Lincoln Electric (LECO) DEF 14ADefinitive proxy

NOTICE OF ANNUAL MEETING

ANNUAL MEETING
OF SHAREHOLDERS

	DATE & TIME THURSDAY, APRIL 22, 2021 11:00 AM ET   PLACE Online at www.virtualshareholdermeeting.com/LECO2021   ACCESS Online at www.virtualshareholdermeeting.com/LECO2021. You must have your 16-digit control number which is printed on your proxy card.   PARTICIPATION Submit pre-meeting questions online by visiting www.proxyvote.com before Monday, April 19, 2021 at 5:00 pm ET.   RECORD DATE Shareholders of record on the close of business on February 26, 2021 are entitled to vote at the 2021 Annual Meeting.
	HOW TO CAST YOUR VOTE   Your vote is important! Please vote your shares promptly in one of the following ways:
		BY INTERNET Visit www.proxyvote.com until April 21, 2021
		BY PHONE Call 1-800-690-6903 by April 21, 2021
		BY MAIL Sign, date and return your proxy card or voting instruction form, which must be received by April 21, 2021
		DURING MEETING Vote online on April 22, 2021 during the Annual Meeting at
	www.virtualshareholdermeeting.com/LECO2021

OUR GUIDING PRINCIPLE: THE GOLDEN RULE

TREAT OTHERS AS YOU WOULD LIKE TO BE TREATED

For over 125 years, we have achieved success through innovation and business practices that seek to align our stakeholders. Our long-term strategic initiatives and investments drive alignment by providing:

The 2025 Strategy’s key financial and sustainability targets align with substantially all of the Company’s key short-term and long-term compensation metrics and are incorporated in the Chief Executive Officer’s compensation goals and cascade throughout the organization.

PROXY
SUMMARY

This section provides an overview of important items related to this Proxy Statement and the 2021 Annual Meeting. We encourage you to read the entire Proxy Statement for more information before voting.

2020 PERFORMANCE HIGHLIGHTS

We operated as an “essential business” in 2020 and continued to manufacture and service customers globally, while maintaining the health and safety of our employees and communities through best practice Center for Disease Control and World Health Organization health and safety measures and remote work arrangements. Despite the unprecedented operational and safety challenges posed by the COVID-19 pandemic, our employees and operating model were resilient. Our strong balance sheet and liquidity allowed us to minimize the impact on wages, benefits and bonus programs, with the objective of maintaining our workforce through the pandemic, while investing in long-term growth and advancing our strategic commercial and operational initiatives. In addition, early implementation of cost reduction actions helped mitigate the impact of lower demand. To ensure product availability, we maintained higher levels of working capital to minimize the risk of supply chain disruptions during the pandemic. These actions resulted in solid returns, cash flow generation, and 117% cash conversion in 2020.

Sales decreased 11.6% to approximately $2.7 billion primarily due to 12.2% lower organic sales, which were partially offset by a 1.3% benefit to sales from an acquisition. Operating income margin declined 180 basis points to 10.6% versus the prior year, primarily due to lower sales and rationalization and asset impairment charges. Adjusted operating income margin held relatively steady, declining 50 basis points to 12.4% as price management and approximately $88 million in cost reduction benefits substantially mitigated the unfavorable impact of lower volumes.

See Appendix A for definitions and/or reconciliation of these metrics to results reported in accordance with GAAP. Performance measures used in the design of the executive compensation program are presented within the Compensation Discussion and Analysis section.

CORPORATE GOVERNANCE HIGHLIGHTS

Lincoln Electric has a solid track record of integrity and corporate governance practices that promote thoughtful management by its officers and Board of Directors, facilitating profitable growth while strategically balancing risk to maximize shareholder value. Below is a summary of certain Board and governance information with respect to 2020:

ACTIONS TO FURTHER ALIGN EXECUTIVE COMPENSATION WITH SHAREHOLDER INTERESTS

The Compensation and Executive Development Committee of the Board reviews the framework of our executive compensation program and seeks to align executive pay with our pay for performance philosophy. Each year, our Compensation and Executive Development Committee monitors our executive compensation program and how it relates to our corporate performance and shareholder interests. The historically high approval of our “say-on-pay” proposals on the compensation of our NEOs, including at the 2020 Annual Meeting, demonstrate the alignment of our executive compensation program with corporate performance and shareholder interests.

In 2020, our Compensation and Executive Development Committee reviewed the overall design of our executive compensation program, particularly in light of the transition to the 2025 Strategy. The overall design of our executive compensation program was held consistent with policies developed in prior years. Throughout the year, our Compensation and Executive Development Committee monitored the impact of the COVID-19 pandemic on our executive compensation program, including pay for performance, alignment with stockholder’s interests, and motivation and retention of key talent.

