Non-Employee Directors — Outstanding Equity Awards at Fiscal Year-End

The following table sets forth the number of shares of common stock underlying outstanding stock awards for each of the non-employee directors as of December 31, 2019.

Compensation Discussion and Analysis

The Compensation Discussion and Analysis (CD&A) describes our compensation objectives and policies and the compensation awarded to our Named Executive Officers (NEOs) during 2019. Our NEOs for 2019 are:

Executive Summary

Compensation Philosophy

Our executive compensation is based on a pay for performance philosophy that aligns executive compensation decisions with our corporate strategy. The goal is to provide executives with competitive compensation opportunities and actual pay outcomes that reward superior company and individual executive performance. Our program is designed to attract, motivate, and retain highly qualified executives to achieve annual and long-term goals that create shareholder value and align with shareholder interests through a combination of base salary, annual incentives and long-term incentives with explicit financial metrics. We target market median for base salary and above market median for annual and long-term incentives because they are at-risk and tied to stretch targets. Our program, by design, places an emphasis on performance-based variable compensation as the largest percentage of total direct compensation for our executives. The primary objectives and priorities of the compensation program for our NEOs are the following:

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We believe that our compensation policies and practices are designed to mitigate compensation-related risks to the Company’s long-term performance, ethical standards and reputation. The table below illustrates some of those policies and practices.

What We Do		What We Don’t Do
	Majority of executive pay is performance-based and not guaranteed		No hedging of stock by directors or executives, limited ability to pledge
	Appropriate balance between short-term and long-term compensation to discourage short-term risk taking		No excise tax gross-ups upon a change in control
	“Double trigger” change in control and termination of employment provisions		No payment of dividends or dividend equivalents on unearned or unvested restricted stock units
	Rigorous stock ownership guidelines: CEO must own 7x his base salary; CFO must own 4x his base salary		No repricing of underwater of stock options
	Clawback policy allows recovery of cash- or equity-based incentive compensation payments upon occurrence of certain financial restatements or certain misconduct in accordance with the terms of the policy
	Varied quantitative performance measures
	Executive sessions following each Compensation Committee meeting

Compensation Program Design

To achieve the primary objectives and priorities of our compensation philosophy, we have designed an executive compensation program that is significantly weighted towards long-term goals. This approach aids us in the retention of executive officers and assures that the interests of our executive officers and shareholders are aligned. Although the program emphasizes performance-based and equity-based compensation as a percentage of total direct compensation (base salary and annual and long-term incentives), we do not have specific policies governing the allocation of the total direct compensation opportunity among its various components. Below we illustrate the key tenets of our compensation program and percentage of the 2019 target total direct compensation opportunity for Mr. Wine and the other NEOs as a group represented by each compensation component:

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Since a significant majority of our executive compensation is in the form of equity, actual compensation outcomes vary with Company and stock price performance, closely aligning pay and performance. At the beginning of 2017, our stock price was $82.61. We closed 2019 with a stock price of $101.70. However, over the three-year periods ending in 2017 and 2018, the ending stock price was lower than the beginning stock price. In addition, the Company’s 3-year Relative TSR percentile was 12% in 2017, 36% in 2018, and 61% in 2019. As a result, over those periods, our CEO’s pay was well below his targeted cash compensation and the grant date fair value of his equity awards in 2017 and 2018, but in line with his targeted cash compensation and the grant date fair value of his equity awards in 2019 to reflect the good performance of our stock over the three year period ending at the end of 2019.

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Return to Shareholders

Because significant portions of our executive compensation program are equity-based, the amount of compensation (defined as base salary, annual incentive payment and grant date fair value of equity awards) ultimately realized by our NEOs is closely linked to the performance of our common stock, which is reflected in the following table that compares our annualized total shareholder return to that of the members of our 2019 Peer Group listed on page 29:

Our 2019 Say on Pay Results

In making compensation decisions, the Compensation Committee considers the results of the Company’s annual shareholder advisory votes approving the Company’s executive compensation. Shareholders approved on an advisory basis the Company’s Say on Pay proposal at our 2019 Annual Meeting of Shareholders with 86.2% of the votes cast (excluding abstentions) in favor of the compensation paid to our NEOs. For a more detailed discussion of our active shareholder engagement, please refer to the section titled “Shareholder Engagement” on page 13.

