PROPOSAL 4: RATIFICATION OF APPOINTMENT OF GRANT THORNTON LLP AS

INDEPENDENT AUDITOR FOR 2012

Grant Thornton LLP has served as CTS’ independent auditor since June 2005 and has been appointed by the Audit Committee to continue as CTS’ independent auditor for 2012. In the event that ratification of the appointment of Grant Thornton LLP as independent auditor for 2012 is not approved by the holders of a majority of the shares of CTS common stock represented at the Annual Meeting in person or by proxy and entitled to vote on the matter, the Board will review the Audit Committee’s future selection of independent auditors.

Representatives of Grant Thornton LLP will be present at the Annual Meeting. The representatives will be available to respond to appropriate questions. The representatives will also be afforded an opportunity at that time to make such statements as they desire.

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SECTION 16(a) BENEFICIAL

OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) requires CTS’ directors, executive officers, and certain persons who own more than 10% of the outstanding shares of CTS common stock to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of CTS common stock. Executive officers, directors, and holders of at least 10% of the outstanding shares of CTS common stock are required to furnish CTS with copies of all Section 16(a) reports they file. Based solely on written representations from reporting persons and on our review of Section 16(a) reports provided by those individuals, CTS believes that all required Section 16(a) filings were completed in a timely manner for the year ended December 31, 2011.

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COMMITTEES OF THE BOARD OF DIRECTORS

Directors are assigned to committees by the full Board each year following their election at the Annual Meeting.

Compensation Committee

The Compensation Committee is a standing committee of the Board. Directors Collawn, Catlow, Cody, and Hunter are the current members of the Compensation Committee. Ms. Collawn is the Chairman of the Compensation Committee. Each member of the Compensation Committee is an independent director as defined by the New York Stock Exchange Corporate Governance Listing Standards and the CTS Corporation Corporate Governance Guidelines. The Compensation Committee held four meetings in 2011. A copy of the Compensation Committee Charter may be obtained free of charge from CTS’ website at http://www.ctscorp.com/governance/compensationcharter.htm.

The Compensation Committee establishes executive compensation policies and reviews and approves senior executive and director compensation. The Compensation Committee reviews and approves corporate goals and objectives relevant to the Chief Executive Officer’s compensation, evaluates the Chief Executive Officer’s performance against those objectives, and makes recommendations to the Board regarding the Chief Executive Officer’s compensation. The Compensation Committee also administers the CTS Corporation Management Incentive Plan and the CTS Corporation 2009 Omnibus Equity and Performance Incentive Plan, including the annual equity and non-equity performance plans. Annually, the Compensation Committee conducts an evaluation of its performance for the fiscal year.

The Compensation Committee does not delegate authority to perform any of the foregoing functions with respect to the compensation of any named executive officer. The Chief Executive Officer recommends to the Compensation Committee the form and level of compensation for each named executive officer other than himself. The Compensation Committee recommends the Chief Executive Officer’s form and level of compensation to the Board for approval.

The Compensation Committee may, from time-to-time, direct senior functionaries of the corporation’s human resources department to research specific issues and make recommendations to the Compensation Committee.

Compensation Committee Interlocks and Insider Participation

Directors Collawn, Catlow, Cody, and Hunter were appointed to the Compensation Committee following their election to the Board at CTS’ 2011 Annual Meeting of Shareholders. During 2011, no executive officer of CTS served as a director of any other entity for which any CTS director was an executive officer.

Nominating and Governance Committee

The Nominating and Governance Committee is a standing committee of the Board. Directors Henning, Ciancia, Collawn, and Murphy are the current members of the Nominating and Governance Committee. Mr. Henning is the Chairman of the Nominating and Governance Committee. Each member of the Nominating and Governance Committee is an independent director as defined by the New York Stock Exchange Corporate Governance Listing Standards and the CTS Corporation Corporate Governance Guidelines. The Nominating and Governance Committee held four meetings in 2011. A copy of the Nominating and Governance Committee Charter may be obtained free of charge from CTS’ website at http://www.ctscorp.com/governance/governancecharter.htm.

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The Nominating and Governance Committee reviews and makes recommendations to the Board concerning committee assignments, director-nominees for election at the Annual Meeting, and CTS officers for election. The Nominating and Governance Committee also develops the CTS Corporation Corporate Governance Guidelines for the approval of the Board and makes recommendations on matters of corporate governance. CTS’ Bylaws describe the process for nominating a candidate for election to the Board at the Annual Meeting. CTS does not have a formal policy concerning whether the Nominating and Governance Committee will consider director-nominees submitted by shareholders. CTS did not receive any shareholder director-nominees for election at the 2012 Annual Meeting. At this time, the Board does not believe a formal policy regarding shareholder director-nominees is necessary since CTS’ Bylaws provide a process for nomination of directors and no shareholder nominations for director have been received in past years.

The Nominating and Governance Committee reviews with the Board, on an annual basis, the requisite skills and director characteristics of any new members as well as the composition of the Board as a whole. This review includes an assessment of whether each non-management director qualifies as independent and an assessment of the diversity, age, skills, and experience of the directors in the context of the needs of the Board. Although the Nominating and Governance Committee has not established any specific minimum criteria or qualifications that a candidate must possess, the Nominating and Governance Committee seeks a diverse selection of candidates who possess the experience necessary to make a valuable contribution to the Board. The Board construes the notion of diversity broadly, considering differences in viewpoint, professional experience, education, skills, and other individual qualities, in addition to race, gender, and national origin. The Board does not have a formal diversity policy, but considers diversity as one criteria evaluated as a part of the total package of attributes and qualifications a particular candidate possesses. The Board believes that its efforts to foster a diverse board have been effective; while all directors are skilled in business, a variety of points of view, educational backgrounds, and experiences are represented on the Board. Additionally, key positions such as Chairman of the Board and Chairman of the Compensation Committee are currently held by ethnically and gender-diverse Board members. The Nominating and Governance Committee may retain search firms for the purpose of identifying and evaluating director candidates. The Nominating and Governance Committee also considers director-nominees identified by management and by non-management directors.

Audit Committee

The Audit Committee is a standing committee of the Board. Directors Ciancia, Catlow, Hemminghaus, and Henning are the current members of the Audit Committee. Mr. Ciancia is the Chairman of the Audit Committee. Each member of the Audit Committee is financially literate and meets the independence standards applicable to audit committee members under the New York Stock Exchange Corporate Governance Listing Standards, as well as the CTS Corporation Corporate Governance Guidelines and the Audit Committee Charter. The Board has determined that Mr. Henning qualifies as an audit committee financial expert under the criteria set forth in Item 407(d)(5)(ii) of Regulation S-K. In addition to being a member of the CTS Audit Committee, Mr. Henning serves on the audit committees of three other public companies. The Board considered whether or not Mr. Henning’s additional service would negatively impact his service to the Audit Committee. It is the opinion of the Board that Mr. Henning’s breadth and depth of financial experience and knowledge greatly enhances the abilities and competencies of the Audit Committee and that, as a retiree, Mr. Henning has ample time and capacity to serve on three other public company audit committees without impairment of his ability to serve the Audit Committee.

The Audit Committee held eight meetings in 2011. A copy of the Audit Committee Charter may be obtained free of charge from CTS’ website at http://www.ctscorp.com/governance/auditcharter.htm.

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The Audit Committee is responsible for appointing the independent auditor, approving engagement fees and all non-audit engagements, and reviewing the independence and quality of the independent auditor. The Audit Committee reviews audit plans, audit reports, and recommendations of the independent auditor and the internal audit department. The Audit Committee reviews systems of internal accounting controls and audit results. The Audit Committee also reviews and discusses with management CTS’ financial statements, earnings press releases, and earnings guidance. In addition, the Audit Committee reviews CTS’ compliance with public-company regulatory requirements and the CTS Code of Ethics.

Finance and Strategic Initiatives Committee

The Finance and Strategic Initiatives Committee is a standing committee of the Board. Directors Profusek, Cody, Hemminghaus, and Khilnani are the current members of the Finance and Strategic Initiatives Committee. Mr. Profusek is the Chairman of the Finance and Strategic Initiatives Committee. The Finance and Strategic Initiatives Committee held three meetings in 2011. A copy of the Finance and Strategic Initiatives Committee Charter may be obtained free of charge from CTS’ website at http://www.ctscorp.com/governance/financecharter.htm.

