UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

 

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x Definitive Proxy Statement  
   
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o Soliciting Material under §240.14a-12  

 

HEXCEL CORPORATION

 

(Name of Registrant as Specified In Its Charter)

 

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

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2021 Notice of Annual Meeting
of Stockholders

 

 
 

Hexcel Corporation

Two Stamford Plaza

281 Tresser Boulevard

Stamford, Connecticut 06901-3238

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To be held on May 10, 2021

 

The Annual Meeting of Stockholders of Hexcel Corporation will be held on May 10, 2021 at 10:30 a.m., eastern daylight time, for the following purposes:

 

1. To elect eight directors to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified;
   
2. To vote on a proposal to approve, on an advisory, non-binding basis, the company’s 2020 executive compensation;
   
3. To vote on a proposal to ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2021;
   
4. To approve the amendment and restatement of the Hexcel Corporation 2016 Employee Stock Purchase Plan to increase the number of shares reserved for issuance under the plan by 300,000 shares of common stock; and
   
5. To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

 

Due to the ongoing effects of the COVID-19 pandemic, this year’s meeting will again be a “virtual meeting” of stockholders. You will be able to attend the meeting, vote, and submit your questions during the meeting via live webcast by visiting www.virtualshareholdermeeting.com/HXL2021. To participate in the annual meeting, you will need the 16-digit number that is printed in the box marked by an arrow included in the Notice of Internet Availability of Proxy Materials, the proxy card or the voting instruction card mailed to you. Online check-in will begin at 10:15 a.m., eastern daylight time. Please allow time for the online check-in procedures.

 

As permitted by the rules of the Securities and Exchange Commission, we are also pleased to be furnishing our proxy materials to stockholders primarily over the Internet. We believe this process expedites stockholders’ receipt of the materials, lowers the cost of our meeting, and conserves natural resources. On or about March 25, 2021, we will mail to our stockholders (other than those who previously requested electronic delivery or a printed copy of our proxy materials) a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy materials and vote online. Such notice is not a proxy card and cannot be used to vote your shares. The notice will also include instructions on how you can receive a paper copy of the proxy materials.

 

The Board of Directors has fixed the close of business on March 15, 2021, as the record date for determination of the stockholders entitled to vote at the meeting or any adjournments or postponements thereof.

 

By order of the Board of Directors

 

 

Gail E. Lehman

Executive Vice President, General Counsel and Secretary

 

Dated: March 25, 2021

 

YOUR VOTE IS IMPORTANT. WE ENCOURAGE YOU TO VOTE BY PROXY BY CASTING YOUR VOTE THROUGH THE INTERNET, BY TELEPHONE, OR BY MAIL EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING ONLINE.

 

IMPORTANT NOTICE REGARDING THE
AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON MAY 10, 2021

 

The proxy statement, annual report to stockholders and related materials are available at www.proxyvote.com.

 
 
 

TABLE OF CONTENTS

   

 

2021 PROXY STATEMENT SUMMARY i
   
QUESTIONS AND ANSWERS vi
   
PROPOSAL 1—ELECTION OF DIRECTORS 1
Majority Voting Standard for Election of Directors 1
Information Regarding the Directors 2
Independence of Directors 8
Board Service 8
Meetings and Standing Committees of the Board of Directors 9
Board Leadership Structure 12
Board Evaluation Process 13
Risk Oversight 13
Stockholder Rights Plan 14
Succession Planning 14
Stockholder Engagement 14
Contacting the Board 15
Code of Business Conduct 15
Director Compensation in 2020 15
   
EXECUTIVE OFFICERS 18
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 20
Stock Beneficially Owned by Principal Stockholders 20
Stock Beneficially Owned by Directors and Officers 21
   
COMPENSATION DISCUSSION AND ANALYSIS 22
Executive Summary 22
Executive Compensation Overview 28
2020 Compensation 31
Ongoing and Post-Employment Arrangements 39
Stock Ownership Guidelines 42
Clawback Policy 43
Tax Considerations 43

 

COMPENSATION COMMITTEE REPORT 45
   
EXECUTIVE COMPENSATION 46
Summary Compensation Table 46
Grants of Plan-Based Awards in 2020 48
Outstanding Equity Awards at 2020 Fiscal Year-End 49
Option Exercises and Stock Vested in 2020 50
Pension Benefits in 2020 51
Non-Qualified Deferred Compensation in 2020 53
Potential Payments Upon Termination or Change in Control 54
Potential Payments and Benefits Upon Termination of Employment on December 31, 2020 59
   
PROPOSAL 2—ADVISORY APPROVAL OF THE COMPANY’S 2020 EXECUTIVE COMPENSATION 62
   
CEO PAY RATIO 63
   
EQUITY COMPENSATION PLAN INFORMATION 64
   
AUDIT COMMITTEE REPORT 65
   
PROPOSAL 3—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 66
   
PROPOSAL 4—APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE EMPLOYEE STOCK PURCHASE PLAN 67
   
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS 71
   
DELINQUENT SECTION 16(a) REPORTS 72
   
OTHER MATTERS 73
   
STOCKHOLDER PROPOSALS 74
   
ANNUAL REPORT 75
   
ANNEX A A-1
   
ANNEX B B-1


 

This proxy statement is furnished to the holders of common stock of Hexcel Corporation (“Hexcel,” the “company,” “we,” “us” or “our”) in connection with the solicitation of proxies by Hexcel on behalf of the Board of Directors of the company (the “board of directors” or the “board”) for use at the Annual Meeting of Stockholders, or any adjournments or postponements thereof, to be held on May 10, 2021 (the “Annual Meeting”). The proxy materials, including this proxy statement, our annual report to stockholders, and form of proxy card, or the Notice of Internet Availability of Proxy Materials (the “Notice”), are first being distributed or made available to stockholders on or about March 25, 2021.

 

HEXCEL CORPORATION  |  2021 Proxy Statement
 

 

2021 PROXY STATEMENT SUMMARY

 

This summary highlights selected information contained in this proxy statement. Please read the entire proxy statement carefully before voting your shares.

 

The Meeting    
     
TO BE HELD ON:   May 10, 2021
     
TIME:   10:30 a.m., eastern daylight time
     
VIRTUAL ANNUAL MEETING SITE:   www.virtualshareholdermeeting.com/HXL2021
     
RECORD DATE:   You will be eligible to vote your shares of common stock at the Annual Meeting if you were a stockholder of record at the close of business on March 15, 2021. As of that date, 83,725,385 shares of common stock were issued and outstanding. The holders of 41,862,693 shares will constitute a quorum at the Annual Meeting.

 

Proposals and Board Recommendations

 

Proposal No.   Proposal   Board Recommendation   See Page
1   Elect eight directors   FOR all nominees   1
2   Approve, on an advisory, non-binding basis, 2020 executive compensation   FOR   62
3   Ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2021   FOR   66
4   Approve the amendment and restatement of the 2016 Employee Stock Purchase Plan (the “Employee Stock Purchase Plan” or “ESPP”)   FOR   67

 

HEXCEL CORPORATION  |  2021 Proxy Statement i
 
2021 PROXY STATEMENT SUMMARY

 

2021 Director Nominee Highlights

 

 

ii HEXCEL CORPORATION  |  2021 Proxy Statement
 
2021 PROXY STATEMENT SUMMARY

 

Corporate Governance Highlights

 

We believe that our corporate governance practices generally reflect best practices consistent with Hexcel’s and our stockholders’ interests. Key features of our corporate governance practices include:

 

Board Independence

 

 Seven of eight director nominees are independent

 

 Independent lead director empowered with broad responsibilities and governance duties

 

 CEO is the only management director

 

 All board committees are composed exclusively of independent directors

 

Board Practices

 

 Annual elections for all directors

 

 Majority voting policy triggering resignation in uncontested elections of directors

 

 Annual board and board committee self-evaluations, and peer review of individual directors every other year

 

 Regular review of committee chair and member rotation

 

 Mandatory retirement age of 70 for directors

 

 Regular executive sessions of board and committees without management present

 

 Director resignation policy for material changes in principal occupation

 

 Limits on director “overboarding”

 

Other Best Practices

 

 One class of stock with equal voting rights

 

 Comprehensive enterprise risk, succession and business strategy oversight

 

 Policies prohibiting hedging and pledging Hexcel stock by directors

 

 Robust stockholder engagement and outreach to allow for management and the board to understand and consider issues that matter most to stockholders

 

     
Stock Ownership    
     
CEO 6X Annual Base Salary
     
Executive VPs 3X Annual Base Salary
     
Other Executive Officers 2X Annual Base Salary
     
Other Officers 1X Annual Base Salary
     
Directors 5X Annual Cash Retainer
     

 

HEXCEL CORPORATION  |  2021 Proxy Statement iii
 
2021 PROXY STATEMENT SUMMARY

 

Sustainability at Hexcel

 

At Hexcel, we strive to be an industry leader and a responsible steward of resources—both human and natural. We have embraced our corporate purpose to propel the future of flight, energy generation, transportation and recreation through excellence in advanced material solutions that create a better world for us all.

 

We are committed to relentlessly pursuing a safe, productive workplace while minimizing our environmental impact on the communities where we operate. By doing so, we gain the confidence and trust of our workforce, and create value for our customers and stockholders. We have also designed stewardship into our products. Our innovation helps our customers and their supply chains reduce energy use, lower lifecycle operational costs and improve lifecycle efficiency.

 

We continually evaluate our sustainability strategy, which encompasses our approach to environmental, social and related governance issues, against industry best practices and the needs of society to improve our performance and better serve the interests of our stakeholders. In 2019, the board added sustainability oversight to the nominating and corporate governance committee charter responsibilities and, in 2020, changed the name of the committee to the nominating, governance and sustainability committee, to highlight the increased focus by the committee on sustainability issues in the execution of its duties.

 

Ethical
Conduct

n Strong Ethics and Business Conduct Program guided by the Hexcel Values focused on doing the right thing and regular campaigns to promote “speaking up.”

n Annual certification by officers, directors and salaried employees to code of conduct compliance.

n Regular communication and training on relevant ethics and compliance topics.

Environmental

n Robust policies and processes that incorporate the principles of ISO 14001:2015 environmental management and attained corporate-wide certification in 2019.

n Decrease in greenhouse gas emissions by nearly 15% and municipal and hazardous waste by nearly 35% over the last five years.

n Increase in renewable energy sourcing to approximately 25%, and nearly one-third of total waste recycled annually.

Health &
Safety

n Robust policies and processes that incorporate the principles of ISO 45001:2018 occupational health and safety standards management and attained corporate-wide certification in 2019.

n Reduced recordable injury rate by 48% and lost-time injury rate by 52% over the last five years.

n Why I Work Safely and Soar to Zero safety initiatives seek to reinforce a spirit of continuous improvement focused on interdependent culture, personal accountability and empowerment, and systems to ensure reliable, sustainable health and safety performance.

Diversity &
Inclusion

n Promotion of diversity and inclusion through recruiting efforts that prioritize diversity, equitable compensation policies, enabling career-development opportunities and educational workshops to promote a positive and collaborative culture.

n Prioritized selection from a diverse pool of candidates when filling board vacancy in 2020 in response to board self-assessments that identified opportunities to enhance the skillsets and diversity of the board.

Supply Chain
Management

n Suppliers required to comply with all applicable laws and regulations, including laws related to equal opportunity and non-discrimination, and those prohibiting human trafficking and slavery.

n Supplier code of conduct sets expectations with respect to human rights, labor conditions, workplace health and safety, environmental protection, and other ethical business practices.

Community

n Donations through local Hexcel sites totaled more than $350,000 in 2019, and more than 1,400 hours in employee volunteer time contributed.

n Hexcel Foundation grants of $240,000 in the aggregate from 2019-2020 focused on improving education, fighting cancer, and relieving hunger and homelessness worldwide.

n Matching contributions program that matches employee contributions to certain charities and universities.

n Donations of medical supplies by several sites globally to assist our communities with COVID-19 response in 2020.

 

iv HEXCEL CORPORATION  |  2021 Proxy Statement
 
2021 PROXY STATEMENT SUMMARY

 

Executive Compensation Highlights

 

Our compensation philosophy is to deliver pay for performance that is aligned with stockholders’ interests, and we follow a number of compensation practices designed to provide a level of performance that creates sustainable value for our stockholders.

 

 

Our Compensation Best Practices

 84% of target CEO pay in 2020 was variable and at risk

 Emphasis on performance-based compensation

 Non-guaranteed performance-based annual cash bonuses

 Challenging performance targets under annual cash bonus plan and long-term stock-based compensation

 Multiyear vesting periods for annual stock awards

 Limit on maximum incentive payouts

 No excise tax gross-up under severance agreements after 2013 or under our Executive Severance Policy

 No perquisites to newly hired or appointed executive officers

 No repricing of any stock options without stockholder approval

 Clawback policy that applies to executive officer incentive-based compensation

 Annual say-on-pay stockholder vote

 Policies prohibiting hedging and pledging Hexcel stock by executive officers and management

 

Our operating performance in 2020 was severely impacted by the effects of the COVID-19 pandemic, which included significant production cuts across major aircraft programs during the year that had a material adverse impact on the demand for our products from our largest customers. In response, we took immediate action to align our business with our markets and customers with three key objectives:

 

n Keep our employees and their families healthy and safe;
   
n Continue to support our customers and deliver on our commitments; and
   
n Reduce costs and restructure the business to align with lower demand in the short term while positioning for growth and leverage in the long term.

 

Our compensation committee and board of directors took swift action to align 2020 executive compensation with the economic environment resulting from the COVID-19 pandemic, including:

 

n Reducing the base salary of our CEO and the cash retainers of our non-employee directors by 50% for a 6-month period;
   
n Reducing the salaries of our other named executive officers by 30% for a 3-month period;
   
n Suspending company matching contributions to our retirement savings plans; and
   
n Restructuring management to eliminate three out of eleven senior management roles.

 

Even though targets under our 2020 incentive plans were largely unattainable due to the impact of the COVID-19 pandemic on our results, the compensation committee did not adjust the targets for awards paid out for 2020 performance, resulting in the following payouts:

 

Short-Term Cash Incentive   Long-Term Equity Incentive Award
19.3% payout   0% payout
for senior management   under 2018 Performance Share Award

 

HEXCEL CORPORATION  |  2021 Proxy Statement v
 
2021 PROXY STATEMENT SUMMARY

 

QUESTIONS AND ANSWERS

 

Why is Hexcel holding the Annual Meeting virtually this year?

 

Due to the ongoing effects of the COVID-19 pandemic and out of an abundance of caution, we will be holding the Annual Meeting live via the Internet.

 

What is required in order to attend the Annual Meeting?

 

A summary of the information you need to attend the Annual Meeting online is provided below:

 

n Any stockholder on the record date can attend the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/HXL2021
n Webcast starts at 10:30 a.m., eastern daylight time
n Online check-in will begin at 10:15 a.m., eastern daylight time
n Please have the 16-digit number printed in the box marked by an arrow included in the Notice, the proxy card or the voting instruction card delivered to you to access the Annual Meeting
n Stockholders may vote and submit questions while attending the Annual Meeting on the Internet
n If you do not have a 16-digit control number, you may still attend the Annual Meeting as a guest in listen-only mode
n In addition, webcast replay of the Annual Meeting will be available beginning on May 11, 2021 until June 10, 2021 on the Investor Relations section of our website

 

What if I need technical assistance accessing or participating in the virtual Annual Meeting?

 

If you encounter any difficulties accessing the virtual Annual Meeting during the check-in or meeting time, please call the technical support number that will be posted on the virtual stockholder meeting log-in page. Technical support will be available starting at 10:15 a.m., eastern daylight time, on May 10, 2021.

Can I ask questions at the Annual Meeting?

 

If you would like to submit a question, you may do so by joining the virtual Annual Meeting at www.virtualshareholdermeeting.com/HXL2021, entering the 16-digit number printed in the box marked by an arrow included in the Notice, the proxy card or the voting instruction card delivered to you, typing your question in the “Ask a Question” box in the Annual Meeting portal, and clicking submit. You may also submit a question in advance of the Annual Meeting at www.proxyvote.com after logging in with your 16-digit control number.

 

We ask that you limit your remarks to a brief question that is relevant to the Annual Meeting or our business. Questions may be ruled as out of order if they are, among other things, profane, irrelevant to our business, related to pending or threatened litigation, disorderly, or repetitious of statements already made. In addition, questions may be grouped by topic by our management with a representative question read aloud and answered. Stockholders will be limited to one question each unless time otherwise permits. Questions will be addressed in the Q&A portion of the Annual Meeting, and we may also respond to questions on an individual basis or by posting answers on the Investor Relations section of our website after the Annual Meeting.

 

Who is entitled to vote at the Annual Meeting?

 

You will be eligible to vote your shares of common stock at the Annual Meeting if you were a holder of our common stock at the close of business on March 15, 2021, the record date for the Annual Meeting. Each share of common stock that you hold will entitle you to cast one vote with respect to each matter that will be voted on at the Annual Meeting.


 

vi HEXCEL CORPORATION  |  2021 Proxy Statement
 

2021 PROXY STATEMENT SUMMARY

 

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

If your shares are registered directly in your name with our transfer agent, American Stock Transfer and Trust Company LLC, you are considered the stockholder of record or a “record holder” with respect to those shares, and you may vote those shares in the manner described in this proxy statement.

 

Most of our stockholders hold their shares as a beneficial owner through a broker, bank or other nominee rather than directly in their own name. If your shares are held through a broker, bank or other nominee, you are considered the “beneficial owner” of the shares. As the beneficial owner, you generally have the right to direct your broker, bank or other nominee on how to vote your shares. Your broker, bank or other nominee is responsible for providing you with a voting instruction form that you use to give instructions as to how your shares are to be voted.

 

Why did I receive a “Notice of Internet Availability of Proxy Materials” instead of a paper copy of the proxy materials?

 

This year, we are taking advantage of the Securities and Exchange Commission’s (the “SEC”) rules that allow us to furnish our proxy materials over the Internet instead of mailing a printed copy to each stockholder of record. If you receive the Notice by mail, you will not receive a printed copy of the proxy materials other than as described in this proxy statement. Instead, the Notice will instruct you as to how you may access and review the proxy materials. The Notice will also instruct you as to how you may submit your proxy over the Internet. If you receive a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting proxy materials included in the Notice.

 

On or about March 25, 2021, we will mail the Notice to our stockholders (other than those who previously requested electronic delivery or a printed copy of our proxy materials). The proxy statement and the form of proxy relating to the Annual Meeting will be made available to our stockholders on the date that the Notice is first sent.

 

Using this method of delivery contributes to our sustainability efforts, expedites receipt of proxy materials by our stockholders and reduces the cost of producing and mailing the full set of proxy materials.

How do I vote?

 

The process for voting your shares depends on how your shares are held. Generally, as discussed above, you may hold shares as a record holder (that is, in your own name) or as a beneficial owner (that is, through a nominee, such as a broker or bank). You may also hold shares as a participant in one of our employee benefit plans.

 

Voting by record holders

 

If you are a record holder, and received your materials by mail, you may vote your shares by completing, signing, and dating the proxy card and mailing it using the enclosed return envelope.

 

You also may vote prior to the Annual Meeting via the Internet, in the manner described on the proxy card or the Notice, or via telephone, in the manner described on the proxy card.

 

Finally, you may attend the Annual Meeting (virtually) and vote online during the Annual Meeting. The Annual Meeting can be accessed by visiting www.virtualshareholdermeeting.com/HXL2021 and entering the 16-digit number that is printed in the box marked by an arrow included in the Notice, the proxy card or the voting instruction card mailed to you. Please have your 16-digit number in hand when you access the website and then follow the instructions. Online check-in will begin at 10:15 a.m., eastern daylight time. Please allow time for the online check-in procedures. Even if you plan to virtually attend the Annual Meeting, we recommend that you vote by proxy prior to the Annual Meeting so that your vote will be counted if you later decide not to attend the Annual Meeting.

 

Voting by beneficial holders

 

If you are a beneficial owner, you should receive separate instructions from your broker, bank or other nominee describing how to vote.

 

Voting by participants in an employee benefit plan

 

If you hold shares through our Employee Stock Purchase Plan or our 401(k) savings plan, you will receive a separate voting instruction form to instruct the custodian or trustee for the applicable plan as to how to vote your shares. With respect to the 401(k) savings plan, all shares of common stock for which the trustee has not received timely instructions will be voted by the trustee in the same proportion as the shares of common stock for which the trustee received timely instructions, unless inconsistent with applicable law. With respect to our Employee Stock Purchase Plan, we consider all shares of common stock for which the


 

HEXCEL CORPORATION  |  2021 Proxy Statement vii
 

2021 PROXY STATEMENT SUMMARY

 

custodian has not received timely instructions not present for quorum purposes, and those shares will not be voted by the custodian.

 

Our distribution agent, Broadridge Financial Solutions, Inc., provides proxy materials to participants in these plans on behalf of the custodian or trustee. If you are a plan participant and also a record holder, Broadridge may combine the shares registered directly in your name and the shares credited to your applicable plan account onto one proxy card. If Broadridge does not combine your shares, you will receive more than one Notice or set of proxy materials. In that case, you will need to submit a vote for each set of shares. The vote you submit via the Internet, telephone or proxy card will serve as your voting instructions to the custodian or trustee. To allow sufficient time for voting by your custodian or trustee, your voting instructions must be received by 10:30 a.m., eastern daylight time, on May 5, 2021.

 

What does it mean if I receive more than one Notice, proxy card or voting instruction form?

 

If your shares are held in more than one account, you will receive a Notice, a proxy card or a voting instruction form for each account. To ensure that all of your shares are voted, please follow the voting submission instructions you receive for each account.

 

How does the board of directors recommend that I vote?

 

The board recommends that you vote:

 

n FOR the election of the eight director nominees;
n FOR the approval, on an advisory, non-binding basis, of the company’s 2020 executive compensation;
n FOR the ratification of Ernst & Young LLP as our independent registered public accounting firm for 2021; and
n FOR the approval of the amendment and restatement of the Employee Stock Purchase Plan to increase the number of shares reserved for issuance under the ESPP by 300,000 shares of common stock.

What if I return my proxy card or otherwise vote, but do not vote for all of the proposals?

 

All properly voted shares that we receive prior to the deadlines described herein will be voted at the Annual Meeting. The persons designated on the proxy card as “proxies” (the “proxy holders”) will vote all shares covered by the proxy in accordance with your instructions. If no instructions are given, the proxy holders will vote the shares in accordance with the board’s recommendations.

 

If any other matter properly comes before the Annual Meeting, the proxy holders will vote the shares in their discretion. If any director nominee becomes unavailable for election for any reason prior to the vote at the Annual Meeting, the board may reduce the number of directors to be elected or substitute another person as nominee, in which case the proxy holders will vote for the substitute nominee.

 

What is a broker “non-vote”?

 

A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. Under New York Stock Exchange (“NYSE”) rules, brokers are not permitted to vote on the election of directors, the advisory vote on the compensation of our named executive officers, or the proposed amendment and restatement of our ESPP; therefore, if your shares are held by a broker, you must provide voting instructions if you want your broker to vote on these matters.


 

viii HEXCEL CORPORATION  |  2021 Proxy Statement
 

2021 PROXY STATEMENT SUMMARY

 

How do I revoke a proxy?

 

If you are a record holder and have provided a proxy, you may revoke it at any time prior to the Annual Meeting by:

 

n giving written notice of revocation to our Corporate Secretary at Hexcel Corporation, Attention: Corporate Secretary, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, or by email to CorporateSecretary@hexcel.com, with a later date than the date of any proxy you previously provided, so long as the revocation is received by our Corporate Secretary prior to the Annual Meeting;
n submitting a new, properly completed, subsequently dated proxy (whether by proxy card, online, or telephone), so long as it is received prior to the applicable voting deadline described in the Notice or proxy card; or
n joining the Annual Meeting and voting online during the meeting.

If you are a beneficial owner, you should contact your broker, bank, or other nominee for instructions on how to revoke your proxy or change your vote. If you are an employee stockholder who holds shares through one of our benefit plans, you should contact the trustee or custodian for instructions on how to revoke your proxy or change your vote.

 

What are the quorum and vote requirements?

 

A quorum of stockholders is necessary to hold a valid Annual Meeting. A quorum will exist if a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting are present at the virtual annual meeting online or represented by proxy at the Annual Meeting. As of the record date, March 15, 2021, 83,725,385 shares of common stock were issued and outstanding. The holders of 41,862,693 shares will constitute a quorum at the Annual Meeting.


 

 

 

The following table indicates the vote required for approval of each matter to be presented to the stockholders at the Annual Meeting and the effect of abstentions and broker non-votes.

 

    Required Vote   Effect of Abstentions
and Broker Non-Votes
Proposal 1 —
Elect eight directors
  Number of votes cast “for” the nominee must exceed the number of votes cast against” that nominee.   Abstentions and broker non-votes will have no effect on the voting for this matter.
Proposal 2 —
Approve, on an advisory, non-binding basis, 2020 executive compensation
  Affirmative vote of a majority of the shares of common stock present in person (virtually) or represented by proxy and entitled to vote.   Abstentions will have the effect of a vote “against.” Broker non-votes will have no effect on the voting for this matter.
Proposal 3 —
Ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2021
  Affirmative vote of a majority of the shares of common stock present in person (virtually) or represented by proxy and entitled to vote.   Abstentions will have the effect of a vote “against.” There should be no broker non-votes because brokers are permitted to vote on this proposal, even if they have not received voting instructions from the beneficial owners.
Proposal 4 —
Approve the amendment and restatement of the ESPP to increase the number of shares reserved for issuance under the ESPP by 300,000 shares of common stock
  Affirmative vote of a majority of the shares of common stock present in person (virtually) or represented by proxy and entitled to vote.   Abstentions will have the effect of a vote “against.” Broker non-votes will have no effect on the voting for this matter.

 

HEXCEL CORPORATION  |  2021 Proxy Statement ix
 

2021 PROXY STATEMENT SUMMARY

 

How may the company solicit my proxy?

