr. Bijlani served as Senior Vice President, Managing Director - Americas since August 2019, and effective January 1, 2023 serves as the Executive Vice President, Chief Strategy Officer. Ms. Leneis served as Senior Vice President, Chief Human Resources Officer since joining the Company on July 5, 2022, and effective March 1, 2023 serves as Executive Vice President, Chief Human Resources Officer.
Grants of Plan-Based Awards
Provided below is information on grants made in 2022 to the Named Executive Officers under the Company’s LTIP. In March 2022, awards for the 2022-2024 period were made to the Named Executive Officers consisting of options vesting in three approximately equal installments over the three-year period, time-based restricted stock vesting after the three-year period and a PSU opportunity. See discussion under the heading “Long-Term Incentives” under the Compensation Discussion and Analysis section in this proxy statement.
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Name (a) | Grant Date (b) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(7) | Estimated Future Payouts Under Equity Incentive Plan Awards(1) | All Other Stock Awards: Number of Shares of Stock or Units(2) (#)(h) | All Other Option Awards: Number of Securities Underlying Options(3) (#)(i) | Exercise or Base Price of Option Awards(4) ($/Sh)(j) | Grant Date Fair Value of Stock and Option Awards(5) ($)(k) |
Target ($)(c) | Maximum ($)(d) | Threshold (#)(e) | Target (#)(f) | Maximum (#)(g) |
Andrew E. Tometich | 3/16/22 | 800,000 | | 1,600,000 | | 1,255 | 3,138 | 6,276 | 3,138 | 10,189 | 178.29 | | 1,696,853 | |
Shane W. Hostetter | 3/16/22 | 268,710 | | 826,800 | | 276 | 691 | 1,382 | 691 | 2,244 | 178.29 | | 373,672 | |
Joseph A. Berquist | 3/16/22 | 336,375 | | 1,035,000 | | 373 | 934 | 1,868 | 934 | 3,032 | 178.29 | | 505,018 | |
Jeewat Bijlani | 3/16/22 | 325,000 | | 1,000,000 | | 276 | 691 | 1,382 | 691 | 2,244 | 178.29 | | 373,672 | |
10/17/22 | | | 0 | 0 | 0 | 902 | 0 | 144.00 | | 129,888 | |
Melissa Leneis(6) | 7/5/22 | 295,750 | | 910,000 | | 561 | 1,404 | 2,808 | 1,404 | 4,231 | 142.38 | | 658,194 | |
| 7/5/22 | | | 0 | 0 | 0 | 7,023 | | 0 | 142.38 | | 999,934 | |
(1)The amounts shown in column (e) reflect the minimum number of shares of Quaker Houghton common stock that will be paid under the Company’s LTIP pursuant to PSUs if the Company’s TSR reflects a 25th percentile rank, which amounts are 40% of the target amounts shown in column (f). The amounts shown in column (g) are 200% of the target amounts shown in column (f). The value or maturation of a PSU award is determined by performance over a three-year period based on relative total shareholder return against a pre-determined peer group. The actual number of common shares to be issued to the Named Executive Officers, if any, will not be determined until after completion of the three-year performance period, based on an achievement percentage of actual performance at the end of the performance period multiplied by each Named Executive Officer’s respective target PSU award. Any shares so earned would be paid out in early 2025.
(2)The amounts shown in column (h) for awards granted on March 16, 2022, or on other dates as indicated in column (b) reflect the number of shares of time-based restricted stock awarded under the LTIP with full vesting on March 16, 2025 (or on July 5, 2023 with respect to the award of 7,023 shares of time-based restricted stock awarded to Ms. Leneis on July 5, 2022). Under the LTIP, with respect to the 2022-2024 performance period, on March 16, 2022, Mr. Tometich received a long-term incentive grant consisting of 3,138 shares of time-based restricted stock; Mr. Hostetter received 691 shares of time-based restricted stock; Mr. Berquist received 934 shares of time-based restricted stock; and Mr. Bijlani received 691 shares of time-based restricted stock. On October 17, 2022, Mr. Bijlani received an additional 902 shares of time-based restricted stock. On July 5, 2022, Ms. Leneis received two grants: 1,404 shares of time-based restricted stock and 7,023 shares of time-based restricted stock.
(3)The amounts shown in column (i) reflect the combination of incentive and non-qualified options which were issued under the LTIP. These options vest one-third in three consecutive annual installments, commencing on March 16, 2023.
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(4)With respect to the awards granted under the provisions of the LTIP, the exercise price of the option is equal to the fair market value, which is defined as the last reported sale price on the grant date.
(5)The amounts included in column (k) represent the full grant date fair value of the awards computed in accordance with FASB ASC Topic 718 excluding the effect of estimated forfeitures. Assumptions used in the calculation of these amounts are described in Note 8 of Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
(6)Reflects grants made upon appointment of Ms. Leneis as CHRO.
(7)These columns show the potential payment range under the 2022 Annual Cash Incentive Plan. For additional information, see “Compensation Discussion and Analysis – Annual Cash Incentive Bonus.” The cash incentive payment range is generally from 0% to 200% of target. There is no threshold or equivalent for these awards. The actual amount paid out under the 2022 AIP is paid out in early 2023 and presented in the Summary Compensation Table in the column entitled “Non-Equity Incentive Compensation.”
Outstanding Equity Awards at Fiscal Year-End
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| Option Awards | Stock Awards |
Name (a) | Number of Securities Underlying Unexercised Options(1) (#) Exercisable (b) | Number of Securities Underlying Unexercised Options(1) (#) Unexercisable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)(d) | Option Exercise Price ($)(e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#)(g) | Market Value of Shares or Units of Stock That Have Not Vested(2) ($)(h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(7) (#)(i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(7) ($)(j) |
Andrew E. Tometich | — | 10,189 | — | 178.29 | | 3/16/2029 | 3,138 | | (5) | 523,732 | | 1,510 | 252,019 | |
| | | | | | | | 1,255 | 209,460 | |
Shane W. Hostetter | 505 | 1,012 | — | 240.20 | | 3/15/2028 | 439 | | (3) | 73,269 | | 166 | 27,705 | |
| | | | | 252 | | (4) | 42,059 | | 276 | 46,064 | |
| | | | | 162 | | (4) | 27,038 | | | |
| | | | | 691 | | (5) | 115,328 | | | |
Joseph A. Berquist | — | 922 | — | 136.64 | | 3/30/2027 | 634 | | (3) | 105,815 | | 146 | 24,367 | |
439 | 880 | — | 245.49 | | 3/15/2028 | 367 | | (4) | 61,252 | | 373 | 62,254 | |
— | 3,032 | — | 178.29 | | 3/16/2029 | 992 | | (4) | 165,565 | | | |
| | | | | 934 | | (5) | 155,885 | | | |
Jeewat Bijlani | 2,421 | — | — | 154.92 | | 2/26/2025 | 634 | | (3) | 105,815 | | 146 | 24,367 | |
2,526 | — | — | 154.92 | | 2/25/2026 | 367 | | (4) | 61,252 | | 276 | 46,064 | |
1,845 | 922 | — | 136.64 | | 3/30/2027 | 431 | | (4) | 71,934 | | | |
439 | 880 | — | 245.49 | | 3/15/2028 | 902 | | (5) | 150,544 | | | |
— | 2,244 | — | 178.29 | | 3/16/2029 | 691 | | (5) | 115,328 | | | |
Melissa Leneis | — | 4,231 | — | 142.38 | | 3/16/2029 | 1,404 | | (5) | 234,328 | | 561 | 93,631 | |
| | | | | 7,023 | (6) | 1,172,139 | | | |
(1)The options have a seven-year term, except as described below. For options expiring on February 26, 2025, the grant date is August 15, 2019, and these options have a 5-year, 6-month, 12-day term. For options expiring on February 25, 2026, the grant date is August 15, 2019, and these options have a 6-year, 6-month, 10-day term. For options expiring on March 30, 2027, the grant date is March 30, 2020. For options expiring on March 15, 2028, the grant date is March 15, 2021, except for Mr. Hostetter whose grant date was April 19, 2021 and which options have a 6-year, 10-month, 26-day term. For options expiring on March 16, 2029, the grant date is March 16, 2022, except for Ms. Leneis, whose grant date was July 5, 2022 and which options have a 6-year, 8-month, 12-day term. One-third of each award vests on the first, second and third anniversaries of the respective grant date (except for Mr. Bijlani who received two sets of options granted on August 15, 2019 (1) one grant of 2,421 options vests in equal installments upon grant, and upon the second and third anniversaries of February 26, 2020 and (2) the other grant of 2,526 options vests on the first, second, and third anniversaries of February 25, 2020 respectively, Mr. Hostetter whose 1,517 options granted on April 19, 2021 vest on the first, second, and third anniversaries of March 15, 2021, and Ms. Leneis whose 4,231 options granted on July 5, 2022 vest on the first, second, and third anniversaries of March 16, 2022).
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| 2023 Proxy Statement | 47 |
(2)Reflects amounts based on the closing market price of the Company’s common stock on the NYSE of $166.90 per share on December 30, 2022.
(3)Time-based restricted stock awards granted under the LTIP which vested on March 30, 2023.
(4)Time-based restricted stock awards granted under the LTIP which vest on March 15, 2024.
(5)Time-based restricted stock awards granted under the LTIP which vest on March 16, 2025.
(6)Time-based restricted stock awards granted under the LTIP which vest on July 5, 2023.
(7)No shares are included with respect to the 2020-2022 PSUs. Actual performance through December 31, 2022 for the 2020-2022 PSUs granted under the LTIP in 2020 was below threshold and resulted in no payout. The 2021-2023 PSUs granted in 2021 under the LTIP vest on December 31, 2023 and would be paid out in early 2024 based on the level of achievement of the performance condition over the three-year performance period. Actual performance through December 31, 2022 was below threshold and would have resulted in no payout. As such, pursuant to SEC rules and regulations, for the awards granted in fiscal year 2021, the number of shares and payout value reflected above assume threshold performance. The 2022-2024 PSUs granted in 2022 under the LTIP vest on December 31, 2024 and would be paid out in early 2025 based on the level of achievement of the performance condition over the three-year performance period. Actual performance through December 31, 2022 was below threshold and would have resulted in no payout. As such, pursuant to SEC rules and regulations, for the awards granted in fiscal year 2022, the number of shares and payout value reflected above assume threshold performance. The final number of common shares (and therefore, value of the awards) awarded to the Named Executive Officers pursuant to the PSUs, if any, will not be determined until the end of each performance period, based on an achievement percentage of actual performance at the end of the performance period multiplied by each Named Executive Officer’s respective target PSU award.