The Finance and Strategic Initiatives Committee reviews and makes recommendations to the Board concerning corporate financing arrangements, tax strategies, dividend policy, financial structure, acquisition and divestiture strategies, and similar matters. Additionally, the Finance and Strategic Initiatives Committee reviews and approves capital project appropriation requests for capital projects that are above certain prescribed limits.

FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS

Attendance

During 2011, the Board held nine meetings. In 2011, all of the directors attended 100% of the meetings of the Board and the standing committees of which they were then members, either in person or telephonically. It is the policy of the Board that each director endeavor to attend each Annual Meeting of Shareholders, unless exigent circumstances arise. Each director standing for re-election at the 2011 Annual Meeting of Shareholders attended that meeting.

Director Independence

The CTS Corporation Corporate Governance Guidelines provide that an independent director is one who:

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For purposes of determining whether a director has a material relationship with CTS apart from his service as a director, the Board has determined that CTS’ purchase of regulated electric and gas service from a utility company does not constitute a material relationship.

Additionally, for purposes of determining whether a director has a material relationship with CTS apart from his or her service as a director, any transaction that is not required to be disclosed pursuant to Item 404(a) of Regulation S-K shall be deemed categorically immaterial. A copy of the CTS Corporation Corporate Governance Guidelines may be obtained free of charge from CTS’ website at http://www.ctscorp.com/governance/guidelines.htm.

The Board has determined that each non-management director is an independent director and has no material relationship with CTS, apart from his or her service as a director. The Board made this determination by reference to the definition of an independent director contained in the New York Stock Exchange Corporate Governance Listing Standards and by reference to the standards set forth in the CTS Corporation Corporate Governance Guidelines, as described above. As a result, the Board concluded that Walter S. Catlow, Lawrence J. Ciancia, Thomas G. Cody, Patricia K. Collawn, Roger R. Hemminghaus (not standing for re-election in 2012), Michael A. Henning, Gordon Hunter, Diana M. Murphy, and Robert A. Profusek are each independent directors.

CTS does not have a written policy specific to transactions with related persons. However, CTS does have written policies and procedures with respect to conflicts of interest. The CTS Corporation Corporate Governance Guidelines provide that the Nominating and Governance Committee shall review any situation which might be construed to disqualify a director as independent and to make a recommendation to the Board regarding the director’s service on Board committees and nomination for re-election to the Board. The Nominating and Governance Committee Charter further provides that the Nominating and Governance Committee shall review any potential director conflict of interest and recommend appropriate action to the Board.

Meetings of Non-Management Directors

It is the policy of the Board to hold an independent session excluding management directors at each regular scheduled Board meeting. In 2011, an independent session was held at each regular Board meeting. The Lead Independent Director of the Board, Mr. Cody, presides over the independent sessions.

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Board Leadership Structure

CTS does not have a policy as to whether the role of Chief Executive Officer and Chairman of the Board should be separate or combined, or whether the Chairman should be a management or non-management director. In the recent past, the Board has been structured with an independent, non-management director as Chairman and alternatively structured with a combined Chairman/Chief Executive Officer and an independent, non-management Lead Independent Director. Currently, CTS’ President and Chief Executive Officer, Mr. Khilnani, serves as Chairman of the Board. Mr. Khilnani is the only one of CTS’ directors who is not independent. He does not receive any additional compensation for his service on the Board, or for serving as Chairman. The Chairman, in consultation with the Lead Director, sets the agenda and runs the regular meetings of the Board. Having the Chairman and Chief Executive Officer positions combined is efficient in that the person with primary responsibility for managing CTS’ day-to-day operation is well positioned to lead regular meetings as the Board evaluates key business and strategic issues.

Mr. Cody presently serves as Lead Independent Director. The Lead Independent Director is the leader of the independent directors, and leads all meetings of independent directors, which normally occur after each Board meeting. A full description of his duties is as follows:

The General Counsel and the Corporate Secretary’s Office provide support to the Lead Director in fulfilling his role. The Lead Director received an annual retainer of $20,000, in addition to his ordinary director compensation, for 2011 service. The Board has established this leadership structure because the Board believes it is effective, efficient, and appropriate to CTS’ size and complexity. Additionally, this structure represents a cost-effective allocation of responsibilities.

Contrasting with the cost and efficiency benefits is the desire to ensure that control over both management and corporate governance is not overly invested in one person. The Board is confident that, as currently constituted, it provides ample counterbalance to a combined Chairman/Chief Executive Officer and that it continues to provide suitable independent oversight of management. The independent

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directors on the Board are all accomplished professionals possessing substantial real world business and business-related experience. Additionally, most have served on the Board for a number of years. As discussed above, the independent directors meet in separate session excluding all management including the Chairman/Chief Executive Officer at each regular meeting of the Board. Further, any director has the right to submit items to be heard at any Board meeting. Lastly, the independent directors outnumber the sole non-independent director, the Chairman/Chief Executive Officer, by a large supermajority.

The Board reviews the leadership structure annually as it appoints its Chairman. While the Board has presently determined that it is appropriate for Mr. Khilnani to serve in a combined role of Chairman/Chief Executive Officer, the Board retains the right to separate those roles at any point in the future if it determines that such a separation would be in the best interests of CTS and its shareholders.

Board of Directors’ Role in Risk Oversight

As a part of its oversight function, the Board monitors how management operates the corporation. Risk is an important part of deliberations at the Board and committee levels throughout the year. Committees consider risks associated with their particular areas of responsibility. For example, the Audit Committee evaluates risk associated with accounting, financial reporting, and legal compliance as it reviews those functions, and the Compensation Committee considers compensation-related risks and risk mitigation when it sets compensation levels and structures compensation policies. In addition, the Board as a whole considers risks affecting the corporation generally. To that end, the Board conducts periodic reviews of corporate risk management policies and procedures and annually reviews risk assessments prepared by management as a part of CTS’ enterprise risk management process. The enterprise risk management process evaluates the CTS’ major risk exposures and the steps management has taken to monitor and mitigate these exposures. Therefore, the Board and its committees consider, among other items, the relevant risks to CTS when granting authority to management and approving business strategies. The Board has utilized this risk management structure for a number of years. Although the Board retains the right to make changes in risk oversight responsibilities from time-to-time, the Board anticipates that the risk management responsibilities will continue in a substantially similar manner as described above, whether or not the Board’s leadership structure changes.

Director Education

The CTS Corporation Corporate Governance Guidelines encourage all directors to participate in director continuing education programs. CTS reimburses directors for attendance at such programs. In addition, management monitors and reports to the directors regarding significant corporate governance initiatives. The directors also receive a presentation on new developments in corporate governance at least annually.

Stock Ownership Guidelines

In 2011, the Board has adopted revised stock ownership guidelines that apply to non-employee directors and executives in order to increase the alignment of their interests with those of shareholders and promote enduring shareholder value. Specifically, Our Chief Executive Officer is required to hold a number of shares equal to five and one half times (5.5) his base salary, our Directors are required to hold a number of share units equal to five and one half times (5.5) their annual base cash retainer, and officers other than the Chief Executive Officer are required to hold a number of share units equal to three times (3) their base salaries. Until such time as an officer has attained the applicable share ownership guideline, he or she is expected to retain 100% of the share units awarded to him or her, net of amounts required to pay taxes and exercise prices. Thereafter, the officer is expected to retain, for a period of at least two (2) years, at least 50% of the total share units with which he or she is credited as a result of equity awards

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made by the Company subsequent to the date on which the applicable share ownership guideline is attained, net of amounts required to pay taxes and exercise prices. Similar to the officers, until such time as a director has attained the applicable share ownership guideline, he or she is expected to retain 100% of the share units awarded to him or her. Thereafter, he or she is expected to retain, for a period of at least two (2) years, at least 50% of the total share units with which he or she is credited as a result of equity awards made by the Company subsequent to the date on which the applicable share ownership guideline level is attained; provided, however, that this requirement will terminate upon retirement. The guidelines require each director and officer to attain the applicable share unit ownership within six years of his or her initial election or appointment. The guidelines are administered by the Compensation Committee. A copy of the guidelines may be obtained free of charge from CTS’ website at http://www.ctscorp.com/governance/stockog.htm.

Director Resignation Policy

In 2011, the Board of Directors adopted a director resignation policy, which designates the circumstances when a director must offer his or her resignation to the board. Specifically, directors are expected to offer to resign from the Board when they change employment or when the major responsibilities they held when they joined the Board change. Such director may not necessarily leave the Board, but this policy provides an opportunity for the Board to review the appropriateness of his or her continued service.