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Determining Executive Compensation

Compensation Committee Process

The Compensation Committee is responsible for the review and approval of all aspects of our executive compensation program. The Compensation Committee meets in January or February of each year to: (i) establish the annual base salary and annual incentive compensation opportunity for each of the executive officers for the current year; (ii) determine the actual annual incentive compensation to be paid to each executive officer for services provided during the prior year; (iii) establish plan targets and performance measures for the three-year performance period beginning on January 1 of the current year for PRSUs; (iv) determine the number of PRSUs earned, if any, under the long-term incentive program for the three-year performance period ended on the immediately preceding December 31^st; and (v) determine stock option awards, RSU awards and any other equity-based awards to be granted to executive officers.

When making individual compensation decisions for the executive officers, the Compensation Committee takes many factors into account. These factors include subjective and objective considerations of each individual’s skills, performance and level of contribution towards desired business objectives, our overall performance, retention concerns, the individual’s tenure and experience with our Company and in his or her current position, the recommendations of management, the individual’s current and historical compensation, the Compensation Committee’s compensation philosophy, and comparisons to other comparably situated executive officers (both those of the Company and those of the peer group companies). The Compensation Committee’s process utilizes input, analysis and review from a number of sources, including our management, other independent directors of the Board, the Compensation Committee’s independent compensation consultant, and market studies and other comparative compensation information as discussed below.

The Compensation Committee uses this information in conjunction with its own review of the various components of our executive compensation program to determine the base salary and annual and long-term incentive targets and opportunities of the executive officers as a group and individually.

Role of Executive Officers in Determining Compensation

The Compensation Committee meets with our CEO annually to review the performance of our other executive officers. The meeting includes an in-depth review of each executive officer, achievement of individual performance objectives established at the beginning of the year and individual contributions towards achievement of our business goals.

The Compensation Committee considers input from our CEO, CFO, and Chief Human Resources Officer (CHRO) when developing and selecting metrics and performance objectives for our Senior Executive Plan and long-term incentive program, and evaluating performance against such pre-established metrics and objectives. The Compensation Committee also receives recommendations from our CEO, with the assistance of our CHRO (for executive officers other than himself), regarding base salary amounts, annual incentive award amounts and equity-based performance incentive awards for our other executive officers. In determining the CEO’s compensation, the Compensation Committee considers comparative compensation information, and input from its independent compensation consultant.

Role of the Independent Compensation Consultant

Willis Towers Watson provides the Compensation Committee with an annual compensation market analysis for the executive officers and directors; makes recommendations on the executive pay programs; reviews, participates and comments on executive and board compensation matters; and provides updates on regulatory changes in compensation related issues and other developments and trends in executive compensation.

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Market Competitiveness Review

The compensation consultant and the Compensation Committee periodically review the composition of the peer group of companies about which competitive compensation data is obtained. The peer group is established each July and is used for purposes of setting compensation for the following year.

In connection with the 2019 compensation planning, the Compensation Committee, with the guidance of Willis Towers Watson, reviewed the composition of the peer group and removed SPX Corporation due to its low revenue in relation to the Company, and added LKQ Corporation due to its larger revenue and market capitalization. The companies comprising the Peer Group used to establish the 2019 compensation of the executive officers are listed below:

Both management and the Compensation Committee believe that this peer group of 21 companies (the Peer Group) provided a robust statistical set of comparison data to serve as the basis for 2019 compensation decisions. In connection with the compensation decisions made for 2019, Willis Towers Watson utilized data from the Willis Towers Watson 2018 General Industry Executive Compensation Database and our Peer Group companies in the market review.

The following table summarizes our scale relative to our 2019 industry peer group as of December 31, 2019.

The reports furnished by Willis Towers Watson provide the Compensation Committee with market information at the median and 75^th percentiles for each executive officer position and pay component, and for total direct compensation, and compare the actual and target compensation provided and intended to be provided to each executive officer to the market amounts, which consider both the peer group data and the data contained in the surveys. This market information is an important element reviewed by the Compensation Committee, which generally intends to target base salaries for our executive officers at the market median for comparable positions as set forth in the report. The elements of annual and long-term incentive opportunities of total direct compensation are based on responsibilities of position, expected level of contribution and consideration of market data. The Compensation Committee can and does, however, use discretion to adjust a component of pay, or total direct compensation generally, above or below these ranges to recognize the specific circumstances of individual executive officers.

