Encore Wire (WIRE) PRE 14APreliminary proxy

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 

 

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If stockholders encounter any difficulties accessing the annual meeting webcast during the check-in or meeting time, there will be a technical support number posted on the virtual meeting login page for assistance. Technical support will be available beginning at 8:45 a.m., Central time, on May 7, 2024 through the conclusion of the annual meeting. The virtual annual meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome, and Safari), and devices (desktops, laptops, tablets, and cell phones) running the most updated version of applicable software and plugins. Stockholders should ensure that they have a strong Internet connection if they plan to attend and/or participate in the annual meeting. Stockholders should allow plenty of time to log in and ensure that they can hear streaming audio prior to the start of the annual meeting.

The Company will appoint one or more inspectors of election to conduct the voting at the meeting. Prior to the meeting, the inspectors will sign an oath to perform their duties in an impartial manner and to the best of their abilities. The inspectors will ascertain the number of shares outstanding and the voting power of each share, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots and perform certain other duties as required by law. The inspectors will tabulate the number of votes cast for or withheld as to the vote on each nominee for director and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as applicable, with respect to the other proposals listed on the proxy card and any other matter that may properly come before the meeting.

A majority of shares of the outstanding common stock, par value $0.01 per share (“Common Stock”), present in person or by proxy, is necessary to constitute a quorum. Abstentions are counted as present at the meeting for purposes of determining whether a quorum exists. Broker non-votes only count towards quorum if at least one proposal on the proxy is considered a routine matter under New York Stock Exchange (“NYSE”) Rule 452. A broker non-vote occurs when a broker or other nominee returns a proxy but does not vote on a particular proposal because the broker or nominee does not have authority to vote on that particular item and has not received voting instructions from the beneficial owner. Under NYSE Rule 452, brokers have the authority to vote such shares on routine matters, but not on non-routine matters. Routine matters include the proposal to ratify the appointment of the auditors, but do not include the election of directors, the approval, in a non-binding advisory vote, of the compensation of the Company’s named executive officers, the approval of the Amendment to the Company’s Certificate of Incorporation, or approval of the Amendment to the Company’s 2020 Plan.

The only voting security of the Company outstanding is its Common Stock. Only the holders of record of shares of Common Stock at the close of business on March 13, 2024, the record date for the meeting, are entitled to notice of, and to vote at, the meeting or any adjournment or postponement thereof. On the record date, there were 15,783,916 shares of Common Stock outstanding and entitled to be voted at the meeting. Each share of Common Stock is entitled to one vote.

Election of Directors.   Directors are elected by a plurality of the votes of the shares of Common Stock present virtually or represented by proxy at the meeting and entitled to vote on the election of directors, subject to the Company’s Majority Voting Policy described in further detail below. This means that the six nominees receiving the highest number of votes cast for the number of positions to be filled will be elected, subject to the Company’s Majority Voting Policy. Cumulative voting is not permitted. New York Stock Exchange Rule 452 prohibits brokers from casting discretionary votes in any election of directors. Under Delaware law and the Company’s Certificate of Incorporation and Bylaws, abstentions and broker non-votes will have no effect on voting on the election of directors, provided a quorum is present.

Majority Voting Policy.   In February 2013, the Board adopted the Company’s Majority Voting Policy, pursuant to which a director nominee that is not elected by a majority of the votes cast in an uncontested election must tender such director’s resignation promptly following the failure to receive the required vote. This means that the number of votes cast “for” a director nominee must exceed the number of votes “withheld” from that nominee. Abstentions and broker non-votes are not counted as votes “for” or

 

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“withheld” from a director nominee. Following a director’s resignation under the policy, the Nominating and Corporate Governance Committee would then be required to make a recommendation to the Board as to whether the Board should accept the resignation, and the Board would be required to decide whether to accept the resignation and to disclose its decision-making process. In contested elections, the required vote is a plurality of votes cast.

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There are no family relationships between any of the nominees or between any of the nominees and any director or executive officer of the Company. Mr. Wilson was originally elected to the Board of Directors of the Company pursuant to the terms of an investment purchase agreement entered into in connection with the formation of the Company in 1989. The director election provisions of the agreement were terminated in connection with the Company’s initial public offering in 1992.

 

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During the Company’s calendar year ended December 31, 2023, the Board of Directors held a total of eight meetings. Each director attended all eight meetings. Each director attended at least 75% of the number of board meetings and meetings held by all committees on which such director served. Directors are encouraged to attend annual meetings of the stockholders of the Company. All of the Company’s directors virtually attended the 2023 annual meeting of the stockholders of the Company.

 

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The Board conducts certain risk oversight activities through its committees. The Audit Committee oversees the Company’s compliance risk, including reviewing reports of the Company’s compliance with the Sarbanes-Oxley Act. The Nominating and Corporate Governance Committee’s role in risk oversight includes recommending director candidates who have appropriate experience that will enable them to provide competent oversight of the Company’s material risks. The Compensation Committee monitors the compensation policies and practices to prevent potential risk to the Company. The Sustainability Committee sets and monitors initiatives and policies related to sustainability matters and, in connection with such initiatives and policies, coordinates the preparation of an annual ESG report.