Option Exercises and Stock Vested
This table shows the number and value of stock options exercised and stock awards vested during 2022 by the Named Executive Officers.
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| Option Awards | Stock Awards |
Name (a) | Number of Shares Acquired on Exercise(1) (#)(b) | Value Realized on Exercise(2) ($)(c) | Number of Shares Acquired on Vesting (#)(d) | Value Realized on Vesting(3) ($)(e) |
Andrew E. Tometich | — | — | 3,775 | (7) | 524,310 |
Shane W. Hostetter | — | — | 336 | (4) | 63,655 |
— | — | 242 | (5) | 38,773 |
Joseph A. Berquist | — | — | 516 | (4) | 97,756 |
1,764 | 80,306 | 1,936 | (6) | 310,186 |
Jeewat Bijlani | — | — | 516 | (4) | 97,756 |
— | — | 1,290 | (6) | 206,684 |
Melissa Leneis | — | — | — | | — |
(1)The amounts shown in column (b) reflect the total number of shares acquired on exercise.
(2)Reflects the difference between the exercise price of the option and the last reported sale price for a share of common stock as quoted on the NYSE on the date of exercise. The value of exercising stock options can be realized in cash or in stock. Of the value realized on exercise, all amounts reflect the value in cash.
(3)Amounts reflect the closing price of the Company’s common stock on February 25, 2022 at $189.45 per share, the closing price of the Company’s common stock on August 1, 2022 at $160.22 per share, and the closing price of the Company’s common stock on October 13, 2022 at $138.89 per share.
(4)Represents a time-based restricted stock award under the LTIP which vested 100% on February 25, 2022.
(5)Time-based restricted stock award under the LTIP of 726 share; 242 shares vested on August 1, 2020, 242 shares vested on August 1, 2021 and 242 shares vested on August 1, 2022.
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(6)Represents a time-based restricted stock award under the LTIP which vested 100% on August 1, 2022.
(7)Represents a time-based restricted stock award under the LTIP which vested 100% on October 13, 2022.
Pension Benefits
There are no pension benefits applicable to any Named Executive Officers. In 2020, the Company completed the termination of its U.S. Pension Plan and distributed all remaining benefits.
Potential Payments upon Termination or Change in Control
We describe below estimated amounts payable to each of our Named Executive Officers under certain situations, assuming the termination of employment and, where applicable, that a change in control occurred on December 31, 2022. For purposes of this section, the term “change in control” generally means: (a) any person who, subject to certain exceptions, is or becomes the beneficial owner of securities of Quaker Houghton representing 30% or more of the combined voting power of Quaker Houghton’s then outstanding securities or such lesser percentage of voting power (but not less than 15%), as determined by the independent members of the Board of Directors; (b) during any two-year period, directors of Quaker Houghton in office at the beginning of such period plus any new director whose election by the Board of Directors or whose nomination for election by Quaker Houghton’s shareholders was approved by a vote of at least two-thirds of the directors then still in office (who either were directors at the beginning of the period or whose election or nomination for election was previously so approved) shall cease for any reason to constitute at least a majority of the Board; (c) the consummation of (i) any consolidation or merger of Quaker Houghton in which Quaker Houghton is not the continuing or surviving corporation or pursuant to which Quaker Houghton’s voting common shares would be converted into cash, securities, and/or other property, other than a merger of Quaker Houghton in which holders of Quaker Houghton common shares immediately prior to the merger have the same proportionate ownership of voting shares of the surviving corporation immediately after the merger as they had in the common shares immediately before; or (ii) any sale, lease, exchange, or other transfer of all or substantially all the assets or earning power of Quaker Houghton; or (d) the approval of the liquidation or dissolution of Quaker Houghton by its shareholders or the Board of Directors.
The amounts shown are estimated amounts, and have not been calculated as a present value or otherwise adjusted for varying payment dates. The amounts shown are estimates of the amounts that would be paid; the actual amounts to be paid can only be determined at the time of the executive’s separation from the Company (or a change in control, if applicable). Also, see the discussions under the headings “Severance and Change in Control Benefits” through “Other Benefits on Termination” in the Compensation Discussion and Analysis section of this proxy statement.
Named Executive Officers – Estimated Payments and Benefits
Upon Termination of Employment in Connection With a Change in Control
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| Andrew E. Tometich | Joseph A. Berquist | Jeewat Bijlani | Shane Hostetter | Melissa Leneis |
Severance Allowance ($)(1) | 3,200,000 | | | 1,135,231 | | | 1,066,351 | | | 810,914 | | | 682,500 | | |
Annual Bonus ($) | 800,000 | | | 336,375 | | | 325,000 | | | 268,710 | | | 295,750 | | |
Performance Stock Units ($)(2) | 593,939 | | | 198,450 | | | 184,968 | | | 133,338 | | | 77,895 | | |
Restricted Stock Awards (time-based vesting) ($)(3) | 523,732 | | | 488,516 | | | 504,873 | | | 257,694 | | | 1,406,466 | | |
Stock Options ($)(4) | — | | | 27,900 | | | 27,900 | | | — | | | 103,744 | | |
Medical/Dental/Life Insurance ($)(5) | 4,134 | | | 45,502 | | | 1,377 | | | 43,993 | | | 459 | | |
Outplacement Assistance ($)(6) | 8,500 | | | 8,500 | | | 8,500 | | | 8,500 | | | 8,500 | | |
Total | 5,130,305 | | (7) | 2,240,474 | | (7) | 2,118,969 | | (7) | 1,523,149 | | (7) | 2,575,314 | | (7) |
(1)To the extent the severance allowance, together with any other payments contingent upon a change in control, exceed the limits under Code section 280G (generally, three times the individual’s average annual compensation for the prior five years), the severance allowance will be reduced to the extent necessary to avoid the disallowance of a deduction under Code section 280G or imposition of the excise tax under Code section 4999 (assuming reduction of the severance allowance is the least economically detrimental to the executive). Based on our calculations, which are based on estimates and assumptions, we have not made any reduction to the severance allowance of any of the Named Executive Officers.
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| 2023 Proxy Statement | 49 |
(2)This amount reflects the pro rata portion of the 2020-2022, 2021-2023, and 2022-2024 PSUs multiplied by the closing market price of our common stock on December 30, 2022 ($166.90).
(3)This amount reflects the closing market price of our common stock on December 30, 2022 ($166.90) multiplied by the number of shares that would theoretically become vested on termination or change in control if such occurred on that date.
(4)This amount reflects the number of shares for which options would become vested on a change in control, multiplied by the positive difference (if any) between the closing market price of our common stock on December 31, 2022 ($166.90) and the exercise price of the option. Options that were vested before December 31, 2022 are shown in the Outstanding Equity Awards at Fiscal Year-End Table elsewhere in this proxy statement.
(5)This amount reflects the value of medical, dental and life insurance coverage for 24 months (Mr. Tometich) and for 18 months for the other Named Executive Officers, all based on our current costs for these benefits.
(6)This amount is the estimated value of providing outplacement counseling and services during 2023.
(7)If the change in control falls within the meaning of Code Section 409A, severance payments are expected to be made in a lump sum. For any other change in control, severance payments are made in monthly installments.
Termination Other than for Cause, Disability, Death or Retirement Not Involving a Change in Control
Under the terms of their employment agreements, the Named Executive Officers are entitled to severance benefits and certain outplacement services if the Company terminates their employment (for other than cause, disability, death or retirement) and the termination is not in connection with a change in control. In addition, Messrs. Berquist, Bijlani and Hostetter and Ms. Leneis are entitled to continuation of medical and dental coverage consistent with Quaker Houghton’s severance program in place at the time of termination, and Mr. Tometich would be entitled to participate in Quaker Houghton’s medical and dental plans for 18 months after termination on the same basis as an active employee. In the case of such a termination, Mr. Tometich is entitled to a multiple of 1.5 times his base salary and bonus paid to him during a three-year period as described in his employment agreement. In the case of such a termination, Messrs. Berquist, Bijlani, Hostetter and Ms. Leneis are entitled to severance equal to 12 months of base salary as of the termination date (in addition, under her employment agreement Ms. Leneis’s severance also includes 12 months of the target incentive of the AIP for the year of termination). The estimated aggregate severance amounts of salary payable under such circumstances are as follows: $1,200,000 (Mr. Tometich); $517,500 (Mr. Berquist); $500,000 (Mr. Bijlani); $413,400 (Mr. Hostetter) and $455,000 (Ms. Leneis). Mr. Tometich would be paid his severance biweekly over eighteen months; Messrs. Berquist, Bijlani and Hostetter and Ms. Leneis would respectively be paid their severance in twenty-four semi-monthly installments. See also the discussion under the caption “Other Named Executive Officers” and “Mr. Tometich’s Employment Agreement”.
Termination as a Result of Death or Disability
If employment were terminated on December 31, 2022, as a result of death or disability (as defined in the respective agreements), the amounts shown above for Annual Bonus (assuming target performance is attained), Restricted Stock Awards (time-based vesting) and Stock Options would also be paid. In the case of death on December 31, 2022, a death benefit would be paid for 2022 (in 2023) of $800,000 (Mr. Tometich), $517,500 (Mr. Berquist), $500,000 (Mr. Bijlani), $413,400 (Mr. Hostetter), plus 50% of base salary during each of 2024, 2025, 2026, and 2027 (Mr. Tometich, $400,000; Mr. Berquist, $258,750; Mr. Bijlani, $250,000; and Mr. Hostetter, $206,700). Under the terms of her employment agreement, in the case of death on December 31, 2022, Ms. Leneis would have been entitled to a single-sum cash death benefit equal to 200% of her base salary ($910,000), or a death benefit paid for 2022 (in 2023) of 100% base salary ($455,000), plus 50% of base salary during each of 2024, 2025, 2026, and 2027 ($227,500).
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Pay Ratio Disclosure
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations of the SEC, we are providing the following information about the annual total compensation of our employees and the annual total compensation of our CEO, Andrew E. Tometich. For 2022, our last completed fiscal year:
•The annual total compensation of our median employee, identified as described below was $33,884; and
•The annual total compensation of our CEO was $3,555,003. This amount equals the CEO’s compensation as reported in the Summary Compensation Table.
Based on this information, for 2022 the ratio of the annual total compensation of our CEO, to the median of the total compensation of all employees was 105 to 1.