NO ADJUSTMENTS TO COMPENSATION PROGRAMS FOR THE COVID-19 PANDEMIC

During 2020 we did not make any changes or adjustments to our executive compensation program specifically in response to the COVID-19 pandemic. The Compensation and Executive Development Committee did not modify individual performance goals or the corporate performance goals that were established at the beginning of the fiscal year, prior to the onset of the COVID-19 pandemic, for the annual bonus (EMIP) or outstanding performance share awards.

COMPENSATION FRAMEWORK & PHILOSOPHY

Our compensation program is designed to attract and retain exceptional employees. We also maintain a strong pay for performance culture. As indicated below, we design our compensation system to reflect current best practices, including setting base pay below the competitive market for each position, targeting incentive-based cash compensation above the competitive market and promoting quality corporate governance in compensation decisions. We believe these practices result in sustained, long-term shareholder value and reflect our philosophy that the pay for our best performers should align with the results of our long-term goals.

Our executive compensation program consists of three primary elements of total direct compensation: base salary (fixed), short-term incentive compensation (at-risk) in the form of an annual bonus (EMIP), and long-term incentive compensation (at-risk) in the form of stock options, restricted stock units (RSUs) and performance shares.

LINCOLN ELECTRIC HOLDINGS, INC.

TABLE OF CONTENTS

PROPOSAL 1—ELECTION OF DIRECTORS

DIRECTOR NOMINEES

Our shareholders are being asked to elect twelve Directors to serve until the 2022 Annual Meeting or until their successors are duly elected and qualified. All of the Director nominees, other than Ms. Walker, who was elected to the Board on October 20, 2020, have been previously elected by our shareholders.

Each of the nominees has agreed to stand for re-election. The biographies of all of our Director nominees can be found later in this section.

If any Director nominee is unable to stand for election, the Board may provide for a lesser number of nominees or designate a substitute. In the latter event, shares represented by proxies solicited by the Directors may be voted for the substitute. We have no reason to believe that any of the nominees will be unable to stand for election.

MAJORITY VOTING POLICY

The Director nominees receiving the greatest number of votes will be elected (plurality standard). However, our majority voting policy states that any Director who fails to receive a majority of the votes cast in an uncontested director election in his/her favor is required to submit his/her resignation to the Board. The Nominating and Corporate Governance Committee of the Board would then consider each resignation and determine whether to accept or reject it, with full Board approval of such decision. Abstentions and broker non-votes will have no effect on the election of a Director and are not counted under our majority voting policy. Holders of common stock do not have cumulative voting rights with respect to the election of a Director.

YOUR BOARD RECOMMENDS A VOTE FOR EACH DIRECTOR NOMINEE LISTED ABOVE

ANNUAL MEETING ATTENDANCE; NO SPECIAL ARRANGEMENTS

Directors are expected to attend each annual meeting. The Director nominees plan to attend this year’s virtual Annual Meeting. At the 2020 Annual Meeting, all of our then-current Directors attended our virtual annual meeting.

None of the Director nominees has any special arrangement or understanding with any other person pursuant to which the Director nominee was or is to be selected as a Director or nominee. There are no family relationships, as defined by Securities and Exchange Commission (SEC) rules, among any of our Directors or executive officers. SEC rules define the term “family relationship” to mean any relationship by blood, marriage or adoption, not more remote than first cousin.

SHAREHOLDER ENGAGEMENT

We are committed to engaging in constructive conversations with shareholders and nurturing long-term relationships with the investment community. We maintain an active shareholder engagement program where executives and management from various departments meet with shareholders regularly to discuss a variety of topics including business performance, strategic initiatives, corporate governance practices, corporate sustainability initiatives, executive compensation, and other matters of shareholder interest. The Board values an active investor relations program as it believes that shareholder input strengthens its role as an informed and engaged fiduciary.

Our shareholder engagement program includes participation at investor conferences, holding meetings and tours at Lincoln Electric, visiting investors at their offices, hosting tradeshow tours, being accessible to shareholder inquiries throughout the year and communicating with transparency. In 2020, we maintained active engagement with the investment community despite COVID-19 restrictions with calls/videoconferencing, a virtual annual shareholder meeting, virtual investor conferences and non-deal roadshows, as well as a virtual Lincoln Electric product exposition. Our efforts were recognized by Institutional Investors’ “All-American Executive Team” 2020 rankings, where our CEO, CFO and Investor Relations were among the top-3 midcap machinery executives in their respective areas. In addition, we reached out to investors representing approximately 49 percent of our outstanding shares to discuss corporate governance and sustainability (ESG) matters. We continued to gain good insights on our practices and policies and received positive feedback on the execution of our strategy, corporate governance, executive compensation, environmental, health and safety practices, and our investor relations program.

CORPORATE SUSTAINABILITY MATTERS

The Board recognizes the importance of achieving our goals responsibly, and this alignment with our key stakeholders also drives long-term value creation.

Our approach to sustainability began 125 years ago by our founders who established the Company under the guiding principle of The Golden Rule: Treating others how you would like to be treated. Our culture, values and our commitment to diversity and inclusion reflect The Golden Rule and our Purpose of Operating by a Higher Standard to Build a Better World.