 

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The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating nominees for director. Upon the need to add a new director or fill a vacancy on the Board, the Nominating and Corporate Governance Committee will consider prospective candidates. Candidates for director may come to the attention of the Nominating and Corporate Governance Committee through current Board members, professional search firms, stockholders, or other persons as provided by the Charter of the Nominating and Corporate Governance Committee. As described above, the Nominating and Corporate Governance Committee considers properly submitted stockholder nominations for candidates to the Board. Following verification of stockholder status of persons proposing candidates, recommendations are aggregated and considered by the Nominating and Corporate Governance Committee along with the other recommendations. In evaluating such nominations, the Nominating and Corporate Governance Committee shall address the membership criteria as described above in “Director Qualifications,” which seeks to achieve a balance of knowledge, experience, and expertise on the Board.

The Company believes that its current directors bring a diverse set of skills and experience, as well as age, and cultural diversity to the Company that are important to the execution of the Company’s strategic goals. In evaluating the qualifications of individual Board members, the Nominating and Corporate Governance Committee considers many factors, including a general understanding of management, operations, manufacturing, finance, and other disciplines relative to the success of the Company in today’s business environment; understanding of the wire industry; educational and professional background; and personal accomplishment. For more information on our director nominee’s skills and qualifications, refer to the skills matrix under “Corporate Governance and Other Board Matters — Consideration of Director Nominees — Director Nominee Skills and Qualifications.” When considering the overall composition of the Board, the Nominating and Corporate Governance Committee

 

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believes that a Board of Directors, comprised of a diverse group of individual Board members, should represent a wide spectrum of personal experiences, perspectives, talents and areas of expertise at the policy-making levels of significant financial, industrial or commercial enterprises. As such, the Board seeks to add highly qualified female and racially diverse individual Board members. The Board added Gina A. Norris as a director at the 2020 annual meeting of stockholders of the Company. Ms. Norris currently serves as the Chair of the Company’s Audit and Sustainability Committees, and as a member of the Nominating and Corporate Governance Committee and the Compensation Committee. Further, the Board added W. Kelvin Walker as a director in August 2022. Mr. Walker currently serves as a member of the Audit Committee, the Nominating and Corporate Governance Committee, the Compensation Committee and the Sustainability Committee. W. Kelvin Walker is expected to assume the role of Chair of the Nominating and Corporate Governance Committee in May 2024. The Board’s continued objective is to recommend a group that can best perpetuate the success of our business and represent stockholder interests through the exercise of sound judgment using its diversity of experience and perspectives.

 

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The Audit Committee of the Board of Directors oversees the Company’s financial reporting process on behalf of the Board of Directors.

Management has the primary responsibility for the financial reporting process, including the Company’s system of internal controls and the preparation of the Company’s financial statements in accordance with generally accepted accounting principles. The Company’s independent auditors are responsible for auditing those financial statements. The Audit Committee’s responsibility is to monitor and review these processes.

It is not the Audit Committee’s duty or responsibility to conduct auditing or accounting reviews or procedures. Members of the Audit Committee are not employees of the Company and may not represent themselves to be or to serve as accountants or auditors of the Company. As a result, the Audit Committee has relied, without independent verification, on management’s representation that the financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States and on the representations of the independent auditors included in their report on the Company’s financial statements.

In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements in the Company’s annual report referred to below, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards.

The Audit Committee has discussed with the independent auditors the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the Securities and Exchange Commission. The Audit Committee has received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence, and has discussed with the independent auditors the independent auditor’s independence.

The Audit Committee’s oversight does not provide it with an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or policies, or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the considerations and discussions with management and the independent auditors do not assure that the Company’s financial statements are presented in accordance with generally accepted accounting principles, that the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards or that the Company’s independent accountants are in fact “independent.”

The Audit Committee discussed with the Company’s independent auditors the overall scope and plans for their audits. The Audit Committee has met with the independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting. In addition, the Audit Committee met with management during the year to review the Company’s Sarbanes-Oxley Section 404 compliance efforts related to internal controls over financial reporting. The Audit Committee held four meetings during 2023.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the

 

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As members of the Compensation Committee, we have designed an executive compensation program that encourages sustained long-term value creation while aligning the interests of our officers with those of our shareholders. The goals of our program are to: (i) reward outperformance; (ii) prioritize long-term, share-based incentives; and (iii) attract and retain talent.

At the 2023 Annual Meeting, the Company received 69.93% shareholder support for approval, on an advisory basis, of compensation paid to the Company’s named executive officers. Historically, the Company has enjoyed broad support for its executive compensation program, including in 2022, when it received more than 94% support from shareholders.

As the Company considers Say-On-Pay to be the most important feedback regarding its executive compensation program, the Compensation Committee was disappointed with the level of shareholder support in 2023. In response, the Company, under the guidance of the Compensation Committee, undertook comprehensive and broad efforts to solicit feedback from stakeholders and to address their concerns in 2024.

These efforts have culminated in the evolution of a Stewardship Engagement Platform, whose purpose is to nurture an open line of communication with institutional stewardship teams and proxy advisory firms. Throughout the course of our efforts in 2023, the Company was able to engage with greater than 90% of its shareholders via meetings, written correspondence, and proxy solicitation.

Feedback received from shareholders expressed broad support for the alignment of quantum of named executive compensation with the Company’s performance. However, several shareholders expressed concerns regarding the size and opaqueness of the peer group utilized, the lack of performance-based components in long-term variable compensation, and the absence of a claw-back provision. Several shareholders also requested a maximum payout as a multiple of base salary for annual cash incentives to help establish additional line-of-sight into short-term variable compensation.