 

We will pay all costs of preparing, assembling, printing and distributing the proxy materials. We have retained MacKenzie Partners, Inc., to assist in soliciting proxies for a fee of approximately $12,000, plus reasonable out-of-pocket expenses. Our employees may solicit proxies on behalf of our board through the mail, in person, by telephone or by other forms of electronic communication, without additional compensation. We will reimburse brokers, banks and other nominees who hold shares of common stock in their names for the expenses of furnishing proxy materials to beneficial owners of the shares.

 

How will the votes at the Annual Meeting be tabulated?

 

At the Annual Meeting, Broadridge will tabulate all votes cast online during the Annual Meeting or by proxy. Its officers or employees will serve as inspectors of election.

 

Where will I find the voting results on the proposals presented at the Annual Meeting?

 

We intend to announce the preliminary voting results at the Annual Meeting. We will publish the final voting results in a Current Report on Form 8-K that we will file with the SEC, within four business days following the Annual Meeting.

How may I obtain a copy of the Annual Report and proxy materials?

 

We will provide by mail or by email, without charge, a copy of our Annual Report on Form 10-K for the year ended December 31, 2020 (not including exhibits and documents incorporated by reference), this proxy statement, and the Annual Report and proxy materials for future Annual Meetings (once available) at your request. Please direct all requests to Hexcel Corporation, Attention: Vice President, Investor Relations, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, or by email to InvestorRelations@hexcel.com. These materials also are available, free of charge, on our website at www.hexcel.com. Requests for materials relating to the Annual Meeting must be made by April 26, 2021 to facilitate timely delivery.

 

Several stockholders live at my address. Why did we receive only one copy of the Notice or one set of proxy materials?

 

We typically deliver only one copy of the Notice or one set of the proxy materials to multiple stockholders at the same address, unless we have received contrary instructions from one or more of the stockholders. We will, upon written or oral request, promptly deliver a separate copy of the Notice or proxy materials to a stockholder at a shared address to which a single copy was delivered. Record holders who wish to receive a separate copy of the Notice or proxy materials in the future, or record holders sharing an address who wish to receive a single copy of the Notice or proxy materials in the future, should notify our company’s Corporate Secretary at Hexcel Corporation, Attention: Corporate Secretary, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, by email to CorporateSecretary@hexcel.com, or by telephone at (203) 969-0666. Beneficial owners who have the same address and wish to receive a separate copy of the Notice or proxy materials in the future should contact their broker, bank, or other nominee.


 

x HEXCEL CORPORATION  |  2021 Proxy Statement
 
 
 

PROPOSAL 1–ELECTION OF DIRECTORS

   

 

At the Annual Meeting, eight directors will be elected to hold office until the 2022 Annual Meeting of Stockholders and until their successors are duly elected and qualified. All nominees identified in this proxy statement for election to the board are currently serving as directors of the company.

 

Majority Voting Standard for Election of Directors

Our Bylaws provide for a majority voting standard for the election of directors in uncontested elections. Under this standard, which will apply to the election of directors at the Annual Meeting, a director nominee will be elected only if the number of votes cast “for” that nominee exceeds the number of votes cast “against” that nominee. Broker non-votes and abstentions will have no effect on the outcome of the vote. If a nominee who currently is serving as a director is not elected or reelected, Delaware law provides that the director will continue to serve on the board. However, each incumbent director nominee standing for election or reelection must submit an irrevocable resignation in advance of the stockholder vote regarding the election of directors. The resignation is contingent upon both the director not receiving the required vote for election or reelection and the board’s acceptance of the resignation, which the board, in its discretion and in accordance with the procedures described below, may reject if it deems such rejection to be in the best interests of the company.

 

Prior to the board’s determination to accept or reject the resignation, the nominating, governance and sustainability committee, composed entirely of independent directors, will make a recommendation to the board with respect to the tendered resignation. The board must take action on the committee’s recommendation within 90 days following the meeting at which the election of directors occurred. An incumbent director whose resignation is the subject of the board’s determination is not permitted to participate in the deliberations or votes of the committee or the board regarding the acceptance of the resignation.

 

In the case of contested elections (a situation in which the number of nominees exceeds the number of directors to be elected, which is not the case with respect to the election of directors at the Annual Meeting), a plurality voting standard will apply, and the directors with the highest number of “for” votes will be elected.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 1
 

PROPOSAL 1—Election of Directors

 

Information Regarding the Directors

All of our current directors have been nominated for election or reelection to the board. The nominating, governance and sustainability committee considered, among other factors, the following attributes in connection with its determination that our current directors should continue to serve on our board: experience in senior leadership at a large-scale or global operation; familiarity with public company governance; proficiency in financial statements and financial reporting processes; industry expertise and professional relationships; the ability to utilize past experience in manufacturing/operations, financing and mergers and acquisitions, marketing, technology, investor relations, sustainability, risk management and compliance, and other areas to address issues we face on a recurring basis; collegiality and the ability to work together as a group; outstanding integrity and business judgment; and the ability to ask probing questions during board discussions and to carefully scrutinize significant business and other proposals suggested by management. More specifically, for each nominee, the committee considered the key attributes, experience and skills, which we refer to as the “core competencies,” listed below in each director’s biography. The following chart summarizes the core competencies that the board considers valuable to ensure effective oversight of the company and illustrates how the current directors collectively represent these core competencies. These indicators are intended to be a high-level summary of what the board views as the core competencies and are not a comprehensive list of each director’s skills or contributions to the board:

 

 

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PROPOSAL 1—Election of Directors

 

NICK L. STANAGE

Chairman, Chief Executive Officer and President

Hexcel Corporation

Age: 62

Director Since: 2013

 

Core Competencies: 

 

Extensive experience with management, strategy, financial and operational requirements of a global manufacturing company
Substantial knowledge of the company’s industry, technologies, customers and product base
In-depth understanding of the company’s operations, growth opportunities and challenges

 

Career Highlights:

Chairman (since January 2014), Chief Executive Officer (since August 2013) and President (since November 2009) of the company; previously its Chief Operating Officer (May 2012-August 2013)
Former President of the Heavy Vehicle Products group at Dana Holding Corporation (2005-2009)
Prior leadership roles of increasing significance at Honeywell Inc. (formerly Allied Signal) (1986-2005), including Vice President Integrated Supply Chain and Technology for the Consumer Products Group and Vice President and General Manager of the Aerospace Group’s Engine Systems and Accessories Division

 

Other Current Public Company Directorships:

TriMas Corporation, since November 2013 (compensation and corporate governance and nominating committees)

 

JEFFREY C. CAMPBELL

Executive Vice President and Chief Financial Officer

American Express Company

Age: 60

Director Since: 2003 (Lead Director since 2018)

Committees: Audit (Chair); Nominating, Governance and Sustainability

 

Core Competencies: 

 

Extensive finance and accounting experience; SEC “audit committee financial expert”
Significant experience in compliance, risk management, financing, systems solutions, investor relations, and sustainability strategy
Senior leadership and management positions in the commercial aviation industry
In-depth knowledge of the company’s operations, customers and product base

 

Career Highlights:

Executive Vice President and Chief Financial Officer of the American Express Company, a global services company (since August 2013)
Former Executive Vice President and Chief Financial Officer of McKesson Corporation (2004-2013)
Positions of increasing significance at American Airlines (1990-2003), including Senior Vice President and Chief Financial Officer of AMR Corp., the parent company of American Airlines, and Vice President at American Airlines

 

Other Current Public Company Directorships:

Aon plc, since March 2018 (audit committee and organization and compensation committee)

 

HEXCEL CORPORATION  |  2021 Proxy Statement 3
 

PROPOSAL 1—Election of Directors

 

CYNTHIA M. EGNOTOVICH

Retired President, Aerospace Systems Customer Service

United Technologies Corporation

Age: 63

Director Since: 2015

Committees: Audit; Nominating, Governance and Sustainability (Chair)

 

 

Core Competencies: 

 

Extensive senior leadership and management experience in the aerospace industry
Significant experience overseeing and assessing the performance of companies, as well as their accountants
In-depth global manufacturing and public company governance experience

 

Career Highlights:

Former President, Aerospace Systems Customer Service of United Technologies Corporation (July 2012-November 2013)
Prior leadership roles of increasing significance at Goodrich Corporation (1986-2012, when acquired by United Technologies Corporation), including Segment President, Nacelles and Interior Systems, Segment President of Engine Systems, Segment President of Electronic Systems and Segment President of Engine & Safety Systems

 

Other Current Public Company Directorships:

Welbilt, Inc., since February 2016 (chairperson and governance committee chair)

 

Former Public Company Directorships:

The Manitowoc Company (2008-2016)

 

THOMAS A. GENDRON

Chairman, Chief Executive Officer and President

Woodward, Inc.

Age: 60

Director Since: 2010

Committees: Compensation

 

Core Competencies: 

 

Extensive manufacturing, operations, strategy and marketing experience in the aerospace and industrial industries
Significant knowledge and experience in executive leadership, and operational and management issues relevant to global manufacturing environments
In-depth experience overseeing executive compensation

 

Career Highlights:

Chairman (since January 2008) and Chief Executive Officer and President of Woodward, Inc. (“Woodward”), a designer, manufacturer and service provider of energy control and optimization solutions used in global infrastructure equipment, serving the aerospace, power generation and distribution and transportation markets (since July 2005)
Prior leadership roles of increasing significance at Woodward, including Chief Operating Officer and President (2002-2005), Vice President and General Manager of Industrial Controls (2001-2002), Vice President of Industrial Controls (2000-2001), and Director of Global Marketing and Industrial Controls’ Business Development (1999-2000)

 

Other Current Public Company Directorships:

Woodward, since January 2005 (Chairman)

 

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PROPOSAL 1—Election of Directors

 

DR. JEFFREY A. GRAVES

Chief Executive Officer and President

3D Systems Corporation

Age: 59

Director Since: 2007

Committees: Compensation; Nominating, Governance and Sustainability

 

Core Competencies: 

 

Extensive experience in executive and management roles with companies heavily engaged in manufacturing and research and development
Significant experience in energy storage facilities and international market development
Ph.D. in Materials Science, with expertise in aerospace airframes, propulsion systems and energy fields
In-depth knowledge of the company’s product base and research and technology strategy

 

Career Highlights:

Chief Executive Officer, President (since May 2020) and a director of 3D Systems Corporation, an additive manufacturing solutions partner (since June 2020)
Former Chief Executive Officer, President and a director of MTS Systems Corporation, a leading global supplier of test systems and sensors (May 2012-May 2020)
Former President, Chief Executive Officer and director of C&D Technologies, Inc. (2005-2012)
Prior leadership roles of increasing significance at Kemet Corporation (2001-2005)
Variety of management and research and technology positions at the General Electric Company (1994-2001)

 

Other Current Public Company Directorships:

3D Systems Corporation, since June 2020

 

Former Public Company Directorships:

FARO Technologies, Inc. (2017-May 28, 2021)*
Teleflex Incorporated (2007-2017)
C&D Technologies, Inc. (2005-2012)

 

* In nominating Dr. Graves for reelection at the Annual Meeting, the nominating, governance and sustainability committee considered his commitment to reduce his number of public company boards by not standing for reelection when his term with the FARO Technologies, Inc. board of directors ends on May 28, 2021. Once Dr. Graves departs from the FARO Technologies, Inc. board in May 2021, he will be on one public company board besides Hexcel.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 5
 

PROPOSAL 1—Election of Directors

 

GUY C. HACHEY

Retired President and Chief Operating Officer

Bombardier Aerospace, Inc.

Age: 65

Director Since: 2014

Committees: Compensation (Chair)

 

Core Competencies: 

 

Extensive manufacturing, operations, strategy and marketing experience in the aerospace and automotive industries
Significant knowledge and experience in executive leadership, and operational and management issues relevant to global manufacturing environments
In-depth experience overseeing executive compensation

 

Career Highlights:

Former President and Chief Operating Officer of Bombardier Aerospace, Inc. (May 2008-July 2014)
Prior leadership roles of increasing significance at Delphi Corporation, including Vice President, Delphi Corporation and President, Delphi Europe, Middle East and Africa, and Executive Champion for Delphi’s global manufacturing operations
Variety of manufacturing and engineering leadership positions at General Motors Corporation

 

Other Current Public Company Directorships:

Meggitt plc, since January 2019 (audit, remuneration and nominations committees)

 

DR. MARILYN L. MINUS

Chair of the Department of Mechanical and Industrial Engineering

Northeastern University

Age: 43

Director Since: 2020

Committees: Nominating, Governance and Sustainability

 

Core Competencies: 

 

Extensive senior leadership experience in higher education
Ph.D. in Polymer, Textile and Fiber Engineering, with expertise in sustainability, including the production of energy-efficient lightweight polymer-matrix nano-composite materials
Substantial experience developing initiatives and programs that enhance cultural, racial, and socioeconomic diversity in engineering

 

Career Highlights:

Professor (since July 2018) and Chair (since May 2020) of the Department of Mechanical and Industrial Engineering at Northeastern University
Director of the Macromolecular Innovation in Nano-materials Utilizing Systems Laboratory (since January 2010)
Prior roles of increasing significance at Northeastern University, including Assistant Professor (2010-2015), Associate Professor (July 2015-July 2018), and the Associate Chair for Graduate and Research Affairs, Department of Mechanical and Industrial Engineering (July 2018-April 2020)
Member of the American Society for Mechanical Engineers, American Chemical Society, Materials Research Society, Institute of Industrial and Systems Engineers, and Society for the Advancement of Material and Process Engineering

 

6 HEXCEL CORPORATION  |  2021 Proxy Statement
 

PROPOSAL 1—Election of Directors

 

CATHERINE A. SUEVER

Retired Executive Vice President – Finance and Administration and Chief Financial Officer

Parker Hannifin Corporation

Age: 62

Director Since: 2018

Committees: Audit

 

Core Competencies: 

 

Extensive experience in finance and accounting; SEC “audit committee financial expert”
Significant experience in compliance, risk management, financing, systems solutions and investor relations
Senior leadership and management role in industrial industry

 

Career Highlights:

Former Executive Vice President—Finance and Administration and Chief Financial Officer of Parker Hannifin Corporation, a leading worldwide manufacturer of motion and control technologies and systems (April 2017-December 2020)
Prior leadership roles of increasing significance at Parker Hannifin Corporation, including Vice President and Corporate Controller (2010-2017), Vice President and Controller, Climate & Industrial Controls Group (2008-2010), Assistant Treasurer (2007-2008), Director, Finance and Investor Relations Support (2006-2007), Manager of External Reporting and a Division Controller and Business Unit Manager for the Gas Turbine Fuel Systems Division
Member of the American Institute of Certified Public Accountants

 

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

 

HEXCEL CORPORATION  |  2021 Proxy Statement 7
 

PROPOSAL 1—Election of Directors

 

Independence of Directors

Our board has affirmatively determined that each current member of our board of directors, as well as Lynn Brubaker and Joel S. Beckman, who each served on our board during the year ended December 31, 2020, is or was independent within the meaning of the listing standards of the NYSE, other than Mr. Stanage, our Chairman of the Board, Chief Executive Officer and President. In addition, the board has determined that the members of the audit committee, compensation committee and nominating, governance and sustainability committee are, and were during the year ended December 31, 2020, independent within the meaning of the NYSE listing standards, and that members of the audit and compensation committees currently meet and, during the year ended December 31, 2020, met, the additional independence requirements of the NYSE applicable to audit committee and compensation committee members. In making its independence determinations, the board considered the following: Dr. Graves is a non-employee director of a company that is our supplier; Mr. Campbell is a non-employee director of a company that provides consulting services to us; and Mr. Hachey is a non-employee director of a company that is both a customer and a supplier of ours. After considering, among other things, purchases by each company that is a customer as a percentage of our total sales, our purchases of goods or services from each company that is a supplier or service provider as a percentage of such company’s total sales (or projected sales for 2020), and that Dr. Graves, Mr. Campbell and Mr. Hachey were not employed by the companies referenced above, the board concluded that our relationships with these companies do not impair Dr. Graves’, Mr. Campbell’s or Mr. Hachey’s independence. In making the independence determination with respect to Dr. Graves and Ms. Suever, the board considered that they were, during the year ended December 31, 2020, executive officers of companies that are either a supplier or a customer of Hexcel. After considering, among other things, the de minimis amount of the transactions with these companies, the board concluded that our relationships with these companies do not impair Dr. Graves’ or Ms. Suever’s independence.

 

On January 12, 2020, we announced that we had entered into an agreement and plan of merger (the “Merger Agreement”) with Woodward and Genesis Merger Sub, Inc., a wholly owned subsidiary of Woodward (“Merger Sub”), which provided that, upon the terms and subject to the conditions set forth therein, Merger Sub would merge with and into Hexcel, with Hexcel surviving the merger as a wholly owned subsidiary of Woodward (the “Merger”). Mr. Gendron, the Chairman of the Board, Chief Executive Officer and President of Woodward, is a member of our board of directors. In February 2020, during our annual review of the independence of our directors, the board determined that the execution of the Merger Agreement created a material relationship between Mr. Gendron and the company, and that Mr. Gendron could not be considered independent while the Merger was pending. As a result, Mr. Gendron was removed from the compensation committee. On April 5, 2020, Hexcel and Woodward entered into an agreement to terminate the Merger Agreement (the “Termination Agreement”). In light of the termination of the Merger, and the limited continuing obligations between Hexcel and Woodward, on April 16, 2020, the board determined that Mr. Gendron met the independence requirements of the NYSE listing standards, and Mr. Gendron was reappointed to the compensation committee of the board upon his reelection at the 2020 Annual Meeting of Stockholders. In February 2021, during its annual review of the independence of our directors, the board considered amounts paid by the company to Woodward in 2020 to cover the company’s share of terminated Merger expenses, and determined that such payments did not impair Mr. Gendron’s independence.

 

Board Service

 

Director Tenure

The company has a majority voting standard for the election of directors, as described above under “Majority Voting Standard for Election of Directors.”

 

Our corporate governance guidelines also provide that the nominating, governance and sustainability committee is required to consider the previously tendered resignation of any non-employee director who retires, changes his or her employer or experiences a significant reduction in his or her professional or employment responsibilities, and recommend to the board whether to accept such resignation. During 2020, upon the recommendation of the nominating, governance and sustainability committee, and after considering factors relevant to their continued service on the board, the board rejected each of Dr. Graves’ and Ms. Suever’s previously tendered resignation pursuant to this policy.

 

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PROPOSAL 1—Election of Directors

 

Our corporate governance guidelines also require employee directors to resign from the board at the time when they are no longer employed by the company. In addition, it is the general policy of the company that no director having attained the age of 70 years shall be nominated for reelection or reappointment to the board.

 

Director Overboarding Policy

Pursuant to our corporate governance guidelines, directors may not serve on a total of more than four public company boards, and no director who serves as chief executive officer of a public company may serve on a total of more than three public company boards (including the board of the company of which such director is the chief executive officer). All of our current directors comply with our overboarding policy. However, we are aware that some of our stockholders have their own board membership policies that are more restrictive than our policy. When a director joins our board and during the peer evaluation process, which last took place in 2019 and will take place again in 2021, we ensure that each director has sufficient time to be a productive member of our board and has exhibited as much through his or her contributions to board discussions and decision-making. Our board believes that the above policy strikes the right balance by allowing for the experience gained through membership on other boards and the time commitment needed for engaged board service.

 

Meetings and Standing Committees of the Board of Directors

 

General

During 2020, there were 20 meetings of the board, and 16 meetings in the aggregate of the three standing committees of the board. Each of the incumbent directors attended or participated in at least 75% of the aggregate number of board meetings and applicable committee meetings held during 2020, except for Mr. Gendron and Ms. Suever who, due to each of their recusals in connection with the potential Merger, attended 54% and 56% of the aggregate board meetings and applicable committee meetings, respectively, but attended all of the board and committee meetings for which he or she was not recused. A director is expected to regularly attend and participate in meetings of the board and of committees on which the director serves, and to attend the annual meeting of stockholders, pursuant to the company’s corporate governance guidelines. Each of the then-serving directors virtually attended the last annual meeting of stockholders.

 

During 2020, the board had the following standing committees: audit committee; compensation committee; and nominating, governance and sustainability committee. The board may establish other special or standing committees from time to time. Members of committees serve at the discretion of the board. Each of the three standing committees operates under a charter which is reviewed at least annually by the relevant committee and approved by the board. The charter for each committee requires that all members be independent, as required by NYSE listing standards. Our board has also adopted corporate governance guidelines. All committee charters and the corporate governance guidelines are available through the Investor Relations section of our website, www.hexcel.com, under “Governance.” You may obtain a copy of any of these documents, free of charge, by directing your request to Hexcel Corporation, Attention: Vice President, Investor Relations, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, or by email to InvestorRelations@Hexcel.com.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 9
 

PROPOSAL 1—Election of Directors

 

The following table provides information regarding the current membership of each standing board committee and the number of meetings held during fiscal year 2020:

 

Name Audit(1) Compensation(2) Nominating,
Governance and
Sustainability(3)(4)
 
Jeffrey C. Campbell Chair    
Cynthia M. Egnotovich   Chair  
Thomas A. Gendron      
Dr. Jeffrey A. Graves    
Guy C. Hachey   Chair    
Dr. Marilyn L. Minus      
Catherine A. Suever      
Number of Meetings 8 5 3  
Actions by Written Consent 1  
(1) Ms. Brubaker served on the audit committee until her term on the board ended, effective June 1, 2020.
(2) Mr. Gendron was appointed to the compensation committee effective June 1, 2020.
(3) Ms. Brubaker served as chair of the nominating and corporate governance committee until her term on the board ended, effective June 1, 2020. Mr. Beckman served on the nominating, governance and sustainability committee during 2020, until his retirement from the board effective January 1, 2021. Ms. Egnotovich was appointed as chair, and Dr. Graves was appointed as a member, of the nominating, governance and sustainability committee effective June 1, 2020. Dr. Minus was appointed to the nominating, governance and sustainability committee upon her appointment to the board, effective December 3, 2020.
(4) This committee was previously named the nominating and corporate governance committee. The committee was renamed effective December 3, 2020 to recognize its increased focus related to oversight of the company’s sustainability strategy.

 

Audit Committee

The audit committee assists the board in its oversight of the integrity of our financial statements, our compliance with legal and regulatory requirements, our independent registered public accounting firm’s qualifications, independence and performance, and our internal audit function. Additional information regarding the audit committee, including additional detail about the functions performed by the audit committee, is set forth in the Audit Committee Report included on page 65 of this proxy statement.

 

All members of our audit committee meet the financial literacy requirements of the NYSE. In addition, our board has determined that Jeffrey C. Campbell and Catherine A. Suever are each an “audit committee financial expert” under SEC rules.

 

The audit committee has adopted procedures for the receipt, retention and handling of complaints regarding accounting, internal controls and auditing matters by employees, stockholders or other persons. Any person with such a complaint should report it to the board as set forth under “Contacting the Board” on page 15. The audit committee has also adopted procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

 

Nominating, Governance and Sustainability Committee

The nominating, governance and sustainability committee of the board identifies and recommends to the board individuals qualified to serve as directors and on committees of the board; advises the board with respect to board and committee procedures; develops and recommends to the board, and reviews periodically, our corporate governance principles; oversees the evaluation of the board, the committees of the board and management; and assists the board in fulfilling its oversight responsibilities relating to the company’s sustainability strategy.

 

The nominating, governance and sustainability committee evaluates the board’s and each committee’s performance at least annually. In addition, the nominating, governance and sustainability committee, in collaboration with the lead director, conducts a peer review of individual directors every other year. The board evaluation process is more fully described on page 13 below.

 

The nominating, governance and sustainability committee also reviews, at least on an annual basis, and reports to the board regarding trends and changes with respect to corporate governance law, regulation, and practice and with respect to the company’s sustainability initiatives and policies relating to environmental stewardship, corporate social responsibility and corporate culture. The committee also considers any other corporate governance and

 

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PROPOSAL 1—Election of Directors

 

sustainability issues that arise from time to time and develops related recommendations for the board to consider. Effective December 3, 2020, in recognition of the increased focus of the committee related to oversight of the company’s sustainability strategy, the board of directors updated the committee’s name from the nominating and corporate governance committee, to the nominating, governance and sustainability committee.

 

Director Candidate Process

Under the charter of the nominating, governance and sustainability committee and our corporate governance guidelines, the nominating, governance and sustainability committee is responsible for assessing the appropriate balance of criteria required of board members and, in considering potential director candidates, will consider, among other things, the background and qualifications of the potential director candidate, including knowledge, experience, diversity (such as race, gender and national origin), personal and professional integrity, business judgment, time availability in light of other commitments, potential conflicts of interest and such other factors that the nominating, governance and sustainability committee considers appropriate in the context of the needs or stated requirements of the board. The nominating, governance and sustainability committee has independent authority to select and retain a search firm to assist it in identifying qualified candidates for board membership and has the sole authority to approve the search firm’s fees and terms of engagement. The committee engaged an external search firm to identify candidates for appointment to the board of directors in 2020. The search firm identified multiple candidates for consideration, including Dr. Minus, who was appointed to the board in December 2020 upon the recommendation of the nominating, governance and sustainability committee, based on its evaluation of Dr. Minus (including, without limitation, through her interviews with directors, completion of a questionnaire and related procedures).

 

While we do not have a formal policy with regard to consideration of diversity in identifying director nominees, both the charter of the nominating, governance and sustainability committee and our corporate governance guidelines list diversity (such as race, gender and national origin) as one of many attributes and criteria that the committee will consider when identifying and recruiting candidates to fill positions on the board. The committee considers a broad range of diversity, including diversity with respect to experience, skill set, areas of expertise and professional background, in addition to race, gender and national origin. Based on board self-assessments that identified opportunities to enhance the skillsets and diversity of the board, the committee explicitly requested that the external search firm engaged to identify candidates for appointment to the board of directors in 2020 include racially and ethnically diverse candidates in the slate for consideration.