Additionally, any nominee for director in an uncontested election as to whom a majority of the shares of the corporation that are outstanding and entitled to vote in such election are designated to be “withheld” from or are voted “against” his or her election shall immediately tender his or her resignation, and the Board will decide, through a process managed by the Nominating and Governance Committee and excluding the nominee in question, whether to accept the resignation at its next regularly scheduled Board meeting. The Board will evaluate the best interests of the corporation and its shareholders and may consider any factors it deems relevant in deciding whether to accept a director’s resignation.

Code of Ethics

CTS has adopted a Code of Ethics that applies to all CTS employees, including the principal executive officer, the principal financial officer, the principal accounting officer and/or controller, and all other executive officers and non-employee directors. The Code of Ethics includes ethical standards concerning conflicts of interest and potential conflicts of interest. With respect to executive officers and other employees, potential conflicts of interest must be reported to management. The Audit Committee is responsible for reviewing compliance with the Code of Ethics and reviews any potential conflict of interest involving an executive officer. A copy of the Code of Ethics may be obtained free of charge from the Corporate Secretary upon request or from CTS’ website at http://www.ctscorp.com/governance/code_of_ethics.htm.

Communications to Directors

Shareholders and other interested parties may address written communications to individual directors, including non-management directors, or to the Board as a whole, by writing to the Corporate Secretary at CTS’ corporate office located at 905 West Boulevard North, Elkhart, Indiana, 46514. All communications from shareholders must include the name and address of the shareholder as it appears on the record books of CTS and the name and address of the beneficial owner, if any, on whose behalf the communication is submitted. The Corporate Secretary will compile such communications and forward them to the directors on a periodic basis. However, the Corporate Secretary has authority to disregard any communication which is primarily an advertisement or solicitation or which is threatening, obscene, or similarly inappropriate in nature. Communications that have been disregarded for these reasons may be reviewed by any non-management director upon request.

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STOCK OWNERSHIP INFORMATION

Five Percent Owners of CTS Common Stock.     The table below lists information about the persons known by CTS to beneficially own at least 5% of the outstanding shares of CTS common stock as of December 31, 2011, unless a different date is indicated below. There were 34,066,004 shares of CTS common stock issued and outstanding as of December 31, 2011. Except as otherwise noted below, the information below is derived solely from the most recent Schedules 13D or 13G, and amendments thereto, filed with the Securities and Exchange Commission.

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Directors’ and Officers’ Stock Ownership.     The following table shows how many shares of CTS common stock each named executive officer, director, and all executive officers and directors as a group, beneficially owned as of April 5, 2012, including shares of CTS common stock covered by stock options exercisable within 60 days of April 5, 2012. Please note that, as reported in this table, beneficial ownership includes those shares of CTS common stock a director or officer has the power to vote or transfer, as well as shares of CTS common stock owned by immediate family members that reside in the same household with the director or officer. The shares of CTS common stock shown as beneficially owned by all current directors and officers do not include 1,458,900 shares of CTS common stock held by the Northern Trust Company as Trustee of the CTS Corporation Master Retirement Trust. The CTS Corporation Benefit Plan Investment Committee has voting and investment authority over those shares of CTS common stock.

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis provides details about CTS’ compensation practices for its named executive officers. The information provided in this section should be read together with the tables and narratives that accompany the information presented.

The following executives are CTS’ named executive officers for 2011, as that term is defined by the Securities and Exchange Commission:

Executive Summary

CTS’ executive compensation program is designed to attract, retain, and motivate high-quality executive talent, to provide executives with strong incentives to maximize CTS’ performance, and to align executives’ interests with those of our shareholders. Our executive compensation structure consists of base salary, annual cash incentives, performance-based equity compensation, time-based equity compensation, health and welfare benefits, limited perquisites, and retirement benefits. At the same time, our named executive officers are expected to comply with various good governance policies, such as CTS’ stock ownership guidelines and anti-hedging policy. Additionally, various plans contain clawback features, which would permit CTS to recoup compensation paid for improperly earned incentives. CTS believes that our executive compensation program provides the best means of attracting, retaining, and motivating executives with the skills and experience necessary to achieve our business goals and maximize shareholder value. CTS has remained committed to its fundamental compensation structure and philosophy over a period of many years, including in the face of recent economic volatility.

2011 Governance Activity.

Although CTS has for many years maintained robust corporate governance policies, during 2011, CTS’ Board of Directors took the following action to further enhance and improve our corporate governance:

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At our 2011 annual meeting of shareholders, we received approximately 73% approval, based on the total votes cast, for our initial advisory “Say-on-Pay” proposal to approve the compensation of our named executive officers. Our shareholders also recommended that we hold advisory “Say-on-Pay” votes every year. After consideration of the 2011 voting results, and based upon its prior recommendation, our Board has adopted our shareholders’ recommendation and will hold “Say-on-Pay” votes every year. The Committee also considered the 2011 voting results at its meetings, and while the Committee believes the voting results demonstrate significant support for our overall executive pay program, the Committee remains dedicated to aligning executive pay with company performance both to the existing executive pay programs and the governance environment surrounding the overall program. As a result of its considerations, the Committee continued implementation of the executive pay and corporate governance changes described above, which changes the Committee believes better align the Company’s executive compensation program with best practices in the competitive market.

Year 2011 Performance Summary

Multiple CTS businesses were affected by the natural disasters that befell Asia during 2011. Specifically, the earthquake and tsunami that struck Japan substantially slowed Japanese automobile production. CTS serves several of the largest Japanese auto companies and demand for CTS’ products was reduced during the period of rebuilding. Later in the year, CTS’ factory in Thailand was one of the many that was submerged by the extensive and protracted flooding that struck that country. Production was interrupted for both CTS and several important electronic component customers. Notwithstanding these catastrophes, full-year 2011 revenue was $588.5 million, an increase of $35.9 million, or 6.5%, from 2010 full-year revenue. Full-year 2011 diluted earnings per share were $0.60, including $0.07 per share for restructuring and certain legal expenses. Full-year 2010 diluted earnings per share were $0.63, including $0.03 for restructuring expenses. Despite CTS’ higher overall sales, earnings per share were only slightly higher primarily due to the natural disasters and increased research and development spending for new products, which CTS chose to continue in order to fuel future development.

Implications of 2011 Results for Compensation

For the 2011 Management Incentive Plan (or MIP), which is our annual performance-based cash incentive plan, our named executive officers with overall corporate responsibility (Messrs. Khilnani, Kroll and Cutter and Ms. Belusar) were given awards weighted 85% on EPS performance goals and 15% on

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controllable working capital as a percent of sales goals. Mr. Thornton and Mr. Schroeder, who are our named executive officers with business unit responsibilities, were given an award weighted 40% on EPS and controllable working capital performance goals and 60% on business unit operating earnings and controllable working capital performance goals. As further described below, CTS’ actual performance during 2011 exceeded the threshold amount for a MIP award to be paid, but fell short of the target level, resulting in a lower-than-target payout to our named executive officers.

The Compensation Committee also put into place the 2011-2012 Performance Restricted Stock Unit Plan, which is a two-year performance-based equity award program operated under the CTS Corporation 2009 Omnibus Equity and Performance Incentive Plan and is described in detail below. This program used an award weight of 60% for achievement of a relative total stockholder return objective (or RTSR) and 40% for achievement of a two-year sales growth objective. These metrics and weightings are identical to those used for the 2010-2011 Performance Restricted Stock Unit Plan. CTS’ performance during 2010-2011 Performance Period exceeded the threshold amount for a performance restricted stock unit award to be earned, but fell short of the target, resulting in a lower-than-target payout to our named executive officers.

During 2011, Mr. Khilnani remained a party to an ongoing Performance Share Agreement with CTS and was entitled to earn up to approximately 12,500 performance-based RSUs for a performance period that began July 2, 2008 and ended July 1, 2011. The performance metric for this award was tied exclusively to CTS’ RTSR compared to a specified peer group of companies. CTS’ actual performance during this performance period for this performance metric was below the threshold performance level established in the Performance Share Agreement, and no shares were awarded to Mr. Khilnani for this RSU award.