Our governance structure for sustainability includes Board oversight, primarily driven by the Audit Committee, and sustainability metrics are incorporated into the annual goals of our CEO and our other executives. Our Executive Vice President and General Counsel oversees corporate environmental, health and safety (EH&S) initiatives and global reporting, and works closely with business unit leadership and local facilities to implement, monitor and measure our results. During 2020, we established an internal sustainability counsel with a primary focus on enhancing product stewardship for sustainable solutions.

The following policies and business practices exemplify our commitment to ESG matters: 

BOARD LEADERSHIP

Mr. Mapes, our President and CEO, serves as Chairman of the Board, in addition to his other responsibilities. As Chairman, he is responsible for planning, formulating and coordinating the development and execution of our corporate strategy, policies, goals and objectives. He is accountable for Lincoln Electric’s performance and:

Our Board believes having one individual serve as Chairman and CEO is beneficial to us because the dual role enhances Mr. Mapes’ ability to provide direction and insight on strategic initiatives impacting us and our shareholders. The Board also believes the dual role is consistent with good corporate governance practices because it is complemented by a Lead Independent Director.

BOARD ROLE IN ENTERPRISE RISK MANAGEMENT

In the ordinary course of business, we face various strategic, operating and compliance risks. Our enterprise risk management process seeks to identify and address risks to the organization. Our Board oversees the management of these risks on an enterprise-wide basis, and the Lead Independent Director promotes our Board’s engagement in this process. A fundamental part of the process is to understand the Company’s risks, and to provide oversight as to how management is addressing these risks. The full Board reviews with management its process for enterprise risk management. In addition, the Audit Committee is charged with overseeing the Company’s risk assessment and management process each year, including ensuring that management has instituted processes to identify critical risks and has developed plans to manage such risks.

The Company maintains a risk management review process where risk is assessed throughout our entire organization, and is reported to a corporate risk committee comprised of members of our various business units and control functions. Each year, the committee identifies critical risks to the organization and those that are determined to be “high-priority” risks are reported to the executive management committee and the Board. Thereafter, “high-priority” risks are assigned, as appropriate, to various Board Committees, or to the Board as a whole, for further review, analysis and development of appropriate plans for management and mitigation. Information security is a high-priority risk, and the Audit Committee receives updates at each meeting relative to this risk and the Company maintains a related cyber risk insurance policy.

OUR BOARD COMMITTEES

We have separately designated standing Audit, Compensation and Executive Development, and Nominating and Corporate Governance Committees established in accordance with applicable provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC and Nasdaq rules. The Board also has designated a standing Finance Committee.

Each committee has a charter, which details all of the committee’s roles and responsibilities. The following summaries set forth the principal responsibilities of each of committee, as well as other information regarding their makeup and operations. A copy of each committee’s charter may be found on our website at www.lincolnelectric.com.

DIRECTOR COMPENSATION

OUR BOARD COMPENSATION PROGRAM

Based upon the recommendations of the Nominating and Corporate Governance Committee, the Board determines our non-employee Director compensation. The Nominating and Corporate Governance Committee periodically reviews all elements of Board compensation in relation to our proxy peer group (as identified in the CD&A), trends in Board compensation and other factors it deems appropriate. In consultation with Korn Ferry as an independent advisor, the Nominating and Corporate Governance Committee did not recommend any adjustments to Board compensation during 2020.

The objectives of our non-employee Director compensation program are to attract highly qualified and diverse individuals to serve on our Board and to align their interests with those of our shareholders. An employee of Lincoln Electric who also serves as a Director does not receive any additional compensation for serving as a Director.

All non-employee Directors receive cash retainers and an annual stock-based award for serving on our Board. Stock-based compensation is provided under our 2015 Stock Plan for Non-Employee Directors.

GOOD GOVERNANCE PRACTICES

Lincoln Electric seeks to attract and retain highly qualified individuals to serve on the Board of Directors. To that end, Lincoln Electric maintains the philosophy of paying non-employee Directors fairly and reasonably, considering external market factors, consistent with good governance practices. With respect to our non-employee Director compensation program, our governance practices include:

The Stock Awards column represents the grant date fair value under Accounting Standards Codification (ASC) Topic No. 718 based on a closing price of $119.50 per share on December 10, 2020, and, with respect to the award granted to Ms. Walker, a closing price of $101.98 per share on October 20, 2020. Assumptions used in the calculation of these amounts are included in footnote 10 to our audited financial statements for the fiscal year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the SEC on February 19, 2021.

As of December 31, 2020, the number of RSUs held by each non-employee Director was 1,129, except for Ms. Walker, who held 1,313. Each of Messrs. Goris, Hanks, Hilton and Patel and Ms. Lincoln elected to defer receipt of the RSUs that were granted in 2020 under our Non-Employee Directors’ Deferred Compensation Plan.