 

The nominating, governance and sustainability committee will consider director candidates recommended by stockholders, as well as by other sources, including our non-management directors, our chief executive officer, and other executive officers. In considering candidates submitted by stockholders, the committee will take into consideration the needs of the board and the qualifications of the candidate, according to the criteria set forth above. To have a candidate considered by the committee, a stockholder must submit the recommendation in writing to the Corporate Secretary at the address listed below under “Contacting the Board” so that it is received at least 120 days prior to the anniversary date of our prior year’s annual meeting of stockholders. The stockholder must supply the following with his or her recommendation, as well as certain other information, as described in our Bylaws:

 

The name and record address of the stockholder and evidence of the stockholder’s ownership of Hexcel stock; and
   
The name, age, business address and residence address of the candidate, a listing of the candidate’s qualifications to be a director, and the candidate’s consent to be named as a director if selected by the committee and nominated by the board.

 

In connection with its evaluation, the nominating, governance and sustainability committee may request additional information from the candidate or the recommending stockholder. The committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder.

 

Compensation Committee

The compensation committee articulates our compensation policy and principles, reviews and approves our compensation programs, including director compensation, and oversees our benefit plans. In this regard, the compensation committee oversees the administration of our incentive plans and may make grants, for example, of non-qualified stock options (“NQOs”), restricted stock units (“RSUs”) and performance-based share awards

 

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PROPOSAL 1—Election of Directors

 

(“PSAs”) to executive officers, other key employees, directors and consultants; any such grants to Mr. Stanage are subject to board approval by our independent directors. The compensation committee may delegate its authority to a subcommittee of its members.

 

Additional information regarding the compensation committee, including additional detail about the policies and principles regarding our compensation program, and information concerning the compensation consultant retained by the compensation committee (including a description of services provided by the consultant), is set forth under “Compensation Discussion and Analysis” beginning on page 22 of this proxy statement.

 

Board Leadership Structure

As stated in our corporate governance guidelines, we do not require separation of the offices of the Chairman of the Board and Chief Executive Officer. The board believes that it is appropriate for Mr. Stanage to hold both offices because the combined role enables decisive leadership and clear accountability and enhances our ability to communicate our strategy clearly and consistently to stockholders and other key constituencies, such as our employees and key customers and suppliers. We also believe our board structure and board and committee oversight function to facilitate our maintenance of a high standard of corporate governance and effective accountability of the CEO to the board, including the following:

 

Each of the other directors on the board is independent;
   
The board has named a highly qualified lead director, whose responsibilities are described below;
   
Mr. Stanage’s performance and compensation is reviewed, and his compensation is recommended, by the compensation committee, subject to approval by the independent directors as a group;
   
The independent directors meet regularly in executive sessions without management; and
   
The board regularly reviews performance, management development and succession plans for executive positions.

 

Our Bylaws dictate that if the Chairman of the Board is not independent, as is the case with Mr. Stanage, then the independent directors are required to designate an independent board member to serve as lead director. The independent directors have designated Mr. Campbell to serve as lead director. In addition to his authority to call a meeting of the independent directors, Mr. Campbell has the responsibilities listed below:

 

Oversees the flow of information to the board;
   
Determines the annual master agenda for board meetings with input from management and other directors;
   
Collaborates with the CEO to set meeting agendas and ensure that information and materials that are important to the board’s understanding of agenda items are sufficient in scope;
   
Oversees the board’s performance evaluations of the CEO and provides feedback directly to the CEO;
   
Collaborates with the nominating, governance and sustainability committee to conduct peer reviews of individual directors as part of the board’s evaluation process;
   
Chairs executive sessions of the board and meets with the CEO to discuss matters of board concern; and
   
Collaborates with the nominating, governance and sustainability committee in monitoring the composition and structure of the board.

 

Under our corporate governance guidelines, the independent directors are required to meet in executive session, without management, at each regularly scheduled, in-person board meeting, but no less than two times a year.

 

12 HEXCEL CORPORATION  |  2021 Proxy Statement
 

PROPOSAL 1—Election of Directors

 

Board Evaluation Process

Board and committee evaluations play a critical role in ensuring the effective functioning of the board of directors. Our corporate governance guidelines assign responsibility for overseeing the annual board and committee evaluation process to the nominating, governance and sustainability committee. The evaluation process is adopted by the board upon recommendation of the nominating, governance and sustainability committee. The current board and committee evaluation process involves two steps. First, every year each director completes a questionnaire evaluating the board of directors as a whole and each standing committee of the board on which he or she serves, including feedback on board and committee effectiveness, size, composition and frequency of meetings, director access to management and the sufficiency and timeliness of information and materials provided by management, and the sufficiency of processes for risk oversight, as well as the overall mix of director skills, experience and backgrounds. The results of the survey are aggregated, summarized by the General Counsel, and presented to the nominating, governance and sustainability committee, which then provides a report, with recommendations of governance changes, if any, to the board and each committee. Second, every other year, a peer review is conducted, to provide feedback on the experience, background, skills, overall commitment and contribution to the effectiveness of the board of each director, with the last peer review being conducted in 2019 and the next one scheduled for later this year. The lead director interviews each of the other directors to obtain an evaluation of all of the other directors, except the lead director. The chair of the nominating, governance and sustainability committee conducts a similar interview of each other director evaluating the lead director. Each director then receives feedback from the lead director, and the lead director receives feedback from the chair of the nominating, governance and sustainability committee; the evaluations by each director remain anonymous to the extent reasonable. If the lead director or the chair of the nominating, governance and sustainability committee believes that significant issues arise from the peer evaluations, he or she presents those concerns to the board.

 

Risk Oversight

The board is actively involved in overseeing our risk management. The board, and each committee, regularly consider potential risks. In addition, we have an active enterprise risk management program, which is designed to measure, manage and aggregate risks on an enterprise-wide basis, and provide a systematic approach to risk assessment and mitigation. Under the enterprise risk management program, management identifies various risks facing the company and assesses such risks, taking into account the likelihood of occurrence and potential impact. Management is responsible for developing an action plan to eliminate, mitigate or monitor such risks. Management makes regular presentations to the board, no fewer than two times per year (and more frequently if circumstances warrant), regarding material risks facing the company, including internal risks related to our operations, strategy, financial condition, and employees, and external risks related to our markets, geographic locations, cybersecurity, regulatory environment, sustainability and macroeconomic outlook. At these meetings, the board discusses and reviews these risks, helps management define key risk and business continuity indicators, and determines what, if any, additional actions should be taken to mitigate these risks. With respect to cybersecurity, the board also devotes time on its agenda at least once per year for a report from and discussion with the company’s Chief Information Officer, who oversees the identification of cybersecurity risks and the measures implemented to mitigate such risks. Additionally, during the first two quarters of 2020, the board met frequently to consider and discuss updates on the company’s management of the impact of the COVID-19 pandemic, including with regard to the company’s operations, financial position and liquidity, communications strategy, personnel management and government affairs engagement, among other items. The board continues to receive updates at regularly scheduled meetings on the continued impact of the COVID-19 pandemic and the company’s ongoing response. Each board committee is also responsible for overseeing specific types of risk. The audit committee periodically reviews our currency exchange and hedging policies, insurance coverage, tax exposures and processes to ensure compliance with laws and regulations, and also reviews reports from our anonymous hotline that employees and third parties can use to report suspected violations of our Code of Business Conduct. The audit committee also regularly meets in executive session without management present with our outsourced internal audit firm and our independent registered public accounting firm to discuss areas of concern. Our compensation committee establishes compensation policies and programs that are designed to prevent incentivizing executives and employees to take on an inappropriate level of risk, and that attract and retain key talent necessary to the company’s long-term strategy. The nominating, governance and sustainability committee is responsible for making recommendations to the board regarding succession planning for senior leadership positions, as well as the company’s corporate

 

HEXCEL CORPORATION  |  2021 Proxy Statement 13
 

PROPOSAL 1—Election of Directors

 

governance practices and initiatives and policies relating to the company’s sustainability strategy, including environmental stewardship, corporate social responsibility and corporate culture. Each of our board committees delivers a report to the board, no later than the next scheduled board meeting, regarding matters considered at committee meetings that have taken place since the previous board meeting.

 

Stockholder Rights Plan

On April 6, 2020, the board declared a dividend of one preferred share purchase right (a “right”) for each outstanding share of the company’s common stock and adopted a stockholder rights plan, as set forth in the rights agreement entered into as of April 6, 2020, by and between the company and American Stock Transfer & Trust Company, LLC, as rights agent, which we refer to as the “rights agreement.” The dividend was payable on April 16, 2020 to stockholders of record of the company’s common stock as of the close of business on April 16, 2020. The stockholder rights plan was adopted in response to the extraordinary business and market dislocations resulting from the COVID-19 pandemic and the actions taken to contain it, as well as the termination of the company’s previously announced Merger with Woodward, as described on page 8 and page 71. The stockholder rights plan was not adopted in response to any specific takeover bid or other proposal to acquire control of the company. In general, the rights agreement works by imposing a significant penalty upon any person or group which acquires 15% or more of the company’s outstanding common stock without the approval of the board. The rights agreement is intended to deter any person or group from triggering the rights without such acquisition first being approved by the board. If triggered by an acquiring person, the provisions of the rights agreement, among other things, will substantially dilute the equity and voting interests of any potential acquiring person unless the board approves the acquisition. If the rights become exercisable, each right will allow its holder to purchase from the company one one-hundredth of a share of Series A Junior Participating Preferred Stock (a “preferred share”) for $150.00. This portion of a preferred share will give the stockholder approximately the same dividend, voting and liquidation rights as would one share of common stock. The rights will not be exercisable until ten days after the public announcement that a person or group has become an “acquiring person” (as defined in the rights agreement) by obtaining beneficial ownership of 15% or more of the company’s outstanding common stock. Prior to exercise, the right does not give its holder any dividend, voting, or liquidation rights. The rights will expire on April 6, 2021, prior to the Annual Meeting.

 

Succession Planning

At least annually, the board engages in a review of management development and succession planning to assess organizational and leadership effectiveness, and conducts in-depth discussions regarding specific succession and contingency planning for all key senior leadership positions.

 

Stockholder Engagement

The company welcomes and seeks stockholder engagement throughout the year and management will be available to answer questions from stockholders at the Annual Meeting. In addition, management of the company conducts stockholder outreach throughout the year to ensure management understands and considers the issues that matter most to our stockholders. Management regularly apprises the board of directors of relevant and topical investor feedback. We provide regular updates regarding the company’s performance and strategic actions to the investor community, and we participate in numerous investor conferences, one-on-one meetings, earnings calls that include a question and answer period for analysts, investor days, and educational investor and analyst conversations. We have maintained investor dialogue and outreach during the pandemic through virtual meetings and participating in virtual investor conferences. We also communicate with stockholders and other stakeholders through a variety of methods including our annual report, proxy statement and other filings with the SEC, news releases, social media, webcasts and the Hexcel website. We believe ongoing stockholder engagement allows us to communicate our strategy, as well as understand and effectively respond to any stockholder concerns.

 

14 HEXCEL CORPORATION  |  2021 Proxy Statement
 

PROPOSAL 1—Election of Directors

 

Contacting the Board

Stockholders and other interested parties may contact the non-management members of the board or the lead director by sending their concerns to: Board of Directors, c/o Corporate Secretary, Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, or by email to CorporateSecretary@hexcel.com. The Corporate Secretary will review all communications and forward them to the lead director. The Corporate Secretary may, however, filter out communications that do not relate to our business activities, operations or our public disclosures, but will maintain a record of these communications and make them available to the lead director. Any communications received by the lead director regarding concerns relating to accounting, internal controls or auditing matters will promptly be brought to the attention of the audit committee and will be handled in accordance with the procedures established by the audit committee to address these matters.

 

Code of Business Conduct

It is our policy that all of our directors, officers and employees worldwide conduct our business in an honest and ethical manner and in compliance with all applicable laws and regulations. Our board has adopted the Hexcel Code of Business Conduct, which applies to all of our directors, officers and employees worldwide, and addresses in detail our expectations with regard to conduct that fulfills our policy. The Code can be viewed on the Investor Relations section of our website, www.hexcel.com, under “Governance.” In addition, you may obtain a free copy of the Code by directing your request to Hexcel Corporation, Attention: Vice President, Investor Relations, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, or by email to InvestorRelations@Hexcel.com. Any amendment to the Code of Business Conduct (other than technical, administrative or non-substantive amendments), or any waiver of a provision of the Code that applies to our directors or executive officers, will be promptly disclosed on the Investor Relations section of our website under “Governance.”

 

Director Compensation in 2020

The company’s director compensation program is designed to enhance its ability to attract and retain highly qualified directors and to align their interests with the long-term interests of our stockholders. The program includes a cash component, which is designed to compensate non-employee directors for their service on the board, and an equity component, which is designed to align the interests of non-employee directors and stockholders. The company also provides certain other benefits to non-employee directors, which are described below. Directors who are employees of the company receive no additional compensation for their service on the board.

 

The compensation committee annually reviews compensation paid to our non-employee directors and makes recommendations for adjustments, as appropriate, to the full board. As part of this annual review, the compensation committee considers the significant time commitment and skill level required by each non-employee director in serving on the board and its various committees. The compensation committee seeks to maintain a market competitive director compensation program and, with the assistance of its independent compensation consultant, benchmarks our director compensation program against the peer group we use to evaluate our executive compensation program.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 15
 

PROPOSAL 1—Election of Directors

 

Annual non-employee director cash compensation consists of a retainer of $73,000 plus:

 

$25,000 for the lead director;
   
$10,000 for each member of the audit committee;
   
$7,500 for each member of the compensation committee; and
   
$5,000 for each member of the nominating, governance and sustainability committee.

 

Each committee chair receives the following additional annual compensation:

 

$12,500 for the audit committee chair;
   
$7,500 for the compensation committee chair; and
   
$5,000 for the nominating, governance and sustainability committee chair.

 

Under our non-employee director compensation program, each non-employee director is permitted to elect to receive RSUs in lieu of his or her annual cash retainer (“Retainer RSUs”). In addition, upon initial election to the board and each reelection thereafter, each non-employee director receives a grant of RSUs (“Annual RSUs”) in an amount determined by the compensation committee following its receipt of the advice of its independent compensation consultant and its consideration of other relevant factors. The grant date value of Annual RSUs issued to directors in 2020 was $120,000. Non-employee director RSUs vest daily over the twelve months following the date of grant and convert into an equivalent number of shares of our common stock on the first anniversary of grant unless the director elects to defer conversion and delivery of the shares underlying the RSUs until termination of service as a director. Vesting of Retainer RSUs is accelerated upon any termination of service as a director. If and when cash dividends are declared on shares of our common stock, we provide dividend equivalents for each RSU then held by the non-employee director equal to the cash dividend that we pay to holders of our common stock which vest at the same time as the underlying RSUs to which they relate and are paid in cash.

 

In addition to the annual compensation described above, if a special committee is designated by the board, each non-employee director who serves on the special committee receives $1,000 for each meeting attended.

 

In light of the significant financial impact of the COVID-19 pandemic on the company, the board, upon recommendation of the compensation committee, reduced the cash retainer fees (excluding committee fees) of the non-employee directors of the company, including the value of any Retainer RSUs, by 50%, effective for the second and third quarters of 2020. Non-employee director compensation was reinstated to previous levels beginning with the fourth quarter of 2020.

 

Our stock ownership guidelines, which are described on page 42, apply to non-employee directors, as well as executive officers. All of our non-employee directors, except Ms. Suever, who was elected as a director in May 2018, and Dr. Minus, who was appointed as a director in December 2020, are in compliance with the guidelines.

 

16 HEXCEL CORPORATION  |  2021 Proxy Statement
 

PROPOSAL 1—Election of Directors

 

The table below summarizes the compensation paid by the company to non-employee directors for the fiscal year ended December 31, 2020:

 

Name Fees Earned or
Paid in Cash
($)(1)
Stock
Awards
($)(2)(3)
Total
($)
Joel S. Beckman(4) 59,638   119,976   179,614
Lynn Brubaker(5) 37,375     37,375
Jeffrey C. Campbell 107,250   119,976   227,226
Cynthia M. Egnotovich 72,981   119,976   192,957
Thomas A. Gendron 60,565   119,976   180,541
Dr. Jeffrey A. Graves 65,049   119,976   185,025
Guy C. Hachey 69,026   119,976   189,002
Dr. Marilyn L. Minus(6) 6,197   119,952   126,149
Catherine A. Suever 64,638   119,976   184,614
(1) The amounts in this column represent the fees that were earned or paid in cash plus the grant date fair value of Retainer RSUs granted to Mr. Beckman, Dr. Graves and Ms. Suever, who each elected to receive Retainer RSUs in lieu of their annual cash retainer for 2020. On January 17, 2020, April 15, 2020, July 10, 2020, and October 9, 2020, Mr. Beckman, Dr. Graves and Ms. Suever were each issued 234, 294, 212 and 492 Retainer RSUs in lieu of their quarterly annual retainer payment, respectively, having a grant date fair value per Retainer RSU granted of $77.75, $31.03, $42.96 and $37.02, respectively. The foregoing grant date fair values were computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation – Stock Compensation” (“FASB ASC Topic 718”). The amounts do not correspond to the actual value that will be realized by a director. For additional information regarding the assumptions made in calculating these amounts, see Note 12, “Stock-Based Compensation,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
(2) The grant date fair value of each Annual RSU granted to directors on June 1, 2020 was $36.78, computed in accordance with FASB ASC Topic 718.
(3) As of December 31, 2020, each of our non-employee directors, other than Dr. Minus, held 3,262 Annual RSUs that were not yet eligible for conversion, which excludes (a) Retainer RSUs that a director elected to receive in lieu of the director’s annual cash retainer as disclosed in footnote 1 above and (b) RSUs for which a director has elected to defer conversion and delivery until termination of his or her service with the board. All RSUs granted prior to the 2020 Annual Meeting of Stockholders have either been converted into common stock or are subject to a director election to defer conversion. Each director (other than Ms. Suever) elected to defer conversion and delivery of common stock underlying the RSUs granted in 2020 until termination of his or her service as a director.
  Dr. Minus received a grant of 2,142 RSUs on December 3, 2020 in connection with her initial election to the board. The grant date fair value of each RSU granted to Dr. Minus on December 3, 2020 was $56.00, computed in accordance with FASB ASC Topic 718.
(4) Mr. Beckman resigned from the board effective as of January 1, 2021.
(5) Ms. Brubaker did not stand for reelection at the 2020 Annual Meeting of Stockholders, held on June 1, 2020.
(6) Dr. Minus was appointed to the board effective December 3, 2020.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 17
 
 
 

EXECUTIVE OFFICERS

   

 

Set forth below is certain information concerning each of our current executive officers as of the date of this proxy statement. For additional information concerning Mr. Stanage, see “PROPOSAL 1—ELECTION OF DIRECTORS—Information Regarding the Directors” on page 3.

 

    Executive  
    Officer  
Name Age Since Position(s) With Hexcel
Nick L. Stanage 62 2009 Chairman of the Board; Chief Executive Officer; President; Director
Patrick J. Winterlich 51 2017 Executive Vice President; Chief Financial Officer
Robert G. Hennemuth 65 2006 Executive Vice President; Human Resources and Communications
Gail E. Lehman 61 2017 Executive Vice President; General Counsel; Secretary
Thierry Merlot 61 2016 President – Aerospace, Europe, Middle East, Africa and Asia Pacific and Industrial
Colleen Pritchett 47 2018 President – Aerospace, Americas and Fibers

 

PATRICK J. WINTERLICH was appointed our Executive Vice President and Chief Financial Officer in September 2017. Mr. Winterlich joined Hexcel in 1998 and has served in roles of increasing responsibility in Operations, Finance and Information Technology, serving most recently as Senior Vice President—Tax, Systems and Enterprise Reporting from March 2016 to August 2017. Prior to joining Hexcel, Mr. Winterlich served in several financial capacities at Courtaulds plc, a U.K. international chemicals group. He has a degree in accounting and financial analysis from Warwick University and is a member of the Chartered Institute of Management Accountants.

 

ROBERT G. HENNEMUTH was appointed our Executive Vice President, Human Resources and Communications in May 2016. Mr. Hennemuth joined Hexcel in March 2006 as Senior Vice President, Human Resources. Prior to joining Hexcel, Mr. Hennemuth served as Vice President—Human Resources of Jacuzzi Brands, Inc. from July 2003 to September 2005. Previously, he was employed by Honeywell International Inc. and, prior to the acquisition of Honeywell by AlliedSignal Inc. in 1999, by AlliedSignal where he served as Vice President of Human Resources & Communications for various businesses from December 1996 to June 2003, including the Honeywell Consumer Products Group.

 

GAIL E. LEHMAN was appointed our Executive Vice President, General Counsel and Secretary in January 2017. Prior to joining Hexcel, she was Chief Administrative Officer, General Counsel & Corporate Secretary at Noranda Aluminum Holding Corporation from March 2012 to December 2016; its Vice President of Human Resources, General Counsel and Corporate Secretary from February 2011 to March 2012; and its Vice President, General Counsel and Secretary from January 2010 to February 2011. On February 8, 2016, Noranda filed for bankruptcy protection under the U.S. Bankruptcy Code. Ms. Lehman was Vice President, General Counsel and Corporate Secretary at both Hawker Beechcraft Corporation (July 2007-August 2009) and Covalence Specialty Materials Corporation (April 2006-May 2007). From November 2001 through April 2006, she was Assistant General Counsel, Treasury and Finance, and Assistant Secretary of Honeywell International Inc. From 1993 to November 2001, Ms. Lehman held various position of increasing responsibility in the Law Department of Honeywell.

 

THIERRY MERLOT became our President, Aerospace, Europe, Middle East, Africa and Asia Pacific and Industrial in May 2020, having previously served as our President, Aerospace, Europe, Middle East, Africa and Asia Pacific since May 2016. From 2010 to May 2016, he was Vice President and General Manager—Aerospace, Europe, Middle East, Africa and Asia Pacific. Mr. Merlot joined Ciba-Geigy in 1988, and became an employee of Hexcel upon the merger between Hexcel and Ciba-Geigy’s Composites business in 1996. Over the years, he has held several sales and marketing positions in Europe and Asia Pacific for the company. Mr. Merlot began his career in 1983 with Dassault Aviation as an R&D process engineer and Quality Manager for composite materials.

 

18 HEXCEL CORPORATION  |  2021 Proxy Statement
 

EXECUTIVE OFFICERS

 

COLLEEN PRITCHETT became our President, Aerospace, Americas and Fibers in May 2020, having previously served as our President, Aerospace, Americas since November 2018. Prior to joining Hexcel, Ms. Pritchett served in a number of capacities for E.I. du Pont de Nemours and Company from June 1996 until November 2018, including most recently as Global Business Director and President of the Electronics & Imaging Advanced Printing business from January 2016 until November 2018; Global Business Director and President of the Electronics & Communications Microcircuit Materials business in Taiwan from May 2015 until December 2015; and Asia Pacific Director of the Performance Polymers business in Shanghai, China from July 2013 until May 2015. Prior to that, Ms. Pritchett held various positions of increasing responsibility at du Pont, such as Global Business Director of the Performance Polymers Kalrez® and Vespel® business; Strategic Planning Manager for the DuPont Company; Strategic Planning Manager for the Performance Coatings business; Americas Business Manager; North America Sales and Distribution Manager; and National Accounts Team Sales Manager, as well as roles in Engineering, Finance and Sales.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 19
 
 
 

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

   

 

Stock Beneficially Owned by Principal Stockholders

The following table sets forth certain information as of December 31, 2020 with respect to the ownership by any person known to us to be the beneficial owner of more than five percent of the issued and outstanding shares of Hexcel common stock (the number of shares held by each listed stockholder may have changed subsequent to December 31, 2020):

 

  Number of  
  Shares of Percent of
Name and Address Common Stock Common Stock(1)
BlackRock, Inc.(2)
55 East 52nd Street
New York, NY 10055
7,628,922 9.11%
Eaton Vance Management(3)
2 International Place
Boston, MA 02110
7,618,071 9.10%
The Vanguard Group, Inc.(4)
100 Vanguard Boulevard
Malvern, PA 19355
7,285,825 8.70%
   
(1) Based on 83,725,385 shares of common stock outstanding as of March 15, 2021.
(2) BlackRock, Inc. is the parent of several subsidiaries that hold the shares listed in the table, of which BlackRock Fund Advisors beneficially owns more than 5% of the company’s common stock. Of the shares listed, BlackRock has sole voting power with respect to 7,281,733 shares and sole dispositive power with respect to 7,628,922 shares. BlackRock’s business address is 55 East 52nd Street, New York, NY 10055. The number of shares listed in the table and the information in this footnote are derived from an Amendment to Schedule 13G filed by BlackRock with the SEC on January 29, 2021.
(3) Eaton Vance Management has sole voting power with respect to 7,618,071 shares and has sole dispositive power with respect to 7,618,071 shares. Eaton Vance Management’s business address is 2 International Place, Boston, MA 02110. The number of shares listed in the table and the information in this footnote are derived from an Amendment to Schedule 13G filed by Eaton Vance Management with the SEC on February 12, 2021.
(4) The Vanguard Group, Inc. is the parent of several subsidiaries that hold the shares listed in the table, none of which individually holds more than 5% of the company’s common stock. The Vanguard Group, Inc. has shared voting power with respect to 54,077 shares, sole dispositive power with respect to 7,168,360 shares and shared dispositive power with respect to 117,465 shares. The Vanguard Group’s business address is 100 Vanguard Boulevard, Malvern, PA 19355. The number of shares listed in the table and the information in this footnote are derived from an Amendment to Schedule 13G filed by The Vanguard Group with the SEC on February 10, 2021.

 

20 HEXCEL CORPORATION  |  2021 Proxy Statement
 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Stock Beneficially Owned by Directors and Officers

The following table contains information regarding the beneficial ownership of shares of Hexcel common stock as of March 15, 2021 by our current directors and the executive officers listed in the Summary Compensation Table and by all current directors and executive officers as a group. Except as otherwise indicated in the footnotes to the table, we have been informed that each person listed had sole voting power and sole investment power over the shares of common stock shown opposite his or her name.