Methodology
There has been no change in our employee population or employee compensation arrangements that we believe would significantly affect our pay ratio disclosure. As such, we are using the same methodology and the same median employee in our pay ratio calculation as we used in last year’s proxy statement. This methodology and assumptions are set out below.
To identify the median of annual total 2022 compensation of all our employees, as well as to determine the annual total compensation of the “median employee,” the methodology and material assumptions, adjustments and estimates that we used were as follows:
1.We determined that as of December 31, 2021, our employee population consisted of 4,455 individuals working at our company and its consolidated subsidiaries (“Employee Population”). For purposes of this pay ratio disclosure, we excluded from the Employee Population 63 employees who joined us in connection with several acquisitions closed in 2021, as permitted by the SEC rules, namely Baron Industries (35 employees), Grindaix-GmbH (12 employees), a purchase of certain assets including hydraulic fluids, coolants, cleaners, and rust preventative oils within Turkey (14 employees), and the assets related to a tin-plating solutions business for the steel end market (2 employees).
2.Our Employee Population, after the further adjustments permitted by SEC rules (as described below), consisted of 4,232 employees. In establishing the relevant portion of our Employee Population, as permitted by the SEC rules, we excluded 5% of our total employees who are non-U.S. employees, including all of our employees in Argentina, Ireland, Malaysia, Poland, and Portugal, which together represent 223 employees, or 5%, of our Employee Population (29 in Argentina, 4 in Ireland, 4 in Malaysia, 176 in Poland, and 10 in Portugal). Of the remaining employees, 1,040 are located in the U.S. and 3,192 are located outside the U.S. We also excluded the CEO from the Employee Population.
3.For each of the 4,232 employees, we used their 2021 base salary to determine the median employee group. Because the commissions and bonuses for 2021 for each employee had not yet been determined, our calculation of employee bonuses was based on bonus and commission information for 2020. In determining the median employee group, all non-U.S. currencies were converted to U.S. Dollars at the exchange rate applicable on December 31, 2021. Based on this information, the median group of employees was determined.
4.After determining the median group of employees, the compensation of these employees was calculated using actual 2021 compensation data from the Company, in line with the requirements of Regulation S-K for each median group employee. After calculating actual 2021 compensation data for the median group, we selected the median employee who is a chemical operator based in the Americas and had a total annual compensation of $41,600 in 2021. In 2022, this median employee’s total annual compensation was $33,884.
5.With respect to the annual total compensation of our CEO, we used the amount in the “total” column (column (i)) of our 2022 Summary Compensation Table included in this proxy statement.
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| 2023 Proxy Statement | 51 |
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| PAY VERSUS PERFORMANCE DISCLOSURE | |
| |
Pay versus Performance Disclosure
As required by Item 402(v) of Regulation S-K, we are providing the following information on the relationship between Compensation Actually Paid (“CAP”) and the Company’s performance for our Named Executive Officers (“NEOs”), including the Principal Executive Officer (“PEO”). The definition of CAP is mandated by the SEC and is not used by the Compensation and Human Resources Committee in its pay-for-performance assessments. See the “Compensation Discussion and Analysis” section for a discussion of the Company’s compensation philosophy, practices and programs.
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Year | Summary Compensation Table Total for PEO (1) | Compensation Actually Paid to PEO (1) (2) (5) | Summary Compensation Table Total for former PEO(1) | Compensation Actually Paid to former PEO (1)(2)(5) | Average Summary Compensation Table Total for Non-PEO NEOs (3) | Average Compensation Actually Paid to Non-PEO NEOs(3) (4) (5) | Value of Initial Fixed $100 Investment Based on | Net (loss) /Income (in thousands) | Adjusted EBITDA (7) (in thousands) |
Total Shareholder Return (6) | Peer Group Total Shareholder Return (6) |
2022 | $ | 3,555,003 | | $ | 2,731,927 | | | | $ | 1,427,714 | | $ | 1,059,279 | | $ | 104.15 | | $ | 123.28 | | $ | (15,842) | | $ | 257,150 | |
2021 | $ | 2,456,970 | | $ | 1,423,691 | | $ | 4,400,422 | | $ | 2,648,915 | | $ | 935,317 | | $ | 613,817 | | $ | 142.48 | | $ | 141.80 | | $ | 121,431 | | $ | 274,109 | |
2020 | | | $ | 7,045,414 | | $ | 10,839,520 | | $ | 1,244,976 | | $ | 1,837,408 | | $ | 155.41 | | $ | 113.66 | | $ | 39,787 | | $ | 221,974 | |
(1) The Principal Executive Officer and the former Principal Executive Officer reflected in the above table are Mr. Tometich and Mr. Barry respectively. Mr. Barry served as CEO through November 30, 2021 and Mr. Tometich became CEO on December 1, 2021.
(2) To calculate Compensation Actually Paid (“CAP”), the following amounts were deducted from and added to Summary Compensation Table total compensation
Current PEO
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Year | Summary Compensation Table Total for Mr. Tometich | Pension Adjustment | Equity Adjustment | Compensation Actually Paid to Current PEO Total |
|
2022 | $ | 3,555,003 | | $ | — | | $ | (823,076) | | $ | 2,731,927 | |
2021 | $ | 2,456,970 | | $ | — | | $ | (1,033,279) | | $ | 1,423,691 | |
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Year | Fair Value of Current Equity Awards at Year End | Change in Fair Value of Prior Year Awards Unvested at Year End | Fair Value of Equity Awards Granted and Vested during the Year | Change in Fair Value of Prior Year Awards that Vested during the Year | Fair Value of Prior Year Awards Forfeited during the Year | Dividends | Less SCT Stock Awards and Option Awards | Equity Value included in CAP |
2022 | $ | 1,277,642 | | $ | (56,980) | | $ | — | | $ | (346,885) | | $ | — | | $ | — | | $ | (1,696,853) | | $ | (823,076) | |
2021 | $ | 972,153 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (2,005,432) | | $ | (1,033,279) | |
Former PEO
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Year | Summary Compensation Table Total for Mr. Barry | Pension Adjustment | Equity Adjustment | Compensation Actually Paid to Former PEO Total |
|
2021 | $ | 4,400,422 | | $ | 3,959 | | $ | (1,755,466) | | $ | 2,648,915 | |
2020 | $ | 7,045,414 | | $ | (1,218,878) | | $ | 5,012,984 | | $ | 10,839,520 | |
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Year | Service Cost | Prior Service Cost for Plan Amendments | Less Actuarial Present Value under Defined Benefit and Pension Plans | Adjustment to SCT for Pension Plans |
|
2021 | $ | 40,959 | | $ | — | | $ | (37,000) | | $ | 3,959 | |
2020 | $ | 114,459 | | $ | — | | $ | (1,333,337) | | $ | (1,218,878) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year | Fair Value of Current Equity Awards at Year End | Change in Fair Value of Prior Year Awards Unvested at Year End | Fair Value of Equity Awards Granted and Vested during the Year | Change in Fair Value of Prior Year Awards that Vested during the Year | Fair Value of Prior Year Awards Forfeited during the Year | Dividends | Less SCT Stock Awards and Option Awards | Equity Value included in CAP |
2021 | $ | 1,986,178 | | $ | (2,096,930) | | $ | — | | $ | 807,578 | | $ | — | | $ | — | | $ | (2,452,292) | | $ | (1,755,466) | |
2020 | $ | 6,342,583 | | $ | 1,508,472 | | $ | — | | $ | (270,110) | | $ | — | | $ | — | | $ | (2,567,961) | | $ | 5,012,984 | |
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52 | 2023 Proxy Statement | |
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| PAY VERSUS PERFORMANCE DISCLOSURE |
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(3) The non-PEO named executive officers reflected in the above table consist of Messrs. Hostetter, Berquist, Bijlani and Ms. Leneis for 2022; Ms. Hall and Messrs. Hostetter, Berquist, Bijlani and Platzer for 2021; and Ms. Hall and Messrs. Berquist, Bijlani and Platzer for 2020.
(4) To calculate average Compensation Actually Paid (“CAP”) for the other NEOs, the following amounts were deducted from and added to average Summary Compensation Table total compensation:
Other NEOs
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Year | Summary Compensation Table Total for Other NEOs | Pension Adjustment | Equity Adjustment | Compensation Actually Paid to Other NEOs Total |
|
2022 | $ | 1,427,714 | | $ | — | | $ | (368,435) | | $ | 1,059,279 | |
2021 | $ | 935,317 | | $ | — | | $ | (321,500) | | $ | 613,817 | |
2020 | $ | 1,244,976 | | $ | (125,415) | | $ | 717,847 | | $ | 1,837,408 | |
| | | | | | | | | | | | | | |
Year | Service Cost | Prior Service Cost for Plan Amendments | Less Actuarial Present Value under Defined Benefit and Pension Plans | Adjustment to SCT for Pension Plans |
|
2022 | $ | — | | $ | — | | $ | — | | $ | — | |
2021 | $ | — | | $ | — | | $ | — | | $ | — | |
2020 | $ | 30,322 | | $ | — | | $ | (155,737) | | $ | (125,415) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year | Fair Value of Current Equity Awards at Year End | Change in Fair Value of Prior Year Awards Unvested at Year End | Fair Value of Equity Awards Granted and Vested during the Year | Change in Fair Value of Prior Year Awards that Vested during the Year | Fair Value of Prior Year Awards Forfeited during the Year | Dividends | Less SCT Stock Awards and Option Awards | Equity Value included in CAP |
2022 | $ | 769,667 | | $ | (231,544) | | $ | — | | $ | (146,463) | | $ | — | | $ | — | | $ | (760,095) | | $ | (368,435) | |
2021 | $ | 262,702 | | $ | (206,627) | | $ | 561 | | $ | 67,796 | | $ | (87,326) | | $ | — | | $ | (358,606) | | $ | (321,500) | |
2020 | $ | 739,491 | | $ | 310,580 | | $ | — | | $ | (32,838) | | $ | — | | $ | — | | $ | (299,386) | | $ | 717,847 | |
(5) In calculating CAP, the Company determined the fair value of outstanding and vested equity awards in the applicable fiscal year in accordance with the SEC rules for CAP and computed in a manner consistent with the fair valuation methodology used to account for share-based payments for financial reporting purposes consistent with U.S. generally accepted accounting principles. For restricted stock, CAP values are based on closing share price at year end (or the price on vesting date for vested awards and forfeiture date for forfeited awards). For performance share units, the CAP values are estimated using a Monte Carlo simulation as of the year-end date, incorporating estimates as to probable outcome of performance conditions as of the end of the performance period. For options, the valuations of outstanding awards as of year-end are based on a Black-Scholes option pricing model that incorporate a range of assumptions for inputs to determine the fair value for CAP purposes. For vested options, the fair value on the date of vesting represents the intrinsic value, which is calculated as the difference between the market price and the option exercise price. For more information about the Company’s share-based accounting, see Note 8 of Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, provided with this proxy statement.