Based on the feedback received during these engagements, the Compensation Committee took several actions in 2023:

Annual cash incentive requires calendar year-over-year Tangible Book Value per Share growth; OR

50% of the annual equity-based incentive is in the form of performance-based restricted stock units (“PRSUs”), which, in addition to time vesting in three substantially equal annual installments (each, a “tranche”), will vest based on share performance requirements;

At each vesting date, based on the most recent calendar year, PRSUs will require calendar year-over-year Tangible Book Value per Share growth; AND

 

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Company Total Shareholder Return (“TSR”) over the prior three calendar years must be positive; OR

50% of PRSUs will vest for that tranche

At each PRSU tranche, Company TSR will be compared to the Russell 2000 Index (“RUT”):

 

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The Board of Directors has determined that Daniel L. Jones, Chairman, President and Chief Executive Officer of the Company, and Bret J. Eckert, Executive Vice President and Chief Financial Officer of the Company, were the Company’s only named executive officers for the year ended December 31, 2023. Throughout this proxy statement, Mr. Jones and Mr. Eckert are referred to as the “named executive officers” or “NEOs”. In this “Compensation Discussion and Analysis” section, the terms, “we,” “our,” “us,” and the “Committee” refer to the Compensation Committee.

 

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Although many compensation decisions are made in the fourth quarter, our compensation planning process continues throughout the year. Compensation decisions are designed to promote our fundamental business objectives and strategy. Business and succession planning, evaluation of management performance, and consideration of the business environment are year-round processes as noted above.

 

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expenditures, which the Company seeks to deploy in a measured way to reduce costs, improve efficiencies, expand capacity, and widen its customer service moat.

 

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Discussion and feedback solicited throughout the course of these engagements were focused on the following areas:

In 2023, the Company utilized a peer group of 94 domestic public companies with market capitalizations ranging from $2 billion to $10 billion as of December 31, 2021 (the “2023 Peer Group”). 2023 Peer Group companies were all from the “capital goods” industry sector, consistent with the Company’s designation.

 

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supplies, and building products in the United States. The Compensation Committee further believes that the size of the 2024 Peer Group is appropriate, given the feedback received by shareholders through the Company’s Stewardship Engagement Platform in 2023.

Another area of discussion with shareholders throughout the course of the Company’s engagement efforts in 2023 centered around the challenges that the Compensation Committee faces when considering the use of formulaic components for the establishment of variable compensation. As discussed earlier in this CD&A, the Company competes in an industry consisting primarily of private companies or public companies with divisions or subsidiaries that compete with the Company. Therefore, the Company is held to the reporting requirements of a public company while its primary competitors and peers are not.

The Company believes that any form of financial or operational guidance, whether stated publicly as forward-looking or on a look-back basis for the purposes of evaluating executive compensation against internal targets, would place the company at a significant competitive disadvantage and suppress long-term shareholder value creation. The Compensation Committee believes that part of its responsibility to shareholders includes the consideration of these risks at the expense of increased objectivity into its variable compensation setting process for the Company’s named executive officers.

Shareholder feedback regarding this discussion was consistently understanding and supportive of the Company’s position. However, shareholders did request that the company include some language in the 2024 Proxy Statement that allowed shareholders better line of sight into the decision-making process for variable compensation components by including a maximum payout for annual cash incentive as a multiple of base salary. Shareholders also requested a more nuanced discussion of financial performance indicators considered by the Compensation Committee when considering the Company performance component of the long-term variable equity-based compensation, which we review in detail in the Peer Comparison section on Page 27.

Based on this feedback, the Compensation Committee has set a maximum annual cash incentive payout of 7.5x base salary for our named executive officers in 2024. The Committee believes that this level of maximum payout is sufficient to reward our named executive officers for short-term outperformance of the Company’s peer group and the broader market when appropriate, while providing additional line of sight for our shareholders to better evaluate a maximum possible level of variable annual cash compensation. Additionally, annual cash incentives will now require calendar year-over-year Tangible Book Value per Share growth or the named executive officers’ annual cash incentives will be capped at 50% of the annual cash incentive for the previous year.

Shareholders also expressed concern that our long-term equity-based compensation program for 2023 did not include any performance-based vesting requirements. In this area, the Compensation Committee faces a similar challenge discussed above regarding Company guidance: the Company believes that disclosing operational or financial targets, even on a look-back basis, would put the Company at a significant competitive disadvantage to its non-public primary competitors and peers. Shareholders were understanding of this position but encouraged the Compensation Committee to include some performance-based vesting requirements for long-term variable compensation components to further encourage sustained long-term shareholder value creation.

Based on the feedback, the Compensation Committee has set a maximum annual cash incentive payout of 50% of the cash incentive payout for the prior calendar year if the Company does not achieve positive year-over-year Tangible Book Value per Share growth. For more detail, please refer to the Annual Cash Incentive section on Page 25.

Additionally, 50% of the annual equity-based incentive, subject to a three-year vesting period, will vest based on share performance requirements in 2024. At each annual vesting date, based on the most

 

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recent calendar year, PRSUs will require calendar year-over-year Tangible Book Value per Share growth and TSR over the prior three calendar years must be positive or 50% of PRSUs will vest for that tranche.

At each vesting date, Company TSR will be compared to RUT. If Company TSR underperforms or equals RUT TSR, between 50% and 100% of the tranche will vest based on a sliding scale. If Company TSR performance exceeds RUT TSR, between 100% and 150% of the tranche will vest based on a sliding scale. All unvested PRSUs shall fully vest upon a Change of Control, subject to the Participant’s continued employment with the Company as of the date of the consummation of such Change of Control. The number of PRSUs subject to accelerated vesting upon a Change of Control is determined by applying the criteria discussed in the Annual Equity-Based Incentive section on Page 26 as of the most recent quarter end prior to the Change in Control.