Despite our improved revenue performance versus 2010, overall performance did not meet target levels, the result of which caused the compensation we paid to our named executive officers to be reduced. The total realized compensation for Messrs. Cutter and Thornton was lower in 2011 than in 2010. While the values disclosed in the 2011 Summary Compensation Table below pursuant to the SEC’s rules and regulations show that Mr. Khilnani received a slight total compensation increase between 2010 and 2011, upon closer examination, this increase was due primarily to current interest rates increasing the actuarial value of his pension and SERP values, which was not pay realized by Mr. Khilnani in 2011. Excluding those changes in pension and SERP values from 2010, and based on a total realized direct compensation analysis, Mr. Khilnani actually experienced a slight decrease in compensation compared to 2010. Mr. Kroll was a new named executive officer in 2011 and Ms. Belusar and Mr. Schroeder terminated employment prior to the end of 2011, so their year-over-year compensation changes are not discussed.

The Compensation Committee and the Board believe that the skill and motivation of our employees, and especially our named executive officers, are essential to CTS’ performance and creation of long-term shareholder value. CTS believes that its policies and practices as presented in this Compensation Discussion and Analysis reflect the Board’s compensation philosophy and enable CTS to attract, retain, and motivate high-quality executive management. We will continue to provide a compensation program that we believe is effective in attracting, retaining, and motivating high-quality executives, serves shareholder interests, and is worthy of shareholder support.

Compensation Objectives

CTS designs its executive compensation program to achieve three main objectives:

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Compensation Philosophy

CTS’ executive compensation philosophy is to center potential compensation for each named executive officer at approximately the fiftieth percentile of the compensation for similar positions at similarly situated companies based on market survey data provided by Towers Watson (discussed in more detail below). This philosophy operates as a guideline for CTS’ compensation decisions, however, rather than as a fixed rule. By targeting median compensation levels for its named executive officers, CTS believes it strikes the right balance between motivating named executive officers with market-competitive factors and providing the compensation necessary to recruit and retain top executive talent.

CTS employs a mix of different compensation elements to pay its named executive officers, which elements consist of base salary, annual performance-based cash incentives, performance-based equity awards, time-based equity awards, retirement benefits, limited perquisites, and health and welfare benefits. Total compensation packages combining these elements are designed to achieve each of CTS’ compensation objectives as follows:

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CTS does not generally use a specific formula for allocating total compensation between current and long-term compensation or between cash and non-cash compensation. The amount allocated to each element of compensation generally reflects allocation percentages in Towers Watson market survey data for comparable positions, based on the regression analysis described below. Additionally, relevant factors such as an executive’s level of experience, responsibilities, demonstrated performance, length of service with the corporation, achievement of individual and corporate goals, risk, and retention considerations also may affect compensation structure for a particular named executive officer.

CTS does endeavor to ensure that a substantial portion of total compensation for its named executive officers is based on performance and is at risk each year. In this way, CTS’ executive compensation programs provide named executive officers with strong incentives to maximize CTS’ performance, which ultimately enhances shareholder value. As a named executive officer takes on more responsibility, the Compensation Committee generally increases the percentage of his or her total compensation that is at-risk. As a result, our named executive officers have a substantial percentage of their total compensation opportunities based on at-risk, variable elements of compensation. CTS believes that this practice is appropriate because the corporation’s named executive officers have the greatest ability to drive performance and, therefore, should have the most to gain or lose in terms of compensation opportunities based on performance. In light of those facts, it is possible for CTS’ named executives to earn above-market compensation in any year, but they may earn below-market compensation as well, depending on individual and corporate performance for that year.

CTS believes that its compensation practices are prudent, and care is taken by the Compensation Committee to ensure that named executive officers are eligible to receive a reasonable amount of compensation in exchange for their services, so that they are properly incentivized to achieve CTS goals, and to ensure that compensation opportunities are structured to align named executive officers’ interests with those of our shareholders. These goals are achieved through application of a number of techniques, such as:

In this way, CTS believes that named executive officers will consider the impact of decisions in both the short- and long-term and will exercise careful judgment, so that while attempting to enhance shareholder value they will not take actions that pose unnecessary risk to the overall long-term well-being of the corporation.

The amount of total compensation realized or potentially realizable from prior compensation awards does not directly influence the level of compensation paid in the current year or future pay opportunities. Factors such as the tax and accounting treatment of different forms of compensation may influence the form and structure of executive compensation, but do not necessarily affect the total amount of compensation.

Role of Management in 2011 Named Executive Officer Compensation Decisions

For 2011, Mr. Khilnani relied on market survey data provided by CTS’ external compensation consultant, Towers Watson, and compiled by CTS’ Executive Director of Human Resources. After reviewing the data compiled by the Executive Director of Human Resources, Mr. Khilnani recommended a

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total compensation package to the Compensation Committee for each named executive officer other than himself. Mr. Khilnani’s aim was to provide recommendations to the Compensation Committee that aligned each named executive officer’s total compensation opportunity at approximately the fiftieth percentile of similarly situated executives, based on the regression analysis conducted by Towers Watson. This practice is consistent with CTS’ compensation philosophy: by using the median compensation as a guideline in setting total compensation, CTS should be able to attract, retain, and motivate highly-qualified executives with the skills and experience necessary to lead the corporation.

How 2011 Named Executive Officer Compensation was Determined

At its February 2011 meeting, the Compensation Committee reviewed the data used by Mr. Khilnani, considered his recommendations, and ultimately decided on a total compensation package for each named executive officer. As a part of this meeting, the Compensation Committee set targets for compensation opportunities that were intended to qualify as performance-based awards under Section 162(m) of the Internal Revenue Code. For all named executive officers other than the Chief Executive Officer, total compensation packages for the year were finalized when approved by the Compensation Committee. The Compensation Committee recommended a total compensation package for the Chief Executive Officer to the Board, which was discussed by the Board at its February 2011 meeting, and became final upon its approval. As Mr. Khilnani is the Chairman of the Board, he abstained from participation in discussions or voting with respect to his own compensation.

Overall Mix and Structure of 2011 Named Executive Officer Compensation

For 2011, the Compensation Committee considered the total compensation opportunities for each named executive officer and determined how total potential compensation should be allocated across the different elements of compensation. The Compensation Committee did not follow a definitive policy when determining the mix of and structure for total compensation. Instead, it considered factors consisting of each executive’s achievement of corporate and individual goals, level of experience, responsibilities, demonstrated performance, length of service with the corporation, risk, and retention considerations.

The Compensation Committee also considered market practices as reflected in the market survey data provided by Towers Watson to obtain a baseline of total potential compensation for each named executive officer. Using this as a starting point, the Compensation Committee engaged in discussions with the objective of ensuring that a substantial portion of each named executive officer’s total compensation was at-risk and dependent on the corporation’s financial performance. Care was taken to balance the incentives to drive performance in the short-term versus the long-term. In this way, CTS encouraged the named executive officers to vigorously pursue increased performance in 2011 while also discouraging incentives to take excessive risks that might be beneficial in the short-term, but harmful in the long run. CTS believes that this aligns the interests of the named executive officers with those of the shareholders year-over-year, as well as over the long-term.

Cash incentives and equity compensation opportunities generally increase across the named executive officer positions consistent with increasing responsibility. This structure generally means that the most senior named executive officers will have a higher percentage of their total compensation at-risk and variable than the less senior named executive officers. As a result, the most senior named executive officers who had the greatest ability to drive CTS’ 2011 performance had the most to gain or lose based on corporate and individual performance in 2011.

In addition to cash and equity components, CTS offered its named executive officers retirement benefits, health and welfare benefits, and perquisites in 2011. The corporation believes that offering named executive officers retirement benefits, health and welfare benefits, and a modest level of perquisites are standard practices in other companies, and that these compensation elements are expected components of overall compensation packages provided to CTS’ named executive officers.

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Benchmarking and Consultants for 2011

Every one to two years CTS purchases market survey data from Towers Watson regarding the named executive officers’ positions in order to determine current prevailing pay rates for those positions and to examine the prevailing structures of executive compensation based on the regression analysis described below. Through this information, Towers Watson provides CTS with detailed, comprehensive, and sophisticated survey data that enables CTS to make informed decisions on executive compensation.

In November 2010, CTS’ Executive Director of Human Resources received market survey data from Towers Watson as to various elements and aspects of compensation (including base salary, perquisites, annual incentives, incentive targets, and equity awards) for use in setting 2011 executive compensation. Benchmark compensation reports were received for executive positions including Chief Executive Officer (Mr. Khilnani), Top Financial Executive (as of that date, Ms. Belusar and, as of September 1, 2011, Mr. Kroll), Profit Center Head (Mr. Thornton), Controller (as of that date, Mr. Kroll), and Top Legal Executive (Mr. Cutter), among others. This market survey data was then used by Mr. Khilnani to recommend a compensation package for each named executive officer (other than himself) in accordance with CTS’ compensation philosophy. The market survey data was also provided to the Compensation Committee and used as a starting point in considering executive compensation packages.