(6) Total Shareholder Return assumes $100 invested on December 31, 2019, including reinvestment of dividends. Peer TSR represents the S&P MidCap 400 Index.
(7) The Company Selected Measure is Adjusted EBITDA, which is a non-GAAP financial measure. A full discussion of our use of non-GAAP financial measures to enhance a reader’s understanding of the financial performance of the Company, and a reconciliation of these measures to the GAAP measures can be found on pages 31 to 36 in “Non-GAAP Measures” of Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, provided with this proxy statement.
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| 2023 Proxy Statement | 53 |
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PAY VERSUS PERFORMANCE DISCLOSURE | |
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Tabular List of Performance Measures
The four items listed below represent the most important financial measures we used to link compensation actually paid to our NEOs to Company performance FY2022. Definitions of these measures and further details on how they feature in our compensation programs are described in our Compensation Discussion and Analysis (CD&A) within the sections titled “Annual Cash Incentive Bonus” and “Long-Term Incentives.”
1.Adjusted EBITDA
2.Relative TSR
3.Regional Profit Before Tax
4.Market Share Gains (Net New Business Rate)
Relationship between Compensation Actually Paid (CAP) and Performance Metrics
CAP versus Adjusted EBITDA
The chart below illustrates the relationship between PEO and other NEOs average CAP to the Company’s adjusted EBITDA.
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54 | 2023 Proxy Statement | |
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| PAY VERSUS PERFORMANCE DISCLOSURE |
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CAP versus TSR
The chart below illustrates the relationship between PEO and other NEOs average CAP to TSR based on the value of an initial investment of $100 invested in the Company’s common stock including reinvestment of dividends.
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| 2023 Proxy Statement | 55 |
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PAY VERSUS PERFORMANCE DISCLOSURE | |
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TSR: Company versus Peer Group
The following graph compares the cumulative total return (assuming reinvestment of dividends) from December 31, 2019 to December 31, 2022 for Quaker Houghton’s common stock and the S&P MidCap 400 Index assuming the investment of $100 on December 31, 2019 in each of Quaker Houghton’s common stock and the stocks comprising the S&P MidCap 400 Index. As supplemental information, we have also presented the cumulative total return of an assumed investment in companies comprising the S&P 400 Materials Group Index.
| | | | | | | | | | | | | | |
| 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 |
Quaker Chemical Corporation | $ | 100.00 | | $ | 155.41 | | $ | 142.48 | | $ | 104.15 | |
S&P MidCap 400 Index | 100.00 | | 113.66 | | 141.80 | | 123.28 | |
S&P 400 Materials Group Index | 100.00 | | 110.65 | | 146.31 | | 142.32 | |
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56 | 2023 Proxy Statement | |
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| PAY VERSUS PERFORMANCE DISCLOSURE |
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CAP versus Net Income
The chart below illustrates the relationship between PEO and other NEOs average CAP to the Company’s net income.
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| 2023 Proxy Statement | 57 |
Proposal 4 – Approval of the 2023 Director Stock Ownership Plan
Background
The 2023 Director Stock Ownership Plan (the “Plan”) was adopted by our Board on February 22, 2022, subject to approval by our shareholders at the annual meeting. The Plan authorizes the issuance of up to 75,000 shares of Quaker Houghton common stock in accordance with the terms of the Plan in payment of all or a portion of the annual cash retainer payable to our non-employee directors (“Eligible Directors”) in 2023 and subsequent years during the term of the Plan. The Plan was adopted to replace the 2013 Director Stock Ownership Plan that expires in 2023. After approval by the shareholders of the Plan, no new shares will be issued under the 2013 Director Stock Ownership Plan.
The purpose of the Plan is to encourage the non-employee directors of Quaker Houghton to increase their individual investment in Quaker Houghton common stock and thereby align their interests more closely with the interests of other shareholders.
Description of the Plan
A copy of the Plan is included in this proxy statement as Appendix A.
Plan Administration
The Board has appointed the Governance Committee of the Board, whose members are each an Eligible Director (the “Committee”), to administer the Plan. The current members are Mark A. Douglas (Chair), Charlotte C. Decker, Sanjay Hinduja, Robert H. Rock and Fay West.
Effective Date and Duration
The Plan will not become effective unless it is approved by our shareholders at the 2023 Annual Meeting or at an adjournment of this meeting. If the Plan is approved by our shareholders at the 2023 Annual Meeting or at an adjournment of this meeting, it will become effective on the date it is so approved and will remain in effect for a term of ten years or until it is earlier terminated by the Board.
Common Stock Subject to the Plan
The maximum number of shares of Quaker Houghton common stock that may be issued under the Plan is 75,000, subject to adjustment in the event of any recapitalization, reorganization, merger, consolidation, spin-off, combination, share exchange, stock split or reverse split, liquidation, dissolution or other similar corporate transaction or event that affects Quaker Houghton common stock such that the Committee determines that an adjournment is appropriate in order to prevent the dilution or enlargement of the rights of Eligible Directors under the Plan (each, an “adjustment event”). The shares we issue under the Plan may be either authorized and unissued shares of Quaker Houghton common stock or authorized and issued shares of Quaker Houghton common stock we have previously purchased or acquired for any purpose.
Payment of the Annual Cash Retainer
The Company pays each Eligible Director an annual fee for the director’s service as a member of the Board (the “Annual Cash Retainer”). Our non-management directors will be paid an Annual Cash Retainer of $80,000 in 2023. The Plan, which specifies the terms on which Quaker Houghton common stock may be used to pay all or a portion of the Annual Cash Retainer paid to Eligible Directors during the term of the Plan, will not limit the ability of the Board or a committee of the Board to increase or decrease the annual cash or equity retainer from time to time during the term of the Plan. The Annual Cash Retainer is in addition to a restricted stock grant vesting on the anniversary of the grant (equal to $130,000 in 2023), and does not include fees paid to Eligible Directors for their services as a committee chairperson, as a lead director, or as a non-management executive chairperson or committees of the Board. Under the terms of the Plan, the Annual Cash Retainer will be payable on June 1 of each calendar year during the term of the Plan, or if June 1 of any year is not a day on which the New York Stock Exchange is open for trading, then on the first day thereafter on which there is such trading (each a “Retainer Payment Date”).
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58 | 2023 Proxy Statement | |
Under the terms of the Plan, if on May 1 of the applicable calendar year an Eligible Director is the “Beneficial Owner” of Quaker Houghton common stock having a then-current market value that is less than the Threshold Amount, as defined below, 75% of the Annual Cash Retainer payable to that Eligible Director in that year will be paid in shares of Quaker Houghton common stock and the remaining 25% of the Annual Cash Retainer will be paid in cash, unless the Eligible Director elects to receive a greater percentage of Quaker Houghton common stock (up to 100%) of the Annual Cash Retainer for the applicable year. The “Threshold Amount” means the quotient obtained by dividing (i) 500% of the annual cash retainer for the applicable calendar year by (ii) the average of the closing price of a share of Quaker Houghton common stock as reported by the composite tape of the New York Stock Exchange for the previous calendar year.
For purposes of the Plan, the term “Beneficial Owner” has the meaning set forth in Rule 16a-1(a)(2) of the General Rules and Regulations under the Securities Exchange Act of 1934 or any successor Rule, except that an Eligible Director will not be deemed to be the Beneficial Owner of any Quaker Houghton common stock they have the right to acquire through the exercise or conversion of a stock option, a warrant or a similar right, whether or not the option, warrant or other right is presently exercisable.
Under the Plan, shares of Quaker Houghton common stock issued in payment of an Annual Cash Retainer will be valued at “Fair Market Value” on the Retainer Payment Date. For this purpose, the “Fair Market Value” means an amount equal to the average of the closing prices per share of Quaker Houghton common stock as reported by the composite tape of the New York Stock Exchange for the two trading days immediately preceding the applicable Retainer Payment Date.
No fractional shares of Quaker Houghton common stock will be issued under the Plan.
Discretionary Election
If on May 1 of the applicable calendar year an Eligible Director is the Beneficial Owner of Quaker Houghton common stock with a market value equal to or greater than the Threshold Amount, the Eligible Director may, in the director’s discretion, within the 10-day period from May 1 and ending May 10 of the applicable year, irrevocably elect to receive common stock in payment of a percentage (up to 100%) of the Annual Cash Retainer for the applicable year. This will be binding only with respect to the Annual Cash Retainer payable in the year in which the discretionary election is made, and not in any subsequent year.
Suspension, Termination and Amendment of the Plan
The Plan may be suspended, terminated or reinstated, in whole or in part, at any time by the Board. The Board may, from time to time, amend the Plan as it may deem advisable, provided, however, that:
•no such amendment may be effected between May 1 of any year and the next succeeding Retainer Payment Date, and
•without the approval of the Company’s shareholders, the Plan may not be amended to
◦increase the total number of shares of Quaker Houghton common stock which may be issued under the Plan (other than by adjustment upon the occurrence of an “adjustment event” as described under “Adjustment Provisions,” below),
◦change the type of awards available under the Plan,
◦expand the class of persons eligible to acquire Quaker Houghton common stock under the Plan,
◦extend the term of the Plan,
◦materially change the method of determining the price at which Quaker Houghton common stock is issued under the Plan, or
◦otherwise amend the Plan in a manner that requires approval of the Company’s shareholders under the applicable requirements of any national stock exchange on which Quaker Houghton’s common stock is then listed.
Adjustment Provisions
Upon the occurrence of an adjustment event, the Committee may make an adjustment that increases or decreases the number of shares of Quaker Houghton common stock subject to the Plan, and the number of shares of Quaker Houghton common stock which determines the percentage of the Annual Cash Retainer payable in Quaker Houghton common stock in any year affected by the adjustment event.
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| 2023 Proxy Statement | 59 |
Transfer Restriction
The shares of Quaker Houghton common stock acquired by an Eligible Director pursuant to the Plan may not be sold or otherwise disposed of during the six-month period commencing on the Retainer Payment Date applicable to the shares.