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2019 Compensation Decisions

2019 Base Salaries

The Summary Compensation Table on page 37 sets forth the actual base salary earned by each of our NEOs during 2019. Base salary increases in 2019 were based on individual performance and were generally implemented to maintain the NEO’s position with respect to market median.

The following table reflects the annualized base salaries as established by the Compensation Committee for our NEOs in 2019.

2019 Annual Incentive Compensation

Overview

Our NEOs and other members of senior management selected by the Compensation Committee are eligible to earn annual cash incentive compensation under our SEP. Cash incentives to participants in the SEP are payable only if and to the degree we achieve annual financial performance objectives determined by the Compensation Committee. The performance objectives are to be based on one or more business criteria specified in the SEP. In establishing our performance goals, the Compensation Committee provides that adjustments will be made for specified unusual events such as acquisitions, dispositions, restructurings and certain legal settlements.

Bonuses for Fiscal 2019 Performance

For 2019, the target payouts under the SEP expressed as a percentage of base salary were set by the Compensation Committee at 125% for Mr. Wine, 100% for Messrs. Speetzen, Pucel, and Musso, and 80% for Mr. Williams. The percentage utilized for each NEO was based on the respective NEO’s level of responsibility, expected level of contribution and the Compensation Committee’s general intention to target annual incentive compensation between the market median and the 75^th percentile levels for comparable positions when financial targets are achieved.

In determining whether and to what degree to approve payments under the SEP, the Compensation Committee gives primary consideration to the level of achievement of performance metrics it selects for inclusion in a performance matrix. For 2019, the Compensation Committee selected adjusted earnings per diluted share (Adjusted EPS) as the sole performance metric for this purpose. The Adjusted EPS metric was chosen because it is a well-understood financial measure communicated in the public disclosure of our financial results, is used in determining payouts under our broad-based annual profit sharing plan, and is believed to significantly influence our stock price performance. In determining the Company’s 2019 performance for purposes of the performance matrix, the Compensation Committee adjusted for certain unusual events (such as acquisitions, dispositions, restructurings and legal settlements) which resulted in Adjusted EPS of $6.32⁽¹⁾ as compared to GAAP EPS of $5.20.

The estimated threshold, target and maximum payments under the SEP for 2019 are reflected in the “Estimated Potential Payouts Under Non-Equity Incentive Plan Awards” column in the Grants of Plan-Based Awards in 2019 on page 39. The amounts actually paid in connection with the SEP during each of the years 2017-2019 are set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 35.

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Consistent with our pay-for-performance philosophy, the Compensation Committee sets challenging objectives for Adjusted EPS. In 2019, the target Adjusted EPS performance goal was set $.01 higher than the amount achieved in 2018. The 2019 performance levels that were incorporated into the matrix are summarized in the following table:

Our Adjusted EPS for 2019 was $6.32, which was 1% above target level performance of $6.25 in the performance matrix. The Compensation Committee considered a number of factors, primarily the payout amounts suggested by the performance matrix for the NEO as set forth in the table below, but also our financial and operating performance as compared to fiscal 2018, Mr. Wine’s assessment of the individual performance of the other NEOs, and the Compensation Committee’s assessment of Mr. Wine’s individual performance.

The following table shows the suggested payout as a percentage of earned salary derived from the performance matrix at an Adjusted EPS of $6.32, the actual payout as a percentage of eligible annual wages, and the actual amount paid in March 2020 under the SEP for each of our NEOs:

2019 Long-Term Incentive Compensation

Overview

Long-term incentive compensation annually awarded by the Compensation Committee emphasizes performance-based equity vehicles, consisting of annual awards of stock options, RSUs, and PRSUs. From time to time, supplemental equity awards are granted on a selective and limited basis, generally in connection with promotions, individual outstanding performance and ability to effect desired performance results, hiring of new executives and retention situations. All equity-based awards are granted under our Omnibus Plan.