Towers Watson generated its market survey data reports through analysis of broad industry-wide databases reflecting the pay practices of hundreds of companies. Towers Watson determined competitive pay for CTS’ officer positions based on regression analysis, which is a statistical technique that considers the relationship between total revenues and compensation, in order to adjust the database information to identify market data that corresponded to an organization of similar size to CTS. The regression analysis did not, however, produce a readily identifiable subset of companies (in other words, a peer group). Instead, the regression analysis produced data points that were then used by CTS as a guide in setting total executive compensation levels and allocating the mix among the various compensation elements for 2011. Towers Watson used information provided by CTS to determine which survey and benchmark positions were appropriate comparisons for CTS’ named executive officer positions. CTS’ named executive officer positions were compared to positions with similar job responsibilities in general industry and the electronics and scientific equipment industry. CTS did not require Towers Watson to limit the survey data solely to companies in CTS’ industry because compensation data is not available for all of its competitors and also because CTS believes that it is important to consider compensation practices at other companies of comparable size and scope in order to attract, retain, and motivate executive talent.

Although the Towers Watson data did not result in the identification of a specific peer group, management and the Compensation Committee had confidence in the Towers Watson market data reports because the data was pulled from large, detailed, and comprehensive surveys and because Towers Watson is an experienced compensation consultant whose market survey data has been used by CTS on numerous occasions to successfully attract and retain highly qualified and talented executives of the caliber CTS desires.

Based on its review of corporate pay practices in this process, Towers Watson explained to CTS that total compensation levels that are within 15% of the median of the market data are generally considered to be within the range of competitive practice. The Compensation Committee considered this guidance by Towers Watson when establishing 2011 compensation levels, although the Compensation Committee reserved the right to deviate from this guideline in light of a particular named executive officer’s unique circumstances, such as level of experience, skills, and length of service with the corporation. In general, in cases where compensation for a named executive officer falls substantially below the 15% median data threshold, consistent with CTS’ compensation philosophy, the Compensation Committee will ordinarily recommend a larger increase to bring the compensation in line with the median over time.

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While CTS did not use a “peer group” for purposes of determining 2011 compensation levels, it does use a peer group for purposes of measuring performance under the terms of its performance-based equity plans. Please see the “Performance-Based Equity Compensation” section below for a discussion of the companies that constitute this peer group, and of how CTS’ performance is measured against them.

For 2011, the Compensation Committee also retained Towers Watson as its independent compensation consultant to assist the Compensation Committee in evaluating current compensation arrangements, identifying compensation trends and evaluating compensation plans for 2012 and beyond.

Elements of 2011 Named Executive Officer Compensation

Base Salary.     Base salary was included as an element of total compensation to ensure that each named executive officer received a suitable minimum return for his or her service to the corporation for 2011. A sufficient base salary also helps to ensure that named executive officers do not become unduly focused on achievement of shorter-term incentive awards that may be to the detriment of the overall long-term health of the corporation. For 2011, the Compensation Committee initially determined reasonable base salaries for the named executive officers by aligning base compensation for each named executive officer at approximately the fiftieth percentile of peer executives as set forth in the Towers Watson regression analysis reports described above. The Compensation Committee also considered each named executive officer’s responsibilities, past performance, and time with the corporation in setting his final base salary for 2011.

The base salaries for the named executive officers that were set in 2011 were as follows: Mr. Khilnani, $653,400; Mr. Kroll, $228,060; Ms. Belusar, $309,309; Mr. Cutter, $277,617; Mr. Schroeder, $352,113; and Mr. Thornton, $291,104. In light of market conditions in 2011, the named executive base salary increases scheduled to be implemented in spring 2011 were delayed until October 2011 due to macro economic trends. Please note the 2011 base salary levels described in this paragraph are not directly comparable to the amounts listed in the “Salary” column for 2011 in the 2011 Summary Compensation Table because they were implemented in October 2011, and do not represent the actual base salaries earned by the named executive officers in fiscal year 2011 that are shown in the 2011 Summary Compensation Table.

Annual Performance-Based Cash Incentive Plan.     CTS believes that it is important to motivate its named executive officers to achieve annual corporate financial goals. Therefore, CTS places a substantial part of each named executive officer’s total compensation at risk by tying it directly to corporate performance. CTS used an annual Management Incentive Plan (or MIP) established pursuant to the terms of the CTS Corporation 2007 Management Incentive Plan to focus CTS’ named executive officers on the most critical of its shorter-term financial metrics for 2011. The MIP provided for annual cash payments to named executive officers based on CTS’ financial performance and achievement of individual goals. A named executive’s ultimate award was determined under a formula that provided for payment of zero to 200% of a target award based on CTS’ actual performance versus the established quantitative financial performance goals. In addition, the Compensation Committee reserved the right to adjust awards downward based upon the named executive officer’s actual performance versus individual goals. Awards under the MIP were intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code.

How MIP Target Awards and Performance Goals Were Set.     In February 2011, the Compensation Committee established a target award and quantitative financial performance goals for each named executive officer. Target awards were set as a percentage of base salary. In setting target awards, the Compensation Committee took into consideration the median percentile target awards in the Towers Watson regression analysis reports described above, as well as internal parity. CTS’ practice to

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structure its named executive officers’ annual MIP compensation at approximately the fiftieth percentile was based upon a philosophy that by using a median award, CTS is able to balance motivating the named executive officer with what it perceives as market-competitive factors in being able to attract, retain, and motivate top executive talent.

The quantitative financial performance goals were based on CTS’ established business plan for 2011. Each year, the Board reviews a business plan prepared by members of management that includes projections for revenues, earnings, key balance sheet metrics, and cash flow for each business unit. The business plan considers prior year results, strategic initiatives, approved forward investment plans, projected market demands, competition, improvement initiatives, and other factors. Provided that a metric is a performance measure authorized under the terms of the CTS Corporation 2007 Management Incentive Plan, the Compensation Committee generally may use any of the metrics set out in the business plan to establish quantitative financial performance goals for the annual MIP.

In 2011, the Compensation Committee set quantitative financial performance goals for corporate-level MIP participants (Messrs. Khilnani, Kroll, Cutter and Ms. Belusar) using CTS’ controllable working capital as a percentage of sales and earnings per share (or EPS) as defined in the MIP. Controllable working capital was chosen because it is an objective measure of how efficiently CTS manages its short term capital needs. CTS chose EPS as a metric because it is a direct measurement of overall corporate performance that takes into consideration market conditions and provides a quantitative measurement from which CTS is able to assess the performance of its named executive officers. For purposes of the MIP, EPS was defined as CTS’ fully diluted net earnings per share as stated in CTS’ consolidated statement of earnings for 2011 that was adjusted to exclude, if any:

For MIP participants at the SBU level (Messrs. Thornton and Schroeder), the Compensation Committee set quantitative financial performance goals using EPS, as well as SBU-level operating earnings and controllable working capital as a percentage of sales.

The Compensation Committee set the performance level for these metrics and established a minimum performance level that had to be reached before MIP awards were paid. In establishing minimum and maximum performance levels for particular financial performance goals, the Compensation Committee considered past and projected performance levels for both CTS and the named executive officers, external market conditions, presumptions for 2011, and desired overall share performance targets for 2011.

Individual performance goals for each named executive officer were based on specific items within each named executive officer’s area of job responsibility that related to the business plan and overall corporate objectives. These were set at the same time as the quantitative financial performance goals and were designed to also be considered in determining the MIP award payments.

Determination of Actual Awards.     Actual MIP award payments were based on a formula and could have varied from zero to 200% of the target award based on achievement of the quantitative financial performance goals. The payout “cliff” dropped to zero if performance fell below a threshold level of the quantitative performance goals. On the upside, payout increased linearly up to 200% as performance

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exceeded the quantitative performance goals. One consequence of this cliff threshold and payout performance formula is that a named executive officer’s risk of receiving no award is greater than the named executive officer’s opportunity to obtain an award that is substantially above target. Another consequence is that payouts above target represent a fraction of the expected return to the corporation from “better than plan” performance. Since payments are capped, a named executive officer cannot increase MIP awards beyond a fixed amount, counterbalancing the incentive to pursue outsized short-term rewards at the expense of the long-term health of the corporation.