 

  Number of Shares   Percent of
Name of Common Stock(1)(2)   Common Stock(3)(4)
Nick L. Stanage 705,896     *  
Jeffrey C. Campbell 52,223     *  
Cynthia M. Egnotovich 15,852     *  
Thomas A. Gendron(5) 51,454     *  
Dr. Jeffrey A. Graves 45,572     *  
Guy C. Hachey 16,022     *  
Dr. Marilyn L. Minus 1,015     *  
Catherine A. Suever 7,907     *  
Patrick J. Winterlich 48,521     *  
Robert G. Hennemuth 125,527     *  
Gail E. Lehman 25,024     *  
Colleen Pritchett 7,825     *  
Brett Schneider(6) 9,797     *  
All current executive officers and directors as a group (13 persons) 1,175,910     1.39 %
   
(1) Beneficial ownership is determined in accordance with SEC regulations. Therefore, the table lists all shares as to which the person listed has or shares the power to vote or to direct disposition, including (a) shares underlying vested RSUs, (b) shares underlying RSUs that will vest within 60 days following March 15, 2021, (c) shares underlying Retainer RSUs granted to Dr. Graves, Mr. Campbell and Ms. Suever as a result of such person’s election to receive his or her annual cash retainer in RSUs, and (d) NQOs exercisable as of March 15, 2021 or within 60 days thereafter. Shares underlying these RSUs and NQOs are considered outstanding and beneficially owned for the purpose of computing the holder’s percentage of beneficial ownership, but not considered outstanding for the purpose of computing the percentage of beneficial ownership of any other person. The aggregate number of shares underlying such RSUs and NQOs were as follows: Mr. Stanage 422,611; Mr. Campbell 44,420; Ms. Egnotovich 15,852; Mr. Gendron 29,454; Dr. Graves 42,572; Mr. Hachey 16,022; Dr. Minus 1,015; Ms. Suever 4,566; Mr. Winterlich 35,309; Mr. Hennemuth 69,503; Ms. Lehman 19,409; Ms. Pritchett 5,649; Mr. Schneider 3,147; and all current executive officers and directors as a group 746,996.
(2) None of our directors or current executive officers has pledged any of our common stock.
(3) Based on 83,725,385 shares of common stock outstanding as of March 15, 2021.
(4) An asterisk represents beneficial ownership of less than 1%.
(5) Amount includes (a) 220 shares held by TEAGII LLP, a limited partnership, as Mr. Gendron has shared investment and voting control over such shares with his wife, (b) 10,890 shares held by The 2020 Gendron Legacy Trust, a family trust of which Mr. Gendron’s wife is the trustee and Mr. Gendron’s wife and children are among the beneficiaries, and (c) 10,890 shares held by The Gendron Descendants Trust, a family trust of which Mr. Gendron is the trustee and the children of Mr. Gendron are among the beneficiaries. The information in this footnote was derived from a Form 5 filed by Mr. Gendron with the SEC on January 29, 2021.
(6) Mr. Schneider, a former executive officer who is listed in the Summary Compensation Table, previously served as President, Industrial and Global Fibers, until May 1, 2020. The number of shares is based on information disclosed in a Form 4/A filed by Mr. Schneider on February 12, 2020, as well as the number of exercisable NQOs held by Mr. Schneider as of March 15, 2021, according to the company’s records. Mr. Schneider is no longer required to report his holdings in the company’s securities pursuant to Section 16 of the Securities Act of 1933, as amended.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 21
 
 
 

COMPENSATION DISCUSSION
AND ANALYSIS

   

 

In this Compensation Discussion and Analysis (“CD&A”), we address the compensation paid or awarded to the following executive officers of the company, who are listed in the Summary Compensation Table that follows this discussion, and whom we refer to as our “named executive officers” or “NEOs.”

 

Nick L. Stanage, our Chairman, Chief Executive Officer and President

 

Patrick J. Winterlich, our Executive Vice President and Chief Financial Officer

 

Robert G. Hennemuth, our Executive Vice President, Human Resources and Communications

 

Gail E. Lehman, our Executive Vice President, General Counsel and Secretary

 

Colleen Pritchett, our President – Aerospace, Americas and Fibers

 

Brett Schneider, our former President – Industrial and Global Fibers, who served in such role until May 1, 2020

 

Executive Summary

 

COVID-19 Pandemic – Impact on Business

Our operating performance in 2020 was severely impacted by the effects of the COVID-19 pandemic, which included significant production cuts across major aircraft programs during the year that had a material adverse impact on the demand for our products from our largest customers:

 

Sales were $1.502 billion in 2020, a decrease of 36.3% in constant currency compared to 2019.

 

Diluted net income per common share was $0.38 in 2020, compared to $3.57 in 2019.

 

Adjusted diluted earnings per share was $0.25 in 2020, as compared to $3.54 in 2019. Adjusted diluted earnings per share is a non-GAAP financial measure. See Annex A to this proxy statement for a reconciliation of adjusted diluted earnings per share to GAAP diluted earnings per share.

 

Net cash provided by operating activities was $264.3 million in 2020, compared to $491.1 million in 2019. Free cash flow, a non-GAAP financial measure, was $213.7 million in 2020, compared to $287.0 million in 2019. Free cash flow equals our net cash provided by operating activities minus capital expenditures, which were $50.6 million in 2020 and $204.1 million in 2019.

 

Hexcel’s Pandemic Response

In response to the impacts of the COVID-19 pandemic, we terminated the previously announced Merger with Woodward in April 2020 and took immediate action to align our business with our markets and customers with three key objectives:

 

Keep our employees and their families healthy and safe;

 

Continue to support our customers and deliver on our commitments; and

 

Reduce costs and restructure the business to align with lower demand in the short term while positioning for growth and leverage in the long term.

 

22 HEXCEL CORPORATION  |  2021 Proxy Statement
 

COMPENSATION DISCUSSION AND ANALYSIS

 

In pursuit of our corporate purpose, we focused on achieving excellence in three areas in 2020: Customers, People and Operations. To this end, our key accomplishments include:

 

Customer Excellence

 

ü    Kept necessary plants operational and scaled to meet quickly changing demands; orchestrated plant operations to meet customer commitments in a rapidly changing environment

 

ü    Stayed constantly connected with customers to help them prioritize and find solutions

 

ü    Strengthened relations with customers through virtual webinars/tech days – sustaining focus on new growth pursuits

 

ü    Positioned ourselves to scale quickly once demand recovers

 

People Excellence Operational Excellence
   

ü    Maintained relentless focus on keeping our employees safe during the pandemic with record safety performance in 2020

 

ü    Focused on long-term retention of key talent below the senior management level, including through the use of one-time equity grants

 

ü    Employed additional virtual tools for constant and transparent communication with our employees, including an enhanced mass notification system

 

ü    Demonstrated flexibility and agility pivoting from the terminated Merger with Woodward to pandemic response, keeping focus on continuous on-time delivery improvement of safety, quality, and

 

ü    Rapidly leveraged technology to support remote working

 

ü    Reorganized senior management structure, streamlining decision-making and simplifying our leadership organization to drive accountability and meet business objectives

 

 

Recognizing that maintaining ample liquidity is key to withstanding the pandemic and emerging in a position of strength, we also took a number of actions to align our costs with lower sales and optimize our cash position:

 

Rightsized the business with an approximately 35% reduction in workforce and significantly reduced other labor costs throughout the year

 

Suspended dividend payments and stock repurchases

 

Curtailed discretionary spending and eliminated non-essential capital expenditures

 

Revisited our geographical footprint and closed our facility in Windsor, Colorado

 

Reduced inventory and partnered with vendors to secure pricing reductions

 

Negotiated amendments to our revolving credit facility agreement to provide covenant relief

 

Through disciplined cash management, Hexcel delivered approximately $214.0 million of free cash flow for 2020, ensuring that our liquidity position remains robust.

 

We believe the actions being taken, coupled with our industry-leading technology and strong customer relationships, will ensure that the company emerges from the pandemic with a more efficient cost base and well-positioned for growth to support the future of aerodynamics and sustainability in aerospace and industrial markets.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 23
 

COMPENSATION DISCUSSION AND ANALYSIS

 

COVID-19 Pandemic – Impact on Executive Compensation

Consistent with company-wide cost cutting actions to address the impact of the COVID-19 pandemic on our business and financial results, our compensation committee and board of directors took swift action to align 2020 executive compensation with the economic environment, including:

 

Reducing the base salary of our CEO and the cash retainers of our non-employee directors by 50% for a 6-month period;

 

Reducing the salaries of our other named executive officers by 30% for a 3-month period;

 

Suspending company matching contributions to our retirement savings plans; and

 

Restructuring management to eliminate three out of eleven senior management roles, including Mr. Schneider’s, effective May 1, 2020

 

Our Compensation Philosophy and Principles

Our traditional compensation philosophy is based upon pay for performance to create sustainable value for our stockholders. To further our compensation philosophy, our compensation committee has articulated several compensation principles relating to, among other things, structuring performance-based compensation, discouraging excessive risk taking and preventing and remedying executive misconduct. Our compensation committee adopted additional guiding principles in light of the impacts of the COVID-19 pandemic. See “Executive Compensation Overview – Our Compensation Philosophy and Principles,” below.

 

Consistent with our compensation philosophy and principles, even though 2020 incentive targets were largely unattainable due to the impact of the pandemic on our results, the compensation committee did not adjust 2020 targets, resulting in a 19.3% payout under our 2020 cash incentive plan for senior management and a 0% payout on the PSAs with a performance period ending December 31, 2020.

 

Structure of Our Compensation

Our pay for performance philosophy is demonstrated by the way we have structured the elements of our compensation, which provide a significant level of variability depending on our performance. These elements consist of salary, annual cash incentive awards under our Management Incentive Compensation Plan (“MICP”) and long-term equity awards in the form of NQOs, PSAs and, for all executive officers other than Mr. Stanage, RSUs.

 

24 HEXCEL CORPORATION  |  2021 Proxy Statement
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Compensation—Key Elements

 

Short-Term Cash Incentives Long-Term Equity Incentive Award

Base Cash Salary

Base salaries are reviewed annually and are increased based on performance, peer benchmarking or at the time of a change in position or assumption of new responsibilities.

 

 

 

Annual Cash Incentive Award

Stockholder-approved program with payouts based on accomplishing specific financial performance measures. For 2020:

 

(1)   Adjusted EBIT

 

(2)   Adjusted Diluted Earnings Per Share (EPS)

 

(3)   Cash from Operating Activities

 

Annual incentive targets for our NEOs range from 50% to 105% of base salary at target level performance.

 

Actual payouts may range from zero to two times target based on performance compared to our three performance measures.

 

PSAs

Performance-based vesting at the end of a three-year period; based on two performance measures in 2020:

 

(1)   Return On Invested Capital (ROIC) performance against an absolute internal goal as determined by the compensation committee.

 

(2)   Relative EPS Growth relative to the performance of the Standard & Poor’s (S&P) MidCap 400 Index companies.

 

 

 

Stock Options

Time-based vesting; 12, 24 and 36 months from the grant date in three equal installments.

 

 

 

RSUs

Time-based vesting; 12, 24 and 36 months from the grant date in three equal installments.

 

 

As demonstrated by the following chart, a significant amount of target compensation for our named executive officers constitutes variable compensation tied to our financial performance. This is particularly the case for Mr. Stanage, as he does not receive RSUs, but rather a greater percentage of PSAs.

 

 

HEXCEL CORPORATION  |  2021 Proxy Statement 25
 

COMPENSATION DISCUSSION AND ANALYSIS

 

In addition to health and welfare and retirement plans made available to our U.S.-based employees, we provide our named executive officers with some or all of the following benefits: a non-qualified deferred compensation plan, supplemental retirement benefits and severance arrangements with respect to specified termination of employment events. See “Ongoing and Post-Employment Arrangements,” below for additional information. We do not provide personal benefits to our named executive officers (including Mr. Stanage) hired or appointed during the past several years, and only limited legacy personal benefits to Mr. Hennemuth, as described below under “2020 Compensation – Personal Benefits.”

 

2020 Compensation

 

Salaries

For our named executive officers, except for Mr. Stanage, Mr. Winterlich and Mr. Schneider, salaries were increased in the range of 3.0% to 4.0%.

 

Mr. Stanage received no salary increase in 2020.

 

Mr. Winterlich received a salary increase of 10.0% to continue to reflect his September 2017 promotion to his current role and to bring his compensation in line with market median over time.

 

Mr. Schneider received a salary increase at the start of 2020 of 5.0% for his role as President, Global Fibers based on the relative position of his compensation compared to the survey data considered by the compensation committee (as described below). Effective March 16, 2020, prior to the onset of the impact of the COVID-19 pandemic on the company, Mr. Schneider was appointed President, Industrial and Global Fibers. His salary was increased by 14.0% in light of his additional responsibilities, bringing him slightly below market median for such position based on survey data. Due to the impact of the COVID-19 pandemic on the company’s outlook, Mr. Schneider’s role was eliminated in connection with a management restructuring, effective May 1, 2020.

 

In April 2020, as part of workforce cost reduction efforts to mitigate the impact on the company of the COVID-19 pandemic, the 2020 base salaries of our NEOs were temporarily decreased.

 

MICP – Achievement with regard to the three equally-weighted financial measures under our MICP:

Adjusted EBIT — $452.2 million target; $73.3 million actual performance; 0% award

 

Adjusted Diluted Earnings Per Share — $3.74 target; $0.25 actual performance; 0% award

 

Cash from Operating Activities — $574.7 million target; $478.1 million actual performance; 19.3% award

 

Based on the aggregate results with respect to these financial measures, the total award payable to each named executive officer was equal to 19.3% of the executive’s target award opportunity (the target award opportunity for the named executive officers ranged from 50% to 105% of the named executive officers’ salaries). For Mr. Stanage, target award opportunity was increased from 100% in 2019 to 105% of base salary in 2020 in recognition of his strong performance and relative position compared to the survey data considered by the compensation committee (as described below).

 

For further information, including how we calculated the financial measures, see “2020 Compensation – Management Incentive Compensation Plan,” below.

 

Equity Awards – In 2020, we provided three types of equity awards for each named executive officer other than Mr. Stanage, having an aggregate value equal to the named executive officer’s target award opportunity (which ranged from 75% to 170% of such named executive officers’ salaries, with percentage point increases from 2019 of 5% for Ms. Lehman, Ms. Pritchett and Mr. Schneider and 15% for Mr. Winterlich), as follows:

 

NQOs — 37.5% of the target award opportunity

 

RSUs — 25% of the target award opportunity

 

PSAs — 37.5% of the target award opportunity

 

26 HEXCEL CORPORATION  |  2021 Proxy Statement
 

COMPENSATION DISCUSSION AND ANALYSIS

 

To further increase the pay for performance focus of Mr. Stanage’s compensation, we provided equity awards having the following percentages of his target award opportunity (which was 435% of his salary in 2020, increased from 394% of his salary in 2019):

 

NQOs — 37.5%

 

PSAs — 62.5%

 

The number of shares that ultimately will be provided under the PSAs will be based upon our performance with respect to the following two financial measures:

 

ROIC (return on invested capital) (67% weighting) from January 1, 2020 through December 31, 2022

 

Relative EPS Growth (33% weighting) from October 1, 2019 through September 30, 2022

 

Relative EPS Growth is computed based on our performance relative to the companies in the S&P MidCap 400 Index.

 

To address retention concerns prior to the onset of the impact of the COVID-19 pandemic on the company, in February 2020, we granted each of Ms. Pritchett and Mr. Schneider a one-time RSU award, which was not part of our regular compensation program.

 

See “2020 Compensation — Equity Awards” for additional information.

 

Performance Shares for 2018-2020 Period – No Payout

The NEOs received equity awards in January 2018 (other than Ms. Pritchett, who joined the company in November 2018), including PSAs providing for awards of our common stock based on our performance during the 2018-2020 period with regard to the following financial measures:

 

ROIC (67% weighting)

 

Relative EPS Growth (33% weighting)

 

Achievement with regard to these financial measures for the 2018-2020 performance period was as follows:

 

ROIC — 14.5% target; 10.2% actual performance; 0% award

 

Relative EPS Growth — 55% target performance percentile; 13% actual performance percentile; 0% award

 

Based on our performance with regard to these financial measures during the 2018-2020 period, the named executive officers received no shares of common stock under such PSA awards.

 

See “2020 Compensation — PSAs Granted in 2018 – No Payout” for further information.

 

Stockholder Advisory Vote on Executive Compensation

At our 2020 Annual Meeting of Stockholders, our stockholders approved, on an advisory basis, the compensation of our named executive officers. The stockholder vote in favor of our named executive officer compensation totaled approximately 92% of the votes cast, including abstentions. After consideration of the results of the advisory vote, we determined that no revisions to our executive compensation program were necessary in response to the vote.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 27
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Our Compensation Best Practices

We follow a number of compensation practices consistent with our stockholders’ interests and best practices:

 

What We Do   What We Don’t Do

ü    Structure pay so that a considerable portion is variable and performance-based

 

ü    Maintain stock ownership guidelines for all executive officers and directors

 

ü    Maintain a clawback policy that applies to executive officer incentive-based compensation

 

ü    Maintain an independent compensation committee and independent compensation consultant

 

ü    Limit maximum incentive payouts

 

ü    Require compensation committee oversight of annual compensation review and risk assessment

 

 

X     No excise tax gross-up under severance agreements (subsequent to 2013) or under our Executive Severance Policy

 

X     No pledging, hedging or short selling by our directors or by any Hexcel employee, including executive officers

 

X     No repricing of any stock options, including underwater stock options, without stockholder approval

 

 

Executive Compensation Overview

 

Our Compensation Philosophy and Principles

 

Our philosophy is to deliver pay for performance. We seek to provide a level of performance that creates sustainable value for our stockholders by generating short-term results while also making investments designed to increase profitability over the long-term.

 

Our compensation principles, as articulated by the compensation committee, are to:

 

Attract, retain and motivate a high caliber of executive talent

 

Ensure that a significant portion of total target compensation is variable compensation based on the company’s performance

 

Encourage long-term focus while recognizing the importance of short-term performance

 

Determine compensation based on forward looking considerations and not solely on the basis of past compensation or results

 

Align executives’ and stockholders’ interests by requiring executive officers to meet ownership guidelines and prohibiting them from pledging our stock or engaging in short sales or any hedging or monetization transactions involving our stock

 

Establish goals for performance-based compensation that are challenging yet attainable

 

Discourage excessive risk taking by structuring pay to consist of both fixed and variable elements, using a mix of short- and long-term company performance-based metrics and setting maximum total payouts

 

Prevent and remedy executive misconduct, and impose appropriate discipline on individuals who engage in misconduct

 

We believe that the structure of our compensation program, which is explained in detail below, is consistent with these principles.

 

In November 2020, our compensation committee adopted certain additional guiding principles in light of the impact of the COVID-19 pandemic on the company’s results of operations, which include, as it relates to NEO compensation, the following:

 

Make compensation decisions that are equitable and shared by all employees based on one of the company’s values, “One Hexcel”

 

Encourage retention and motivation of our talent, which is even more critical as we work through our recovery and on returning to growth; incentivize key talent to focus on overcoming challenges with fewer resources to deliver results

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Consider an enhanced long-term incentive plan award to provide equity incentives to restore stock price/retention

 

Reevaluate the use of relative and absolute metrics in future grants to ensure that targets are challenging yet attainable

 

Continue to align executive compensation with the interests of our stockholders by ensuring stockholder value through stock price appreciation and stockholder returns

 

Consider key strategic measures (financial and non-financial) in incentive design

 

Role of Compensation Committee, Compensation Consultant, Human Resources Department and Chief Executive Officer

Role of the Compensation Committee – The compensation committee is responsible for oversight of our compensation and benefit plans and programs. The compensation committee approves the compensation of our executive officers other than Mr. Stanage, and determines Mr. Stanage’s compensation, including goals and target award opportunities, subject to ratification by our independent directors.

 

In addition, the compensation committee annually reviews our compensation policies, practices and programs to determine whether they could result in financial, operational, legal or reputational risk to the company. As a result of its most recent review, the compensation committee concluded that risks arising from our compensation policies, practices and programs are not reasonably likely to have a material adverse effect on the company. In reaching its conclusion, the compensation committee considered, among other factors, that we use a number of approaches to mitigate excessive risk taking in designing our compensation programs, including maximum award levels, the use of multiple financial measures with respect to the MICP and PSAs, multi-year vesting of equity awards, stock ownership guidelines, and our clawback policy.

 

Role of Compensation Consultant – The compensation committee directly engaged Semler Brossy Consulting Group LLC (“Semler Brossy”) to provide advice with respect to its compensation decisions. From time to time, including in 2020, the compensation committee seeks the views of Semler Brossy on items such as incentive program design and market practices. In response, Semler Brossy provides data analyses and market assessments, and prepares related reports. The compensation committee assessed the independence of Semler Brossy in accordance with NYSE listing standards and concluded that no conflicts of interest were raised in connection with Semler Brossy’s service as an independent consultant to the compensation committee. In reaching its conclusion, the compensation committee noted that Semler Brossy does not provide any other services to us.

 

Role of our Human Resources Department – Our Human Resources Department provides statistical and other data to the compensation committee to assist it in reviewing compensation we provide to our executives.

 

Role of our Chief Executive Officer – Mr. Stanage provides recommendations to the compensation committee as to the components of our executive officers’ compensation based on his evaluation of their performance. However, he does not make recommendations regarding his own compensation and is not present during compensation committee discussions regarding determination of his compensation. While the compensation committee considers Mr. Stanage’s compensation recommendations for our other executive officers, the ultimate determinations regarding executive compensation are made by the compensation committee, subject, in the case of Mr. Stanage, to ratification by our independent directors.

 

Competitive Assessment of Our Compensation

In making its compensation determinations for 2020, the compensation committee took into account several forms of comparative data to gain insight into compensation paid by other companies to executives serving in similar capacities to our named executive officers.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 29
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Peer Group

The principal source of comparative data with respect to our named executive officers, to the extent available, was proxy statement data for fourteen peer group companies, which was supplemented with survey data as described below. Our primary objective in constructing our peer group was to identify a group of similarly sized peers that represent a blend of companies producing products similar to ours or companies that are suppliers to the aerospace industry, with a preference for companies that fit within both categories. To meet this objective as best as reasonably possible, we used the following criteria:

 

Industry Fit — We consider publicly traded United States companies that are:

 

in the same Global Industry Classification Standards (“GICS”) sub-industry as Hexcel (Aerospace and Defense); or

 

in the GICS sub-industries that produce products that are similar to ours.

 

Size — We consider companies that:

 

have revenues in the range of 1/3 to three times our revenues; and

 

have a market capitalization in the range of 1/3 to three times our market capitalization.

 

Other qualitative and quantitative factors that enable us to identify companies with similar talent, business and operational characteristics.

 

Not every company in our peer group meets all of the peer group screening criteria. For example, five of the peer group companies we referenced with regard to 2020 compensation were below the market capitalization range criterion (though they met the revenue size screening criteria). Nevertheless, we concluded that because those companies satisfied the other criteria used in our selection process and possess meaningful business similarities, their continued inclusion in the peer group was appropriate.

 

The peer group companies used in connection with the compensation committee’s assessment of competitive compensation in December 2019, which were reassessed but unchanged from the prior year, were the following:

 

AAR Corp. Esterline Technologies Corporation
Albemarle Corporation H.B. Fuller Company
AMETEK, Inc. ITT Inc.
Barnes Group Inc. Moog Inc.
Cabot Corporation Teledyne Technologies Incorporated
Crane Co. Triumph Group, Inc.
Curtiss-Wright Corporation Woodward, Inc.

 

Other Data

The committee also reviewed compensation data from the Equilar Total Compensation Report, an executive compensation survey, which aggregates information from over 5,000 companies in various industries. The Equilar data was used to compare each of our named executive officers with those in the same or similar position in companies with revenues similar to Hexcel. In addition, the compensation committee referenced the Willis Towers Watson 2019 General Industrial Executive Survey, a large compensation survey of hundreds of companies in various industries, as well as a subset consisting of Aerospace & Defense companies within that survey. Due to the breadth of companies in the survey, we size adjust the data based on our revenue for purposes of comparison. The identity of the individual companies comprising the foregoing surveys was not considered by the compensation committee in its evaluation process and, therefore, the compensation committee does not consider the identity of the companies comprising the survey data to be material.

 

Use of Comparative Data

While we view competitive market information as a helpful reference, this information is not the sole determinant of our executive compensation. In establishing appropriate compensation opportunities for the named executive officers, the committee considers a variety of factors, such as, but not limited to, depth of experience, tenure in position, past performance, internal equity, retention risks and market data. For 2020, target compensation for each named executive officer was positioned within a competitive range of the market median.

 

30 HEXCEL CORPORATION  |  2021 Proxy Statement
 

COMPENSATION DISCUSSION AND ANALYSIS

 

2020 Compensation

 

Salaries

Salary increases for named executive officers, other than Messrs. Stanage, Winterlich and Schneider, ranged from approximately 3.0% to 4.0%. Mr. Hennemuth, Ms. Lehman and Ms. Pritchett received base salary increases of 3.0%, 3.5% and 4.0%, respectively. Mr. Stanage received no base salary increase for 2020. Messrs. Winterlich and Schneider received base salary increases of approximately 10.0% and 5.0%, respectively. In approving the salary increases for the named executive officers other than Mr. Stanage, the compensation committee considered Mr. Stanage’s recommendations, which were based on performance evaluations he provided to the compensation committee, as well as data indicating how the salaries of the named executive officers compared to salaries indicated by the peer group and survey data. Mr. Winterlich received a salary increase of 10.0% to adjust his compensation to reflect his September 2017 promotion to his current role and to bring his compensation in line with market median over time. Mr. Schneider received a salary increase at the start of 2020 of 5.0% for his role as President, Global Fibers based on relative position compared to the survey data considered by the compensation committee. Effective March 16, 2020, prior to the onset of the impact of the COVID-19 pandemic on the company, Mr. Schneider was appointed President, Industrial and Global Fibers. In connection with this appointment, his base salary was increased by 14.0% as of such date in light of his added responsibility for the company’s Industrial business, bringing him slightly below market median for similar positions based on survey data.