OTHER ARRANGEMENTS

We reimburse Directors for reasonable out-of-pocket expenses incurred in connection with attendance at Board meetings, or when traveling in connection with the performance of their services for Lincoln Electric.

CONTINUING EDUCATION

Directors are generally reimbursed up to $5,000 for continuing education expenses (inclusive of travel expenses) for programs each Director may elect to attend. We also incorporate continuing education topics for Directors into our Board meetings from time to time.

STOCK OWNERSHIP GUIDELINES

In keeping with the philosophy that Directors’ interests should be aligned with the shareholders’ interest and as part of the Board’s continued focus on corporate governance, all of our non-employee Directors must adhere to our stock ownership guidelines. RSUs, including any RSUs that have been deferred under the Non-Employee Directors’ Deferred Compensation Plan, count toward the stock ownership amount; shares held in another person’s name (including a relative) do not. The stock ownership guidelines can be met by satisfying one of the two thresholds noted in the chart below. As of December 31, 2020, all of our non-employee Directors had satisfied the stock ownership guidelines, except for Ms. Walker who was elected to the Board in 2020.

EXECUTIVE COMPENSATION

Our long-term strategy is focused on key actions and initiatives that generate long-term profitable growth within our targeted markets through value-added solutions and operational excellence. We believe this approach engages our business team in creating a long-term value proposition for shareholders that generates above-market returns through an economic cycle while maintaining a short-term focus on improving profitability and driving operating excellence. More information on our business and strategy can be found in the “Business Overview” section at the beginning of this Proxy Statement. 

The Compensation Discussion and Analysis (CD&A) describes our executive compensation programs and how they apply to our NEOs. The CD&A contains statements regarding future performance targets and goals. These targets and goals are disclosed in the context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We caution investors not to apply these statements in other contexts.

For 2020, our NEOs were:
	CHRISTOPHER L. MAPES   Chairman, President and Chief Executive Officer
	GABRIEL BRUNO   Executive Vice President, Chief Financial Officer and Treasurer
	STEVEN B. HEDLUND   Executive Vice President, President, Americas and International Welding
	JENNIFER I. ANSBERRY   Executive Vice President, General Counsel and Secretary
	MICHELE R. KUHRT   Executive Vice President, Chief Human Resources Officer
	VINCENT K. PETRELLA (retired during 2020)   Former Executive Vice President, Chief Financial Officer and Treasurer
	GEORGE D. BLANKENSHIP (retired during 2020)   Former Executive Vice President, President, Americas Welding

KEY FINANCIAL PERFORMANCE

We have a strong track record of delivering increased value to our shareholders and we have typically delivered above-market performance across various financial metrics over many economic cycles. Our long-term strategy seeks to achieve profitable sales growth both organically and through acquisitions by emphasizing value-added solutions and differentiated technologies. We anticipate this strategy will yield improved profit margins and returns, and will generate best-in-class financial performance measured against our peer group.

We operated as an “essential business” in 2020 to ensure product availability for customers. Despite the unprecedented safety and operational challenges posed by the global pandemic, we achieved solid returns with a 17.7% ROIC, strong cash flow generation, and 117% cash conversion. Sales decreased approximately 11.6% to approximately $2.7 billion primarily due to 12.2% lower organic sales, which were partially offset by a 1.3% benefit to sales from an acquisition. Operating income margin declined 180 basis points to 10.6% versus the prior year primarily due to lower sales and rationalization and asset impairment charges. Adjusted operating income margin held relatively steady, declining 50 basis points to 12.4% as price management and approximately $88 million in cost reduction benefits substantially mitigated the unfavorable impact of lower volumes.

Our focus on operational excellence resulted in record safety performance for 2020 and we exceeded three of four of our 2020 environmental goals (with energy intensity not being achieved due to reduced working hours across the globe as a result of the pandemic, although actual energy consumption was down year over year). These results demonstrate the continued structural improvements achieved in the business as the organization pursues best-in-class performance.

We also focused on the continued development and commercialization of innovative solutions and leveraged new digital solutions to engage with customers virtually to drive long-term growth. In 2020, we maintained our R&D spend of approximately 1.9% of revenue. Our investments in innovation generated a sales vitality index from new products launched in the last five years of 31%, and we increased our vitality index in equipment systems to 54%. The vitality index represents the percentage of 2020 sales from new products launched in the last five years, excluding the International Welding Segment and customized automation sales.

See Appendix A for definitions and/or reconciliation of these metrics to results reported in accordance with GAAP. Performance measures used in the design of the executive compensation program are presented within this Compensation Discussion and Analysis section.