The Compensation Committee believes that the inclusion of these performance-based components into long-term equity-based incentive compensation for 2024 will help to alleviate shareholder concerns and increase the alignment between the interests of our named executive officers and our shareholders, while further encouraging sustained long-term shareholder value creation.

Following our 2023 Annual Meeting and throughout the course of the remainder of 2023, our stewardship efforts were focused on updating our largest shareholders and stewardship teams to the changes that the Compensation Committee would be making to our executive compensation program for our 2024 Annual Meeting. Feedback solicited throughout this process was supportive, with our largest shareholders confirming that the changes described above had addressed their concerns regarding the Company’s executive compensation program. Therefore, the Compensation Committee believes that the changes made to the Company’s executive compensation program should adequately address the concerns received from our shareholders in 2023.

Compensation components for our named executive officers include base salary (fixed cash compensation), an annual cash incentive (short-term variable cash bonus), and annual equity-based incentives (long-term variable RSU and PRSU awards.)

Base salary is fixed cash compensation, subject to annual review and adjusted in response to changes in performance, duties, strategic importance, or competitive salary practices. The payment of a base salary is intended to provide a stable, fixed amount of income to our named executive officers for their day-to-day job performance. Base salaries represent a modest segment of overall compensation. However, the amount of base salary paid to each named executive officer is a determinant of other elements of compensation. The Compensation Committee reviews base salaries annually. Annual salary adjustments are not automatic or guaranteed, but rather based on the Compensation Committee’s evaluation of the performance of each named executive officer, the value of the individual in the position to the Company relative to other positions and their level of experience, as well as current economic conditions.

The Compensation Committee has historically kept base salaries at competitive levels while trying to incentivize our executives with strong annual cash and equity and/or equity-based incentives that allow the executives to have significant upside when the Company performs well. Base salary is largely determined based on comparisons to base salaries of named executive officers at peer group companies, as well as historical base salaries for the Company’s named executive officers.

Annual Cash Incentive is a variable cash bonus, subject to annual review and awarded based on performance during the calendar year. Annual cash incentive awards are not guaranteed, may change

 

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significantly from prior awards, or not be awarded at all, depending on performance. Therefore, annual cash incentive awards may be highly variable and are considered “At-Risk Compensation”. Annual cash incentives awarded to each named executive officer may not exceed a multiple of 7.5x their appropriate base salary. Additionally, the Compensation Committee has included a new requirement that the Company’s Tangible Book Value per Share must have increased over the prior calendar year or annual cash incentives will be capped at 50% of the annual cash incentive awarded in the prior calendar year.

When considering annual cash incentive payments, the Compensation Committee considers an equal 50% weighting between (a) individual named executive officer performance and contributions to the Company over the most recent calendar year; and (b) Company performance when compared to a peer group and the broader market during the same period.

 

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As discussed above, a significant majority of named executive officer compensation is variable, given the weighting of performance-based compensation in the form of cash incentives and equity-based awards granted under the 2020 Long Term Incentive Plan. For 2023, variable compensation, or “At-Risk Compensation”, for our named executive officers was as follows:

The Compensation Committee met in December 2023 to discuss the Company’s performance when compared to the 2024 Peer Group. In assessing the Company’s performance, the Compensation Committee evaluated several financial and compensation-related metrics. The financial metrics were selected based on their relative importance to investors, as noted by management throughout the course of investor relations events during 2023. Investor relations events included in person and virtual meetings, conference calls, email correspondence, or campus visits with current institutional investors. The Compensation Committee also considered feedback from analysts who publish research reports about the Company. As a result of this feedback, the Compensation Committee determined that the following financial and compensation-related metrics were appropriate for evaluative purposes in 2023.

Throughout the course of our stewardship engagement efforts in 2023, the most common evaluative measure cited by investors was long-term shareholder value creation. As such, the Compensation Committee believes that TSR and annualized TSR over a trailing three-year period are important indicators of the Company’s performance when compared to the 2024 Peer Group and the broader market. For the purposes of evaluation against a broader market index, the Company believes that the RUT is the most appropriate comparison, as shareholders consulted throughout the course of stewardship engagement in 2023 referenced the RUT as the benchmark when evaluating the Company’s performance. Accordingly, a large number of index related mutual funds who hold the Company’s stock are benchmarked against the RUT.

For the purposes of TSR evaluation, the Company engaged with Institutional Shareholder Services (“ISS”) to provide the appropriate methodology and data. For the purposes of the evaluation, the Compensation Committee looked at a three-year period between October 30, 2020 and October 31, 2023.

Using this methodology, the Compensation Committee found that the Company achieved a 275% total shareholder return for the period, which placed the Company in the 93rd percentile when compared to

 

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the 2024 Peer Group. Analysis performed by the Company indicated that the Russell 2000 Index achieved an 8% return over the same period. The Compensation Committee also found that the Company achieved a 55% annualized total shareholder return for the period, compared to 2.6% for the Russell 2000 Index.

Shareholders also cited profitability as a financial metric of focus when discussing their investment in the Company. The Compensation Committee agrees that profitability is an important indicator in the performance of the Company and, as such, believes that Diluted EPS is an appropriate gauge of profitability when comparing the Company to the 2024 Peer Group. For the purposes of the evaluation, the Company compared diluted EPS over a trailing twelve-month (“TTM”) period between September 30, 2023 and September 30, 2022. The Compensation Committee utilized data provided by a third-party financial data vendor for the purposes of this analysis.