Likelihood of Executive Achieving MIP Goals.     Management endeavored to establish a plan that demanded challenging, but achievable, results given expected business conditions. While actual awards will vary above and below target from year to year, CTS expects that over a period of several years, payouts under the MIP will average about 100% of target. Over the past five years, payouts under the MIP based on corporate metrics alone averaged 114% of target, while payouts under the MIP based on both corporate and business unit metrics averaged 86% of target.

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How 2011 Awards were Calculated.     For CTS’ named executive officers with overall corporate responsibility (Mr. Khilnani, Mr. Kroll, Ms. Belusar, and Mr. Cutter), performance measurements were weighted 85% for the EPS objective and 15% on the controllable working capital as a percentage of sales objective. For named executive officers with business unit responsibilities (Messrs. Schroeder and Thornton), performance measurements were weighted 85% as to the EPS and/or business unit operating earnings objectives. The remaining 15% was weighted as to the controllable working capital as a percentage of annual sales objective. The target award for Mr. Khilnani was 100% of base salary (or $616,169). For Ms. Belusar, Mr. Schroeder and Mr. Thornton, the target award was 50% of base salary (or $143,160, $94,800 and $144,575, respectively). For Mr. Cutter, the target incentive was 45% of base salary (or $122,129). For Mr. Kroll, the target was originally 30% of base salary (or $44,389) during the time he served as Vice President and Controller during the year from January to August 2011, and the target was increased to 45% (or $23,683) effective as of the date of his promotion to Vice President and Chief Financial Officer on September 1, 2011. These target awards were derived in part from the data provided by Towers Watson and in part by the Compensation Committee’s subjective judgment on internal equity of the positions, their relative value to CTS, and the desire to maintain a consistent annual target award incentive for named executive officers of CTS and the business units. The award opportunities available to each named executive officer ranged from no payment if the goals were met below the 50% performance level to a 200% payout if the goals were met at or above the 200% performance level.

Use of Discretion for Downward Adjustments.      Each year’s incentive plan is based upon an expected set of events, regulations, external conditions, and assumptions regarding the management team’s ability to achieve intended results. While it is understood that not all factors impacting the business results are within management’s control, the business plan is expected to reflect reasonable assumptions regarding such factors, and management is expected to adjust to such factors, while still working to achieve or exceed targeted results. Despite management efforts, such factors may still negatively impact results. However, it is also recognized that some factors outside management’s control may have undue impact on results, defeating the intent of the incentive in terms of motivating or rewarding participants. In order to comply with Section 162(m) of the Internal Revenue Code, however, the 2011 MIP precluded the Compensation Committee from exercising discretion to increase awards payable to those employees designated by the Compensation Committee as covered employees as part of the 2011 year-end calculations. As a result, targets were established at a consistent level lower than that reflected in the business plan. Establishing covered employees’ calculated incentive factors under the MIP at levels that

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enable the Compensation Committee to use discretion to adjust final awards downward achieves the same result that can be obtained by adjusting performance measures for non-covered employees (employees not subject to Section 162(m) of the Internal Revenue Code). If no unusual condition occurs, the Compensation Committee will adjust the final result downward so that covered employees achieve the same target level achievement as non-covered employees. In 2011, EPS was $0.67 (for an explanation of how EPS was calculated for purposes of the MIP, please refer to the section of this proxy titled, “Year 2011 Performance Summary” on page 21; and for an explanation of how goals were set, please refer to the section of this proxy titled, “How MIP Target Awards and Performance Goals Were Set” on pages 27-28). Then, the Compensation Committee downwardly adjusted the earnings per share consistent with the plan terms.

Performance-Based Equity Compensation.     Performance-based equity grants encourage strong financial performance while aligning executive compensation with shareholder interests. Under the terms of the performance-based plans, named executive officers may earn restricted stock unit (or RSU) awards based upon achievement of financial objectives that CTS believes are beneficial to the corporation and its shareholders or based upon CTS’ overall performance relative to peers over a longer term. Strong financial performance is encouraged since increasing levels of performance will result in increasing awards to the named executive officer. Evaluating performance by comparison to peers helps to ensure a true measure of performance under current market conditions. Settling awards in equity helps to ensure alignment of executive compensation with shareholder interests.

2010-2011 Performance Restricted Stock Unit Plan.     In February 2010, under the terms of the CTS Corporation 2009 Omnibus Equity and Performance Incentive Plan, the Compensation Committee established a two-year performance-based equity compensation program, called the 2010-2011 Performance Restricted Stock Unit Plan. Depending upon CTS’ achievement of sales growth and CTS’ Relative Total Stockholder Return (RTSR) compared to the peer group described below, over a two-year performance period (fiscal years 2010 and 2011), a named executive officer was eligible to earn an RSU award of zero to 200% of a target award established for his or her position. Awards are weighted 60% for achievement of the RTSR objective and 40% for achievement of the two-year sales growth objective. All named executive officers, with the exception of Mr. Schroeder, were participants in the 2010-2011 Performance Restricted Stock Unit Plan.

The awards are intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. The performance goals and target awards were established by the Compensation Committee at its meeting in February 2010. Performance was measured at the end of the performance period, and awards for achievement of the performance goals were granted in 2012 in the form of RSU’s vesting immediately, subject to certification of 2011 fiscal year results by CTS’ independent auditor. Awards were settled on the basis of one share of CTS common stock for each RSU on the settlement date.

In connection with this plan, the Compensation Committee established a target award for each participating named executive officer in the form of a specific number of RSUs. The Towers Watson market survey data discussed previously was consulted by the Compensation Committee as a reference in establishing the named executive officers’ target RSU awards. The target RSU awards were 80,000 for Mr. Khilnani, 6,000 for Mr. Kroll, 20,000 for Ms. Belusar, 13,000 for Mr. Cutter, and 20,000 for Mr. Thornton.

The Compensation Committee selected RTSR, a comparison of the increase of CTS’ stock price against the stock price appreciation of the peer group described below over time (including aggregated dividends and adjusted for stock splits over the period), as a performance goal because it is a meaningful measure of CTS’ overall relative performance in comparison to its peers. Two-year sales growth was selected to reinforce senior management’s focus on increasing sales over the long-term. The Compensation Committee selected a two-year performance measurement period to encourage sustained performance beneficial to shareholders over the long-term.

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The Compensation Committee also determined the various performance levels that had to be achieved in order for named executive officers to earn an RSU award. When measuring performance against peers, the RSU award would drop to zero if performance fell below a threshold level of RTSR performance achievement. At the other end of the spectrum, the award payout for exceptional RTSR performance was capped at 200% of target. After the minimum award threshold is achieved, awards are interpolated in between award levels. The criteria in order to achieve various RSU award levels under the plan were as shown in the table below.

The Compensation Committee selected a peer group consisting of 28 companies whose performance was compared to CTS’ over the two-year performance period for RTSR measurement. It is difficult for CTS to establish a “pure” peer group because relatively few companies are the same size and have the same business segments as CTS. Therefore, the companies chosen for benchmark purposes were selected because they fit at least one criterion of similar revenue, similar industry or similar products and services to CTS. A peer company may be removed from the list if delisted from its exchange for certain reasons not involving poor performance. The peer companies selected are listed as follows:

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Participants must remain employed by CTS through the end of the two-year performance period to be eligible to earn an award. Since CTS named executive officers are generally expected to retain their stock awards, named executive officers are incentivized to consider the long-term implications of actions taken in pursuit of performance-based equity awards. Similar to the MIP discussed above, the Compensation Committee may, in its discretion, adjust a participant’s payout of an award downward after consideration of other business factors, including overall performance of CTS and the individual participant’s contribution to CTS performance. The Compensation Committee may also adjust a payout of an award in its discretion to prevent the enlargement or dilution of the award because of extraordinary events or circumstances as determined by the Compensation Committee. However, adjustments will not be made with respect to the award of a covered employee if doing so would cause the related compensation to fail to qualify as “qualified performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code.

The 2010-2011 Performance Restricted Stock Unit Plan contains a recoupment feature. Specifically, if CTS learns of any intentional misconduct by a plan participant that directly contributes to CTS having to restate all or a portion of its financial statements, the Board may, in its sole discretion, require the participant to reimburse the Company for the difference between any awards paid to the participant based on achievement of financial results that were subsequently the subject of a restatement and the amount the plan participant would have earned as awards under the plan based on the financial results as restated.