Financial metrics considered in our long-term incentive compensation program include:

The following charts illustrate our Adjusted Net Income for Compensation Purposes and ROIC for Compensation Purposes. The results for ROIC for Compensation Purposes are compared to our peer group, the S&P 400 Midcap Index (S&P 400), in which we participate, and the S&P 400 Midcap Manufacturing Index. The ROIC for Compensation Purposes percentile rankings show the position of our financial results compared to the particular group, with a 50th percentile ranking indicating median (or market) performance. Percentiles below 50 indicate below-market performance, while percentiles above 50 indicate above-market performance. Information is based on the most recently available public information (as accumulated by an independent third party), as of January 2021 when the analysis was performed.

PAY FOR PERFORMANCE, OBJECTIVES AND PROCESS

In designing our executive compensation program, a core philosophy is that our executives should be rewarded when they deliver financial results that provide value to our shareholders. Therefore, we have established a program that ties executive compensation to superior financial performance.

To assess pay for performance, we evaluate the relationship between CEO pay and TSR performance considering the ISS methodology. This allows us to understand the relative degree of alignment over a three-year period between the pay opportunity delivered to the CEO and the performance achieved by shareholders relative to the ISS peer group. The ISS peer group for this analysis is comprised of 24 companies of which 11 companies overlap with our peer group. In conjunction with ISS resources, this analysis is performed by management’s compensation consultant, Willis Towers Watson, which is reviewed by the Compensation and Executive Development Committee (the “Committee”) and by its independent consultant, Korn Ferry.

In evaluating pay and performance alignment, the analysis focuses on CEO pay primarily as reflected in the Summary Compensation Table, with the exception of valuing equity-based awards. All stock-based awards (both time- and performance-vesting) are calculated by multiplying the number of underlying shares by the closing stock price on the grant date, and option awards are calculated using the ISS Black-Scholes option pricing model. This means that for us, the CEO is evaluated based on the following compensation elements for the applicable three-year period:

As the following chart demonstrates, for the 2018-2020 performance period, our ranking for TSR performance was slightly above the median of the ISS peer group for the most recent three-year period. For the same period, our ranking for CEO pay was above the median. The shaded area in the chart below highlights the area in which ISS has a low overall concern level. As shown in the chart below, our ranking for TSR performance and our ranking for CEO pay has consistently fallen within the shaded area and demonstrates an overall alignment over the three most recent three-year performance periods. Based on this analysis, the Committee is satisfied with the alignment of our CEO’s pay with the performance of the Company.

The following table highlights certain of our good governance practices relative to our executive compensation program:

OUR COMPENSATION PHILOSOPHY

CORE PRINCIPLES

The primary components of our executive compensation program, summarized below, help ensure that we maintain our performance-driven culture:

Type	Component and Competitive Target		Philosophy and Objective
Fixed Compensation	Base Pay		·  Targeted at the 45th percentile of market (below market) to place stronger emphasis on incentive compensation ·  Provide market-competitive fixed pay reflective of an executive officer’s role, responsibilities and individual performance in order to attract and retain top talent
Incentive-Based Compensation	Target Total Cash Compensation with Annual Bonus (EMIP)		·  Targeted above the competitive market, so that target total cash compensation (base pay and annual bonus which incorporates financial targets and individual performance goals) is set at 65th percentile of market ·  Drive financial performance, including adjusted earnings before interest, taxes and bonus (EBITB) and average operating working capital to net sales ratio ·  Deliver individual performance against specific business objectives, including executing on our 2025 Strategy, increasing our customer satisfaction, developing and engaging a diverse and talented workforce, driving sustainable innovation and improving operating efficiencies
	Long-Term Incentive Compensation		·  Targeted at the 50th percentile of market (at market) ·  Divided equally among 3 programs: (1) stock options; (2) restricted stock units (RSUs); and (3) Performance Shares ·  Incentivize achievement of long-term value creation through financial performance objectives weighted more heavily toward rewards for share price appreciation and long-term profitability

THE ROLES OF THE COMMITTEE, EXTERNAL ADVISORS AND MANAGEMENT

The Committee, which consists solely of non-employee Directors, has primary responsibility for reviewing, establishing and monitoring all elements of our executive compensation program. The Committee is advised by its independent executive compensation consultant, Korn Ferry, and independent legal counsel as it deems appropriate. Management provides recommendations and analysis to the Committee, and is supported in those efforts by its own executive compensation consultant, Willis Towers Watson.

MARKET COMPARISON DATA

We collect competitive market compensation data from multiple nationally published surveys, from proxy data for a peer group of companies and from proxy data for companies in the S&P 400. Nationally published survey market compensation data is statistically determined (through regression analysis) to approximate our revenue size and aged to approximate more current data. We did not select the companies that comprise any of these survey groups, and the component companies’ identities were not a material factor in this analysis. The Company worked with Willis Towers Watson during 2020 with respect to the benchmarking methodology used, and based on the analysis, we will generally blend 50% survey and 50% peer data for benchmarking executive compensation for our NEOs commencing in 2021.