The Compensation Committee has chosen to provide a mix of stock options, PRSUs, and RSUs for its annual long-term incentive equity awards because it believes such a combination effectively aligns the financial interest of our executive officers with those of our shareholders. Stock options provide value only to the extent that the price of our common stock has appreciated over the option term. PRSUs provide performance-based compensation and value only if the minimum performance targets for net income, revenue, and relative TSR are met and in certain instances, then only if an adjusted ROIC floor is achieved for payouts under the net income and revenue metrics. RSUs provide stability to total compensation packages and a retention benefit, while maintaining a focus on stock growth. RSU awards are also provided occasionally for new hires, promotions, or special recognition and are subject to three-year cliff vesting. The Compensation Committee provides a variable blended ratio between the types of awards depending on the desired performance outcome. The 2019 long-term incentive awards granted to our NEOs was allocated 50% to stock options, 25% to PRSUs, and 25% to RSUs.

2019 Stock Option Awards

Stock option awards granted under the Omnibus Plan during 2019 to our employees, including NEOs, have an exercise price equal to 100% of the fair market value of a share of our common stock on the date of grant. Each stock option granted to our NEOs vests and becomes exercisable in three equal installments on each of the first, second and third anniversaries of the date of grant and has a 10-year term. If employment terminates for any reason other than diserally exercisable for 30 days after employment ends unless terminated for cause. If employment terminates due to disability or death (retirement is discussed below), then any unvested portion of the option will vest immediately and all exercisable options will remain exercisable for one year following termination of employment.

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If employment terminates by reason of retirement, the vested option will be exercisable for the full term of the option and the unvested portion of the option will vest immediately and remain exercisable for the full term of the option, provided that the grant occurred at least 12 months prior to the retirement date and notice of retirement was given to the Company at least one-year in advance. Upon a change in control of our Company, each outstanding option will become immediately vested and exercisable in full only if the option is not continued, assumed or replaced or if the NEO is terminated without cause or terminates his employment for good reason within one year of the event.

Our stock option grant practices for executive officers are designed to ensure that the stock option awards approved by the Compensation Committee at its January meeting will have an effective date occurring after the release of year-end financial results. We do not engage in the backdating, cancellation or repricing of stock options and have not engaged in such practices in the past.

The 2019 awards for our NEOs vest in three equal installments on the first, second and third anniversaries of the January 30, 2019 grant date and have an exercise price of $84.58, which was the fair market value of a share of our common stock on the date of the grant. The number of shares subject to each NEO’s 2019 stock option award is as follows:

Performance Restricted Stock Unit Awards (PRSUs)

PRSU awards are made to each of our NEOs and other eligible employees pursuant to the Omnibus Plan. The PRSU awards will be earned to the degree that we achieve performance objectives specified by the Compensation Committee at the beginning of a three-year performance period. The performance objectives are based on one or more business criteria specified in the Omnibus Plan or other metrics approved by the Compensation Committee. In establishing our performance goals, the Compensation Committee may provide that adjustments will be made for specified unusual events such as acquisitions, dispositions, restructurings and certain legal settlements.

Each PRSU will be paid out in the form of one share for each PRSU determined by the Compensation Committee to have been earned and vested over the applicable performance period. Below is a discussion of the PRSU awards over the past three years.

2019-2021 PRSUs

PRSUs granted in 2019 may be earned for the 2019-2021 performance period based on level of achievement against the performance objectives specified at the beginning of the performance period. All earned PRSUs will either vest and be paid out in the form of one share for each earned and vested PRSU or, if elected by the executive officer, deferred pursuant to the SERP.

In 2019, the Compensation Committee selected total shareholder return relative to the Company’s peer group (Relative TSR), net income, and revenue growth as the metrics for the PRSU awards, with achievement of an adjusted ROIC percentile required before any payout under the net income or revenue metric is permitted. Relative TSR for the Company or any member of the Peer Group during the performance period means the cumulative total shareholder return during the performance period on the applicable company’s common stock as measured by the change in the company’s stock price from the beginning of the performance period to the end of the performance period and takes into account the assumed reinvestment of all dividends paid during the performance period. The beginning stock price for a company will be the average closing sales price as reported on the national securities exchange on which it trades during the period of November 1, 2018 through December 31, 2018. The ending stock price for a company will be the average closing sales price as reported on the national securities exchange on which it trades during the period of November 1, 2021 through December 31, 2021.