Certain Federal Income Tax Consequences
For Federal Income Tax purposes, each Eligible Director is required to include the annual retainer (regardless of whether paid in cash or in Quaker Houghton common stock) in their taxable income (as ordinary compensation income) for the year in which the retainer is paid. The fair market value of the Quaker Houghton common stock on the Retainer Payment Date will establish the basis for determining capital gains or losses on a subsequent sale of the shares, and the holding period for purposes of determining the long or short-term character of a capital gain will begin on the Retainer Payment Date.
New Plan Benefits
The Committee has not granted any awards under the Plan. The amounts administered and awarded under the Plan are dependent on the elections made by each director, consistent with the terms and limitations of the Plan, and as a result, the benefits that will be received by any Eligible Director under the Plan are not currently determinable. For information on the awards made in 2022 to our Eligible Directors, please refer to the “Director Compensation” section in this proxy statement.
Vote Required for Approval of the Plan
Approval of the Plan by shareholders requires that the number of votes “FOR” approval of the Plan exceed the number of votes “AGAINST” approval of the Plan. Abstentions and broker non-votes will not be counted as votes cast. If the Plan is not approved by shareholders, the Plan will become null and void and no shares will be issued pursuant to the Plan.
The Board of Directors recommends that you vote “FOR” the approval of the 2023 Director Stock Ownership Plan.
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60 | 2023 Proxy Statement | |
Director Compensation
The Governance Committee is charged with reviewing and making recommendations to the Board of Directors with respect to director compensation. The Company uses a combination of cash and stock-based compensation to attract and retain candidates on the Board. Director compensation is targeted at the median of the relevant comparison groups (discussed below) consistent with the positioning of executive officer compensation. In the past, in making this determination, the Governance Committee used certain industry-wide data obtained by Quaker Houghton’s management to set compensation.
For the 2022-2023 Board year, each non-management director received an annual cash retainer of $78,000 and a time-based restricted stock award equal to $110,000 in accordance with the Company’s LTIP, issued in June 2022, which vests in a single installment a year from the date of issuance assuming continued Board membership. In addition, each non-management director received an annual fee related to their specific committee membership as follows: Audit Committee, $9,000; Compensation and Human Resources Committee, $5,000; Governance Committee, $5,000, and Sustainability Committee, $5,000, and the chairperson of each Board committee received the following additional compensation: Audit Committee, $20,000; Compensation and Human Resources Committee, $15,000; Governance Committee, $12,500; and Sustainability Committee, $12,500. The Lead Director received an additional annual retainer of $20,000 and the non-executive Chair received an additional retainer of $100,000, which is paid in monthly installments.
After reviewing comparative market data received from WTW, the Company’s Board, based on the Governance Committee’s recommendation, approved certain adjustments to director compensation on February 22, 2023. Effective with the 2023-2024 Board year, each non-management director will receive an annual cash retainer of $80,000 and a time-based restricted stock award equal to $130,000, issued in June 2023, which will vest in a single installment a year from the date of issuance assuming continued Board membership. The Board also decided, given current trends for director compensation, to increase the annual Audit Committee member fee to $10,000. All other components of director compensation remain unchanged.
The 2013 Director Stock Ownership Plan was adopted by the Board of Directors of the Company on March 6, 2013 and approved by the shareholders at the 2013 annual meeting. Presently, under the terms of the 2013 Director Stock Ownership Plan, each independent director is required to beneficially own on May 1 of the applicable calendar year shares of Quaker Houghton common stock equal to the Threshold Amount, which is defined as the quotient obtained by dividing (i) 400% of the annual retainer for the applicable calendar year by (ii) the average of the closing price of a share of Quaker Houghton common stock for the previous calendar year. If an independent director’s share ownership falls below the Threshold Amount, 75% of the annual cash retainer payable will be paid in shares of Quaker Houghton common stock and the remaining 25% of the annual cash retainer will be paid in cash, unless the director elects to receive a greater percentage of Quaker Houghton common stock (up to 100%). If a director’s share ownership meets or exceeds the Threshold Amount, the director may elect to receive common stock in payment of a percentage (up to 100%) of the annual cash retainer for the applicable year. If Proposal 4 is approved at the 2023 Annual Meeting of Shareholders, the 2023 Director Stock Ownership Plan will replace the 2013 Director Stock Ownership Plan, as amended, which terminates in 2023. For discussion of the 2023 Director Stock Ownership Plan, see Proposal 4 “Approval of the 2023 Director Stock Ownership Plan” in this proxy statement.
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| 2023 Proxy Statement | 61 |
Director Compensation | | | | | | | | | | | | | | | | | | | | | | | |
Name(1)(a) | Fees Earned or Paid in Cash(2) ($)(b) | Stock Awards(3) ($)(c) | Option Awards ($)(d) | Non-Equity Incentive Plan Compensation ($)(e) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)(f) | All Other Compensation(4) ($)(g) | Total ($)(h) |
Michael F. Barry | 183,000 | | 109,979 | | — | | — | | — | | 753 | | 293,732 | |
Donald R. Caldwell | 112,000 | | 109,979 | | — | | — | | — | | 959 | | 222,938 | |
Charlotte C. Decker | 92,000 | | 109,979 | | — | | — | | — | | 959 | | 202,938 | |
Mark A. Douglas | 100,500 | | 109,979 | | — | | — | | — | | 959 | | 211,438 | |
Jeffry D. Frisby | 100,500 | | 109,979 | | — | | — | | — | | 959 | | 211,438 | |
Sanjay Hinduja | 83,000 | | 109,979 | | — | | — | | — | | 959 | | 193,938 | |
William H. Osborne | 92,000 | | 109,979 | | — | | — | | — | | 959 | | 202,938 | |
Robert H. Rock | 103,000 | | 109,979 | | — | | — | | — | | 959 | | 213,938 | |
Ramaswami Seshasayee | 92,000 | | 109,979 | | — | | — | | — | | 959 | | 202,938 | |
Michael J. Shannon | 83,000 | | 109,979 | | — | | — | | — | | 959 | | 193,938 | |
Fay West | 112,000 | | 109,979 | | — | | — | | — | | 959 | | 222,938 | |
(1)Mr. Tometich receives no compensation for his service as a director.
(2)Under the terms of the Company’s 2013 Director Stock Ownership Plan, only Mr. Caldwell was paid a portion of his retainer for the 2022-2023 Board year in shares of the Company’s common stock in lieu of cash, valued at $155.75 per share on June 1, 2022 (the Retainer Payment Date). Mr. Caldwell received 250 shares in lieu of $38,938.
(3)The amounts reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for outstanding equity awards under the Company’s LTIP.
(4)The amounts in this column for each director include dividends paid on unvested time-based restricted stock awards. Mr. Barry received a lower dividend payment in 2022 than the other directors because he was issued a prorated retainer in January 2022 that vested in May 2022.
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62 | 2023 Proxy Statement | |
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| COMPENSATION POLICIES AND PRACTICES | |
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Compensation Policies and Practices – Risk Assessment
Our Compensation and Human Resources Committee has assessed our employee compensation policies and practices and determined that any risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. In reaching this conclusion, the Committee considered all components of our compensation program and assessed any associated risks. They also considered the various strategies and measures employed by the Company that mitigate such risks, including: (i) the overall balance achieved through our use of a mix of cash and equity, annual and long-term incentives and time-and performance-based compensation; (ii) our use of multi-year vesting periods for equity grants; (iii) limits on the maximum goal achievement levels and overall payout amounts under the short-term and long-term awards; (iv) the Company’s adoption of, and adherence to, various compliance programs, including our Code of Conduct, clawback/recoupment provisions in our AIP and LTIP Plans, legal and statutory requirements, a contract review and approval process and signature authority policy, and a system of internal controls and procedures; (v) the use of Relative TSR as a performance metric; and (vi) the oversight exercised by the Committee over the performance metrics and results under the short term and the long term incentive plans. In addition, our compensation programs are reviewed with Willis Towers Watson on an annual basis to ensure plans do not create incentives that would put the Company at excessive risk. Based on the assessment described above, the Compensation and Human Resources Committee concluded that any risks associated with our compensation policies and practices were not reasonably likely to have a material adverse effect on the Company’s business or operations.
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| 2023 Proxy Statement | 63 |
Stock Ownership of Certain Beneficial Owners and Management
Certain Beneficial Owners
The following table shows how much of Quaker Houghton’s common stock is beneficially owned by each person known to us to be the beneficial owner of more than five percent (5%) of Quaker Houghton’s common stock as of December 31, 2022. Each beneficial owner has sole voting and sole dispositive power for the shares listed, except as noted.
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Name and Address | Number of Shares Beneficially Owned | Approximate Percent of Class |
Gulf Hungary Holding Korlátolt Felelősségű Társaság and QH Hungary Holdings Limited(1) BAH Center 2 Furj Street 1124 Budapest, Hungary | 4,029,563 | 22.4 |
BlackRock, Inc.(2) 55 East 52nd Street New York, NY 10055 | 2,190,295 | 12.2 |
The Vanguard Group(3) 100 Vanguard Boulevard Malvern, PA 19355 | 1,578,207 | 8.80 |
T. Rowe Price Investment Management, Inc.(4) 100 E. Pratt Street Baltimore, MD 21202 | 1,347,229 | 7.5 |
Durable Capital Partners LP(5) 4747 Bethesda Avenue, Suite 100 Bethesda, MD 20814 | 1,288,333 | 7.2 |
(1)The number of shares beneficially owned and number of votes are based on the Schedule 13D/A filed with the SEC on March 8, 2023 by Gulf Hungary Holding Korlátolt Felelősségű Társaság (“Gulf Hungary”) and its wholly-owned subsidiary QH Hungary Holdings Limited (“QH Hungary”), as well as the Company’s records subsequent to that date. Of the 4,029,563 shares reflected, 37,186 shares are beneficially owned by Gulf Hungary, 3,992,377 shares are beneficially owned by QH Hungary of which 3,000,765 shares are pledged to and registered in the name of Citigroup Global Markets, Inc., as custodian for the benefit of QH Hungary, 783,674 shares are pledged to Citibank N.A. and held at Citigroup Global Markets Inc., 207,938 shares are pledged to Royal Bank of Canada and held at RBC Capital Markets LLC, and the 37,186 shares are currently held in the name of Citibank N.A. pursuant to an escrow agreement in order to secure Gulf Hungary’s indemnification obligations under the share purchase agreement entered into in connection with the Combination. Gulf Hungary has the sole power to vote or to direct the vote and the sole power to dispose of or to direct the disposition of the 37,186 shares and shared voting and dispositive power with QH Hungary over the 3,992,377 shares. The approximate percentage of common stock owned by Gulf Hungary is based on information available to the Company as of the record date.