In February 2012, the Compensation Committee reviewed and certified the results of performance over the two-year performance period. The Compensation Committee calculated total stockholder return for CTS and the participants as a percentage, comparing the closing stock price at the beginning and end of the performance period, after adjusting for dividends paid and stock splits. In calculating CTS’ common stock prices, CTS used a 20-day average of the closing prices before the first and last days of the performance period to ensure no temporary condition or manipulation could distort CTS’ common stock price. With respect to the peer group, the Compensation Committee used the closing price on the first and last days of the performance period. After the calculations were completed, each company was ranked in order of highest to lowest total stockholder return.

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During the performance period, CTS’ common stock price decreased from $9.36 to $9.27 (when adjusted up from $9.03 to account for $0.245 in dividends paid by CTS during 2010 and 2011). This resulted in CTS’ total stockholder return being 42.9% over the performance period. CTS’ two year sales growth increased from $499.0 million in 2009 to $588.5 million in 2011, an increase of 17.94%. The RTSR goal was met above the 50% payout level, but less than the 150% payout level. It was interpolated to a calculated incentive factor of 82.25%. The two-year sales growth goal was met above the 50% payout level but less than the 100% payout level. It was interpolated as a calculated incentive factor of 89.7%. The Compensation Committee made no adjustments to the plan or results. The table below lists each named executive officer’s target RSU award, the 2010-2011 Performance Restricted Stock Unit Plan performance goals, the 2010-2011 RTSR results, and total performance-based equity compensation earned under the plan.

2011-2012 Performance Restricted Stock Unit Plan.     In February 2011, the Compensation Committee established a two-year performance-based equity compensation program called the 2011-2012 Performance Restricted Stock Unit Plan in which all named executive officers except Mr. Cutter participate. Mr. Cutter does not participate due to his announced planned retirement on May 31, 2012. As the Compensation Committee’s philosophy on performance-based equity compensation remains fundamentally unchanged, the terms and conditions of this plan are substantially similar to the terms of the 2010-2011 Performance Restricted Stock Unit Plan described above. Awards are weighted 60% for achievement of the RTSR objective and 40% for achievement of the two-year sales growth objective. Also, after the minimum award threshold is achieved, performance will be interpolated between performance levels.

Again, depending upon achievement of performance goals set by the Compensation Committee, a named executive officer could earn an RSU award of zero to 200% of a target award established for his or her position. The Compensation Committee again established a specific number of RSUs for each named executive officer as a target award, selected a two-year performance period (fiscal years 2011 and 2012), selected various performance levels for achievement of awards, and established a minimum threshold beneath which no award would be paid. The Compensation Committee selected the same 28 member peer group that was used in the 2010-2011 Performance Restricted Stock Unit Plan. The plan again contains a peer group adjustment protocol, requires participants to remain employees during the entire two-year performance period, and will settle RSU awards, if any, in shares of CTS common stock on a one to one basis by March 15th of the year following the performance period. The plan permits the

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Compensation Committee to adjust awards, subject to the restrictions of Section 162(m) of the Internal Revenue Code, and contains recoupment features in the event of employee misconduct.

Chief Executive Officer Performance Share Agreement.     In addition to his participation in the performance-based equity incentive plans described above, Mr. Khilnani is a party to an ongoing Performance Share Agreement with CTS. Under this agreement, CTS established a performance-based RSU award for Mr. Khilnani. An aggregate of 25,000 RSUs may be earned over the course of three separate performance periods, commencing on July 2, 2007, July 2, 2008, and July 2, 2009, respectively, and ending on July 1, 2010, July 1, 2011, and July 1, 2012, respectively. Vesting will occur, if at all, at a rate of up to 150% of the target award (not to exceed a total of 25,000 shares over the three-year plan period) on the end date of each performance period and is tied exclusively to CTS’ RTSR compared to an enumerated peer group of companies. The vesting rate will be determined using a matrix based on CTS’ percentile RTSR ranking compared to the peer group companies listed previously.

The second of these performance periods ended July 1, 2011. Mr. Khilnani’s target award for this second performance period was 8,333 RSUs. The performance criteria used to calculate this award was:

At the end of the second performance period, CTS’ RTSR ranking was in the bottom one third of all peers, which resulted in no RSUs being earned by Mr. Khilnani under this agreement during 2011. Through the first two performance periods, Mr. Khilnani has earned a total of 12,500 RSUs under this plan, and he remains eligible to earn up to 12,500 additional RSUs during the third performance period, ending July 1, 2012.

Time-Based Equity Compensation.     CTS believes that stock ownership and equity-based compensation are valuable tools for motivating employees to improve CTS’ long-term performance. CTS also believes that equity grants are an effective way to align named executive officer and shareholder interests because a significant amount of a named executive officer’s potential income is directly tied to enhancing shareholder value. Time-based equity grants also play a critical role in retaining and motivating executive talent by encouraging named executive officers to remain employees throughout the service period so that they will receive equity awards. The retention of qualified named executive officers over the longer term assists CTS in retaining valuable institutional knowledge. Further, time-based equity compensation also helps to assure that named executive officers are able to meet their obligations under CTS’ stock ownership guidelines. The Compensation Committee considered time-based equity grants as part of its review of annual executive compensation February 2011. For new hires or to recognize significant individual contributions, the Compensation Committee may grant individual RSU awards at different times during the year and may use alternative vesting schedules or distribution options.

2011 Grants.     For 2011 time-based equity compensation grants, CTS issued RSUs. In February 2011, the Compensation Committee awarded RSUs vesting over a three-year term to Ms. Belusar, Mr. Cutter, Mr. Kroll, and Mr. Thornton based on the recommendations of management. In making its recommendations, management consulted the regression analysis data obtained from Towers Watson and considered other relevant data including retention and performance. In contrast to the other named executive officers, Mr. Khilnani’s RSU award was not granted by the Compensation Committee. Rather, his award was recommended by the Compensation Committee and approved by the entire Board, other

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than Mr. Khilnani, who abstained in discussions and votes related to his award. Each time-based RSU award is settled with one share of CTS common stock upon vesting. Grants of equity made in 2011 can be seen in the “2011 Grants of Plan-Based Awards” table below.

CTS believes that the general practice of deferred vesting of equity awards over several years further helps to align the interests of our named executive officers and shareholders. Since a substantial portion of each named executive officer’s compensation is paid out in the form of time-based equity grants, and since the value of equity will vary over time, depending mostly upon the overall performance and strength of CTS, actions taken in one year may substantially affect a named executive officer’s compensation over the course of many subsequent years. Therefore, named executive officers are encouraged to consider the longer-term health of the corporation in addition to shorter-term considerations. CTS also believes that deferred vesting helps in the retention of named executive officers, as unvested portions of grants are ordinarily forfeited in the event of termination.

Retirement Benefits and Plans.     CTS’ retirement plans are designed to provide a competitive level of retirement benefits necessary to attract and retain executive talent. Retirement benefits encourage retention to the extent that named executive officers are rewarded with increased benefits for extending their term of service. CTS offers a 401(k) plan to all current named executive officers and a defined benefit plan to those named executive officers who joined CTS prior to April 1, 2006, when the defined benefit plan was closed to new entrants. Named executive officers who participate in the defined benefit plan also participate in a SERP.

Defined Contribution Plan.     Substantially all U.S.-based CTS employees are or were eligible to participate in the CTS Corporation Retirement Savings Plan, a 401(k) plan which we refer to as the CTS 401(k) plan. CTS’ matching contribution levels are governed by the rules in effect when employees began employment with CTS. Under the terms of the plan applicable to Messrs. Khilnani, Cutter, Schroeder and Kroll, CTS matches an employee’s contributions $0.50 for every dollar, up to 6% of eligible pay, for a maximum matching contribution of 3%, subject to limitations under the Internal Revenue Code. Under the terms of the plan applicable to Ms. Belusar and Mr. Thornton, CTS matches an employee’s contributions dollar for dollar up to the first 3% of eligible pay, and thereafter at $.50 for every dollar up to the next 2% of eligible pay, for a maximum matching contribution of 4%, subject to limitations under the Internal Revenue Code.

Defined Benefit Plan.     Messrs. Khilnani, Cutter, Schroeder and Kroll are or were eligible to participate in the CTS Corporation Pension Plan, a tax-qualified defined benefit plan that we refer to as the Pension Plan. On April 1, 2006, CTS closed the Pension Plan to new entrants. Employees and named executive officers who joined CTS after that date, such as Ms. Belusar and Mr. Thornton, were ineligible to join the Pension Plan, and thus cannot earn benefits under the Pension Plan.