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For the 2019 PRSU awards, the following tables summarize the PRSU threshold, target, and maximum (represents 200% of target) performance metrics and payouts for each NEO. Performance below each of these levels would result in no PRSUs vesting and consequently, no equity would be issued under this award:

2019-2021 PRSU PERFORMANCE METRICS

 

		Weight of Metric			Threshold				Target				Maximum
Net Income Growth* (in millions)		50%			$	149			$	515			$	639
Revenue Growth* (in millions)		25%			$	5,162			$	7,042			$	7,452
Relative TSR (percentile)		25%				25th				50th				≥90th

 

*	The Company is required to achieve an adjusted ROIC of 12% before any payout under the Net Income or Revenue metrics is permitted under the PRSU.

 

2019-2021 PRSU PERFORMANCE PERIOD PAYOUTS

 

Name		Threshold Stock Units (#)		Target Stock Units (#)		Maximum Stock Units (#)
Scott W. Wine		10,346		20,691		41,382
Michael T. Speetzen		2,587		5,173		10,346
Kenneth J. Pucel		3,400		6,799		13,598
Christopher S. Musso		2,513		5,025		10,050
James P. Williams		1,848		3,695		7,390

 

2018-2020 PRSUs

 

PRSUs granted in 2018 may be earned during the course of the 2018-2020 performance period based on the level of achievement against the performance objectives specified at the beginning of the performance period. In 2018, the Compensation Committee selected net income, revenue, and total shareholder return relative to the Company’s peer group (relative TSR) as the metrics for the PRSU awards.

 

For the 2018 PRSU awards, the following tables summarize the PRSU threshold, target, and maximum (represents 200% of target) performance metrics and payouts for each NEO. Performance below each of these levels would result in no PRSUs vesting and consequently, no equity would be issued under this award:

 

2018-2020 PRSU PERFORMANCE METRICS

 

		Weight of Metric			Threshold				Target				Maximum
Net Income Growth (in millions)		50%			$	381			$	473			$	537
Revenue Growth (in millions)		25%			$	5,931			$	6,284			$	6,650
Relative TSR (percentile)		25%				25th				50th				≥90th

 

2017-2019 PRSUs

 

For PRSUs granted in 2017 for the 2017-2019 performance period, we achieved 58.7 percentile of the relative total shareholder return, compared to our peer group, the sole metric selected by the Compensation Committee for the 2017 PRSU awards.

 

As a result of this performance, the Compensation Committee determined that the 2017 PRSU awards would be paid out at 108.7% of target for the 2017-2019 performance period, and the amounts received by the NEOs are summarized in the “Option Exercises and Stock Vested in 2019” table on page 42.

 

		Actual 2019 TSR Percentile			Percent of Target Earned (%)
Threshold(1)		25			50.0
Target(1)		50			100.0
Maximum(1)		>90			150.0
Actual		58.7			108.7

 

(1)	Percentage earned for performance between any of the specified levels was determined on a pro rata basis.

 

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2019 Restricted Stock Unit Awards

 

In 2018, we introduced RSUs to provide stability to total compensation and as a retention tool. RSUs provide stability to total compensation packages and a retention benefit, while maintaining a focus on stock growth. RSU awards are also provided occasionally for new hires, promotions, or special recognition and are subject to three-year cliff vesting to maximize the retention benefit. RSUs awarded to our NEOs during 2019 were granted under the Omnibus Plan and vest in full on January 30, 2022. No dividend equivalents are paid on the RSUs. Upon a change in control of our Company, each outstanding RSU will become immediately vested in full only if the RSU is not continued, assumed or replaced or if the NEO is terminated without cause or terminates his employment for good reason within one year of the event. The number of shares subject to each NEO’s 2019 RSU award is as follows:

 

Named Executive Officer	2019 RSUs Granted
Scott W. Wine	20,691
Michael T. Speetzen	5,173
Kenneth J. Pucel	6,799
Christopher S. Musso	5,025
James P. Williams	3,695

 

Other Executive Compensation Arrangements, Policies and Practices

 

Retirement Benefits

 

We sponsor a qualified 401(k) Plan in which our NEOs may participate on the same general basis as our employees, and which allows participants to make plan contributions on a pre-tax basis and to which we make Company-matching contributions dollar-for-dollar with employee contributions up to 5% of covered compensation.