The Compensation Committee found that the Company earned $25.79 per diluted share over the period, which placed the Company in the 100th percentile when compared to the 2024 Peer Group.

 

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The Compensation Committee found that the Company generated $25.30 in free cash flow per share over the period, which placed the Company in the 100th percentile when compared to the 2024 Peer Group.

Shareholders and Analysts who cover the Company often cite shareholder equity when discussing valuation of the Company’s shares. Price to book value has been used as a meaningful valuation tool throughout the course of the Company’s history and has served as a reassuring secondary valuation metric during periods of earnings volatility. Therefore, the Compensation Committee believes that tangible book value per share is an appropriate gauge of financial performance when comparing the Company to the 2024 Peer Group. For the purposes of the evaluation, the Company compared tangible book value per share as of September 30, 2023. The Compensation Committee utilized data provided by a third-party financial data vendor for the purposes of this analysis.

 

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The Compensation Committee believes that total named executive officer compensation is the most meaningful metric when comparing the Company’s executive compensation program to the 2024 Peer Group. The Company identifies only two named executive officers in Mr. Jones and Mr. Eckert. Analysis performed by the Compensation Committee indicates that the average number of named executive officers in the 2024 Peer Group is 5.5.

The Compensation Committee believes that Mr. Jones and Mr. Eckert have amply performed the overall duties and responsibilities of larger named executive officer teams at 2024 Peer Group companies. The Compensation Committee further believes that the quantum of total named executive compensation at the Company should be commensurate with the level of the Company’s outperformance when compared to total named executive officer compensation in the 2024 Peer Group.

The Compensation Committee found that the highest paid named executive officer team in the 2024 Peer Group enjoyed a total compensation of  $47.8 million in 2022, compared to $26.7 million for the Company for the same period.

As part of the compensation setting process for 2023, the Compensation Committee discussed and evaluated several operational factors when considering the overall performance of the Company.

Feedback garnered through stewardship engagement in 2023 was consistently and ardently supportive of share repurchases. The Company believes that share repurchases are an effective way to return capital to shareholders. Share repurchases reduce shares outstanding, improve per share financial metrics, and provide support for share price. The Company believes its share repurchase programs directly align with the interests of shareholders by bolstering long-term shareholder value creation.

In 2023, the Company repurchased 2,661,792 shares at an average price of  $172.87, for a shareholder capital return of  $460,155,012. In 2022, the Company repurchased 2,055,470 shares at an average price of  $120.47, for a shareholder capital return of  $247,625,131. Since February 2020, the Company has repurchased 5,634,069 shares, or approximately 25% of total shares outstanding, at an average price of $136.98, for a shareholder capital return of  $771,737,274.

The Compensation Committee found that the Company was able to increase the amount of capital returned to shareholders through its share repurchase programs by 83% in 2023 when compared to

 

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2022. The Compensation Committee believes that the ability of the Company to return a large quantum of capital to shareholders should weigh positively when considering variable compensation for its named executive officers.

 

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manufacturing capacity. These investments, coupled with other incremental investments designed to improve capacity and efficiency, have allowed the Company to grow unit volume and capture market share.

Copper and Aluminum pounds shipped in third quarter of 2023 increased by 21% and 96%, respectively, when compared to the third quarter of 2019. For the full fiscal year ended December 31, 2023, total pounds shipped increased by 5.3% when compared to fiscal year 2022. The Compensation Committee believes that this profitable unit volume growth should weigh positively when considering variable compensation for named executive officers in 2023.

In 2022, the Company began construction on a new, state of the art, cross-link polyethylene (XLPE) compounding facility to deepen vertical integration related to wire and cable insulation. XLPE insulation is used in many applications including Data Centers, Oil and Gas, Transit, Waste-Water Treatment facilities, Utilities, and Wind and Solar applications. The Company believes that the ability to manufacture its own XLPE insulation will help to reduce costs, increase quality control, and reduce reliance on external supply chain components. The Compensation Committee believes that these factors should weigh positively when considering variable compensation components for named executive officers in 2023 and beyond.

In 2021, the Company began to scrutinize its Environmental, Social, and Governance efforts by formalizing long-standing internal policies and increasing transparency into its sustainability efforts. In August 2021, following the publication of the Company’s first Global Human and Labor Rights Policy, the Board of Directors established a Sustainability Committee to formalize its oversight of the Company’s environmental and social strategy, risks, and risk mitigation. The Company subsequently published its inaugural Global Environmental and Occupational Health and Safety Policies in 2021.

In 2022, the Company formally engaged in a long-term partnership with a Fortune 500 engineering company to help formulate and execute a comprehensive ESG strategy as part of a broader, company-wide sustainability platform. This collaboration resulted in the publication of the Company’s inaugural 2022 ESG report in March 2023, which summarized its sustainability efforts to date and formalized commitments for the future.

The Company has begun to successfully execute upon this strategy, as discussed in the 2023 ESG report to be published in March 2024, which can be found in the Sustainability section of our website at www.encorewire.com. The Compensation Committee believes that the progress shown under the Company’s expanding sustainability initiatives should weigh positively when considering variable compensation components for named executive officers in 2023 and beyond.

As part of the compensation setting process for 2023, the Compensation Committee discussed and evaluated the following factors when considering the individual performance of our named executive officers.