 

To help mitigate the unexpected financial impact of the COVID-19 pandemic on the company in 2020, upon the recommendation of the compensation committee, the board of directors approved a 50% reduction in base salary for Mr. Stanage and a 30% reduction in base salary for the remaining NEOs, commencing on April 20, 2020, for an initial period of three months. The board also determined that any other compensation, such as MICP and equity incentive compensation, or severance payments using base salary as a reference would be calculated based on each executive officer’s base salary as in effect immediately prior to the foregoing reductions. Salaries for our named executive officers, except for Mr. Stanage, were restored to pre-reduction levels in July 2020. Mr. Stanage’s base salary reduction was subsequently extended for an additional 3-month period and restored to its pre-reduction level in October 2020.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 31
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Management Incentive Compensation Plan

The MICP is designed to provide an incentive for eligible participants to help us advance our annual business objectives. Participants, including the named executive officers, are given the opportunity to obtain cash payouts based on our achievement with respect to specified financial measures.

 

Target Award Opportunity

We provide target award opportunities for our named executive officers based on a percentage of their salary. For those named executive officers on our executive committee (Messrs. Stanage, Hennemuth and Winterlich, and Ms. Lehman), the actual amount received was based entirely upon our performance with regard to the financial measures. For Ms. Pritchett and Mr. Schneider, 70% of the target award was based on our performance with regard to the financial measures and 30% was based on achievement of individual goals and objectives. Because of the strong interdependency among our leadership team members for performance of their individual objectives, variations from target award payouts with respect to individual objectives are limited to specific superior or subpar individual performance. However, our overall award pool for MICP awards is based solely on our achievement with respect to the financial metrics. While individual performance can increase or decrease an award, the overall award pool does not increase or decrease as a result. The following table shows the target award opportunities for each of our named executive officers with respect to our 2020 MICP:

 

Name Salary   Percentage of
Salary(1)
  Target Award
Opportunity
Nick L. Stanage $1,016,236     105%     $1,067,048  
Patrick J. Winterlich $546,975     70%     $382,883  
Robert G. Hennemuth $452,829     60%     $271,697  
Gail E. Lehman $455,137     60%     $273,082  
Colleen Pritchett $390,000     50%     $195,000  
Brett Schneider $370,000     50%     $185,000  
(1) For Mr. Stanage, target award opportunity was increased from 100% of his base salary in 2019. Mr. Stanage received an increase to his target award opportunity in recognition of his strong performance and relative position compared to the survey data considered by the compensation committee.

 

Financial Measures Used in the MICP

In 2020, we used three financial measures in connection with the MICP: Adjusted EBIT (earnings before interest and taxes), Adjusted Diluted Earnings Per Share (“Adjusted Diluted EPS”) and Cash from Operating Activities. We used the same measures in our MICP for 2019 and, as was the case in 2019, we weighted the measures equally. We believe the financial measures and weighting of those measures have effectively incentivized strong financial performance.

 

How Did We Calculate the Financial Measures?

 

Adjusted EBIT

Adjusted EBIT is operating income from continuing operations of the company and its subsidiaries plus expenses attributable to merger and acquisition (“M&A”) activities (including expenses with respect to M&A activities that are abandoned), plus business consolidation and restructuring expense, plus severance costs and plus (minus) other expense (income), net, as reported in our consolidated statement of operations.

 

Adjusted Diluted EPS

Adjusted Diluted EPS is Adjusted EBIT, as defined above, minus interest expense (except as noted below), minus the provision for income taxes, plus (minus) equity in earnings (losses) from our interests in affiliated companies and partnerships, the sum of which is divided by the weighted average number of diluted common shares reported in the prior fourth quarter earnings release. We make further adjustments to the income tax provision to exclude any one-time tax adjustments that relate to prior years or changes in the tax law, the tax effects of the adjustments we made in calculating Adjusted EBIT, as defined above (and identified in our earnings releases), and the after-tax effect of interest expense related to borrowings we made to repurchase our shares during the year.

 

Cash from Operating Activities

Cash from Operating Activities is net cash provided from operating activities of continuing operations for the period from October 1, 2019 through December 31, 2020.

 

32 HEXCEL CORPORATION  |  2021 Proxy Statement
 

COMPENSATION DISCUSSION AND ANALYSIS

 

We use a 15-month measurement period because we believe it enhances period-to-period comparability for this particular financial measure. By beginning the period in the fourth quarter of the prior year, we avoid the impact of year-end adjustments, such as adjustments to payables and receivables, which might otherwise result in variability that does not reflect management’s performance.

 

Why Do We Use These Financial Measures?

We believe Adjusted EBIT provides an appropriate focus on our operating income while excluding factors (interest and taxes) that generally do not reflect the day-to-day management of our operations. In addition, Adjusted EBIT provides a good indication of the extent to which sales increases in a challenging sales and pricing environment affect our operating income. We make additional adjustments to this measure to exclude items that do not relate to the performance of our executive officers, such as acquisition- and divestiture-related costs, restructuring costs and costs associated with reductions-in-force. These adjustments enable our management to focus on long-term benefits in making certain decisions that may have a short-term impact on cost.

 

We believe Adjusted Diluted EPS provides a good indication of the overall performance of our enterprise. We also believe that Adjusted Diluted EPS is a key financial measure used by investors, and by including it within the MICP, we better align our performance with investor expectations. We eliminate the after-tax effect of interest expense related to borrowings we made to repurchase our shares because we base our calculation of Adjusted Diluted EPS on the weighted average number of diluted common shares reported in the prior fourth quarter earnings release. Because our subsequent repurchases of common stock do not affect the weighted average number of diluted shares we use for purposes of the calculation, we believe that it is not appropriate to reflect the after-tax effect of interest expense incurred with respect to those repurchases.

 

We believe Cash from Operating Activities addresses a key metric for our stockholders and an important performance element of our operations, namely our ability to fund capital expenditures, including expenditures to facilitate our expansion to meet forecasted customer requirements, fund research and technology expenditures and broaden our core product portfolio.

 

MICP Targets and Awards

With regard to each of the MICP financial measures described above, an executive can receive an award only if a specified threshold level of performance is achieved; no award will be provided with respect to the financial measure if performance is below the threshold level. Once the threshold level of performance is achieved, the award can range from a minimum (threshold) of 50% to a maximum of 200% of the target award.

 

For 2020, the target established for each performance measure and the performance, expressed as a dollar amount and as a percentage of target performance, that would entitle a participant to a threshold or maximum award with respect to each measure were as follows:

 

        Performance Required (Dollar Amount and
Percentage of Target Performance) for
  Target     Threshold Award   Maximum Award
Performance Measure Performance     (50% of Target Award)   (200% of Target Award)
Adjusted EBIT $452.2 million     $407.0 million
90%
    $497.4 million
110%
 
Adjusted Diluted EPS $3.74     $3.37
90%
    $4.11
110%
 
Cash from Operating Activities(1) $574.7 million     $459.8 million
80%
    $698.6 million
120%
 
   
(1) Covers the performance period from October 1, 2019 through December 31, 2020.

 

The target and actual performance with respect to each financial measure, and the actual MICP award as a percentage of the target award with respect to each measure, is shown on the following table:

 

              Actual Award as a
              Percentage of Target
  Target   Actual   Award Opportunity for
Performance Measure Performance   Performance   the Performance Measure
Adjusted EBIT $452.2 million     $73.3 million     0%     
Adjusted Diluted EPS $3.74     $0.25     0%  
Cash from Operating Activities $574.7 million     $478.1 million     19.3%  

 

HEXCEL CORPORATION  |  2021 Proxy Statement 33
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Each measure is weighted equally. Since threshold was not met for Adjusted EBIT or Adjusted Diluted EPS, the MICP award provided to each named executive officer was equal to 19.3% of the target award based on achievement of Cash from Operating Activities. As a result, aggregate payments to the named executive officers were as follows:

 

    Target Award   Actual
Name   Opportunity   Award(2)
Nick L. Stanage   $ 1,067,048     $ 205,940  
Patrick J. Winterlich   $ 382,883     $ 73,896  
Robert G. Hennemuth   $ 271,697     $ 52,438  
Gail E. Lehman   $ 273,082     $ 52,705  
Colleen Pritchett   $ 195,000     $ 37,635  
Brett Schneider(1)   $ 185,000     $ 11,934  
(1) As MICP awards are calculated based on salary in effect as of the last day worked by the officer in the applicable plan year, Mr. Schneider’s target award opportunity is based on his salary in effect as of April 30, 2020. Mr. Schneider’s award was prorated to reflect his separation date of May 1, 2020.
(2) Given overall company performance and general economic conditions in 2020, neither the performance of Ms. Pritchett nor Mr. Schneider with respect to individual goals and objectives operated to increase or decrease such officer’s award.

 

The actual award payments to our named executive officers are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table, which appears below under “Executive Compensation.”

 

Equity Awards

Our equity awards are designed to promote achievement of longer-term corporate goals, align the interests of our named executive officers with those of our stockholders and serve as an important element in our provision of compensation opportunities that are competitive with other companies seeking comparable executive talent.

 

Equity Incentive Award Opportunity

Similar to the process we use in determining the target award opportunity under the MICP, we base the named executive officers’ equity incentive compensation opportunity on a percentage of their salary, as indicated on the following table:

 

          Percentage of   Equity Incentive
Name   Salary   Salary(1)   Compensation Opportunity
Nick L. Stanage   $ 1,016,236       435 %                    $ 4,420,627              
Patrick J. Winterlich   $ 546,975       170 %   $ 929,858  
Robert G. Hennemuth   $ 452,829       145 %   $ 656,601  
Gail E. Lehman   $ 455,137       150 %   $ 682,706  
Colleen Pritchett   $ 390,000       95 %   $ 370,500  
Brett Schneider(2)   $ 324,750       75 %   $ 243,563  
(1) The equity incentive compensation opportunity for Messrs. Stanage and Winterlich, and Ms. Lehman was increased in 2020 from 394%, 155% and 145% of base salary, respectively, in 2019. The equity incentive compensation opportunity for Ms. Pritchett and Mr. Schneider was increased in 2020 from 90% and 70%, respectively, in 2019. The increases were based on overall performance and relative position of each NEO compared to the survey data considered by the compensation committee.
(2) As equity incentive compensation awards are calculated based on salary in effect as of the grant date, Mr. Schneider’s equity incentive compensation opportunity is based on his salary and percentage equity incentive award opportunity in effect as of February 6, 2020.

 

Equity Awards Provided

Our equity incentive compensation for 2020 consisted of NQOs, RSUs and PSAs. For all named executive officers other than Mr. Stanage, the percentage of the equity incentive compensation opportunity allocated to each type of equity award was:

 

NQOs — 37.5%

 

RSUs — 25%

 

PSAs — 37.5%

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

To further increase the proportion of pay for performance elements within Mr. Stanage’s compensation, we do not provide RSUs to Mr. Stanage. In lieu of RSUs, Mr. Stanage receives PSAs. PSAs constituted 62.5% of his equity incentive compensation opportunity; the remaining 37.5% was allocated to NQOs. As a result, 100% of Mr. Stanage’s long-term incentive compensation is tied to our performance or share price appreciation.

 

Non-Qualified Stock Options

In accordance with the equity award allocations described above, we granted NQOs to each of our named executive officers in 2020 based upon 37.5% of their respective total equity incentive compensation opportunities. Using a Black-Scholes methodology, we valued the stock options, which were granted on February 6, 2020, at $23.58 per share. As a result of this valuation, the named executive officers received NQOs for the respective numbers of underlying shares set forth below:

 

  Number of Shares
Name Underlying NQOs
Nick L. Stanage 70,293     
Patrick J. Winterlich 14,785  
Robert G. Hennemuth 10,440  
Gail E. Lehman 10,855  
Colleen Pritchett 5,891  
Brett Schneider(1) 3,872  
(1) Mr. Schneider’s award was forfeited due to his separation from the company on May 1, 2020.

 

The options have an exercise price per share of $74.74 (the closing price per share of our common stock, as reported by the NYSE, on the date of grant) and vest as to one-third of the underlying shares on each of the first three anniversaries of the date of grant.

 

The Summary Compensation Table reflects the aggregate grant date fair value of each named executive officer’s NQOs in the “Option Awards” column. See notes 2 and 3 to the Summary Compensation Table for further information.

 

Restricted Stock Units

We granted RSUs to each of the named executive officers other than Mr. Stanage. As noted above, RSUs were granted based upon 25% of the participating named executive officers’ total equity incentive compensation opportunity. We valued the RSUs in accordance with FASB ASC Topic 718, based upon the closing price per share of our common stock, as reported by the NYSE on the date of grant, February 6, 2020, which was $74.74 per share.

 

Based upon this valuation, we granted to the named executive officers the respective numbers of RSUs set forth below:

 

  Number of
Name RSUs
Nick L. Stanage  
Patrick J. Winterlich 3,110  
Robert G. Hennemuth 2,196  
Gail E. Lehman 2,283  
Colleen Pritchett 1,239  
Brett Schneider(1) 814  
(1) Mr. Schneider’s award was forfeited due to his separation from the company on May 1, 2020.

 

One-third of the RSUs vest and are converted into an equivalent number of shares of our common stock on each of the first three anniversaries of the date of grant. If and when cash dividends are declared on shares of our common stock, we provide dividend equivalents for each RSU then held by the grantee equal to the cash dividend that we pay to holders of our common stock which vest at the same time as the underlying RSUs to which they relate and are paid in cash.

 

One-Time Retention RSU Awards

In light of their strategic influence within the company and their relationships to certain key customers of the company, effective February 6, 2020, the compensation committee approved a one-time retention award for each of Ms. Pritchett and Mr. Schneider. These awards were granted in an effort to ensure retention based on the strategic outlook of the company at the time and the pending Merger with Woodward, and prior to the onset of the impact of

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

COVID-19 on the company. Each award was granted in the form of 12,500 RSUs, which vests 50% on the third anniversary of the grant date, with the remaining 50% of the RSUs vesting ratably on each of the fourth, fifth and sixth anniversaries of the grant date. The compensation committee designed the supplemental retention grants, which are not part of our regular compensation program, for Ms. Pritchett and Mr. Schneider to address retention concerns. As such, and unlike RSUs granted as part of our annual equity incentive compensation, the award does not provide for continued vesting upon eligible retirement, and provides for continued vesting in the event of an involuntary termination other than for cause, and accelerated vesting only upon a qualifying termination of employment within two years following a change in control. Subsequent to such grants, and as a result of the unforeseen impact of the COVID-19 pandemic on our outlook and results of operations, the Merger with Woodward was terminated, effective April 5, 2020, and the board restructured our management team to align our operations with the decrease in customer demand. In connection with this restructuring, Mr. Schneider’s position was eliminated under circumstances that the board determined constituted an involuntary termination. As a result, Mr. Schneider’s retention RSUs continue to vest in accordance with their terms.

 

The Summary Compensation Table reflects the aggregate grant date fair value of each named executive officer’s RSUs, determined in accordance with FASB ASC Topic 718, in the “Stock Awards” column. See notes 1 and 2 to the Summary Compensation Table for further information.

 

Performance Share Awards

PSAs are designed to focus our executives’ efforts on specific long-term goals. Unlike our other equity awards, the actual number of shares, if any, ultimately awarded to a named executive officer is dependent upon our performance with respect to specified financial performance measures. If and when cash dividends are declared on shares of our common stock, we provide dividend equivalents for PSAs then held by the grantee equal to the cash dividend that we pay to holders of our common stock which vest at the same time as the underlying PSAs to which they relate and are paid in cash.

 

As noted above, we allocated 37.5% of the equity incentive opportunity for each named executive officer other than Mr. Stanage to PSAs; we allocated 62.5% of Mr. Stanage’s equity incentive award opportunity to PSAs.

 

We determined the number of PSAs to be awarded assuming target performance and valued the PSAs based upon the closing price per share of our common stock, as reported by the NYSE on the date of grant, February 6, 2020, which was $74.74 per share. The per share price was equivalent to the fair value of the PSAs on the date of grant, determined in accordance with FASB ASC Topic 718.

 

Based upon this valuation, the target amount of shares underlying PSAs received by each of the named executive officers is set forth below:

 

    Number of Shares
Name   Underlying PSAs at Target Performance
Nick L. Stanage     36,966          
Patrick J. Winterlich     4,665  
Robert G. Hennemuth     3,294  
Gail E. Lehman     3,425  
Colleen Pritchett     1,858  
Brett Schneider(1)     1,222  
(1) Mr. Schneider’s award is subject to continued vesting on a pro-rata basis based on his separation date from the company of May 1, 2020.

 

36 HEXCEL CORPORATION  |  2021 Proxy Statement
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Financial Measures Used in Connection with the PSAs

 

We used two long-term financial measures in connection with the PSAs granted in 2020: ROIC (return on invested capital), weighted at 67% of the total target award opportunity under the PSAs, and Relative EPS Growth, weighted at 33% of the total target award opportunity under the PSAs. We used the same financial measures (subject to an adjustment to the comparison period described below with respect to Relative EPS Growth) and weightings in 2020 as we used for PSAs granted in 2019.

 

How Do We Calculate the Financial Measures?

 

ROIC

ROIC is designed to measure the three-year average return on invested capital, calculated in accordance with the following formula:

 

Average (EBIT x (1-tax rate) + equity in earnings of equity method investees in 2020, 2021 and 2022)

Average (debt (current & long-term) + equity - cash and cash equivalents at December 31, 2019, 2020, 2021 and 2022)

 

We adjust EBIT to exclude expenses attributable to M&A activities (including expenses with respect to M&A activities that are abandoned), business consolidation and restructuring expense, severance costs and other expense (income), as reported in our consolidated statement of operations.

 

For purposes of the calculation, we adjust the tax rate to exclude certain items, consistent with the calculation of adjusted net income in our earnings releases.

 

We exclude from the denominator with respect to the relevant year the effect of our investment in third parties during that year and balance sheet effects of adjustments for other one-time events excluded from EBIT.

 

Information with respect to performance targets for the ROIC metric during the pendency of the performance period is not considered material to an understanding of our compensation arrangements and is not addressed in this discussion because it represents confidential business or financial information that we do not otherwise disclose to the public. Disclosing this information could cause significant competitive harm to the company. We believe our performance target for the ROIC measure was set at an appropriate level at the beginning of the performance period to be challenging, but sufficiently realistic to motivate the performance of our executive officers. We disclose information with respect to the ROIC threshold, target and maximum payout opportunities, and the actual number of shares awarded, in our executive compensation disclosures with the SEC in the year following conclusion of the performance period.

 

Relative EPS Growth

Relative EPS Growth is based on the extent to which the growth rate in our diluted earnings per share from continuing operations, calculated and presented in accordance with GAAP (“GAAP EPS”), during the period from October 1, 2019 through September 30, 2022, exceeds the growth rate in the GAAP EPS of the companies included in the S&P MidCap 400 Index for the same 36-month period (the “2020 PSA comparison period”). At the conclusion of the performance period, the growth rate in GAAP EPS for the company and for each company included in the S&P MidCap 400 Index during the 2020 PSA comparison period, expressed as a percentage, is calculated as follows:

 

( GAAP EPS for the 12 months ended September 30, 2022—GAAP EPS for the 12 months ended September 30, 2019 )  x 100
GAAP EPS for the 12 months ended September 30, 2019

 

Award payouts in connection with the Relative EPS Growth performance measure are based on the percentage of S&P MidCap 400 companies whose growth rate in GAAP EPS we exceed (referred to below as the “Performance Percentile”), as follows:

 

        Award Payout:
        Percentage of
    Performance   Target Award
Award Level   Percentile   Opportunity
Threshold     40 %          50 %
Target     55 %     100 %
Maximum     75 %     200 %

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

In 2020, we reverted to the comparison period for the Relative EPS Growth financial measure used for the PSAs granted in 2018. For the PSAs granted in 2019, Relative EPS Growth is based on the degree to which the growth rate in our GAAP EPS during the period from January 1, 2019 through September 30, 2021 exceeds the growth rate in the GAAP EPS of the S&P MidCap 400 companies for the same 33-month period (rather than a 36-month period). We made this change to the comparison period for the PSAs issued in 2019 in order to avoid the potential distortion that would occur if GAAP EPS at the beginning of the performance period for such PSAs granted in 2019 reflected the financial statement impact of the enactment of the Tax Cuts and Jobs Act (the “TCJA”) in the fourth quarter of 2017.

 

To address possible changes in the composition of the S&P MidCap 400 during the comparison period, we established the following guidelines:

 

If a company has negative earnings per share at the beginning or end of the comparison period, it will be deemed to have performance below those of other companies included in the comparison.

 

If a company is acquired by or merges into another company, it will be removed from the comparison; however, if the acquiring company is also an S&P MidCap 400 company, the acquiring company will remain in the comparison.

 

If an S&P MidCap 400 company consolidates with another company that is not an S&P MidCap 400 company, the consolidated company will not be included in the comparison.

 

If a company becomes subject to bankruptcy proceedings, is delisted or subject to an event having a similar effect on trading in its securities, it will be deemed to have performance below those of other companies included in the comparison.

 

Why Do We Use These Financial Measures?

We use ROIC because it reflects both our operating results and the effectiveness of management’s utilization of our assets. This measure is particularly important in light of continued substantial capital expenditures we expect to make during the performance period to meet forecasted customer requirements, as it underscores the importance of effective management of our ongoing expansions and manufacturing improvements. We adjust the tax rate in the ROIC computation and make adjustments for other items because we believe inclusion of those items could distort results in a manner that inappropriately rewards or penalizes management based on events largely beyond its control and generally not relevant to the year with respect to which the ROIC calculation is made.

 

We use Relative EPS Growth as a financial measure because it introduces a comparative measure that conditions a portion of management’s long-term compensation on performance relative to other companies of similar market capitalization. We believe the relative nature of the Relative EPS Growth measure in the context of our long-term compensation is an important distinguishing element of this financial measure when compared to the Adjusted Diluted EPS measure that we use in connection with the MICP, in addition to the different lengths of time covered by the two measures. Moreover, the focus of the relative measure is on GAAP EPS, which is directly related to management’s overall performance with respect to our enterprise and is a key metric affecting our stock price and, therefore, stockholder value.

 

PSAs Granted in 2018 – No Payout

In 2018, as part of our long-term incentive plan, we granted PSAs to our named executive officers and other employees for the 2018-2020 performance period. The number of shares issuable upon vesting was based on our performance with respect to the two separate financial measures shown on the following table:

 

    Weighting
Financial Measure   at Target
ROIC     67 %  
Relative EPS Growth     33 %

 

As described below, we did not achieve threshold with regard to the two financial measures resulting in no shares being issued under the PSAs issued in 2018.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

ROIC – This financial measure generally was calculated in the same manner as described above for PSAs granted in 2020, except that the calculation covered periods and dates relevant to determining the average ROIC during the 2018-2020 period and we made no adjustments to the calculation of this measure.

 

The threshold award was payable if the average ROIC equaled 13.0%. Due to the impact of the COVID-19 pandemic on our operating results in 2020, the average of our ROIC for the 2018-2020 period was 10.2%, which resulted in an award attributable to ROIC that was equal to 0% of the target award.

 

Relative EPS Growth – This financial measure generally was calculated in the same manner as described above for PSAs granted in 2020. The Relative EPS Growth was based on the degree to which our GAAP EPS, for the performance period from October 1, 2017 through September 30, 2020 exceeded the GAAP EPS of the S&P MidCap 400 companies, for the same 36-month period. The target award was payable if the percentage of S&P MidCap 400 companies whose growth rate in GAAP EPS we exceeded was 55%. Due to the impact of the COVID-19 pandemic on our results of operations in 2020, we exceeded only 13% of the S&P MidCap 400 companies in GAAP EPS growth. As achievement for Relative EPS Growth was below the threshold Performance Percentile of 40%, 0% of the target award attributable to Relative EPS Growth was attained.

 

The weighted average award for the two financial measures was 0% of the target award; as a result, no shares underlying the PSAs were issued to our named executive officers.

 

Equity Grant Practices

In accordance with our equity award policy, equity awards, namely NQOs, RSUs and PSAs, are granted annually on the third full trading day after the financial results for the last completed fiscal year are released. Unless an exception is approved by the compensation committee, off-cycle equity awards are granted on the third full trading day after the financial results are released for a quarter. We value RSUs and PSAs, and fix the exercise price for our NQOs, based on the closing price of our common stock on the date of grant. Our RSUs and NQOs generally vest in equal increments on the first three anniversaries of the date of grant. PSAs vest in the year following the performance period, after certification of performance results by the compensation committee.

 

We believe that these vesting terms, together with award opportunities under our PSAs, provide our executives with a meaningful incentive for continued employment. Our board of directors has delegated to Mr. Stanage, as sole member of our Equity Grant Committee, authority to grant equity awards on a discretionary basis. Mr. Stanage was provided this authority with respect to 100,000 shares in 2020. These grants may be made only to persons who are not executive officers, and no grant exceeding 10,000 shares may be made to any person in a single year. In 2020, Equity Grant Committee awards were made with respect to an aggregate of 16,825 shares underlying RSUs.

 

Personal Benefits

We have ceased providing personal benefits to newly hired or appointed named executive officers, but we continued to provide limited personal benefits to Mr. Hennemuth. Mr. Hennemuth receives a $12,000 annual automobile allowance and an additional $5,600, which is intended to be used for club membership dues, financial counseling and tax planning and preparation, and supplemental life insurance beyond the basic life insurance available to our U.S.-based employees. This allowance is provided only if actually used, and no part of the allowance may be used as a reimbursement for taxes due on the income recognized by the named executive officer as a result of receiving these personal benefits.

 

The compensation committee reviews the personal benefits annually.

 

Additional information regarding personal benefits for our named executive officers is provided in the “All Other Compensation” column of the Summary Compensation Table and the accompanying footnotes.

 

Ongoing and Post-Employment Arrangements

We have several plans and agreements addressing compensation for our named executive officers that accrue value as the executive continues to work for us, provide special benefits upon certain types of termination events and provide retirement benefits. These plans and agreements were designed to be a part of a competitive compensation package that encourages our executives to remain employed by us. In some cases, the plans described below are available to other employees as well.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 39
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Hexcel Corporation 401(k) Retirement Savings Plan

Under our 401(k) Retirement Savings Plan (the “401(k) Plan”), substantially all of our U.S. employees may contribute up to 75% of their cash compensation (subject to applicable Internal Revenue Code limits). We match 50% of employee contributions up to 6% of the employee’s cash compensation, and provide an annual fixed contribution equal to 2% of each participant’s cash compensation (4% for U.S. employees who were at least 45 years old and employed by us on December 31, 2000). Due to the impact of the COVID-19 pandemic on the company’s operations, we suspended company matching contributions from April 20, 2020 until January 1, 2021. The 401(k) Plan also provides a profit-sharing feature under which we may make an annual contribution to the account of each U.S. employee based on our performance during the preceding year; for 2020, the contribution was 1.2% of an employee’s cash compensation.