(2)As reported in Schedule 13G/A filed on January 23, 2023 by BlackRock, Inc. with the SEC. BlackRock, Inc. has the sole power to vote or to direct to vote of 2,159,454 shares and the sole power to dispose of or to direct the disposition of 2,190,295 shares. The shares are held in various BlackRock, Inc. subsidiaries, including BlackRock Advisors, LLC; Aperio Group, LLC; BlackRock (Netherlands) B.V.; BlackRock Fund Advisors; BlackRock Institutional Trust Company, National Association; BlackRock Asset Management Ireland Limited; BlackRock Financial Management, Inc.; BlackRock Japan Co., Ltd.; BlackRock Asset Management Schweiz AG; BlackRock Investment Management, LLC; BlackRock Investment Management (UK) Limited; BlackRock Asset Management Canada Limited; BlackRock (Luxembourg) S.A.; BlackRock Investment Management (Australia) Limited; and BlackRock Fund Managers Ltd. Of these subsidiaries, only BlackRock Fund Advisors individually owns 5% or more of the outstanding shares.
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(3)As reported in Schedule 13G/A filed on February 9, 2023 by The Vanguard Group with the SEC. The Vanguard Group has the sole power to vote or direct to vote zero shares, shared voting power to vote or direct to vote 18,140 shares, the sole power to dispose of or to direct the disposition of 1,547,393 shares, and shared power to dispose or to direct the disposition of 30,814 shares.
(4)As reported in Schedule 13G/A filed on February 14, 2023 by T. Rowe Price Associates, Inc. with the SEC. T. Rowe Price has the sole power to vote or direct to vote of 418,076 shares and the sole power to dispose or direct the disposition of 1,347,229 shares.
(5)As reported in Schedule 13G filed on February 13, 2023 by Durable Capital Partners LP with the SEC. Durable Capital Partners LP, investment advisor to Durable Capital Master Fund LP has the sole power to vote or direct the vote of 1,288,333 shares and sole power to dispose or direct the disposition of 1,288,333 shares. Mr. Ellenbogen is the chief investment officer of Durable Capital Partners LP, and Durable Capital Partners GP LLC is the general partner of Durable Capital Partners LP. The shares reported as beneficially owned are solely held by Durable Capital Master Fund LP.
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| 2023 Proxy Statement | 65 |
Management
The following table shows the number of shares of Quaker Houghton’s common stock beneficially owned by each of our directors and the Named Executive Officers named in the Summary Compensation Table in this proxy statement and by all of our directors and executive officers as a group. The information in the table is as of March 1, 2023. Each director and executive officer has sole voting and sole dispositive power over the common stock listed opposite the individual’s name, unless we have indicated otherwise.
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Name | Aggregate Number of Shares Beneficially Owned | Approximate Percent of Class(1) | Number of Votes |
Michael F. Barry | 109,671 | | (2) | * | 93,518 | | |
Donald R. Caldwell | 7,080 | | * | 7,080 | |
Charlotte C. Decker | 2,298 | | | * | 2,298 | | |
Mark A. Douglas | 2,899 | | * | 2,899 | |
Jeffry D. Frisby | 8,172 | | | * | 8,172 | | |
Sanjay Hinduja(3) | 2,580 | | * | 2,580 | |
William H. Osborne | 5,560 | | | * | 5,560 | | |
Robert H. Rock | 3,017 | | * | 3,017 | |
Ramaswami Seshasayee | 2,586 | | | * | 2,586 | | |
Michael J. Shannon | 2,059 | | * | 2,059 | |
Andrew E. Tometich | 9,040 | | (2) | * | 5,644 | | |
Fay West | 5,158 | | * | 5,158 | |
Shane W. Hostetter | 4,852 | | (2) | * | 3,093 | | |
Joseph A. Berquist | 15,970 | (2) | * | 13,159 | |
Jeewat Bijlani | 16,133 | | (2) | * | 6,792 | | |
Melissa Leneis | 9,837 | (2) | * | 8,427 | |
All directors and officers as a group (22 persons) | 232,407 | (2) | 1.3 | 186,495 | (4) |
*Less than 1%.
(1)Based upon 18,005,577 shares outstanding, and includes in the individual’s total all options currently exercisable or exercisable within 60 days of the record date by the named person or the group, as applicable.
(2)Includes the following respective numbers of shares subject to options that are currently exercisable or exercisable within 60 days of the record date: 3,396 shares in the case of Mr. Tometich; 1,759 shares in the case of Mr. Hostetter; 2,811 shares in the case of Mr. Berquist; 9,341 shares in the case of Mr. Bijlani; 1,410 shares in the case of Ms. Leneis; 16,153 in the case of Mr. Barry and 45,912 shares in the case of all directors and officers as a group.
(3)As further described under “Certain Relationships and Related Party Transactions,” Mr. Hinduja is affiliated to Gulf Hungary, which, together with QH Hungary, as described in the “Certain Beneficial Owners” table above, own 22.4% of the Company’s issued and outstanding shares.
(4)Represents 1.3% of all votes entitled to be cast at the meeting, based on information available on March 1, 2023.
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| CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS | |
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The Board recognizes that related party transactions may present a heightened risk of conflicts of interest and/or improper valuation or the perception thereof. Nevertheless, the Board also recognizes that there are situations when related party transactions are consistent with the best interests of the Company. Accordingly, the Governance Committee, on the Board’s authority, has adopted a written policy to govern the review and approval of all related party transactions involving the Company.
The policy requires that all related party transactions involving $50,000 or more be reviewed by the Governance Committee. Related parties are defined as any director, nominee for director, senior officer (including all Named Executive Officers), a beneficial owner of more than five percent of the Company’s voting securities and any immediate family member of the foregoing, or an entity owned or controlled by one of the foregoing persons or in which such person has substantial ownership. Prior to entering into a transaction with Quaker Houghton subject to the Governance Committee’s review, the related party must make a written submission to Quaker Houghton’s General Counsel setting forth the facts and circumstances of the proposed transaction, including, among other things, the proposed aggregate value of such transaction, the benefits to Quaker Houghton, and an assessment of whether the proposed transaction is on terms comparable to those available from an unrelated third party. The Governance Committee (or, when urgent action is required, that Committee’s Chair) will evaluate all of the foregoing information to determine whether the transaction is in the best interests of Quaker Houghton and its shareholders, as the Committee (or Chair) determines in good faith.
In 2019, Quaker consummated the Combination. Certain amounts payable to the former shareholders of Houghton, including certain members of Quaker Houghton management (including Mr. Shannon and Mr. Bijlani) continue to be held in escrow to secure certain indemnification rights of Quaker Houghton. Mr. Hinduja, a current director of Quaker Houghton, served as a director of legacy Houghton and he, along with certain members of his family, including his immediate family, beneficially owned approximately 98.7% of Houghton’s outstanding share capital prior to closing the Combination. No amounts were released from this escrow during 2022 but amounts may be released in the future to Quaker Houghton or such former shareholders as the remaining indemnification matters are resolved.
Quaker Houghton sells various metalworking and other products to The Boeing Company (“Boeing”), the world’s largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. Mr. Osborne was the Senior Vice President, Operations and Total Quality for Boeing Defense, Space and Security until October 7, 2022. The annual sales by Quaker Houghton to Boeing in 2022 was approximately $1,858,450 and such sales are continuing in 2023. The transactions are sales to Boeing of various metal working products and certain greases and are all under arms-length arrangements. Mr. Osborne was not involved in the transactions in any way and did not receive a commission or any other payment in connection with Quaker Houghton’s sales to Boeing.
In addition, Quaker Houghton purchases certain products from Hexion Inc. Hexion Inc. manufactures and sells a broad range of thermoset technologies, in a range of applications and industries. Mr. Shannon was on the Board of Directors of Hexion until March of 2022. The annual purchases by Quaker Houghton from Hexion in 2022 were approximately $779,885 and such purchases are continuing in 2023. The transactions are all under arms-length arrangements and Mr. Shannon was not involved in the transactions in any way.
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Proposal 5 – Ratification of Appointment of Independent Registered Public Accounting Firm
The Audit Committee’s appointment of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for 2023 is being submitted to our shareholders for ratification. PwC has been our independent registered public accounting firm since at least 1972. There is no requirement that the selection of PwC be submitted to our shareholders for ratification or approval. The Audit Committee and the Board, however, believe that Quaker Houghton’s shareholders should be given an opportunity to express their views on the selection. If the shareholders fail to ratify the appointment of PwC, the Audit Committee will reconsider whether to retain the firm. Regardless of whether the shareholders ratify the appointment of PwC at the annual meeting, the Audit Committee, in its discretion, may retain PwC or select a different registered public accounting firm at any time if it determines that doing so would be in the Company’s best interests and those of our shareholders.
We anticipate that representatives of PwC will be present at the meeting and, if present, we will give them the opportunity to make a statement if they desire to do so. We also anticipate that the representatives will be available to respond to appropriate questions from shareholders.
Audit Fees
Audit fees charged to us by PwC for audit services rendered during the years ended December 31, 2021 and 2022 for the integrated audit of our financial statements and our internal controls over financial reporting included in our Annual Report on Form 10-K, the review of the financial statements included in our quarterly reports on Form 10-Q, and foreign statutory audit requirements totaled $5,983,000 and $5,233,051, respectively.
Audit-Related Fees
Audit-related fees charged to us by PwC for audit-related services rendered, primarily related to foreign statutory audit-related assistance, certifications and other audit-related services, during the years ended December 31, 2021 and 2022 totaled $103,128 and $171,245, respectively.
Tax Fees
Tax fees charged to us by PwC for tax services rendered, primarily related to tax compliance, during the years ended December 31, 2021 and 2022, totaled $1,207,945 and $743,291, respectively.
All Other Fees
The fees billed to us by PwC for all other services rendered, primarily related to accounting research and disclosure software purchased by the Company from PricewaterhouseCoopers LLP, during the years ended December 31, 2021 and 2022, totaled $5,847 and $5,900, respectively.