Mr. Jones is a veteran executive in the wire and cable industry, who performed exceptionally well in leading the Company through significant challenges in 2023 as well as over the past several years. Under his leadership the Company continues to outperform its peer group as well as the broader market. He led the team in achieving operating improvements across

 

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Mr. Jones performed his primary business objectives extremely well for 2023, which were to manage the Company’s operations in a cost effective manner, manage the sales team to drive volume growth while balancing the Board’s preference for profit versus volume, manage customer relationships, seek ways to expand the Company’s product offerings, help to ensure that the Company complies with regulatory requirements and meets related deadlines, manage risk and protect the Company’s strong balance sheet while driving earnings growth in a difficult industry environment during 2023.

Mr. Eckert is a veteran executive leader of public companies who performed exceptionally well again in 2023. Mr. Eckert was promoted in December 2022 to the position of Executive Vice President to properly reflect his expanded leadership role, his importance to the Company, and to formalize the organizational hierarchy that has evolved since he joined Encore Wire. Under his leadership the Company continues to outperform its peer group as well as the broader market. He led the team in achieving operating improvements across campus and delivered exceptional financial results, while overseeing multiple significant capital project expansions in 2023. The XLPE facility opened on time and ongoing capital projects continue to progress on schedule. Other key accomplishments in 2023 include the continued successful gradual abatement of margins despite significant competition in the market for our products, improved service model and increased order fill rates in 2023, the establishment and launch of a “First Pass Success” initiative that further enhanced product quality while reducing scrap levels, the strengthening of relationships with key suppliers, further bolstering the resiliency of our supply chain, improved safety metrics over the prior year through increased training and supervision, and improved employee retention by over 40% compared to 2022 levels. During 2023, the Company significantly outperformed its peer group, delivering three-year TSR of 275%. Continued strong free cash flow in 2023 resulted in the return of capital to shareholders of over $460 million through share repurchases during the year. Operationally, Mr. Eckert leveraged existing capacity to capture volume growth in 2023 while driving continued profitability. Mr. Eckert leads all of our procurement efforts, ensuring raw material sourcing remained strong in 2023, while deepening supplier relationships to handle future growth opportunities. As we look to the future, Mr. Eckert, along with Mr. Jones, will be instrumental in effectively executing our significant capital expansion plans to ensure we pursue the growth needed to support these investments, while maintaining the level of service our customers expect from Encore.

 

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As part of the compensation setting process for 2023, the Compensation Committee discussed and evaluated the following additional considerations.

The Compensation Committee takes into consideration the importance of named executive officers to the Company when making qualitative decisions regarding variable compensation. The Compensation Committee believes that each named executive officer’s respective importance to the Company relates to the ease with which he could be adequately replaced, as well as to his overall contribution to the value of the company. The Compensation Committee further evaluates the relative skill and experience levels of its named executive officers, as well as the strength of their relationships with vital suppliers, customers, and vendors. The Compensation Committee also evaluates the performance of the employees reporting to the Company’s named executive officers as an assessment of their leadership skills. In 2023, the Compensation Committee found that both named executive officers were vital to the Company’s operational, financial, and share performance. Moreover, the Compensation Committee believes that both of its named executive officers would be extremely difficult to replace, given their respective experience, skills, business relationships, and leadership qualities. The Compensation Committee believes that these factors should weigh positively when considering variable compensation components for named executive officers in 2023 and beyond.

This section describes the compensation decisions that the Compensation Committee made with respect to the named executive officers for 2023.

In 2023 and in the first quarter of 2024, we continued to apply the compensation philosophy and compensation setting process described above in determining fixed and variable compensation components for our named executive officers. In summary, the compensation decisions made for 2023 for the named executive officers were as follows:

Total Quantum of Pay for our named executive officer team, comprised of Mr. Jones and Mr. Eckert, for 2023 was $39,204,250. Total Quantum of Pay includes Base Salary for 2023, Annual Cash Incentive awards for 2023, and RSUs awarded on January 15, 2023.

We awarded cash incentive bonus payments to the named executive officers in the amount of $7,500,000 to Mr. Jones and $3,750,000 to Mr. Eckert in the fourth quarter of 2023 as compensation for performance in fiscal year 2023;

We granted 50,000 RSUs subject to time-based vesting to Mr. Jones and 37,500 RSUs to Mr. Eckert in the first quarter of 2024 as compensation for performance in fiscal year 2023; and

 

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The Compensation Committee considers numerous factors when evaluating compensation components for named executive officers, including the Company’s financial and operational performance, individual named executive officer performance, and the importance of each named executive officer to the Company. The following analysis discusses the decisions made by the Compensation Committee for its named executive officers.

As discussed in the Total Named Executive Officer Compensation subsection on Page 31, the Compensation Committee believes that total named executive officer compensation is the most meaningful metric when comparing the Company’s executive compensation program to the 2024 Peer Group. The Company identifies only two named executive officers in Mr. Jones and Mr. Eckert. Analysis performed by the Compensation Committee indicates that the average number of named executive officers in the 2024 Peer group is 5.5.

The Compensation Committee further believes that the quantum of total named executive compensation at the Company should be commensurate with the level of the Company’s performance when compared to total named executive officer compensation in the 2024 Peer Group. The Compensation Committee found that the highest paid named executive officer team in the 2024 Peer Group earned a total compensation of  $47.8 million in 2022, compared to $26.7 million for the Company for the same period.

Analysis performed by the Compensation Committee indicated that the Company’s financial performance was at or near the top of the 2024 Peer Group for the performance metrics analyzed:

The Compensation Committee also considered its evaluation of operational and individual named executive officer performance, as well as an evaluation of the importance of our named executive officers to the Company.