 

All of our contributions vest incrementally over the first five years of service. Amounts credited to an employee’s account may be invested in a number of funds. Although the 401(k) Plan offers to employees the opportunity to invest our contributions (but not their own) into a Hexcel stock fund, our senior executives, including the named executive officers, are not permitted to invest in the fund.

 

Amounts that we contribute to the 401(k) Plan accounts of the named executive officers are included in the “All Other Compensation” column of the Summary Compensation Table.

 

Non-Qualified Deferred Compensation Plan

Under our Non-Qualified Deferred Compensation Plan (the “NDCP”), eligible U.S.-based employees, including our named executive officers, may defer amounts of their cash compensation in excess of Internal Revenue Code limits applicable to our 401(k) Plan, referred to below as “excess compensation.” We match 50% of a participant’s contributions to the NDCP, up to 6% of the participant’s excess compensation. Due to the impact of the COVID-19 pandemic on the company’s operations, we suspended company matching contributions from June 5, 2020 until January 1, 2021. We also provide the same fixed and profit-sharing contributions with respect to such excess contributions on the same basis as described above with respect to the 401(k) Plan. All participant and Hexcel contributions are fully vested at all times.

 

Amounts credited to a participant’s account may be invested in a number of funds based upon the funds, other than the Hexcel stock fund, available under the 401(k) Plan.

 

See “Executive Compensation – Non-Qualified Deferred Compensation in 2020” on page 53 below for additional information.

 

Other Benefits for Named Executive Officers

 

Supplemental Retirement Benefits

We entered into a supplemental executive retirement agreement (“SERP”) with Mr. Stanage and an executive deferred compensation agreement (“EDCA”) with Mr. Hennemuth that provide additional retirement benefits. The SERP provides benefits to Mr. Stanage based on a formula relating to years of service (subject to a maximum accrual once he attains the age of 65) and specified percentages of annual compensation, subject to offset for contributions we have made to certain other retirement plans. The EDCA generally provides benefits to Mr. Hennemuth based on a formula related to salary and cash incentive awards he has earned subsequent to the effective date of the EDCA. These agreements are described in more detail under “Executive Compensation – Pension Benefits in 2020,” below. We initially entered into these agreements in 2006 (with respect to the EDCA) and 2009 (with respect to the SERP). We have not entered into similar agreements with more recently designated named executive officers, and we would consider several factors, including the competitive compensation environment for executive talent, before we enter into such an agreement in the future.

 

Supplemental Death Benefit

Under agreements with Messrs. Stanage and Hennemuth, and in accordance with our executive life insurance program for Mr. Winterlich, Ms. Lehman and Ms. Pritchett, if the named executive officer dies while employed by us, a death benefit will be provided equal to two times the sum of (i) the executive’s salary on the date of death and (ii) the average of the MICP awards paid to the executive in the three years (two years for Mr. Winterlich, Ms. Lehman and Ms. Pritchett) prior to death, up to a maximum of $1,500,000 for the named executive officer (other than Mr. Hennemuth, for whom there is no maximum death benefit). If the named executive officer’s death is accidental, an

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

additional death benefit will be provided pursuant to our executive accidental death and dismemberment insurance program equal to two times the sum of (i) the executive’s salary on the date of death and (ii) the average of the MICP awards paid to the executive in the two years prior to death, up to a maximum of $1,000,000 for the named executive officer ($1,500,000 for Mr. Stanage). The named executive officers do not participate in our basic life insurance or accidental death and dismemberment insurance programs available to our U.S.-based employees. The death benefits provided under the SERP and the EDCA with Messrs. Stanage and Hennemuth are described in the discussions of each agreement under “Executive Compensation – Pension Benefits in 2020,” below.

 

Severance Arrangements, Including Change of Control Provisions

We have severance agreements with all of our named executive officers employed currently by the company other than Mr. Stanage, whose severance terms are governed by our Executive Severance Policy, coupled with certain terms set forth in his offer of employment letter. We refer to all of the foregoing documents collectively as the “Severance Arrangements.”

 

The Severance Arrangements generally provide payments and other benefits to a named executive officer if we terminate his or her employment for any reason other than disability or “cause” (as defined in the Severance Arrangement related to the named executive officer) or if he or she terminates employment for “good reason” (also as defined in such Severance Arrangement), except in circumstances related to a change in control, which are described in the next paragraph. Such payments and other benefits generally include a lump sum payment equal to the sum of (or, in the case of Mr. Stanage, equal to 1.5 times the sum of) annual base salary and, except for Ms. Pritchett, who is only eligible for a lump sum equal to base salary, average annual bonus (generally with respect to the last three annual bonus amounts paid) under the MICP, as well as continued participation in several company health, welfare and other plans, or provision of equivalent benefits (“Continued Participation Benefits”) for one year (or, in the case of Mr. Stanage, 1.5 years).

 

If we terminate the named executive officer for any reason other than disability or cause, or the named executive officer terminates employment for good reason within two years after a “Change in Control” or during the period of a “Potential Change in Control” (each as defined in the Severance Arrangement relating to the named executive officer), we generally will provide a lump sum payment equal to 1.5 to 3 times the sum of annual base salary and average annual bonus under the MICP, as well as Continued Participation Benefits for 1.5 to 3 years.

 

See “Executive Compensation—Potential Payments Upon Termination or Change in Control” below for additional information.

 

We believe that the Severance Arrangements promote management stability and encourage our named executive officers to focus their attention and energies on our business during potential periods of uncertainty. Absent such protections, there is an increased risk that executive officers will seek other employment opportunities if they become concerned about their employment security following or in anticipation of a change in control. We believe that the payments to be made under the Severance Arrangements provide some financial security to a named executive officer in the event that he or she is subject to a specified event of termination in the context of a change in control. Moreover, we believe the Severance Arrangements will facilitate a named executive officer’s support for a corporate transaction involving a change in control that is in the best interest of our stockholders, even though the transaction may have an effect on the named executive officer’s employment with us. We believe that these provisions, together with provisions calling for the lesser payments provided under the Severance Arrangements with respect to specified termination events outside of the context of a change in control, provide an important incentive for our named executive officers to remain with us.

 

Severance Arrangements we entered into with certain of our named executive officers through 2013 provided for a “modified gross-up.” Under the modified gross-up, subject to the exception described below, if a named executive officer becomes liable for payment of any excise tax under Section 4999 of the Internal Revenue Code with respect to any payment received in connection with a change in control, we will make an additional payment to the named executive officer. This additional payment was designed so that, after payment of all excise taxes and any other taxes payable in respect of the additional payment, the executive would retain the same amount as if no excise tax had been imposed. However, we will not make the tax gross-up payment if the payment received in connection with the change in control is less than 110% of the amount that would not be subject to the excise tax; in that case, the payment to the named executive officer will be reduced to the extent necessary to avoid imposition of the excise tax.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Messrs. Stanage and Hennemuth previously entered into Severance Arrangements with us that provided for a modified gross-up. However, effective in 2014, Mr. Stanage relinquished his right to a modified gross-up. Mr. Hennemuth continues to have a Severance Arrangement that provides a modified gross-up.

 

We have determined that no newly hired or promoted executive will be eligible for tax gross-up payments in connection with our change in control arrangements. Accordingly, Severance Arrangements we entered into with our other named executive officers do not provide for such payments.

 

Severance Payments to Mr. Schneider

On May 1, 2020, in connection with a restructuring of roles and responsibilities among the executive team to align our operations with the decrease in customer demand, Mr. Schneider’s position was eliminated under circumstances that the board of directors determined constituted an involuntary termination. Therefore, he was eligible to receive severance benefits under the terms of his severance agreement, and corresponding treatment under the terms of his equity grant award agreements. Mr. Schneider received the standard severance compensation provided under his severance agreement, which was not modified or increased in connection with his termination of employment. Mr. Schneider also was provided additional time to exercise his vested stock options (from 90 days to 12 months after termination, but not beyond the original option expiration date) on the same terms as other participants in the COVID-19 related reduction-in-force. See “Executive Compensation—Potential Payments Upon Termination of Employment on December 31, 2020” below for additional information.

 

Accelerated Vesting of Equity Awards in Connection with a Change in Control

Our equity awards provide that they will vest upon a change in control. This is a so-called “single trigger” vesting provision, in contrast to the “double trigger” provision applicable in our Severance Arrangements, which generally require both a change in control as well as a specified employment termination event before payment is made.

 

In adopting the single trigger vesting provision for our equity awards, we considered, among other things, that because our equity awards represent a significant portion of total compensation, the single trigger would provide a strong incentive for executive retention and would provide executives with the same opportunity as stockholders to realize value in connection with the change in control. In this regard, we believe the provision will focus the attention of our executives in pursuing a transaction that is in the best interest of our stockholders.

 

Stock Ownership Guidelines

We maintain stock ownership guidelines for our executive officers, other officers and our directors to further align the interests of management and our directors with those of our stockholders. The ownership guidelines require stock ownership having a “target dollar value,” which consists of the value of common stock owned by the executive or director, and specified members of his or her immediate family, as described below, as a multiple of that executive’s base salary or the director’s annual cash retainer fee, as shown in the table below:

 

  Target Dollar Value
Position (as a multiple of base salary)(1)
Chief Executive Officer 6x salary
Executive Vice Presidents 3x salary
Other Executive Officers 2x salary
Other Officers 1x salary
Directors 5x annual cash retainer fee
(1) Target Dollar Value generally is based on the number of (i) shares of common stock and (ii) shares underlying vested RSUs with respect to which delivery of the shares has been deferred, in each case owned by (a) the executive officer or director, (b) a parent, child or grandchild of the executive officer or director or (c) a trust or other entity established for the benefit of the executive officer or director, or any of such family members if the executive officer or director maintains the power to dispose of such shares. The value is computed on the last day of each quarter, based on the closing price per share of our common stock, as reported by the NYSE.

 

Until the target dollar value is achieved, an executive officer must retain 50%, and a director must retain 100%, of all net shares received under any of our incentive plans or programs. “Net shares” means all shares remaining after the sale of shares by the executive officer or director to pay any taxes due with respect to the shares received and, in the case of options, the exercise price.

 

42 HEXCEL CORPORATION | 2021 Proxy Statement
 

COMPENSATION DISCUSSION AND ANALYSIS

 

Once the executive or director holds the target dollar value as of the last day of a calendar quarter, he or she is deemed to be in compliance with the guidelines so long as he or she continues to hold at least the number of shares he or she held as of that date. If an executive officer is promoted, he or she must again achieve compliance with the guidelines, commencing with the last day of the calendar quarter in which the promotion occurred.

 

All of our named executive officers and directors, other than Ms. Lehman and Mr. Winterlich, who first became executive officers in 2017, Ms. Pritchett, who first became an executive officer in 2018, Ms. Suever, who first became a director in 2018, and Dr. Minus, who first became a director in 2020, were in compliance with the guidelines as of December 31, 2020.

 

Our Insider Trading Policy expressly states that our directors, officers and employees are prohibited from engaging in “short sales” or any hedging or monetization transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. In addition, the policy prohibits pledges of company securities.

 

Clawback Policy

The Hexcel Corporation Clawback Policy is designed to enable the board of directors to recover incentive compensation that is deemed received by an employee under specified circumstances that are inconsistent with the maintenance of a culture that emphasizes integrity and accountability and that reinforces our pay for performance philosophy. The policy is designed to prevent unjust enrichment based on erroneous determinations of performance or undesirable activities that may cause meaningful harm to the company or its stockholders. The policy applies to incentive-based compensation under awards granted during and after 2017.

 

Under the Clawback Policy, we may recover incentive-based compensation paid to an executive officer with respect to the three years preceding a year in which we are required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws. The compensation recoverable is the amount in excess of the amount that would have been payable to the executive officer under the restated financial statements. The clawback may be applied regardless of whether the executive officer was responsible for the error that led to the accounting restatement.

 

In addition, the policy provides for recovery, at the board’s discretion, from our current or former employees, including our executive officers, of incentive-based compensation under other specified circumstances, including:

 

a material error in the calculation of a performance measure on which incentive-based compensation was received by a current or former employee during the three fiscal years completed before the date on which the material error is discovered;
   
a current employee or former employee engaged in fraudulent or intentional misconduct that causes or might reasonably be expected to cause material reputational, financial or other harm to the company; and
   
a current or former employee has improperly or grossly negligently failed, including in a supervisory capacity, to identify, escalate, monitor or manage risks that caused or might reasonably be expected to cause material reputational, financial or other harm to the company.

 

These remedies are in addition to any other remedies available to us or imposed by law enforcement agencies, regulators or other authorities, other than amounts with respect to the same compensation that the Chief Executive Officer or Chief Financial Officer has paid to us under Section 304 of the Sarbanes-Oxley Act of 2002.

 

In addition to the remedies above, our equity grants to named executive officers also include a clawback provision in the event the named executive officer violates certain obligations to us, including confidentiality, non-competition and non-solicitation obligations.

 

Tax Considerations

Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally places a $1 million limitation on the deductibility of compensation paid by a publicly-held company to certain of its executive officers. For tax years beginning prior to January 1, 2018 (and specified pre-existing contractual arrangements as described below),

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

certain compensation is exempt from this deduction limitation if it meets the requirements of “performance-based compensation” under Section 162(m). In setting compensation prior to 2018, we structured our annual incentive program and stock options in a manner intended to qualify for this exemption.

 

As part of the TCJA, the performance-based compensation exemption under Section 162(m) was eliminated for tax years commencing after December 31, 2017. The TCJA also expanded the number of executive officers who are subject to the deductibility limit. As a result, beginning in 2018, all compensation we pay to specified executive officers is subject to the deductibility limit, subject to payments under specified pre-existing contractual arrangements as described below. Nevertheless, as was the case in previous years, our principal consideration in authorizing compensation for our named executive officers is whether we believe such compensation is consistent with our compensation philosophy, described above under “Executive Compensation Overview – Our Compensation Philosophy and Principles.” Accordingly, we believe it is important to retain the flexibility to compensate executives in a manner designed to meet these objectives, even if such compensation is potentially not deductible for tax purposes.

 

The TCJA provides that its elimination of the performance-based compensation exemption under Section 162(m) does not apply with respect to compensation under a “written binding contract” that was in effect on November 2, 2017 and is not materially modified thereafter. To the extent applicable to existing plans and awards, the company may avail itself of the transition rule. However, due to uncertainties in the interpretation and implementation of the changes to Section 162(m) under the TCJA, including the scope of the regulatory relief for these pre-existing arrangements, we can offer no assurance regarding the extent to which, if any, compensation payable in 2020 and subsequent years under pre-existing arrangements with covered employees will be deductible.

 

44 HEXCEL CORPORATION | 2021 Proxy Statement
 
 
 

COMPENSATION COMMITTEE REPORT

   

 

The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on its review and discussions with management, the committee recommended to our board of directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. This report is provided by the following independent directors, who comprise the committee:

 

Guy C. Hachey, Chair

Thomas A. Gendron

Dr. Jeffrey A. Graves

 

HEXCEL CORPORATION  |  2021 Proxy Statement 45
 
 
 

EXECUTIVE COMPENSATION

   

 

Summary Compensation Table

Name and
Principal Position
  Year   Salary
($)
  Stock
Awards
($)(1)(2)
  Option
Awards
($)(2)(3)
  Non-Equity
Incentive
Plan
Compensation
($)(4)
  Change in
Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings
($)(5)
  All Other
Compensation
($)(6)
  Total
($)
Nick L. Stanage   2020   801,263   2,762,839   1,657,509   205,940   2,365,446   160,941   7,953,938
Chairman, CEO and President   2019   1,016,236   2,499,999   1,499,996   1,291,636   2,367,166   147,887   8,822,920
  2018   986,637   2,034,891   1,220,948   1,027,878   918,365   157,843   6,346,562
Patrick J. Winterlich   2020   527,850   581,104   348,630   73,896     32,462   1,563,942
EVP and CFO   2019   497,250   481,669   289,021   442,403     29,012   1,739,355
    2018   425,000   371,826   223,113   287,797     28,209   1,335,945
Robert G. Hennemuth   2020   438,287   410,323   246,175   52,438   435,513   72,800   1,655,536
EVP, Human Resources and Communications   2019   439,639   398,343   239,053   335,269   354,275   80,830   1,847,409
  2018   426,834   386,751   232,078   266,806   229,298   82,785   1,624,552
Gail E. Lehman   2020   438,850   426,616   255,961   52,705     58,623   1,232,755
EVP, General Counsel and Secretary   2019   439,746   398,474   239,099   335,350     36,991   1,449,660
  2018   424,875   358,469   215,074   265,581     24,824   1,288,823
Colleen Pritchett   2020   375,807   1,165,720   138,910   37,635     31,218   1,749,290
President, Aerospace, Americas and Fibers                                
Brett Schneider(7)   2020   161,379   1,086,421   91,302   11,934     431,936   1,782,972
Former President, Industrial and Global Fibers                                
                               
(1) Includes the aggregate grant date fair value of RSUs and PSAs granted to the named executive officer during the years indicated, computed in accordance with FASB ASC Topic 718. These amounts do not correspond to the actual value that will be realized by the named executive officer. The amounts included for PSAs reflect the estimate of aggregate compensation cost to be recognized over the life of the PSAs, determined as of the grant date in accordance with FASB ASC Topic 718, but without giving effect to estimated forfeitures. The value of each PSA award at the grant date, assuming that (a) the target level of performance will be achieved and (b) the level of performance resulting in the maximum payout will be achieved, is as follows:
    2020     2019     2018  
    Amount Included     Amount Included     Amount Included  
    in Stock Awards     in Stock Awards     in Stock Awards  
    Target   Maximum   Target   Maximum   Target   Maximum
Nick L. Stanage     2,762,839       5,525,678       2,499,999       4,999,999       2,034,891       4,069,782  
Patrick J. Winterlich     348,662       697,324       288,988       577,977       223,123       446,246  
Robert G. Hennemuth     246,194       492,387       239,032       478,064       232,051       464,102  
Gail E. Lehman     255,985       511,969       239,097       478,195       215,081       430,163  
Colleen Pritchett     138,867       277,734                          
Brett Schneider     91,332       182,665                          
(2) For additional information regarding the assumptions made in calculating these amounts, see Note 12, “Stock-Based Compensation,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
   
(3) Includes the aggregate grant date fair value of all NQOs granted to the named executive officer during the year indicated, computed in accordance with FASB ASC Topic 718. These amounts do not necessarily correspond to the actual value that will be realized by the named executive officer.

 

46 HEXCEL CORPORATION | 2021 Proxy Statement
 

EXECUTIVE COMPENSATION

 

(4) Reflects amounts earned under the MICP with respect to the indicated year.
   
(5) For each year, represents the difference between the actuarial present value of the executive’s accumulated benefit under his applicable retirement plan arrangement, as of December 31 of the indicated year and December 31 of the prior year. See “Pension Benefits in 2020” on page 51 for information regarding the pension arrangements applicable to Messrs. Stanage and Hennemuth. The 2020 actuarial present value of executive pension benefits for Messrs. Stanage and Hennemuth was affected by decreasing discount rates. The present value for Mr. Hennemuth was further impacted by him attaining his earliest unreduced retirement age of 65 in 2020, resulting in a shift to the immediate lump sum conversion rate, which is significantly lower than the long-term rate.
   
  These changes in present value do not directly relate to the final potential payout, and can vary significantly year-over-year based on: (a) changes in salary; (b) other one-time adjustments to salary; (c) actual age versus predicted age at retirement; (d) the discount rate used to determine present value of the benefit; and (e) other relevant factors. A decrease in the discount rate results in an increase in the present value of the accumulated benefit and an increase in the discount rate has the opposite effect. See Note 7, “Retirement and Other Postretirement Benefit Plans,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, and the pension benefits table under “Pension Benefits in 2020” on page 51 for a description of the interest rate and mortality assumptions.
   
(6) The amounts for our named executive officers in the “All Other Compensation Column” for 2020 include the following:

 

Name   Hexcel
Contributions
to 401(k)
Retirement
Savings Plan
($)
  Hexcel
Contributions to
Non-Qualified
Deferred
Compensation
Plan
($)
  Premiums
for Life
Insurance
($)
  Premiums for
Long-Term
Disability
Insurance
($)
  Premiums for
Accidental
Death and
Dismemberment
Insurance
($)
  Perquisites
Allowance(a)
($)
  Severance
Payments(b)
($)
Nick L. Stanage     22,650         130,152         3,546         4,251         342                      
Patrick J. Winterlich     22,650       2,777       3,546       3,261       228              
Robert G. Hennemuth     22,650       25,116       2,364       4,842       228       17,600        
Gail E. Lehman     21,761       33,088       3,546             228              
Colleen Pritchett     22,650       3,330       2,364       2,646       228              
Brett Schneider     22,581       9,220       801       882       77             398,375  
(a) Mr. Hennemuth had a perquisites allowance that consisted of a car allowance of $12,000 and an additional amount of $5,600, which is intended to be used for reimbursement of club membership dues, expenses incurred for financial counseling and tax planning and preparation, and premiums for supplemental life and health insurance beyond the standard life and health insurance available to Mr. Hennemuth. The additional amount was used by Mr. Hennemuth for supplemental life insurance. The other named executive officers do not receive any perquisites.
   
(b) Includes a lump sum payment of $370,000 representing Mr. Schneider’s annual base salary in effect as of his termination date (without giving effect to the temporary salary reduction) and benefits continuation costs of $28,375.
   
(7) Mr. Schneider served as President, Industrial and Global Fibers, until May 1, 2020.

 

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EXECUTIVE COMPENSATION

 

Grants of Plan-Based Awards in 2020

            Estimated Future
Payouts Under
Non- Equity Incentive
Plan Awards(1)
  Estimated Future
Payouts Under
Equity Incentive
Plan Awards(2)
  All
Other
Stock
Awards:
Number
of
Shares
of Stock
  All Other
Option
Awards:
Number of
Securities
Underlying
  Exercise
or Base
Price of
Option
  Grant
Date
Fair
Value of
Stock
and
Option
Name   Grant
Date(3)
  Approval
Date(3)
  Threshold
($)
  Target
($)
  Maximum
($)
  Threshold
(#)
  Target
(#)
  Maximum
(#)
  or Units
(#)(4)
  Options
(#)(5)
  Awards
($/Sh)
  Awards
($)(6)
Nick L. Stanage       533,524   1,067,048   2,134,096              
    2/6/2020   1/21/2020         18,483   36,966   73,932         2,762,839
    2/6/2020   1/21/2020                 70,293   74.74   1,657,509
Patrick J. Winterlich       191,442   382,883   765,766              
  2/6/2020   1/21/2020         2,332   4,665   9,330         348,662
    2/6/2020   1/21/2020               3,110       232,441
    2/6/2020   1/21/2020                 14,785   74.74   348,630
Robert G. Hennemuth       135,849   271,697   543,394              
  2/6/2020   1/21/2020         1,647   3,294   6,588         246,194
    2/6/2020   1/21/2020               2,196       164,129
    2/6/2020   1/21/2020                 10,440   74.74   246,175
Gail E. Lehman       136,541   273,082   546,164              
  2/6/2020   1/21/2020         1,712   3,425   6,850         255,985
    2/6/2020   1/21/2020               2,283       170,631
    2/6/2020   1/21/2020                 10,855   74.74   255,961
Colleen Pritchett       97,500   195,000   390,000              
  2/6/2020   1/21/2020         929   1,858   3,716         138,867
    2/6/2020   1/21/2020               1,239       92,603
    2/6/2020   1/21/2020               12,500       934,250
    2/6/2020   1/21/2020                 5,891   74.74   138,910
Brett Schneider       92,500   185,000   370,000              
  2/6/2020   1/21/2020         611   1,222   2,444         91,332
    2/6/2020   1/21/2020               814       60,838
    2/6/2020   1/21/2020               12,500       934,250
    2/6/2020   1/21/2020                 3,872   74.74   91,302
(1) The amounts shown reflect the threshold, target and maximum payments the named executive officer was eligible to receive based on achievement with respect to performance goals under the MICP. The actual awards we paid for 2020 are shown in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table above. If the threshold performance for any financial measure under the MICP is not attained, no portion of the MICP award attributable to that measure is paid. More detail concerning the 2020 MICP financial performance measures is provided on pages 32-34.
   
(2) Reflects the number of shares of our common stock underlying PSAs granted under our 2013 Incentive Stock Plan (the “2013 ISP”) for the 2020-2022 performance period; the PSAs will convert into shares of common stock after a three-year performance period based on the level of achievement with respect to specified performance measures. No PSAs will convert with respect to a financial measure if a threshold level of performance is not achieved. The terms of the PSAs are described in more detail on pages 36-39.
   
(3) For our regular annual equity awards, the compensation committee approved a dollar value of the awards (as a percentage of salary) and the performance requirements for conversion of PSAs into shares of common stock at its meeting on January 21, 2020. In accordance with our equity grant policy, the grant date for the 2020 annual equity awards was February 6, 2020, the third trading day following the release of 2019 fourth-quarter and year-end earnings.
   
(4) Reflects RSUs granted under the 2013 ISP. The RSUs granted on February 6, 2020 generally vest and convert into shares at the rate of one-third on each of the first three anniversaries of the grant date. The grant of 12,500 retention RSUs to each of Ms. Pritchett and Mr. Schneider vest as to 50% of the RSUs on the third anniversary of the grant date, and the remaining 50% of the RSUs vest ratably on each of the fourth, fifth and sixth anniversaries of the grant date. The terms of the retention RSUs are described in more detail on pages 35-36.
   