 

We have also adopted a SERP intended to increase contributions limited by the application of the IRS 401(k) annual compensation limit. Additionally, participation in the SERP offsets ESOP contributions generally provided to our non-executive employee population. The SERP provides executives who participate in the 401(k) Plan, including the NEOs, with the opportunity to defer up to 100% of their base salary, up to 100% of amounts payable under the SEP, and PRSU and RSU awards by making contributions to the SERP. Typically, base salary and SEP deferral contributions are matched by the Company as if they had been made under the 401(k) Plan on a dollar-for-dollar basis up to 5% of covered compensation. The SERP assists executives in accumulating funds on a tax-advantaged basis for retirement and is consistent with observed competitive practices of similarly situated companies.

 

We do not maintain a defined benefit pension plan or a defined benefit supplemental pension plan for our executive officers or non-executive employee population.

 

We do, however, provide certain benefits and perquisites to NEOs who are retirement-eligible. These benefits and perquisites include:

 

•	Medical insurance coverage or cash equivalent for retirees and their spouses from age 55 to 64 with coverage coinciding with Medicare Part B on and after age 65;
•	Dental insurance coverage for retirees and their spouses at the same coverage level with the same provider as an active employee;
•	Continued annual physical exams at the Mayo Clinic for retirees and their spouses in accordance with the active officer benefit;
•	Continued use of Polaris products in accordance with the active NEO benefits, including related parts, garments and accessories;
•	For SEP participants, a possible prorated payout under the plan based on the time worked during the incentive compensation award period payable in accordance with the normal payment schedule; and
•	For vested stock options, an exercise period of 36 months or the full term of the option for options issued after May 2015; for outstanding stock options that have not vested as of the retirement date, the option will immediately vest and remain exercisable for 36 months or the full term of the option for all options issued after May 2015, provided the grant occurred at least 12 months prior to the retirement date and notice of retirement was given to the Company at least one-year in advance.

 

Mr. Pucel is also eligible for an additional payment equal to three times his annual base salary upon retirement on or after age 55 plus five years of service. Mr. Pucel received this benefit as part of an inducement to join Polaris and as a substitute to a comparable benefit he received from his prior employer.

 

To be eligible for full retirement-age benefits, the NEO must have attained the age of at least 65 (or who have attained the age of at least 55 and have a minimum of 10 years of service to our Company, or 5 years with respect to Mr. Pucel). None of the NEOs has attained the age of 55 and had at least 10 years of service (or 5 years with respect to Mr. Pucel) at the Company as of December 31, 2019.

 

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Perquisites

 

We provide perquisites and personal benefits to our executive officers in an effort to attract and retain the best talent. These perquisites and personal benefits consist of:

 

•	Reimbursement of tax, estate and financial planning fees.
•	Supplemental family medical and dental coverage up to $100,000 a year through Ultimate Health, which covers annual expenses not covered under the basic medical and dental benefit plans that are generally available to Company employees, and reimbursement of the cost of annual physicals at the Mayo Clinic for each executive officer and his spouse.
•	Temporary use of Polaris products. The Company expects its executive officers to use the Company’s products so they have a first-hand understanding of our customers’ riding experience and can evaluate product design and efficiency. This perquisite is offered to various employees throughout the Company and the only variable is the number of products made available. The value of the temporary use of the products to each employee participating in the program is included as part of the employee’s total compensation, and the Company grosses up the amount so there is no tax impact to any of the participants.
•	Executive officers have access to parts, garments, accessories, and services at no cost because they are required to use appropriate safety equipment. The value of these items is included as part of the executive officer’s compensation and the Company grosses up the amount so there is no tax impact to the executive officer in an effort to encourage them to experience our products.
•	Reimbursement of club entrance/initiation fees and monthly club dues.