Following this analysis, the Compensation Committee determined that the total quantum of pay for its named executive officers in 2023 should be at or near the top of the 2024 Peer Group.

The payment of a base salary is intended to provide a stable, fixed amount of income to our named executive officers for their day-to-day job performance. However, the amount of base salary paid to each named executive officer is a determinant of other elements of compensation. The Compensation Committee reviews base salaries annually. Annual salary adjustments are not automatic or guaranteed, but rather based on the Compensation Committee’s evaluation of the performance of each named executive officer, the value of the individual in the position to the Company relative to other positions and their level of experience, as well as current economic conditions.

The Compensation Committee has historically kept base salaries at competitive levels while trying to incentivize our executives with strong annual cash and equity-based incentives that allow the executives to have significant upside when the Company performs well. In 2022, base salary represented 6.3% of

 

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overall compensation for Mr. Jones and 5.0% for Mr. Eckert. Other factors that influence base salary include comparisons to base salaries of named executive officers at Peer Group companies, as well as historical base salaries for the Company’s named executive officers.

In making base salary decisions for 2024, the Compensation Committee considered the financial and operational performance of the Company, as well as the individual performance of our named executive officers. The Compensation Committee also considered the total quantum of pay in 2023 and the historical proportion of base salary to total compensation.

As such, the Compensation Committee decided to raise the base salary for Mr. Jones to $1,500,000 for 2024 from $1,200,000 for 2023, and the base salary for Mr. Eckert to $775,000 for fiscal year 2024 from $625,000 for fiscal 2023.

Annual cash incentives are subject to annual review and awarded based on performance during the calendar year. Annual cash incentive awards are not guaranteed, may change significantly from prior awards, or not be awarded at all, depending on performance. Therefore, annual cash incentive awards may be highly variable and are considered “At-Risk Compensation”. Annual cash incentives awarded to each named executive officer may not exceed a multiple of 7.5x of his appropriate base salary. Additionally, the Compensation Committee has included a requirement that the Company’s Tangible Book Value per Share must have increased over the prior calendar year or annual cash incentives will be capped at 50% of the annual cash incentive awarded in the prior calendar year.

When considering annual cash incentive payments, the Compensation Committee considers an equal 50% weighting between (a) individual named executive officer performance and contributions to the Company over the most recent calendar year; and (b) Company performance when compared to the 2024 Peer Group. The Compensation Committee found that both individual named executive officer performance and Company performance when compared to the 2024 Peer Group was exemplary in 2023, as discussed beginning on Page 27 in the Peer Comparison section.

The Compensation Committee also considered the ratio of annual cash incentive to total compensation. In 2022, annual cash incentive represented 35% of total compensation for Mr. Jones and 30% of total compensation for Mr. Eckert.

As such, the Compensation Committee awarded cash incentive bonus payments to the named executive officers in the amount of  $7,500,000 to Mr. Jones and $3,750,000 to Mr. Eckert in the fourth quarter of 2023 as compensation for performance in fiscal year 2023. These payments represented a base salary multiple of 6.3x for Mr. Jones and 6.0x for Mr. Eckert, as well as a cash incentive to total pay ratio of 31.7% for Mr. Jones and 24.1% for Mr. Eckert.

Annual equity-based incentives are subject to annual review and awarded based on performance during the calendar year. Named executive officers are eligible to receive RSU and PRSU grants under the 2020 Long Term Incentive Plan. The Company granted all equity-based awards in 2024 and 2023 under the 2020 Long Term Incentive Plan, with a price that is at the fair market value of the Company’s Common Stock as of the date of grant. The equity-based awards granted in January 2023 were made in connection with each named executive officer’s efforts and performance in fiscal year 2022 and are included in the summary compensation table included in this year’s Proxy Statement. The equity awards granted in January 2024 were made in connection with each named executive officer’s efforts and performance in fiscal year 2023 and will be included in the summary compensation table for next year’s proxy statement. The price for equity award grants is determined by reference to the closing price per share on NASDAQ at the close of business on the date of grant.

The Compensation Committee believes that the majority of the Company’s named executive officer compensation should be in the form of annual equity-based incentives. In 2023, annual equity-based

 

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incentive represented 63.2% of total compensation for Mr. Jones and 71.9% of total compensation for Mr. Eckert. The 2020 Long Term Incentive Plan enables the Company to award time and performance based incentives that align the interests of named executive officers with those of the shareholders of the Company, motivate long-term shareholder value creation, reward named executive officers for recent achievements, and retain named executive officers who will contribute to the Company’s long-term success.

 

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Upon a Change in Control (as defined in the 2020 Long Term Incentive Plan), the Compensation Committee may, in its discretion, accelerate the vesting of awards, accelerate the exercisability of stock options and stock appreciation rights, redeem awards in exchange for cash payment or other consideration, cancel awards which remain subject to a restricted period for no consideration, or adjust awards as appropriate to reflect the Change in Control (as defined in the 2020 Long Term Incentive Plan), including providing for the substitution, assumption or continuation of the awards by a successor company.

 

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Assuming a Change in Control occurred on December 31, 2023, based on existing award agreements and the closing price of the Common Stock on NASDAQ on December 31, 2023, all outstanding restricted stock and restricted stock unit awards, with values of  $35,600,071 (Mr. Jones) and $26,201,884 (Mr. Eckert), would vest upon a change in control. The actual benefit that a named executive officer may receive upon a Change in Control can only be determined at the time of such Change in Control. Neither named executive officer is entitled to any severance payments or benefits and no unvested stock options are held by our named executive officers.