The Pension Plan requires participants to complete a period of vesting service in order to become eligible for a benefit. Each of the eligible named executive officers has completed the required vesting service period. The Pension Plan benefit is based on a formula representing a factor of average monthly earnings over a period of time multiplied by credited service, which determines the monthly benefit. Certain participants may elect an early retirement benefit at age 55, at a reduced benefit. Messrs. Khilnani and Kroll are eligible to take early retirement. Mr. Cutter has reached full retirement age. Mr. Schroeder retired in July 2011.

Under the terms of the Pension Plan, certain annual incentive compensation is included in determining the average earnings used in the benefit calculation. Thus, benefits under the Pension Plan are directly affected by earned incentive compensation.

Supplemental Executive Retirement Plans.     Each named executive officer who participates in the Pension Plan is also eligible to participate in a SERP. The purpose is to restore retirement benefits the

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named executive officer would otherwise have earned under the qualified defined benefit plan in the absence of limitations under the Internal Revenue Code and to provide a competitive level of retirement benefits. Benefits earned under a SERP are unfunded contractual liabilities of CTS.

The terms of the Pension Plan, the CTS 401(k) Plan, and the SERP are discussed under the caption “2011 Pension Benefits” below.

Other Compensation.     CTS provides a limited set of perquisites and other compensation in order to attract, retain, and motivate named executive officers. For 2011, compensation for named executive officers included a quarterly cash perquisite allowance for non-reimbursed travel expenses, a quarterly cash perquisite allowance for financial planning services, reimbursement for tax preparation services, and reimbursement for an annual executive physical. Other compensation includes imputed income on life insurance benefits. The costs of tax preparation services is capped at $5,000 for Mr. Khilnani and $3,000 for the other named executive officers. The cost of executive physicals is capped at $3,500 for the CEO and other named executive officers and their respective spouses. The notes to the 2011 Summary Compensation Table below delineate the various perquisites named executive officers received for 2011.

Health and Welfare Benefits.     Named executive officers are eligible to participate in a standard set of health and welfare benefits, including medical insurance, dental insurance, vision insurance, life insurance, accidental death and dismemberment insurance, disability insurance, dependent life insurance, an employee assistance plan, and health care and dependent care reimbursement accounts. The same terms of participation that apply to salaried employees generally govern the participation of named executive officers in these benefits.

Agreements with Named Executive Officers.

Executive Officer Employment Agreement.     None of our named executive officers was a party to an employment agreement with CTS in 2011.

In March 2012, Mr. Khilnani informed the Board of his intention to retire from CTS. On March 27, 2012, CTS entered into an agreement with Mr. Khilnani to provide for an orderly transition of his duties, responsibilities and authority to the next CTS principal executive officer and to provide for a compensation arrangement for Mr. Khilnani during an approximately 21-month transition period. Under the agreement, Mr. Khilnani will serve as CTS’ President and Chief Executive Officer through at least December 31, 2013, during which period Mr. Khilnani will assist with the identification of and transition of duties, responsibilities and authority to the next CTS principal executive officer. During the transition period, Mr. Khilnani will: (1) continue to receive base salary at his current annual rate of $680,000; (2) continue to participate in CTS’ MIP at his current minimum, target and maximum incentive opportunity levels of 0%, 100% and 200%, respectively, of his base salary; (3) be eligible to receive annual equity awards (with such annual equity awards provided, if at all, in amounts substantially equal in value to Mr. Khilnani’s 2011 equity awards); (4) continue to be eligible for annual executive perquisites substantially equivalent to those he received for 2011; and (5) continue to participate in CTS’ pension, retirement savings, health and welfare and other employee benefit plans on a basis consistent with that offered to other salaried employees of CTS, if permitted by law. These payments and benefits are subject to accelerated payment in certain instances as described in the agreement if Mr. Khilnani is terminated by CTS without cause during the transition period, in which case Mr. Khilnani will also receive 24 months of medical and dental benefits and acceleration of his outstanding time-based and performance-based equity awards (with performance-based earnings dependent on actual performance and settled on a pro rata basis). Mr. Khilnani will also receive these medical and dental benefits and this equity award acceleration if he serves through the end of the transition period.

In connection with Mr. Khilnani’s transition, the Board has formed a committee to oversee the execution of CTS’ succession process by which CTS will identify and appoint a new President and Chief

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Executive Officer. At CTS, management succession planning is a continuous process, and the independent directors regularly discus management succession issues at their separate sessions at the conclusion of each Board meeting. In addition, the Nominating and Governance Committee makes annual reports to the Board regarding CEO succession planning. CTS has retained the services of an executive search firm and the process will involve the consideration of both internal and external candidates. The board anticipates completing this process by the end of 2012.

Executive Severance Policy.     Effective September 10, 2009, CTS enacted an Executive Severance Policy. This policy formalizes and standardizes CTS’ severance practices for certain officers and key employees and also was enacted in lieu of issuing a new employment agreement to replace Mr. Khilnani’s employment agreement, which expired in 2009. For a complete understanding of the executive severance policy, please see the section of this proxy statement titled “Potential Payments Upon Termination or Change-in-Control” below.

Change-In-Control Severance Agreements.     In 2011, CTS entered into new change-in-control severance agreements with certain of the named executive officers, the purpose of which is to help CTS retain named executive officers and encourage them to focus on corporate interests during times of change and uncertainty. As discussed above, these agreements reduced or eliminated certain payments, including an excise tax gross-up, and placed a cap on the total severance benefit. For a complete understanding of the severance agreements, please see the section of this proxy statement titled “Potential Payments Upon Termination or Change-in-Control” below.

Schroeder Consulting Agreement.     Mr. Schroeder retired from CTS effective July 7, 2011. On July 8, 2011, Mr. Schroeder entered into a Consulting Agreement with CTS, requiring him to be available for three months post-retirement on an irregular, part-time basis for consultation on various matters related to his professional background and experience. Such matters included but were not limited to CTS’ historical and general business, technical and product matters. Mr. Schroeder was required to work no more than twenty hours per month on average. Mr. Schroeder received $5,000 per month for these services. In addition, he was reimbursed for any expense related to the consulting services, provided that CTS approved such expenses in writing in advance. Mr. Schroeder was an independent contractor and was required to pay all taxes related to his services under the agreement and indemnified CTS if the corporation was required to pay any such taxes. Mr. Schroeder did not have authority to contract for CTS or bind CTS with respect to third parties unless specifically authorized to do so. CTS was not required to pay or keep in effect any health, life, or other insurance for Mr. Schroeder. Mr. Schroeder was obligated to protect CTS’ confidential information and assign all intellectual property he wrote, invented, conceived, discovered, developed or learned during or in connection with the consulting services. The term of the Consulting Agreement began July 8, 2011 and expired October 8, 2011.

Stock Ownership Guidelines .

As noted previously in this Compensation Discussion and Analysis, the Board has amended the stock ownership guidelines that are administered by the Compensation Committee. The stock ownership guidelines define expected stock ownership levels for named executive officers, other executives, general managers, and non-employee directors so that their interests are sufficiently aligned with shareholder interest. The guidelines are available online at: http://www.ctscorp.com/governance/stockog.htm. A full description of these guidelines and the effect of the 2011 changes may be found on pages 15 and 16 of this Proxy Statement.

CTS Hedging/Pledging Policy.

CTS has adopted a policy prohibiting directors and officers who receive CTS securities from engaging in any transaction in which they may profit from short-term speculative swings in the value of those securities or pledging CTS’ securities in lending transactions. These individuals may not engage in

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the purchase or sale of put and call options, short sales, and other hedging transactions designed to minimize the risk in owning CTS securities. These individuals may not pledge CTS’ securities as collateral for a loan, including, without limitation, in a margin account. The prohibitions described above do not apply to the exercise of stock options granted as a part of a CTS incentive plan.

Policy on Recovery of Awards.

The CTS Corporation 2007 Management Incentive Plan, under which the annual MIP is administered, the 2009 Omnibus Equity and Performance Incentive Plan, under which various performance-based and time-based equity grants are made, and the proposed CTS Corporation 2012 Management Incentive Plan each include a provision to address recoupment of incentive awards in the event of financial restatements. The recoupment provisions provide that if the Board learns of any intentional misconduct by a plan participant that contributes to CTS having to restate its financial statements, the Board may require that individual to reimburse CTS for the difference between any award he or she received and the amount of the award he or she would have received based on the financial results as restated.