PEER GROUP

We use a peer group of publicly traded industrial companies that are headquartered in the U.S. that serve a number of different market segments and that have significant foreign operations. These are companies for which Lincoln Electric competes for talent and shareholder investment. In addition, we only select companies with solid historical financial results (removing companies from the peer group when their financial performance has consistently fallen below an acceptable level) and companies with sales that are within 2.5 times that of Lincoln Electric, with the exception of Illinois Tool Works (ITW), as ITW is a global competitor with its largest presence in the U.S. The Committee conducts an annual review of our peer group, with the assistance of Korn Ferry as an independent advisor. In 2020, the Committee determined that no changes to the peer group were necessary, but it acknowledged that additional consideration may be needed in 2021 to monitor changing business models of certain peers and due to the effect of the pandemic across the current peer group.

For 2020, our peer group consisted of the following 18 publicly traded industrial corporations:

EXECUTIVE COMPENSATION STRUCTURE

In evaluating our executive compensation structure, the Committee considers three primary elements: (1) business needs, (2) individual performance and (3) pay for performance review.

The 2020 base salary increase effective January 1, 2020 for Ms. Kuhrt was to bring her base pay within the competitive framework. Later in 2020, in connection with Mr. Bruno’s appointment as Executive Vice President, Chief Financial Officer and Treasurer in April 2020, the Committee approved a 15.4% increase to Mr. Bruno’s base salary, effective as of September 1, 2020, establishing his new base salary at $400,000, to bring his base pay within the competitive framework. In connection with Mr. Hedlund’s appointment as Executive Vice President, President, Americas and International Welding, the Committee approved a 3.5% increase to Mr. Hedlund’s base salary, effective November 1, 2020, establishing his new base salary at $440,000.

Due to Mr. Bruno’s recent promotion, Mr. Bruno received a 2021 base salary increase of 11.3%. In addition, the Committee recognized that Ms. Kuhrt has continued responsibilities as the acting Chief Information Officer, in addition to her duties as the Chief Human Resources Officer. In light of such additional duties, the Committee approved a temporary supplemental base salary increase of $55,000. For 2021, excluding Mr. Bruno’s increase and Ms. Kuhrt’s supplemental increase, the average base salary increase for the continuing NEOs was 2.6%. The base pay falls within the competitive benchmark and the continuing NEOs remain, on average, slightly below the 45th percentile on base compensation.

ANNUAL BONUS (EMIP) AND TOTAL CASH COMPENSATION

The Executive Management Incentive Plan (EMIP) provides executive officers, including the NEOs, with an opportunity to receive an annual cash bonus. We believe that, given base pay is below market, annual cash bonus opportunities should be above average to balance some of the risk associated with greater variable compensation. However, we also believe that above-market pay should only be available for superior individual and financial performance. Therefore, we target total cash compensation (base pay and target annual bonus) at the 65th percentile of the market, but use a structure that provides payments of above-average bonuses only where the individual’s performance, the performance of the consolidated company, and the performance of his or her particular segment or business unit, warrant it.

ANNUAL BONUS (EMIP) MATRIX

The percentage of target annual bonus actually paid is based upon a matrix that takes into account financial performance and an executive’s individual performance, interpolating the results to calculate the actual percentage paid. If either of these factors is not met, the percentage of target annual bonus paid is reduced, with the potential that no bonus will be paid. If either of these factors exceeds expectations, the percentage of annual bonus paid can be above the target amount. To the extent that financial performance or an individual’s performance rating exceeds the maximum amounts set forth below, the payout percentage is capped.

The 2020 EMIP matrix is consistent with prior years.

2020 EMIP Matrix

EBITB. One of the EMIP financial metrics is the achievement of earnings before interest, taxes and the bonus referred to above (EBITB) as compared to budget. Since 2011, this metric accounts for 75% of the EMIP financial component. EBITB to budget has been used as the financial metric for the annual bonus since 1997 because it is an important indicator of profitability. Budgets are set aggressively (based on the local and global economic climate), at the beginning of the year, are reviewed by the Finance Committee of the Board and are approved by the full Board. The following is a summary of historical consolidated results:

When performance goals are set, we believe that there is an equal probability of achieving EBITB to budget in any year, although the cyclical nature of our business may increase the probability in some years and decrease it in others. For 2020, our EBITB performance goals were set prior to the onset of the COVID-19 pandemic, without having a clear understanding of the impact of COVID-19. The ability to achieve our EBITB performance goals was impacted by the challenges associated with the COVID-19 pandemic. Notwithstanding the challenging environment faced during 2020, none of the EBITB performance goals were modified specifically in response to the COVID-19 pandemic.

For 2020, the consolidated EBITB budget was set at $478 million and actual performance for 2020, as adjusted, measured at budgeted exchange rates, was $428.4 million, or an achievement of 89.6% of budget. The Americas Welding Segment EBITB actual performance for 2020, as adjusted, measured at budgeted exchange rates, was $312.4 million, or an achievement of 74.5% of budget. The International Welding Segment EBITB actual performance for 2020, as adjusted, measured at budgeted exchange rates, was $78.2 million, or an achievement of 79.1% of budget. The EBITB performance results were adjusted for the same types of special items that impact Adjusted Operating Income and Adjusted Net Income as disclosed in Appendix A.