Pre-Approval Policy
The Audit Committee has a policy governing the pre-approval of services provided by Quaker Houghton’s independent registered public accounting firm. The policy generally permits certain pre-approved services, but requires specific Audit Committee pre-approval for any pre-approved services that exceed the pre-approved fee levels and for services not otherwise generally pre-approved. The policy expressly prohibits non-audit services for which engagement is not permitted by applicable law and regulations, including internal audit outsourcing and “expert services” unrelated to the audit. A list of prohibited and permitted services is set forth in the policy. Permitted services under the policy include audit and audit-related services, tax services and certain other non-audit services that the Audit Committee determines would not impair the independence of the independent auditor. Audit and audit-related services include, among other things, internal control review, services related to securities filings, accounting and financial reporting consultations, statutory audits, acquisition and divestiture-related due diligence and benefit plan audits.
Internal control-related consulting is limited to assessing and recommending improvements to Quaker Houghton’s internal control structure, procedures or policies. Tax-related services are limited to tax compliance and planning. All services provided by Quaker Houghton’s independent registered public accounting firm must be pre-approved by the Audit Committee though the committee’s authority may be delegated to one or more of its members.
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All of the fees paid to PwC during the years ended December 31, 2021 and 2022, were pre-approved by the Audit Committee in accordance with its pre-approval policy.
The Board of Directors recommends that you vote “FOR” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2023.
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| REPORT OF THE AUDIT COMMITTEE | |
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Report of the Audit Committee
The Audit Committee of Quaker Houghton’s Board of Directors oversees Quaker Houghton’s financial reporting process on behalf of the Board of Directors and acts pursuant to the Audit Committee Charter, which is available at
https://www.quakerhoughton.com by accessing the Investors/Corporate Governance section of our website. The Board of Directors has affirmatively determined that each member of the Audit Committee qualifies as an “independent” director under the current listing standards of the NYSE and Quaker Houghton’s Corporate Governance Guidelines.
As stated in its charter, the Audit Committee’s job is one of oversight. It is not the duty of the Audit Committee to prepare Quaker Houghton’s financial statements or plan or conduct audits to determine that Quaker Houghton’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles or that Quaker Houghton’s internal controls over financial reporting are adequate. Financial management (including the internal auditing function) of Quaker Houghton is responsible for preparing the financial statements and maintaining internal controls and the independent registered public accounting firm is responsible for the audit of the annual financial statements and the internal controls and rendering an opinion as to the foregoing. In carrying out its oversight responsibilities, the Audit Committee is not providing any special assurance as to Quaker Houghton’s financial statements or internal controls or any professional certification as to the outside auditor’s work.
The Audit Committee reviewed and discussed with management Quaker Houghton’s audited financial statements for the year ended December 31, 2022. The Audit Committee has also discussed with PricewaterhouseCoopers LLP, Quaker Houghton’s independent registered public accounting firm, the matters required by the Public Company Accounting Oversight Board and the SEC, which includes, among other items, matters related to the conduct of the audit of Quaker Houghton’s financial statements. The Audit Committee has also received the written disclosures and the letter from PricewaterhouseCoopers LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding PricewaterhouseCoopers LLP’s communications with the Audit Committee concerning its independence from Quaker Houghton and its related entities and has discussed with PricewaterhouseCoopers LLP its independence from Quaker Houghton and its related entities.
Based on the review and discussions referred to above, the Audit Committee recommended to Quaker Houghton’s Board of Directors that Quaker Houghton’s audited financial statements be included in Quaker Houghton’s Annual Report on Form 10-K for the year ended December 31, 2022 for filing with the SEC.
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| Audit Committee |
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| Fay West, Chair |
| Donald R. Caldwell |
| Charlotte C. Decker |
| William H. Osborne |
| Ramaswami Seshasayee |
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General
Availability of Form 10-K and Annual Report to Shareholders
Additional copies of our Form 10-K and Annual Report to Shareholders are available without charge to shareholders upon written request to: Quaker Houghton, 901 E. Hector Street, Conshohocken, Pennsylvania 19428, Attention: Victoria K. Gehris, Assistant Secretary. We will also provide copies of the same material to brokers, dealers, banks, voting trustees and their nominees for the benefit of their beneficial owners of record.
Shareholder Proposals
Shareholders interested in submitting a proposal for inclusion in our proxy statement for next year’s annual meeting must do so in compliance with applicable SEC rules and regulations. Under Rule 14a-8 of the Securities Exchange Act of 1934, as amended, adopted by the SEC, to be considered for inclusion in our proxy materials for our 2024 annual meeting, a shareholder proposal must be received in writing by our Corporate Secretary at our principal office at 901 E. Hector Street, Conshohocken, Pennsylvania 19428 no later than December 2, 2023. If the date of our 2024 annual meeting is moved more than 30 days before or after the anniversary date of this year’s meeting, the deadline for inclusion of proposals in our proxy statement will instead be a reasonable time before we begin to print and mail our proxy materials next year. Any such proposals will also need to comply with the various provisions of Rule 14a-8, which governs the basis on which such shareholder proposals can be included or excluded from company-sponsored proxy materials.
If a shareholder desires to submit a proposal for consideration at the 2024 annual meeting, but not have the proposal included with our proxy solicitation materials relating to the 2024 annual meeting, the shareholder must comply with the procedures set forth in Section 2.12 of our By-Laws. This means that the written proposal must be received by our Corporate Secretary at our principal office on or before February 10, 2024 but no earlier than January 11, 2024 (except that if the date of the 2024 annual meeting of shareholders is more than 30 days before or more than 60 days after the anniversary date of the 2023 annual meeting, this notice must be received no earlier than the close of business on the 120th day before the date of the 2024 annual meeting and not later than the close of business on the later of the 90th day before the date of the 2024 annual meeting or, if the first public announcement of the date of the 2023 annual meeting is less than 100 days before the date of the meeting, by the 10th day after the public announcement). The notice to our Corporate Secretary must contain or be accompanied by the information required by Sections 2.12 and 2.13 of our By-Laws including, among other things: (i) the name and record address of the shareholder making the proposal and the beneficial owner, if any, on whose behalf the proposal is made; (ii) the class and number of shares of our stock which are directly or indirectly owned beneficially and/or of record by the shareholder making the proposal and the beneficial owner, if any, on whose behalf the proposal is made; (iii) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest of the shareholder making the proposal and the beneficial owner, if any, on whose behalf the proposal is made, in such business; (iv) a description of any agreements, arrangements, proxies and understandings between such shareholder and beneficial owner, if any, and any other person or persons (including their names) related to the proposal; and (v) a description of any hedging or other transaction that has been entered into by or on behalf of, or any other agreement or understanding (including, without limitation, any put, short position or any borrowing or lending of shares) that has been made, the effect or intent of which is to mitigate loss to or manage risk of share price changes for, or to increase or decrease the voting power of, the shareholder or any shareholder associated person (as defined in the By-Laws) with respect to any share of our stock, as well as certain other information. This list of required information is not exhaustive. A copy of the full text of the relevant By-Law provisions, which includes the complete list of all information that must be submitted to us before a shareholder may submit a proposal at the 2023 annual meeting, may be obtained upon written request directed to our Corporate Secretary at our principal office. A copy of our By-Laws is also posted on the Investors/Corporate Governance section of our website at https://www.quakerhoughton.com. The procedures for shareholders to follow to nominate candidates for election to our Board of Directors are described in the discussion under the heading “Governance Committee Procedures for Selecting Director Nominees” under the Corporate Governance section in this proxy statement. We did not receive any such proposals with respect to the 2023 Annual Meeting.
All proposals should be submitted in writing to: Quaker Houghton, 901 E. Hector Street, Conshohocken, Pennsylvania 19428, Attention: Corporate Secretary.
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| 2023 Proxy Statement | 71 |
A proxy form is enclosed for your use. Please complete, date, sign and return the proxy at your earliest convenience in the enclosed envelope, which requires no postage if mailed in the United States. A prompt return of your proxy will be appreciated.
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| By Order of the Board of Directors, |
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| Robert T. Traub |
| Senior Vice President, General Counsel and |
| Corporate Secretary |
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Conshohocken, Pennsylvania | |
March 31, 2023 | |
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APPENDIX A - 2023 Director Stock Ownership Plan
QUAKER HOUGHTON
2023 DIRECTOR STOCK OWNERSHIP PLAN
1.PURPOSE OF THE PLAN.
The purpose of the Quaker Houghton 2023 Director Stock Ownership Plan is to encourage Directors of Quaker Chemical Corporation, a Pennsylvania corporation (the “Company,” also known as “Quaker Houghton”), to increase their individual investment in the Company and thereby align their interests more closely with the interests of other shareholders of the Company.
2.DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms when used in the Plan shall have the following meanings:
a.“Annual Cash Retainer” means the portion of the annual retainer that is normally paid in cash to Eligible Directors for service as a member of the Board. Annual Cash Retainer shall not include the portion of the retainer that is paid in equity but for this Plan or for services as a committee chair or for attending meetings of the Board or committees of the Board.
b.“Beneficial Owner” shall have the meaning set forth in Rule 16a-1(a)(2) of the General Rules and Regulations under the Securities Exchange Act of 1934 or any successor Rule, provided, however, that an Eligible Director shall not be deemed to be the Beneficial Owner of any common stock he or she has the right to acquire through the exercise or conversion of “derivative securities” (as defined in Rule 16a-1(c) of the General Rules and Regulations under the Securities Exchange Act of 1934) whether or not presently exercisable.
c.“Board” means the Board of Directors of the Company.
d.“Committee” means the committee appointed by the Board to administer the Plan. Unless otherwise determined by the Board, the Committee shall be the Governance Committee of the Board.
e.“Common Stock” means the Common Stock, $1.00 par value, of the Company.
f.“Discretionary Election” means an election made by an Eligible Director pursuant to Section 7.
g.“Eligible Director” means a member of the Board who is not an employee of the Company or a subsidiary of the Company.
h.“Fair Market Value” of a share of Common Stock means, with respect to a share to be issued in lieu of all or a portion of the Annual Cash Retainer, an amount equal to the average of the closing prices per share of Common Stock as reported by the composite tape of the New York Stock Exchange for the two trading days immediately preceding the Retainer Payment Date for such Annual Cash Retainer.
i.“Measuring Date” means May 1 of the applicable calendar year.
j.“Plan” means the Quaker Houghton 2023 Director Stock Ownership Plan.
k.“Retainer Payment Date” means June 1 of the applicable calendar year, or if June 1 of any year is not a day on which the New York Stock Exchange is open for trading, the first day thereafter on which the New York Stock Exchange is open for trading.
l.“Threshold Amount” means the quotient obtained by dividing (i) 500% of the Annual Cash Retainer for the applicable calendar year, by (ii) the average of the closing prices per share of Common Stock as reported by the composite tape of the New York Stock Exchange for the previous calendar year.