(5) Reflects NQOs granted under the 2013 ISP, which will vest and become exercisable at the rate of one-third of the underlying shares on each of the first three anniversaries of the grant date. The terms of the NQOs are described in more detail on page 35.
   
(6) Reflects the grant date fair value of PSAs, RSUs and NQOs granted to the named executive officers in 2020, computed in accordance with FASB ASC Topic 718. Generally, the grant date fair value is equal to the amount that we will expense in our financial statements over the award’s vesting schedule, but without giving effect to estimated forfeitures. For RSUs, fair value is calculated using the closing price of our common stock on the grant date. For PSAs, fair value is calculated using the target number of shares of common stock subject to the PSA award and the closing price of our common stock on the grant date. For NQOs, fair value is calculated using the applicable Black-Scholes derived value on the grant date. For additional information on the valuation assumptions used in calculating the fair value of these instruments, see Note 12, “Stock-Based Compensation,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. These amounts, computed in accordance with FASB ASC Topic 718, do not necessarily correspond to the actual value that will be realized by the named executive officers.

 

48 HEXCEL CORPORATION | 2021 Proxy Statement
 

EXECUTIVE COMPENSATION

 

Description of Plan-Based Awards

All NQOs, RSUs and PSAs granted to the named executive officers in fiscal year 2020 were granted under the 2013 ISP and are governed by the terms and conditions of the 2013 ISP and the applicable award agreements. See pages 34-39 for a discussion of NQOs, RSUs and PSAs.

 

Outstanding Equity Awards at 2020 Fiscal Year-End

The following table provides information on the holdings of outstanding stock options and unvested stock awards held by the named executive officers as of December 31, 2020:

 

Option Awards(1)   Stock Awards
Name   Grant Date   Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
  Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
  Option
Exercise
Price
($)
  Option
Expiration
Date
  Number of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)(2)
  Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)(3)
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)(4)
  Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)(3)
Nick L. Stanage   01/30/2012   46,562         25.03   01/30/2022        
  01/28/2013   41,321         28.27   01/28/2023        
    01/28/2014   34,912         43.01   01/28/2024        
    01/27/2015   56,578         43.96   01/27/2025        
    01/26/2016   64,812         41.71   01/26/2026        
    01/30/2017   61,204         50.50   01/30/2027        
    01/29/2018   33,415   16,706       68.15   01/29/2028        
    01/28/2019   21,835   43,667       65.56   01/28/2029       38,463   1,865,071
    02/06/2020     70,293       74.74   02/06/2030       36,966   1,792,481
Patrick J. Winterlich   01/28/2014   2,345         43.01   01/28/2024        
  01/27/2015   3,348         43.96   01/27/2025        
    01/26/2016   3,413         41.71   01/26/2026        
    01/30/2017   3,700         50.50   01/30/2027        
    01/29/2018   6,107   3,052       68.15   01/29/2028   739   35,834    
    01/28/2019   4,208   8,413       65.56   01/28/2029   1,975   95,768   4,446   215,587
    02/06/2020     14,785       74.74   02/06/2030   3,110   150,804   4,665   226,206
Robert G. Hennemuth   01/28/2014   10,263         43.01   01/28/2024        
  01/27/2015   13,355         43.96   01/27/2025        
    01/26/2016   13,533         41.71   01/26/2026        
    01/30/2017   12,384         50.50   01/30/2027        
    01/29/2018   6,352   3,175       68.15   01/29/2028   769   37,289    
    01/28/2019   3,480   6,959       65.56   01/28/2029   1,633   79,184   3,677   178,298
    02/06/2020     10,440       74.74   02/06/2030   2,196   106,484   3,294   159,726
Gail E. Lehman   01/29/2018   5,887   2,942       68.15   01/29/2028   713   34,573    
  01/28/2019   3,481   6,960       65.56   01/28/2029   1,634   79,233   3,678   178,346
    02/06/2020   10,855         74.74   02/06/2030   2,283   110,703   3,425   166,078
Colleen Pritchett   11/30/2018               1,337   64,831    
  01/28/2019   1,843   3,683       65.56   01/28/2029   864   41,895   1,946   94,362
    02/06/2020   5,891         74.74   02/06/2030   1,239   60,079   1,858   90,094
    02/06/2020               12,500   606,125    
Brett Schneider(5)   01/28/2014   2,534         43.01   05/01/2021        
  01/27/2015   3,429         43.96   05/01/2021        
    01/26/2016   3,501         41.71   05/01/2021        
    01/30/2017   3,311         50.50   05/01/2021        
    01/29/2018   1,965         68.15   05/01/2021        
    01/28/2019   1,182         65.56   05/01/2021       571   27,688
    02/06/2020               12,500   606,125   108   5,237
   
(1) All options listed in this table vest in equal increments on each of the first three anniversaries of the grant date and will expire on the tenth anniversary of the grant date.

 

HEXCEL CORPORATION  |  2021 Proxy Statement 49
 

EXECUTIVE COMPENSATION

 

(2) This column includes unvested RSUs granted on January 29, 2018, January 28, 2019 and February 6, 2020 under the 2013 ISP. No shares of Hexcel common stock underlying PSAs granted on January 29, 2018 are included as none were earned based on failure to attain threshold performance of the applicable performance criteria during the 2018-2020 performance period, as determined by the compensation committee in January 2021. The RSUs vest and convert into shares of Hexcel common stock at the rate of one-third per year on each of the first three anniversaries of the grant date, except for the grants of 12,500 retention RSUs to each of Ms. Pritchett and Mr. Schneider, which vest as to 50% of the RSUs on the third anniversary of the grant date, and the remaining 50% of the RSUs on each of the fourth, fifth and sixth anniversaries of the grant date. In addition, the amounts shown in the table for RSUs granted on January 29, 2018 and January 28, 2019 include dividend equivalents provided with respect to the RSUs, which vest at the same time and in the same proportion as the RSUs to which the dividend equivalents relate. For the RSUs granted on February 6, 2020, if and when cash dividends are declared on shares of our common stock, we provide dividend equivalents for each RSU then held by the grantee equal to the cash dividend that we pay to holders of our common stock, which vest at the same time as the underlying RSUs to which they relate and are paid in cash.
   
(3) Market values were computed using a price of $48.49 per share, the closing price of Hexcel common stock on December 31, 2020, as reported by the NYSE.
   
(4) This column reflects the shares that each named executive officer would receive based on the target award for the PSAs granted on January 28, 2019 and February 6, 2020. If the PSA awards were to pay out at maximum, the number of shares (and market value of such shares) outstanding as of December 31, 2020 with respect to unvested PSAs granted on January 28, 2019 and February 6, 2020, respectively, would be for Mr. Stanage: 76,266 shares ($3,698,138) and 73,932 shares ($3,584,963); for Mr. Winterlich: 8,816 shares ($427,488) and 9,330 shares ($452,412); for Mr. Hennemuth: 7,292 shares ($353,589) and 6,588 shares ($319,452); for Ms. Lehman: 7,294 shares ($353,686) and 6,850 shares ($332,157); for Ms. Pritchett: 3,860 shares ($187,171) and 3,716 shares ($180,189); and for Mr. Schneider: 1,142 shares ($55,376) and 216 shares ($10,474). Each such named executive officer will receive a number of shares of common stock based on the extent to which the performance criteria for the respective PSAs are attained. Any such shares into which the PSAs will convert will be received by the named executive officer in early 2022 for the PSAs granted in 2019 and early 2023 for the PSAs granted in 2020. The number of PSAs shown in the table include dividend equivalents provided with respect to PSAs granted in 2019, which are converted into shares of Hexcel common stock in the same proportion as the initially granted PSAs are converted into shares. For the PSAs granted in 2020, if and when cash dividends are declared on shares of our common stock, we provide dividend equivalents for PSAs then held by the grantee equal to the cash dividend that we pay to holders of our common stock which vest at the same time as the underlying PSAs to which they relate and are paid in cash.
   
(5) Upon Mr. Schneider’s separation from the company on May 1, 2020, all unvested RSUs, except his retention RSUs, and unvested NQOs were forfeited automatically. Mr. Schneider’s outstanding vested options as of his separation date remain exercisable for 12 months following such date, his retention RSUs granted on February 6, 2020 continue to vest, and, pursuant to the terms of his PSAs issued in January 2019 and February 2020, he is entitled to a pro rata award of common stock based on the portion of the performance period for which he was employed, and also based on the extent to which the performance target is attained.

 

Option Exercises and Stock Vested in 2020

    Option Awards     Stock Awards(2)  
    Number of
Shares
Acquired
on Exercise
    Value
Realized
on
Exercise(1)
    Number of
Shares
Acquired
on Vesting
    Value
Realized
on
Vesting
 
Name   (#)     ($)     (#)     ($)(3)  
Nick L. Stanage                 27,838       2,141,577  
Patrick J. Winterlich                 1,999       150,681  
Robert G. Hennemuth                 4,683       356,304  
Gail E. Lehman                 4,530       344,597  
Colleen Pritchett                 904       49,685  
Brett Schneider     4,536       41,767       1,246       94,689  
   
(1) The value realized is equal to the difference between the closing price per share of our common stock, as reported by the NYSE on the date of exercise, and the exercise price, multiplied by the number of shares underlying the options.
   
(2) Reflects RSUs and PSAs that vested during 2020, including one-third of the RSUs granted in each of 2017, 2018 and 2019 and the PSAs granted in 2017. The RSUs vest in equal increments on the first three anniversaries of the grant date. The PSAs vested in 2020 based on the level of achievement with respect to specified performance measures for the 2017-2019 performance period. The number of shares acquired on vesting of the RSUs and PSAs include dividend equivalents that vested in the same proportion as the RSUs or PSAs to which they relate, as applicable.
   
(3) The value realized is equal to the closing price per share of our common stock, as reported by the NYSE on the vesting date, multiplied by the number of RSUs or PSAs vested.

 

50 HEXCEL CORPORATION | 2021 Proxy Statement
 

EXECUTIVE COMPENSATION

 

Pension Benefits in 2020

Messrs. Stanage and Hennemuth participate in the following pension plans and arrangements:

 

Supplemental Executive Retirement Agreement with Mr. Stanage

We have entered into a SERP with Mr. Stanage. The SERP provides for a retirement benefit intended to supplement Mr. Stanage’s retirement income from our 401(k) Plan and NDCP (described on page 40). The SERP includes the following provisions:

 

Upon Mr. Stanage’s retirement on or after his 65th birthday, he will receive a lump sum equal to the actuarial present value of the “Normal Retirement Benefit,” subject to a reduction to reflect the additional actuarial cost of Mr. Stanage’s benefit election for his designated beneficiary in the event he dies before receiving any benefits under the SERP, as described below, versus the default election available under the SERP (the “Survivor Benefit Adjustment”). The SERP generally defines the “Normal Retirement Benefit” as a monthly benefit starting on the first of the month after his employment terminates and ending with the payment for the month in which his death occurs or, if later, after payment of 120 such payments (with any such payments after his death made to his beneficiary or his estate) in an amount equal to (a) the product of his “Final Average Pay” and the “Benefit Percentage” less (b) all contributions made by us for his account under our 401(k) Plan.
   
  “Final Average Pay” generally equals Mr. Stanage’s average monthly compensation for the highest paid 36 months out of his final 60 months of employment, and includes salary and amounts earned under all management incentive or other bonus plans in which he participates. Any incentive pay or other bonus is deemed to be earned ratably over the period for which it was earned.
     
  The “Benefit Percentage” is 7/30 of 1% for each month of service, but will not increase further once Mr. Stanage reaches age 65.
     
  Contributions made by us for Mr. Stanage’s account under our 401(k) Plan are expressed as a monthly amount in the form of an actuarial equivalent 50% joint and survivor annuity with 120 months of guaranteed payments starting at the date Mr. Stanage attains age 65, and assuming that our contributions earn interest at the rate of 6% from the date of the contribution until the date it is actually paid to Mr. Stanage.
     
If Mr. Stanage’s employment terminates prior to age 65 (early retirement), he will receive a lump sum equal to the actuarial present value of the “Early Retirement Benefit,” subject to the Survivor Benefit Adjustment. The SERP generally defines the “Early Retirement Benefit” as a monthly benefit starting on the first day of the month after the month in which his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments (with any such payments after his death made to his beneficiary or his estate), in an amount equal to the product of his Final Average Pay and the Benefit Percentage less any contributions made by us for his account under our 401(k) Plan, and reduced by 1/4% per payment for each full calendar month by which the commencement of the Early Retirement Benefit precedes Mr. Stanage’s attainment of age 65.
   
Pursuant to his election, if Mr. Stanage dies before receiving any benefits under the SERP, his designated beneficiary will receive a lump sum equal to the lump sum Mr. Stanage would have received under the SERP had he terminated his employment on the day preceding his death (the “Survivor Benefit”). Mr. Stanage has several alternative Survivor Benefit elections under the SERP, subject to provisions addressing the timing and effectiveness of an election and, except in the case of the default election described below, the Survivor Benefit Adjustment. In lieu of Mr. Stanage’s current election, Mr. Stanage may elect for his designated beneficiary to receive any of the following, which will take effect twelve months after the date on which it is made:
   
  A lump sum that is the actuarial equivalent to the “Pre-Retirement Survivor Benefit,” defined as a monthly benefit, starting on the first day of the month following the month in which he dies and ending with the month in which his designated beneficiary dies, that is equal to 50% of the monthly benefit Mr. Stanage would have received had he terminated employment on the day prior to his death and commenced receiving benefits in the form of a 50% joint and survivor annuity. As this is the default election under the SERP, no additional actuarial cost would accrue against Mr. Stanage’s benefit post-effectiveness of this election.

 

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EXECUTIVE COMPENSATION

 

  A lump sum that is the actuarial equivalent to the Pre-Retirement Survivor Benefit, but in lieu of 50%, either 75% or 100% of the monthly benefit Mr. Stanage would have received had he terminated employment on the day prior to his death and commenced receiving benefits in the form of a corresponding 75% or 100% joint and survivor annuity.
     
Upon certain other types of termination, or permitted elections, the amount and form of benefit are different:
   
  Termination for cause – no benefits are payable.
     
  Termination without cause or by Mr. Stanage for good reason (i) within two years after a change in control (as defined in the SERP), (ii) during the period of a potential change in control, or (iii) at the request of a person who takes action to cause a change in control – a lump sum payment computed in the same manner as the “Early Retirement Benefit,” including the Survivor Benefit Adjustment, except that 24 months of service (or, if less, the number of months preceding Mr. Stanage’s 65th birthday) are added for purposes of computing the Benefit Percentage. A “potential change in control” exists during the period beginning at the time the company enters into an agreement that, if consummated, would result in a change in control and ending at the time such agreement results in a change in control or becomes of no further force or effect.
     
  Termination without cause or by Mr. Stanage for good reason (in each case other than in connection with the events described in (i), (ii) and (iii) of the preceding paragraph) – a lump sum payment computed in the same manner as the “Early Retirement Benefit,” including the Survivor Benefit Adjustment, except that twelve months of service (or, if less, the number of months preceding Mr. Stanage’s 65th birthday) are added for purposes of computing the Benefit Percentage.
     
  Termination due to disability – a lump sum payment computed in the same manner as the “Early Retirement Benefit,” including the Survivor Benefit Adjustment, but without any actuarial or other reduction to reflect commencement of payment before Mr. Stanage reaches age 65.

 

The enhanced benefits that would be payable if the termination events (other than termination for cause) occurred on December 31, 2020 are quantified in the table on page 60.

 

The SERP generally provides to Mr. Stanage the ability to irrevocably elect to receive, in lieu of a lump sum payment with regard to a benefit described above, a monthly payment of such benefit, which will take effect twelve months after the date on which such election is made. If he makes such an election, except with respect to the Survivor Benefit, the monthly benefit will start on the first of the month after the fifth anniversary of the date on which his employment terminates, and the amount of the monthly benefit will be actuarially adjusted to take into account that the first payment of the applicable benefit will not take place until the fifth anniversary of the date on which his employment terminates.

 

Retirement Agreement with Mr. Hennemuth

We have entered into an EDCA with Mr. Hennemuth. The EDCA is a non-qualified, unfunded supplemental pension plan that, in accordance with certain irrevocable elections made by Mr. Hennemuth, provides for a lump sum payment consisting of two components: (i) a consulting and retirement income payment component and (ii) an insurance benefits component.

 

Consulting and Retirement Income Payment

 

The consulting and retirement income component is based on the amount of Mr. Hennemuth’s accrued benefit under the EDCA, which is equal to 1.5% of Mr. Hennemuth’s aggregate salary and incentive cash bonuses earned while employed by us from March 20, 2006 until termination of his employment.
   
If Mr. Hennemuth retires or otherwise ceases to be employed by us on or after his 65th birthday, he will be entitled to receive, as part of his lump sum payment, the actuarial present value of monthly payments equal to 1/12 of his accrued benefit, commencing in the calendar month following his retirement and continuing until the later of completion of the 120th monthly payment or the payment for the month in which he dies.
   
Upon a change in control, Mr. Hennemuth will be entitled to receive, as part of his lump sum payment, the actuarial present value of monthly payments equal to 1/12 of his accrued benefit, commencing the month following the change in control and continuing until the later of completion of the 120th monthly payment or the payment for the month in which he dies.

 

52 HEXCEL CORPORATION | 2021 Proxy Statement
 

EXECUTIVE COMPENSATION

 

Insurance Benefits

The insurance benefits include (i) life insurance benefits and (ii) medical and dental insurance benefits. The insurance benefits are payable in a lump sum equal to the actuarial present value, determined as of the time of Mr. Hennemuth’s retirement or termination of employment, of the insurance benefits, calculated as set forth below, and payable commencing in the calendar month following his termination of employment and continuing until the later of completion of the 120th monthly payment or the payment for the month in which he dies.
   
Life insurance benefits – Until his 75th birthday, the life insurance benefit consists of the lesser of (i) the present value of Mr. Hennemuth’s accrued benefit and (ii) the amount of life insurance on Mr. Hennemuth in effect at the time of his retirement or other termination.
   
Medical and dental insurance benefits – These benefits are based on the assumed continuation of Mr. Hennemuth’s medical and dental insurance coverage in effect at the time his employment terminates from the time of termination of employment until he reaches age 75.

 

Notwithstanding the foregoing payment provisions, upon termination for cause, no benefits are payable.

 

The EDCA contains the following additional provisions:

 

Mr. Hennemuth is required to consult with us at our request for up to ten days a year for a period of ten years following his termination of employment.
   
Mr. Hennemuth has agreed in the EDCA not to solicit our employees and not to engage in any activity competitive with our business for ten years after termination of his employment with us (or, if earlier, at such time as he no longer receives any benefits under the EDCA), unless he can show that such actions were taken without the use of confidential information regarding Hexcel.

 

Pension Benefits Table

The table below shows the present value, as of December 31, 2020, of accumulated benefits payable to Messrs. Stanage and Hennemuth (the only named executive officers covered by defined benefit retirement arrangements) upon their retirement, as well as the number of years of service credited under their respective retirement arrangements.

 

        Number of   Present    
        Years   Value of   Payments
        Credited   Accumulated   During Last
        Service   Benefit   Fiscal Year
Name   Plan Name   (#)   ($)(1)   ($)
Nick L. Stanage   Supplemental Executive Retirement Agreement   11.17   13,120,573   0
Robert G. Hennemuth   Executive Deferred Compensation Agreement   14.75   3,132,615   0
   
(1) The present value of accumulated benefit was calculated using the same discount rate, lump sum conversion interest rate and mortality table assumptions as were used for financial reporting purposes at December 31, 2020, except that: (a) no pre-retirement decrements were assumed, (b) for Mr. Stanage, we assumed retirement at age 65, the normal retirement age under the relevant retirement arrangement, and (c) for Mr. Hennemuth, we assumed retirement as of December 31, 2020, since he is over age 65. See footnote 5 to the Summary Compensation Table on page 46 for a description of factors affecting the difference between the actuarial present value of the executive’s accumulated benefit under his SERP or EDCA, as applicable, as of December 31 of the current year and December 31 of the prior year.

 

Non-Qualified Deferred Compensation in 2020

Under the NDCP, eligible U.S. employees, including our named executive officers, may defer amounts of their cash compensation in excess of IRS limits applicable to our 401(k) Plan, referred to below as “excess compensation.” We match 50% of a participant’s contributions to the NDCP, up to 6% of the participant’s excess compensation. Due to the impact of the COVID-19 pandemic on the company’s operations, we suspended company matching contributions from June 5, 2020 until January 1, 2021. We also provide the same fixed and profit-sharing contributions with respect to such excess contributions on the same basis as provided under our 401(k) Plan. See “Compensation Discussion and Analysis—Ongoing and Post-Employment Arrangements—Hexcel Corporation 401(k) Retirement Savings Plan” for additional information. All participant and Hexcel contributions are fully vested at all times.

 

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EXECUTIVE COMPENSATION

 

Amounts credited to a participant’s account may be invested in a number of funds based upon the funds available under our 401(k) Plan, other than the Hexcel stock fund.

 

All of our NEOs participated in the NDCP in 2020.

 

    Executive   Company   Aggregate   Aggregate   Aggregate
    Contributions   Contributions   Earnings   Withdrawals /   Balance
    in Last Fiscal   in Last Fiscal   in Last Fiscal   Distributions   at Last Fiscal
Name   Year($)   Year($)(1)   Year($)(2)   ($)   Year-End($)(3)
Nick L. Stanage     73,881       130,152       72,896             1,717,227  
Patrick J. Winterlich     40,392       2,777       1,962             51,076  
Robert G. Hennemuth     47,015       25,116       12,722             649,269  
Gail E. Lehman     26,000       33,088       118             72,400  
Colleen Pritchett     104,578       3,330       4,394             106,518  
Brett Schneider     41,208       9,220       26,430       197,790       376,625  
   
(1) The amounts in this column are included in the “All Other Compensation” column in the Summary Compensation Table on page 46.
   
(2) The aggregate annual earnings in 2020 are not reported in the Summary Compensation Table, as SEC rules provide that only above-market or preferential earnings be reported in that table.
   
(3) For Messrs. Stanage and Hennemuth and Ms. Lehman, the amount in this column includes aggregate contributions, if any, by Messrs. Stanage and Hennemuth and Ms. Lehman, as applicable, and the company to the NDCP that were reported as compensation in the Summary Compensation Table in previous years: Mr. Stanage, $1,058,944; Mr. Hennemuth, $494,501; and Ms. Lehman $11,670.

 

Potential Payments Upon Termination or Change in Control

In this section, we describe payments and benefits that would be provided to our named executive officers upon several events of termination, including termination in connection with a change in control, assuming the termination event occurred on December 31, 2020. The information in this section does not include information related to:

 

distributions under the NDCP. See “Non-Qualified Deferred Compensation in 2020.”
   
RSUs, PSAs and shares underlying stock options that vested prior to the termination event.
   
short-term incentive payments that would not be increased due to the termination event.
   
distributions to Mr. Stanage under the SERP other than incremental payments payable to Mr. Stanage that are addressed below. See “Pension Benefits in 2020—Supplemental Executive Retirement Agreement with Mr. Stanage.”
   
distributions to Mr. Hennemuth under the EDCA. See “Pension Benefits in 2020—Retirement Agreement with Mr. Hennemuth.”
   
other payments and benefits provided on a non-discriminatory basis to salaried employees generally upon termination of employment, including under our 401(k) Plan.

 

We have severance agreements with all of our currently employed named executive officers other than Mr. Stanage, whose severance terms are governed by our Executive Severance Policy, coupled with certain terms set forth in his offer of employment letter. We refer to all of the documents collectively as the “Severance Arrangements.” The Severance Arrangements are described below.

 

The Severance Arrangements generally provide payments and other benefits to a named executive officer if we terminate his or her employment for any reason other than disability or “cause” (as defined in the Severance Arrangement related to the named executive officer) or if he or she terminates employment for “good reason” (also as defined in such Severance Arrangement). In circumstances related to a “change in control” or a “potential change in control” (each as defined in such Severance Arrangement) the payments are enhanced. With respect to the named executive officers, such payments and other benefits generally include a lump sum payment equal to the sum of, or a multiple of the sum of, annual base salary and average bonus under the MICP, as well as continued participation in all medical, dental, life insurance and other welfare and perquisite plans and programs in which the executive was participating on the date of termination (“Continued Participation Benefits”) for a specified period of time. These payments are further described below.

 

54 HEXCEL CORPORATION | 2021 Proxy Statement
 

EXECUTIVE COMPENSATION

 

Executive Severance Policy

The compensation committee maintains an Executive Severance Policy that applies to any executive employee of the company who has received an offer letter of employment from the company that expressly extends the provisions of the policy to such executive. Currently, Mr. Stanage is the only named executive officer subject to the policy.

 

As applied to Mr. Stanage, the policy provides that, among other things:

 

upon termination due to Mr. Stanage’s death, his legal representative will receive a pro rata portion of Mr. Stanage’s annual bonus, based on the portion of the year that elapsed prior to his death (the “pro-rata bonus”).
   
upon termination due to Mr. Stanage’s disability, he will receive the pro-rata bonus and disability benefits in accordance with the terms of the long-term disability program then in effect for senior executives of the company.
   
upon termination of Mr. Stanage by the company other than for disability or cause, or upon his resignation for good reason, other than in relation to a change in control, he will receive:
   
  the pro-rata bonus;
     
  a cash lump sum equal to one and one-half times the sum of his annual base salary and one and one-half times the average of the last three annual bonus amounts awarded to him for the last three plan years completed prior to the termination date; and
     
  Continued Participation Benefits for one and one-half years following the termination date.
     
upon termination of Mr. Stanage by the company other than for disability or cause, or upon Mr. Stanage’s termination for good reason, in each case during a “potential change in control” (as defined in the policy) or within two years after a change in control, he will receive two and one-half times the lump sum payment described above and the Continued Participation Benefits for two and one-half years. He also will receive these benefits if, during a potential change in control, we terminate Mr. Stanage at the request of a person who takes any action designed to cause a change in control.

 

The compensation committee may amend or terminate the policy in its discretion, but no amendment or termination can adversely affect a covered executive’s vested rights and no amendment or termination can become effective as to an executive earlier than the later of one year after written notice is delivered to such executive or two years after the occurrence of a change in control.