AOWC/Sales for Compensation Purposes. Since 2007, a second EMIP financial metric, namely the achievement of budget for average operating working capital as compared to sales (AOWC/Sales for Compensation Purposes), has been used as a reflection of our commitment to improving cash flow. Since 2011, AOWC/Sales for Compensation Purposes has accounted for 25% of the EMIP financial component. The following is a summary of historical consolidated results:

Like EBITB, we believe that there is an equal probability of achieving AOWC/Sales for Compensation Purposes to budget in any given year, although the cyclical nature of our business may increase the probability in some years and decrease it in others. For 2020, our AOWC/Sales for Compensation Purposes performance goals were set prior to the onset of the COVID-19 pandemic, without having a clear understanding of the impact of COVID-19. The ability to achieve our AOWC/Sales for Compensation Purposes performance goals was impacted by the challenges associated with the COVID-19 pandemic. Notwithstanding the challenging environment faced during 2020, none of the AOWC/Sales for Compensation Purposes performance goals were modified specifically in response to the COVID-19 pandemic.

For 2020, the consolidated AOWC/Sales for Compensation Purposes budget was set at 22.9% and actual performance for 2020 was 24.8%, or an achievement of 91.6% of budget. The Americas Welding Segment AOWC/Sales for Compensation Purposes actual performance for 2020 was 19.9%, or an achievement of 86.1% of budget. The International Welding Segment AOWC/Sales for Compensation Purposes actual performance for 2020 was 33.2%, or an achievement of 88.9% of budget.

duties, the Committee approved a temporary supplemental target bonus increase of $45,000 for 2021. Overall, excluding Mr. Bruno’s increase and Ms. Kuhrt’s supplemental increase, the 2021 bonus targets reflect an increase from the 2020 target amounts of, on average 5.1%, for the NEOs. The bonus targets still fall within the competitive benchmark and the continuing NEOs remain, on average, slightly below the 65th percentile on targeted total cash compensation.

LONG-TERM INCENTIVE COMPENSATION

We believe that long-term incentive compensation should be provided to focus rewards on factors that deliver long-term sustainability and should be established at the median (or 50th percentile) of the market. We have targeted the median of the market, in keeping with our pay for performance philosophy, because we believe that superior long-term financial growth itself should be the main driver of above-market long-term incentive compensation. We also believe that different financial metrics help drive long-term performance. Therefore, we have established a structure for long-term incentives that combines several different long-term metrics, with the greatest emphasis placed on share appreciation and equity awards.

For 2020, our long-term incentive compensation program consist of three components: (1) stock options, (2) RSUs and (3) Performance Shares (LTIP). The value of each is weighted equally. This provides an even balance with respect to the different attributes and timing associated with each type of award. Annual awards of all three components are made to EMIP participants, including the NEOs.

The following is a summary of the three components of our long-term incentive compensation program as in effect for 2020:

	Standard Vesting Provision	Accelerated Vesting Provisions	Total Employees Receiving Grant in 2020
Stock Options	·  Vest ratably over 3 years	·  Full vesting upon death or disability ·  Pro-rata vesting upon retirement ·  In the event of a change in control, if (i) replacement awards are not provided or (ii) replacement awards are provided and there is a subsequent qualifying termination, full vesting	24 employees, including NEOs, all EMIP participants and other senior leaders
Restricted Stock Units (RSUs)	·  Vest in full after 3 years	·  Full vesting upon death or disability ·  Pro-rata vesting upon retirement ·  In the event of a change in control, if (i) replacement awards are not provided or (ii) replacement awards are provided and there is a subsequent qualifying termination, full vesting	608 employees, including NEOs, all EMIP participants, other senior leaders, managers and significant contributors, regardless of their position within Lincoln Electric
Performance Shares	·  Vest based on performance during the applicable 3-year performance period	·  Full vesting at target upon death or disability ·  Pro-rata vesting upon retirement, based on actual performance for the applicable 3-year performance period ·  In the event of a change in control, if (i) replacement awards are not provided or (ii) replacement awards are provided and there is a subsequent qualifying termination, the award will vest at target	15 employees, including NEOs and all EMIP participants

Following a review of market data, including our peer group, the Committee approved certain changes to the terms of our Performance Shares. Commencing with grants made in February 2020, in the event of a change in control, the Performance Shares will vest at target if (i) replacement awards are not provided or (ii) replacement awards are provided and there is a subsequent qualifying termination. This change was made to align with our peers and to streamline the administration of such awards in the event of a change in control.

The ROIC for Compensation Purposes metric for the 2018 to 2020 performance cycle is a relative value that is derived based on our performance as compared to our proxy peer group (as opposed to an absolute value).