3.PLAN ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall have full power, discretion and authority to interpret and administer the Plan consistent with the express provisions of the Plan. The interpretation and construction of any provision of the Plan by the Committee shall be final and conclusive.
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4.EFFECTIVE DATE AND DURATION.
The Plan shall not become effective unless it is approved by the Company’s shareholders at the Company’s 2023 annual meeting of its shareholders or at an adjournment of such meeting (the “Meeting”). If the Plan is approved at the Meeting, it shall become effective on the date it is so approved and shall remain in effect for a term of ten years or until it is earlier terminated by the Board.
5.COMMON STOCK SUBJECT TO THE PLAN.
The maximum number of shares of Common Stock which may be issued under the Plan shall be 75,000, subject to adjustment in accordance with Section 9. The shares of Common Stock issued under the Plan may be either authorized and unissued shares of Common Stock and/or authorized and issued shares of Common Stock purchased or acquired by the Company for any purpose.
6.PAYMENT OF ANNUAL CASH RETAINER.
a.The Annual Cash Retainer for a calendar year will be paid on the Retainer Payment Date in the same calendar year.
b.Subject to adjustment in accordance with Section 6(d), if on the Measuring Date immediately preceding the applicable Retainer Payment Date an Eligible Director is the Beneficial Owner of less than the Threshold Amount of shares of Common Stock, 75% of the Annual Cash Retainer otherwise payable to the Eligible Director for such year shall be paid in shares of Common Stock and 25% of the Annual Cash Retainer for such year shall be paid in cash; provided, however, that such Eligible Director may elect, in accordance with the procedures set forth in Section 7, to receive a greater percentage (up to a maximum of 100%) of his or her Annual Cash Retainer in shares of Common Stock.
c.Shares of Common Stock issued in payment of the Annual Cash Retainer shall be valued at Fair Market Value.
d.No fractional shares of Common Stock shall be issued pursuant to the Plan. The number of shares of Common Stock otherwise issuable to an Eligible Director on any Retainer Payment Date, if not a whole number, shall be rounded down to the nearest whole share, and any fractional share otherwise issuable shall be paid in cash on such date.
e.The Plan is not intended, and shall not be deemed, to limit the authority of the Board or any committee of the Board that is so authorized by the Board to increase or decrease the amount of the Annual Cash Retainer from time to time.
7.DISCRETIONARY ELECTION.
Subject to the requirements of Section 6(b), an Eligible Director may, in his or her discretion, within the 10-day period following the Measuring Date for the applicable year (the “Option Period”), irrevocably elect to receive Common Stock in payment of a percentage (up to a maximum of 100%) of the Annual Cash Retainer for the applicable year on the applicable Retainer Payment Date. A Discretionary Election, which shall be made on a form provided to the Eligible Director by the Company for that purpose and be received by the Committee prior to the expiration of the Option Period, shall state the percentage (up to a maximum of 100%) of the Annual Cash Retainer to be paid in Common Stock, and shall be dated and signed by the Eligible Director submitting the same. Any Discretionary Election that is made in accordance with this Section 7 shall be binding only with respect to the Annual Cash Retainer payable in the year in which the Discretionary Election is made, and such Discretionary Election shall not be applicable to the Annual Cash Retainer payable in any subsequent year. If no Discretionary Election is made under this Section 7, the Annual Cash Retainer shall be paid 100% in cash on the applicable Retainer Payment Date in accordance with Section 6, subject to the requirements of Section 6(b).
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8.SUSPENSION, TERMINATION AND AMENDMENT OF THE PLAN.
The Plan may be suspended, terminated or reinstated, in whole or in part, at any time by the Board. The Board may from time to time make such amendments to the Plan as it may deem advisable, provided, however, that (i) no such amendment shall be effected between a Measuring Date and the next succeeding Retainer Payment Date, and (ii) without the approval of the Company’s shareholders, the Plan may not be amended to (A) increase the total number of shares of Common Stock which may be issued under the Plan (other than by adjustment in accordance with Section 9), (B) change the types of awards available under the Plan, (C) expand the class of persons eligible to acquire shares pursuant to the Plan, (D) extend the term of the Plan, (E) materially change the method of determining the price as to which shares are issued pursuant to the Plan, or (F) otherwise amend the Plan in a manner that requires approval of the Company’s shareholders under the applicable requirements of any national stock exchange on which the Company’s Common Stock is then listed.
9.ADJUSTMENT PROVISIONS.
In the event of any recapitalization, reorganization, merger, consolidation, spin-off, combination, share exchange, stock split or reverse split, liquidation, dissolution, or other similar corporate transaction or event which affects the Common Stock such that the Committee determines that an adjustment is appropriate in order to prevent dilution or enlargement of Eligible Directors’ rights under the Plan, the Committee may make an adjustment in the number of shares of Common Stock subject to the Plan.
10.TRANSFER RESTRICTION.
The shares of Common Stock acquired by an Eligible Director pursuant to the Plan shall not be sold or otherwise disposed of during the six-month period commencing with the Retainer Payment Date applicable to the shares.
11.GENERAL PROVISIONS.
a.Notwithstanding any other provision of the Plan, the Company shall not be required to deliver any shares of Common Stock prior to the fulfillment of all of the following conditions:
i.Any required listing or approval upon notice of issuance of such shares of Common Stock on any securities exchange on which the Common Stock may then be traded.
ii.Any registration or qualification of the shares of Common Stock subject to the Plan under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, if such registration shall be necessary.
iii.Any registration or qualification of the shares of Common Stock under any state or Federal law or regulation or other qualification which the Board deems necessary.
iv.Any other required consent or approval or permit from any state or Federal government agency.
v.The Company shall use reasonable efforts to effect promptly such registrations, listings, qualifications or other approvals and to comply promptly with such laws, regulations and rulings.
b.Nothing contained in the Plan will confer upon any Director any right to continue to serve as a member of the Board. The Plan shall not interfere with or limit in any way the right of the Company to remove an Eligible Director from the Board.
c.The adoption of the Plan by the Board and approval of the Plan by the Company’s shareholders shall not be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements for members of the Board as it may deem desirable.
d.To the extent not preempted by Federal law, the Plan shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania.
e.In the event any provision of the Plan or any action taken pursuant to the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included, and the illegal or invalid action shall be deemed null and void.
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| 2023 Proxy Statement | 75 |
f.The issuance of shares of Common Stock under the Plan shall be subject to applicable taxes or other laws or regulations of the United States of America or any state having jurisdiction. To the extent required by applicable law or regulation, an Eligible Director must arrange with the Company for the payment of any Federal, state or local income or other tax applicable to the receipt of Common Stock under the Plan before the Company shall be required to deliver shares to the Eligible Director.
g.Titles and headings of sections of the Plan are for convenience of reference only and shall not affect the construction of any provision of the Plan.
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76 | 2023 Proxy Statement | |
CORPORATE HEADQUARTERS
Quaker Houghton
901 E. Hector Street
Conshohocken, Pennsylvania 19428
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and 2022 Annual Report to Shareholders are available at www.proxyvote.com. |
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D96164-P83958 |
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QUAKER HOUGHTON Annual Meeting of Shareholders May 10, 2023 8:00 A.M. This proxy is solicited by the Board of Directors The undersigned, revoking all prior proxies, hereby appoints Andrew E. Tometich and Robert T. Traub, and each of them, as proxies of the undersigned, with full power of substitution and authority to act in the absence of the other, to vote all shares of common stock of Quaker Chemical Corporation, doing business as Quaker Houghton (the “Company”), for which the undersigned is entitled to vote at the Annual Meeting of Shareholders of the Company to be held live via the Internet at www.virtualshareholdermeeting.com/KWR2023 at 8:00 A.M., Eastern Time, on Wednesday, May 10, 2023, and at any adjournment or postponement thereof. The undersigned also hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders, the Proxy Statement with respect to said Meeting, and the Company’s Annual Report on Form 10-K, for the year ended December 31, 2022. This proxy, when properly executed, will be voted in the manner directed by the undersigned. If no such directions are made, this proxy will be voted “For” the election of the nominees listed in Proposal 1 for the Board of Directors, “For” Proposal 2, 4 and 5 and “For” 3 years on Proposal 3. Continued and to be signed on reverse side |
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QUAKER HOUGHTON ATTN: ROBERT T. TRAUB 901 E. HECTOR STREET CONSHOHOCKEN, PA 19428 | |
VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. Eastern Time on May 9, 2023 for shares held directly and by 11:59 P.M. Eastern Time on May 7, 2023 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/KWR2023 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. Eastern Time on May 9, 2023 for shares held directly and by 11:59 P.M. Eastern Time on May 7, 2023 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. For comments and/or address changes, please send them via e-mail to: investor@quakerhoughton.com. |
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
| | | | | | D96163-P83958 | | KEEP THIS PORTION FOR YOUR RECORDS |
| | | | | | | | | DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
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QUAKER HOUGHTON | | |
| The Board of Directors recommends you vote FOR each director nominee included in Proposal 1: | | | | | | | | |
| 1. | Election of Directors | | | | | | | | | | | |
| | Nominees: | For | Against | Abstain | | | | | | | | |
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| | 1a. | Charlotte C. Decker | o | o | o | | | | | | | | |
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| | 1b. | Ramaswami Seshasayee | o | o | o | | | | | | | | |
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| | 1c. | Andrew E. Tometich | o | o | o | | | | | | | | |
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| The Board of Directors recommends you vote FOR the following proposals 2, 4 and 5 and “For” 3 years on proposal 3: | | | | | | | | | | |
| | | | For | Against | Abstain | | | | | For | Against | Abstain | |
| 2. | To hold an advisory vote to approve named executive officer compensation. | o | o | o | | | 4. | To consider and act upon a proposal to approve the 2023 Director Stock Ownership Plan | o | o | o | |
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| | | | 1 Year | 2 Years | 3 Years | Abstain | | | | | | | |
| 3 | To hold an advisory vote on the frequency of the advisory vote on the compensation of our named executive officers | o | o | o | o | | 5. | To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm to examine and report on our financial statements and internal control over financial reporting for 2023. | o | o | o | |
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| | | | | | | | | NOTE: In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournment or postponement thereof. | | |
| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | | | | | | | |
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| Signature [PLEASE SIGN WITHIN BOX] | Date | | | Signature (Joint Owners) | | Date | | |
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