 

We prohibit personal use of corporate aircraft by any executive officer unless the Company is reimbursed for the full incremental cost to the Company of such use. Occasionally, however, a guest may accompany an executive officer on business travel on a corporate jet if there is an empty seat, but there is no incremental cost to the Company. Unused tickets from business related sponsorship agreements are from time- to-time made available for personal use. Tickets are included in sponsorship agreements and result in no incremental cost to the Company.

 

Severance Arrangements

 

We have entered into severance arrangements with our NEOs, which provide for certain benefits if an executive officer is involuntarily terminated without cause, terminated without cause in connection with a change in control, or if he terminates his employment for good reason following, in the case of the NEOs other than Mr. Wine, a change in control. The severance arrangements with our NEOs were established as part of the negotiations of their initial employment terms. The severance arrangements are intended to:

 

•	Allow executive officers to weigh potential transactions focused on shareholder interests and not personal interests;
•	Provide executive officers with a measure of security in the event of an actual or potential change in corporate ownership or control; and
•	Provide executive officers with a bridge to their next professional opportunity.

 

The severance arrangements are described in more detail beginning on page 44 under the caption entitled “Potential Payments Upon Termination or Change-in-Control.”

 

Clawback Policy

 

In January 2020, the Company revised and adopted its current clawback policy. Under the current policy, all performance-based compensation awarded on or after January 29, 2020 to any of our executive officers subject to Section 16 of the Securities Exchange Act or the Controller is subject to forfeiture and/ or recoupment in the event of a financial restatement due to material noncompliance of the Company with financial reporting requirements in which the performance-based compensation awarded would have been lower based upon the restated results or if the Compensation Committee determines that the executive officer has engaged in certain misconduct in accordance with the terms of the policy. Under our prior clawback policy, the Company may require reimbursement or cancellation of cash-based or equity-based incentive compensation awarded after November 1, 2010 to any of our executive officers subject to Section 16 of the Securities Exchange Act if we are required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, and if the award or payout was predicated upon the achievement of financial results that were restated.

 

The prior policy in effect for performance-based compensation awarded prior to January 29, 2020 calls for the reimbursement or cancellation of the amount of the award or payout, net of taxes, in excess of what would have been granted or paid based on the actual results unless the Compensation Committee determines in its discretion that a lesser amount to be reimbursed or canceled is appropriate under the circumstances.

 

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Stock Ownership Guidelines

 

The Compensation Committee believes that an important means of aligning the interests of our executive officers, including our NEOs, with the interests of our shareholders is to ensure that they own significant amounts of our common stock. The Compensation Committee adopted stock ownership guidelines which require executive officers to hold shares with a value equal to or exceeding a multiple of annual base salary as set forth in the table below. Each executive officer is expected to satisfy the stock ownership guidelines within four years following the date he or she becomes an executive officer. Executive officers are prohibited from entering into hedging transactions and are subject to restrictions on pledging Company stock as discussed on page 14.

 

Shares included in this calculation are those directly or indirectly owned, shares held in the SERP, outstanding PRSU awards at target levels and unvested RSU awards. The following table sets forth the stock ownership guidelines and whether the NEOs are in compliance with the guidelines:

 

Name	Stock Ownership Guidelines (as a multiple of base salary)		In Compliance With Guidelines?
Scott W. Wine	7x		Yes
Michael T. Speetzen	4x		Yes
Kenneth J. Pucel	4x		Yes
Christopher S. Musso	2x		Yes
James P. Williams	2x		Yes

 

Compensation Risk Assessment

 

Management conducts a risk assessment of our employee compensation policies and practices, including those that apply to our executive officers annually. Management reviewed our compensation plans, program design and existing practices as well as global and local compensation policies, programs and practices applicable to all employees. Management then analyzed the likelihood and magnitude of potential risks, focusing on whether any of our compensation policies and practices varied significantly from our overall risk and reward structure, whether any such policies and practices incentivized individuals to take risks that were inconsistent with our goals, and whether any such policies and practices have resulted in establishing an inappropriate balance between short-term and long-term incentive arrangements.

 

Management discussed the findings of the risk assessment with the Compensation Committee. Based on the assessment, we have concluded that our compensation policies and practices are aligned with the interests of shareholders, appropriately reward pay for performance, and do not create risks that are reasonably likely to have a material adverse effect on the Company.