Both the Adjusted Net Income for Compensation Purposes metric and the ROIC for Compensation Purposes metric were set in 2018, prior to the onset of the COVID-19 pandemic. The ability to achieve these goals was impacted by the challenges associated with the COVID-19 pandemic. Notwithstanding the challenging environment, these goals were not modified in response to the COVID-19 pandemic.

PERFORMANCE THRESHOLDS

In setting the performance thresholds for a new three-year period (including the 2020 to 2022 performance cycle), the Committee considers various factors, including historical performance against established thresholds, to try to achieve a 50% probability of the target thresholds for any cycle. For the 2018 to 2020 Plan, the Committee did not make any modifications to the three-year adjusted net income growth performance thresholds or the three-year average ROIC relative to peer thresholds.

TIMING FOR SETTING PERFORMANCE METRIC GOALS

Performance targets are set at the beginning of the first fiscal year in the cycle. This timing allows the Committee to see our final financial results for the prior year and allows for more current macro-economic projections to be used.

Historical LTIPs. The following is a summary of the historical combined LTIP results for the last five completed LTIP cycles, including the most recently completed cycle (2018 to 2020):

2018 to 2020 Performance Share LTIP. For the 2018 to 2020 LTIP cycle, the Adjusted Net Income for Compensation Purposes performance threshold was not met; however, the ROIC for Compensation Purposes performance target was exceeded, resulting in payouts being made at 94.1% of target. The following is a summary of the performance metric goals and results for the most recently completed LTIP cycle (2018 to 2020):

2018 to 2020 Performance Share LTIP

Valuation of Equity Awards. We use standard valuation methods to convert long-term incentive compensation values to shares upon the grant date. These methods consider a 7-day historical average of our stock price, up to and including the grant date, for RSUs and Performance Shares and the grant date Black-Scholes valuation for stock options.

Normal Cycle and Out-of-Cycle Equity Awards. The Committee has discretion in awarding grants to EMIP participants and does not delegate its authority to management, nor does management select or influence the award dates. Occasionally, the Committee may approve limited, out-of-cycle special awards for specific business purposes or in connection with executive promotions or the hiring of new executive employees. However, the date used for awards to all EMIP participants, including the continuing NEOs, is the date of a regularly scheduled Committee meeting, which is fixed well in advance and generally occurs at the same time each year.

The Committee has approved delegated authority to the CEO to designate awards through 2021 to certain employees under our equity plan, subject to specific limits established. The CEO can only grant RSU awards and cannot grant awards to any executive officers, Section 16 officers or greater-than-10% beneficial owners of the Company, and must be granted per the agreements and vesting terms already approved by the Committee.

OTHER ARRANGEMENTS, POLICIES AND PRACTICES

OVERVIEW OF BENEFITS

We intend to provide a competitive group of benefits for all of our employees targeted at the 50th percentile of the market. Some aspects of our benefit programs are considered non-traditional due to their relationship with our pay for performance and incentive-based philosophies. For example, the premiums for Lincoln Electric-provided medical coverage are 100% paid by employees, including the NEOs, on a pre-tax basis. Premiums for dental coverage, which is a voluntary benefit, are also 100% paid by employees. Life insurance coverage paid fully by Lincoln Electric is set at $50,000 per employee, including the NEOs, although employees may purchase additional insurance at their own cost. The NEOs participate in this same cost-sharing approach. We attempt to balance our various non-traditional programs (such as those with a significant portion of the cost borne by the employee) with more traditional programs.

We also provide accidental death and dismemberment benefits to officers, due to the significant amount of travel required in their jobs. Under this program, the premiums of which are paid by the Company, a participant’s beneficiary would receive a payment of five times annual total cash compensation up to a maximum of $3,000,000 for executive officers and $2,000,000 for other officers upon an officer’s accidental death. The policy also provides dismemberment benefits of up to 100% of the death benefit in the event an officer is permanently and totally disabled as a result of an accident, and it provides for medical evacuation coverage in the event of an accident.

PERQUISITES

Consistent with our pay for performance philosophy, we offer limited perquisites. We pay for an annual physical for officers and other senior management to preserve our investment in them by encouraging them to maintain healthy lifestyles and be proactive in preventative care. We also make available financial planning services to certain officers, enabling them to concentrate on business matters rather than on personal financial planning. However, the cost of these financial planning services is included in the income of the participants. We also pay the cost of certain club dues for some officers to encourage social interaction with peers from other companies, local leadership in the community and to provide the ability to hold business meetings at a convenient offsite location. All personal expenses are borne entirely by the executive and the club dues are included in the income of the participants. Initiation fees for club memberships are paid by the executive. Different perquisites are provided from time to time to non-U.S. based executives; however, they are customary and reasonable in nature and amount relative to local market practices (for example, a car lease).

Amended and Restated 2005 Deferred Compensation Plan for Executives (Top Hat Plan)