 

The Executive Severance Policy does not provide for a tax gross-up with respect to excise taxes incurred under Section 280G and Section 4999 of the Internal Revenue Code in connection with a change in control.

 

Mr. Stanage has agreed that, in consideration for these payments, he will not compete with us in any capacity for a period of 18 months following the termination of his employment. This includes, for example, any situation in which Mr. Stanage is an employee of or consultant to, or owner of a business. If Mr. Stanage’s termination is in connection with a change in control for which Mr. Stanage receives enhanced severance payments, the period is extended to 30 months. However, this restriction would not apply if Mr. Stanage’s duties and responsibilities with a company that competes with us do not relate to the business segment of that company that competes with us. Mr. Stanage also agreed to customary terms regarding our ownership of, and the protection and confidentiality of, our trade secrets, proprietary information and processes, technologies, designs and inventions.

 

Severance Agreements

We have entered into executive severance agreements with each of Messrs. Winterlich and Hennemuth, Ms. Lehman and Ms. Pritchett that provide for us to make certain payments to the named executive officer upon termination of employment under specified circumstances. In particular:

 

if we terminate the executive for any reason other than for disability or cause, or if the executive terminates his or her employment for good reason, other than in relation to a change in control, the executive will receive:
   
  ■   a lump sum payment equal to the sum of the executive’s then current base salary and, except for Ms. Pritchett, who is only eligible for a lump sum equal to base salary, average MICP award over the prior three years;
     
  Continued Participation Benefits for one year; and

 

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  the executive may receive an MICP award prorated for the portion of the year during which the executive was employed prior to termination, if such award is payable under the terms of the MICP.
     
in the event that we terminate the executive for any reason other than for disability or cause, or if the executive terminates his or her employment for good reason, in each case during a period of a “potential change in control” (as defined in the executive severance agreement) or within two years after a change in control, or if, during a potential change in control, we terminate the executive at the request of a person who takes any action designed to cause a change in control, the executive will receive the same payments and benefits as described above except that:

 

  for Mr. Hennemuth, the lump sum payment will be equal to three times the sum described above, for Mr. Winterlich and Ms. Lehman, the lump sum payment will be equal to two times the sum described above, and for Ms. Pritchett, the lump sum payment will be equal to one and one-half times the sum described above;
     
  for Mr. Hennemuth, the period of Continued Participation Benefits will be three years instead of one, for Mr. Winterlich and Ms. Lehman, the period of Continued Participation Benefits will be two years instead of one and for Ms. Pritchett, the period of Continued Participation Benefits will be one and one-half years instead of one; and
     
  Mr. Hennemuth also will be entitled to receive a gross-up payment for any excise tax incurred under Section 280G and Section 4999 of the Internal Revenue Code, but only if the total “parachute payments” exceed his untaxed safe harbor amount by 10% or more. We have agreed to reimburse Mr. Hennemuth for the excise tax as well as any income tax and excise tax payable by Mr. Hennemuth as a result of any reimbursements for the excise tax.
     
in the event of termination due to death or disability, the executive will receive an MICP award prorated for the portion of the year he or she was employed.

 

In consideration for these payments, the executive has agreed to a non-competition covenant for one year following termination of employment or, in the case of: (i) Mr. Hennemuth, three years following a termination in connection with a change in control, (ii) Mr. Winterlich and Ms. Lehman, two years following a termination in connection with a change in control, and (iii) Ms. Pritchett, one and one-half years following a termination in connection with a change in control. Each executive severance agreement annually renews automatically unless we notify the applicable executive of our intention not to renew, in which case the agreement will terminate one year following such notification.

 

We also entered into a severance agreement with Mr. Schneider on substantially the same terms as Ms. Pritchett, pursuant to which he was provided certain payments in connection with his termination on May 1, 2020. See “Potential Payments and Benefits Upon Termination of Employment on December 31, 2020—Severance Payments to Mr. Schneider.”

 

Retirement Agreement with Mr. Stanage

As described on pages 51-52, the SERP that we entered into with Mr. Stanage provides for enhanced benefits upon our termination of him without cause, termination by Mr. Stanage for good reason or our termination of him without cause, or termination by Mr. Stanage for good reason during a potential change in control or within two years following a change in control, and in connection with a potential change in control, if we terminate Mr. Stanage at the request of a person who takes any action designed to cause a change in control.

 

Equity Awards

Each of our named executive officers hold outstanding NQOs, RSUs and PSAs. Upon termination of employment of a named executive officer, the treatment of the equity award depends on the nature of the termination. The following is a description of the treatment of a named executive officer’s equity awards upon each different type of termination and upon a change in control under the terms of the applicable award agreement for grants issued as a part of our regular compensation program.

 

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EXECUTIVE COMPENSATION

 

NQOs

Voluntary departure or termination without cause – the named executive officer has 90 days to exercise the NQO to the extent vested; to the extent not vested, the NQO terminates.
   
Disability/Death – all NQOs immediately vest and remain exercisable for one year.
   
Eligible Retirement – any unvested NQOs continue to vest on the schedule set forth in the option agreement, and the named executive officer has five years from the date of retirement to exercise the NQOs (but in no event can the named executive officer exercise an NQO after the expiration of the ten-year term of the NQO).
   
Termination for Cause – all NQOs are forfeited.
   
Change in Control – all NQOs (including NQOs held by a named executive officer who retired prior to the change in control) immediately vest, and if the named executive officer is terminated without cause or terminates his or her employment for good reason within two years after the change in control, the NQOs, to the extent they remain outstanding following the change in control, remain exercisable for two years.

 

RSUs

Voluntary departure or termination with or without cause – all RSUs are forfeited.
   
Death – all RSUs immediately vest and convert to common stock.
   
Disability – all RSUs issued prior to February 2020 immediately vest and convert to common stock; RSUs issued in February 2020 or after continue to vest on the schedule set forth in the RSU agreement. If the named executive officer dies prior to the third anniversary of the grant date, all RSUs immediately vest and convert to common stock.
   
Eligible Retirement – all RSUs continue to vest on the schedule set forth in the RSU agreement. If the named executive officer dies prior to the third anniversary of the grant date, all RSUs immediately vest and convert to common stock.
   
Change in Control – all RSUs immediately vest and convert to common stock.

 

Unlike RSUs granted as part of our annual equity incentive compensation, the one-time retention RSU awards granted to Ms. Pritchett and Mr. Schneider in 2020 do not provide for continued vesting upon eligible retirement, and provide for continued vesting in the event of an involuntary termination other than for cause, and accelerated vesting only upon a qualifying termination of employment within two years following a change in control.

 

PSAs

Termination for cause – the entire award is forfeited.
   
Termination by the company without cause, or due to disability or death, or by the named executive officer for good reason – the named executive officer is entitled to a pro rata award of common stock based on the portion of the performance period for which he or she was employed, and also based on the extent to which the performance target is attained.
   
Eligible Retirement – the named executive officer is entitled to receive the full award of common stock for the performance period, in each case determined based on the actual level of attainment of the applicable performance goal.
   
Change in Control – the award is paid out immediately, based on target performance.
   

An employee generally qualifies for retirement if, upon termination of employment for any reason other than for cause, he or she is age 65 or age 55 with five or more years of service with us.

 

Our agreements relating to NQOs, RSUs and PSAs generally require that the employee comply with any obligation of confidentiality to us contained in any written agreement signed by the employee, and refrain from competing with us. The non-competition provision is substantially similar to that contained in the Severance Arrangements of our named executive officers described above. If the employee fails to comply with this requirement, then any outstanding equity grants are forfeited and the employee must deliver to the company the number of shares the employee received during the 180-day period immediately prior to the breach of the non-competition requirement,

 

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EXECUTIVE COMPENSATION

 

and if the employee sold any shares during this 180-day period, then the employee must deliver to the company the proceeds of such sales. These equity grants are also subject to the terms of the applicable plans under which they were issued, including terms that cover other possible grounds for forfeiture or recoupment of payments and gains, and terms under the plans providing for adjustments by the compensation committee upon specified events affecting the company.

 

Change in Control; Potential Change in Control; Good Reason; Cause

A “Change in Control” is generally defined in our plans and agreements to mean any of the following:

 

the acquisition by any person of 50% or more of our common stock;
   
the acquisition by any person of 40% or more of our common stock within a 12-month period;
   
a majority of the directors as of the date of the plan or agreement are replaced with persons who are not either (i) approved by the existing directors or (ii) approved by persons who were board-approved replacements of the existing directors; or
   
a merger of Hexcel or a sale of all or substantially all of the assets of Hexcel, unless (i) more than 50% of the stockholders of Hexcel prior to the transaction own the company resulting from the transaction in substantially the same proportion as they owned Hexcel prior to the transaction and (ii) the directors of Hexcel before the transaction comprise at least a majority of the directors of the company resulting from the transaction.

 

However, an event that does not constitute a change in the ownership of Hexcel, a change in the effective control of Hexcel, or a change in the ownership of a substantial portion of Hexcel’s assets, each as defined in Section 409A of the Internal Revenue Code, will not constitute a “Change in Control.”

 

A “Potential Change in Control,” as defined in the Severance Arrangements, exists during the period commencing at the time the company enters into an agreement that, if consummated, would result in a Change in Control and ends at the time such agreement either (i) results in a Change in Control or (ii) terminates, expires or otherwise becomes of no further force or effect.

 

“Good reason” generally is defined in our Executive Severance Policy (applicable to Mr. Stanage) and Mr. Hennemuth’s severance agreement to mean:

 

A 10% (in the case of Mr. Stanage) or a material (in the case of Mr. Hennemuth) reduction in the executive’s base salary;
   
A material diminution in the executive’s position, duties, responsibilities or authority;
   
Failure by us to continue any compensation plan in which the executive participates that is material to the executive’s total compensation, unless replaced with a plan of substantially equivalent value;
   
Failure by us to continue to provide the executive with the benefits enjoyed by the executive under our pension, savings, life insurance, medical, health, accident, and disability plans in which the executive was participating, except for across-the-board changes similarly affecting all executives, or failure by us to continue to provide the executive with at least 20 paid vacation days per year (or more if the executive is entitled to more under our vacation policy);
   
Failure to provide facilities or services which are reasonably necessary for the executive’s position;
   
Failure of any successor to Hexcel to assume our obligations under the relevant plan or agreement or failure by us to remain liable to the executive after such assumption;
   
Any termination by us of the executive’s employment that is not effected pursuant to a notice that complies with the applicable severance arrangement;
   
With respect to Mr. Hennemuth only, the relocation of his principal place of employment to a location more than 50 miles from his place of employment as of the date of his agreement; or
   
Willful failure to pay the executive any portion of his compensation within a specified number of days after such compensation is due.

 

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EXECUTIVE COMPENSATION

 

Mr. Winterlich’s, Ms. Lehman’s and Ms. Pritchett’s severance agreements generally define “good reason” as a 10% reduction in “Total Direct Compensation” (base salary, annual target under the MICP, and grant date value of an annual equity award under our incentive stock plan).

 

“Cause” is generally defined in our plans and agreements applicable to named executive officers to mean (i) the willful and continued failure by the named executive officer to substantially perform his or her duties after we have notified the executive in writing of the nonperformance or (ii) the willful engagement by the named executive officer in misconduct that materially harms us. Before we can terminate a named executive officer for cause, our board must give the named executive officer notice describing the reasons we intend to terminate the named executive for cause and must pass a resolution approved by at least two-thirds of the board determining that the named executive officer is guilty of the improper conduct, and must provide the named executive officer with the opportunity to be heard before the board with counsel present.

 

Potential Payments and Benefits Upon Termination of Employment on December 31, 2020

The table below describes the potential payments and benefits under the company’s compensation and benefit plans and arrangements to which the named executive officers would be entitled upon termination of employment or a change in control (including a “potential change in control”) on December 31, 2020, exclusive of items described in the introductory paragraph of this section. However, such payments generally would not be provided in connection with a termination for cause.

 

None of the payments or benefits reflected in the chart below would be payable solely in the event of a change in control without a subsequent termination, except for vesting and conversion of the equity awards (other than Ms. Pritchett’s retention RSU grant) for all named executive officers (and the related values) reflected below.

 

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EXECUTIVE COMPENSATION

 

    Cash
Severance/
Payment
at Death
($)(1)
  Incremental
Benefit
under
SERP
($)(2)
  Benefits
Continuation
($)(3)
  Accelerated or
Continued
Vesting of
Equity Awards
(value based
on 12/31/2020
share price)
($)(4)
  Total
Termination
Benefits
($)
Nick L. Stanage                                        
Voluntary retirement                              
Involuntary or good reason termination     3,716,108       1,375,663       24,049             5,115,820  
Involuntary or good reason termination after change in control     4,645,135       2,751,325       40,081             7,436,541  
Death     3,000,000                         3,000,000  
Disability           361,940                   361,940  
Patrick J. Winterlich                                        
Voluntary retirement                              
Involuntary or good reason termination     815,007             16,032       380,628       1,211,667  
Involuntary or good reason termination after change in control     1,630,014             32,065       885,702       2,547,781  
Death     2,500,000                   663,034       3,163,034  
Disability                       663,034       663,034  
Robert G. Hennemuth                                        
Voluntary retirement                              
Involuntary or good reason termination     671,000             11,216             682,216  
Involuntary or good reason termination after change in control     2,012,999             33,647             2,046,646  
Death     2,341,999                         2,341,999  
Disability                              
Gail E. Lehman                                        
Voluntary retirement                              
Involuntary or good reason termination     673,015             15,432       500,129       1,188,576  
Involuntary or good reason termination after change in control     1,346,031             30,865       724,647       2,101,543  
Death     2,298,329                   496,262       2,794,591  
Disability                       496,262       496,262  
Colleen Pritchett                                        
Voluntary retirement                              
Involuntary or good reason termination     390,000             16,011       696,865       1,102,876  
Involuntary or good reason termination after change in control     808,047             24,017       957,457       1,789,521  
Death     2,000,000                   863,706       2,863,706  
Disability                       863,706       863,706  

 

(1) Involuntary or good reason termination, with or without a change in control. For all named executive officers, represents the lump sum cash payment that would have been paid to the executive under the Executive Severance Policy, in the case of Mr. Stanage, or an executive severance agreement, in the case of Ms. Lehman, Ms. Pritchett and Messrs. Winterlich and Hennemuth.
   
  Death. Represents the death benefit (assuming accidental death of the named executive officer) that would have been paid under agreements with Messrs. Stanage and Hennemuth and our executive life insurance and accidental death and dismemberment insurance policies. The death benefit disclosed for Messrs. Stanage and Winterlich, Ms. Lehman and Ms. Pritchett would have been paid by the insurers under our executive life insurance and accidental death and dismemberment insurance policies. For Mr. Hennemuth’s death benefit, $2,000,000 would have been paid by our insurers, with the remainder paid by the company pursuant to our agreement with Mr. Hennemuth.
   
(2) For Mr. Stanage, represents the difference between (a) the actual lump sum he would have received upon the indicated type of termination on December 31, 2020, and (b) the lump sum he would have received had he voluntarily terminated his employment on December 31, 2020. Mr. Hennemuth would not receive an enhancement to his EDCA benefits as a result of any type of termination of employment or a change in control.

 

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(3) Represents Hexcel’s share of the value of welfare/medical benefits for (a) one and one-half years (in the case of Mr. Stanage) or one year (in the case of Ms. Lehman, Ms. Pritchett and Messrs. Winterlich and Hennemuth), upon involuntary or good reason termination without a change in control, and (b) three years (in the case of Mr. Hennemuth), two and one-half years (in the case of Mr. Stanage), two years (in the case of Ms. Lehman and Mr. Winterlich) or one and one-half years (in the case of Ms. Pritchett), in the event of involuntary or good reason termination following a change in control.
   
(4) Reflects the value of equity awards that were unvested on December 31, 2020, and that would have vested as a result of the indicated type of termination of employment of the named executive officer. The value of annual equity awards is not included for Messrs. Stanage or Hennemuth because each of them was retirement eligible under the terms of the equity awards on December 31, 2020 and could have received the equity award immediately or in accordance with the schedule set forth in the applicable award agreement after retirement. For Ms. Pritchett, includes the value of her February 6, 2020 retention RSU grant that would have continued to vest as a result of the indicated type of termination of employment.

 

Severance Payments to Mr. Schneider

On May 1, 2020, in connection with a restructuring of roles and responsibilities among the senior management team to align our operations with the decrease in customer demand, Mr. Schneider’s position was eliminated under circumstances that the board determined constituted an involuntary termination. Therefore, he was eligible to receive severance benefits under the terms of his severance agreement, which included a lump sum payment equal to his base salary and benefits continuation for one year. Mr. Schneider also received a pro-rata 2020 MICP bonus payout based on his separation date from the company of May 1, 2020. In addition, his grant of retention RSUs on February 6, 2020 continues to vest in accordance with its terms, and his 2019 and 2020 PSAs are subject to continued vesting on a pro-rata basis based on his separation date from the company of May 1, 2020. He was also provided additional time to exercise his vested stock options (from 90 days to 12 months after termination) on the same terms as other participants in the related reduction-in-force. The following table quantifies the severance benefits provided to Mr. Schneider pursuant to his severance agreement.

 

        Accelerated or        
        Continued        
        Vesting of        
        Equity Awards        
        (value based   Non-Equity   Total
Cash   Benefits   on 12/31/2020   Incentive     Termination
Severance
($)
    Continuation
($)
    share price)
($)(1)
    Compensation
($)
  Benefits
($)
370,000   28,375   680,606   11,934   1,090,915

 

(1) Includes the value of (a) Mr. Schneider’s retention RSUs granted on February 6, 2020, which continue to vest, and (b) his PSAs issued in January 2019 and February 2020 assuming the target level of performance will be achieved and pro-rated based on his separation date from the company of May 1, 2020.

 

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PROPOSAL 2—ADVISORY APPROVAL OF THE COMPANY’S 2020 EXECUTIVE COMPENSATION

   

 

We are seeking an advisory, non-binding stockholder vote with respect to compensation provided to our named executive officers for 2020 as required pursuant to Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

The company’s executive compensation program and compensation paid to the named executive officers are described on pages 22-61 of this proxy statement. The compensation committee oversees the program and compensation awarded, adopting changes to the program and awarding compensation as appropriate to reflect the company’s circumstances and to promote our compensation philosophy, which is to deliver pay for performance that creates sustainable value for our stockholders. We currently hold our advisory stockholder vote with respect to named executive officer compensation every year, pursuant to the stockholders’ advisory approval of an annual frequency for such vote at the 2017 Annual Meeting of Stockholders, which was accepted by the board. We anticipate that stockholders will next have the opportunity to vote on the frequency of future votes on named executive officer compensation at the 2023 Annual Meeting of Stockholders.

 

This vote is not intended to address any specific item of compensation or any single compensation philosophy, policy or practice, but rather the overall compensation of our named executive officers as described in this proxy statement. This vote is advisory and non-binding. However, the compensation committee will review the voting results and take them into consideration when making future decisions regarding executive compensation, in conjunction with other factors such as feedback from stockholder outreach programs.

 

Accordingly, the board recommends that our stockholders vote in favor of the following resolution:

 

RESOLVED, that the stockholders approve, on an advisory, non-binding basis, the compensation of the company’s named executive officers, as disclosed under Securities and Exchange Commission rules, including the compensation discussion and analysis, and the compensation tables and related material included in the proxy statement for the 2021 Annual Meeting.

 

  THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADVISORY APPROVAL OF THE COMPANY’S 2020 EXECUTIVE COMPENSATION.

 

62 HEXCEL CORPORATION  |  2021 Proxy Statement
 
 
 
 

CEO PAY RATIO

   

 

As required by SEC regulations, we are providing the following pay ratio information with respect to our last completed fiscal year, as a reasonable estimate calculated in a manner consistent with SEC regulations.

 

In determining the CEO pay ratio for fiscal 2020, we identified the median employee from our global employee population as of December 31, 2020, based on total cash compensation (consisting of base pay—including all differentials, on-call, vacation, sick and overtime pay—and annual bonus or sales incentives), with the compensation paid to non-U.S. employees converted to U.S. dollars using the applicable exchange rate in effect on December 31, 2020. Once the median employee was identified, we calculated the median employee’s annual total compensation in the same manner as we calculate the amount set forth in the “Total” column in the Summary Compensation Table (i.e., including items such as the value of stock and option awards, as well as retirement and benefit plans, to the extent applicable).

 

For our 2020 fiscal year, our median employee’s annual total compensation was $58,172 calculated in the same manner that we calculated the annual total compensation of our CEO as reported in the Summary Compensation Table on page 46. Our CEO’s 2020 annual total compensation was $7,953,938. Therefore, our CEO to median employee pay ratio for fiscal 2020 was 137 to 1.

 

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EQUITY COMPENSATION PLAN INFORMATION

   

 

The following information is provided as of December 31, 2020. All numbers in columns (a) and (c) refer to shares of Hexcel common stock.

 

Plan Category   Number of securities to be
issued upon exercise
of outstanding options,
warrants and rights
(a)
  Weighted-average exercise
price of outstanding
options, warrants and rights
(b)
  Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column(a))
(c)
Equity compensation plans approved by security holders     2,287,393 (1)     $51.07 (2)     3,361,128 (3)
Equity compensation plans not approved by security holders           N/A        
Total     2,287,393 (1)     $51.07 (2)     3,361,128 (3)

 

(1) Includes 1,443,569 shares issuable upon the exercise of NQOs, 426,681 shares issuable upon the vesting and conversion of RSUs, and 417,143 shares issuable with respect to outstanding PSAs. With respect to PSAs for the 2018-2020 performance period, reflects 0 shares to be issued, based on the actual level of attainment of ROIC and Relative EPS Growth (the applicable performance measures during the 2018-2020 period). See “Compensation Discussion and Analysis–2020 Compensation–PSAs Granted in 2018 – No Payout” on pages 38-39 for additional information. With respect to PSAs for each of the 2019-2021 performance period and the 2020-2022, assumes that we will attain the maximum level of ROIC and Relative EPS Growth under the PSAs for the performance period, each of which would result in the PSAs converting into the maximum number of shares of our common stock that can be awarded under the PSAs in early 2022 and 2023, respectively. To the extent that the maximum level of the performance measures is not achieved, shares that are not issuable upon conversion of the PSAs will again become available for future issuance under the 2013 ISP.
   
(2) Excludes the RSUs and PSAs referred to in note 1 above because they have no exercise price.
   
(3) Includes: (a) 3,332,421 shares of common stock available for future issuance under the 2013 ISP and (b) 28,707 shares of common stock available for purchase under the ESPP. While the ESPP is currently suspended due to economic conditions resulting from the COVID-19 pandemic, on February 3, 2021 the board of directors approved reinstatement of the ESPP effective as of July 1, 2021.

 

64 HEXCEL CORPORATION  |  2021 Proxy Statement
 
 
 
 

AUDIT COMMITTEE REPORT

   

 

The audit committee is responsible for assisting the board in its oversight of the integrity of the company’s financial statements, exposure to financial risk and mitigation of those risks, compliance with legal and regulatory requirements, independent registered public accounting firm’s qualifications, independence and performance, and internal audit function. We also appoint the company’s independent registered public accounting firm and submit our selection to the company’s stockholders for ratification. We operate under a written charter adopted and approved by the board of directors, which is available on the company’s website, www.hexcel.com.

 

Management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States. Our independent registered public accounting firm is responsible for performing an integrated audit of the company’s financial statements and internal control over financial reporting in accordance with the auditing standards of the Public Company Accounting Oversight Board (“PCAOB”). Our responsibility is to monitor and review these processes.

 

We held eight meetings in 2020, held numerous discussions with management and met in executive session, without management, with Ernst & Young LLP, our independent registered public accounting firm for 2020. We also met in executive session, without management present, with our internal auditors. We have reviewed and discussed the audited consolidated financial statements for the year ended December 31, 2020 with management and the independent registered public accounting firm. We discussed with the independent registered public accounting firm the matters required to be discussed pursuant to the applicable requirements of the PCAOB and the SEC.

 

Our independent registered public accounting firm also provided the written disclosures and letter required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the audit committee concerning independence, and we discussed with the independent registered public accounting firm its independence.

 

Based on our review and the discussions referred to above, the audit committee recommended to the board of directors that Hexcel’s audited consolidated financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2020 for filing with the SEC.

 

Jeffrey C. Campbell, Chair
Cynthia M. Egnotovich
Catherine A. Suever

 

The Members of the Audit Committee

 

HEXCEL CORPORATION  |  2021 Proxy Statement 65
 
 
 
 

PROPOSAL 3—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   

 

General

We are asking stockholders to ratify the audit committee’s appointment of Ernst & Young LLP (“EY”) as our independent registered public accounting firm for 2021. Stockholder ratification of the appointment of EY is not required under our Certificate of Incorporation, Bylaws or otherwise, but is being submitted as a matter of good corporate practice. While the audit committee is not bound by the outcome of this vote, if the appointment of EY is not ratified by our stockholders, the audit committee will reconsider the appointment.

 

EY has audited our financial statements annually since 2016. A representative of EY is expected to attend the Annual Meeting. The representative will have an opportunity to make a statement if he or she desires to do so and will be available to answer appropriate questions from stockholders present online at the meeting.

 

Fees

The following table summarizes fees incurred for professional audit services rendered by EY for the audit of the company’s annual consolidated financial statements for fiscal 2019 and fiscal 2020 and for other services rendered by EY in fiscal 2019 and fiscal 2020. The audit committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm, which may include audit services, audit-related services, tax services and other services. All services provided by EY were pre-approved by the audit committee.

 

    Year Ended December 31,  
    2020     2019  
Audit fees(1)   $ 2,644,000     $ 2,645,000  
Audit-related fees(2)            
Tax fees(3)     162,000       202,000  
All other fees            
Total   $ 2,806,000     $ 2,847,000  

 

(1) Audit fees relate to professional services rendered in connection with the audit of our annual financial statements, review of the financial statements included in our Forms 10-Q and services provided in connection with foreign statutory and regulatory filings.
   
(2) Audit-related fees comprise fees for assurance and related services reasonably related to the performance of the audit or review of our financial statements and not included in reported audit fees.