 

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The Delaware General Corporation Law (“DGCL”) permits Delaware corporations to limit the personal liability of directors for monetary damages associated with breaches of the duty of care in limited circumstances, and the Company’s certificate of incorporation has always included those limitations. That protection did not extend to corporate officers under the DGCL or the Company’s certificate of incorporation. This has resulted in increased litigation and insurance costs for companies, which harms stockholders. Effective August 1, 2022, the Delaware legislature amended the DGCL to correct this inconsistent treatment between directors and officers. The DGCL now allows Delaware corporations to amend their certificates of incorporation, subject to stockholder approval, to limit the personal liability of certain officers for monetary damages associated with breaches of the fiduciary duty of care (but not the fiduciary duty of loyalty) in limited circumstances.

 

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The Company’s Board of Directors is asking our shareholders to approve an amendment to the 2020 Long Term Incentive Plan (the “2020 Plan”), adding 1,000,000 additional shares to the current share reserve of the 2020 Plan (the “Amendment”). The Board of Directors adopted the Amendment on March 15, 2024, subject to shareholder approval at the Annual Meeting. No other amendment to the 2020 Plan is proposed. Shareholder approval of the Amendment is required by NASDAQ rules and the current terms of the 2020 Plan. If shareholders approve the Amendment at the Annual Meeting, the Amendment will become effective as of May 7, 2024. If we do not receive shareholder approval, the 2020 Plan will remain in effect without incorporating the terms of the Amendment.

The 2020 Plan was originally adopted by our Board of Directors on February 17, 2020 and approved by our shareholders on May 5, 2020. The purpose of the 2020 Plan is to provide officers, directors, employees and consultants of the Company and its subsidiaries whose initiative and efforts are deemed important to the successful conduct of the Company’s business with incentives to enter into and remain in the service of the Company and its subsidiaries, to acquire a proprietary interest in the success of the Company, to maximize their performance and to enhance the long-term performance of the Company.

The Board of Directors believes that the effective use of stock-based, long-term incentive compensation has been integral to the Company’s success in the past and is vital to its ability to achieve strong performance in the future. The 2020 Plan is the only plan pursuant to which we can grant such equity awards, and the limited number of shares remaining available under the 2020 Plan restricts our ability to continue to grant future equity awards. As of March 13, 2024, approximately 219,150 shares remained available for future awards under the 2020 Plan. Our average annual shares issued for the past five years is approximately 207,570 shares. Our Board of Directors does not believe that the number of shares of our common stock remaining available for issuance under the 2020 Plan is sufficient to accomplish the aforementioned purposes of our long-term incentive compensation. The Amendment thus will add 1,000,000 shares to the 2020 Plan’s share reserve, by increasing the maximum number of shares available for issuance from 1,000,000 shares to 2,000,000 shares.

The following is a summary of the material terms of the 2020 Plan, as amended by the Amendment, and is qualified in its entirety by (i) the full text of the 2020 Plan, a copy of which is attached to the Company’s Proxy Statement filed with the Securities and Exchange Commission on March 23, 2020 and (ii) the full text of the Amendment, a copy of which is attached to this Proxy Statement as Appendix B and is incorporated by reference in this proposal. You also may obtain copies of the 2020 Plan and Amendment, free of charge, by writing to the Company at Encore Wire Corporation, 1329 Millwood Road, McKinney, Texas 75069, Attention: Corporate Secretary.

The 2020 Plan became effective upon its approval by our shareholders on May 5, 2020 and will remain in effect until May 5, 2030, unless terminated earlier by the Board or Compensation Committee.

The 2020 Plan is administered by the Compensation Committee except to the extent the Board elects to administer the 2020 Plan. The Compensation Committee has the authority to, among other things,

 

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interpret the 2020 Plan, determine who will be granted awards under the 2020 Plan, determine the type and number of awards granted under the 2020 Plan, determine the terms and conditions of each award, modify or waive the terms and conditions of each award, and take action as it determines to be necessary or advisable for the administration of the 2020 Plan. The Compensation Committee has the right to delegate to a subcommittee of the Board or any officers of the Company any right granted to the Compensation Committee under the 2020 Plan, except where such delegation would violate state corporate law or result in the loss of an exemption under Rule 16b-3(d)(1).

 

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appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), stock awards, dividend equivalents and other stock-based awards and cash awards.

 

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A performance award is an award to receive cash, shares of common stock or a combination of both upon the achievement of certain performance goals over a performance period. Performance awards may be combined with other awards to impose performance criteria as part of the terms of the other awards. The Compensation Committee may establish the applicable performance goals based on the following business criteria: (1) revenues, sales or other income; (2) cash flow, discretionary cash flow, cash flows from operations, cash flows from investing activities, and/or cash flows from financing activities; (3) return on net assets, return on assets, return on investment, return on capital, return on capital employed or return on equity; (4) income, operating income or net income; (5) earnings or earnings margin determined before or after any one or more of depletion, depreciation and amortization expense; impairment of inventory and other property and equipment; accretion of discount on asset retirement obligations; interest expense; net gain or loss on the disposition of assets; income or loss from discontinued operations, net of tax; noncash derivative related activity; amortization of stock-based compensation; income taxes; or other items; (6) equity; net worth; tangible net worth; book capitalization; debt; debt, net of cash and cash equivalents; capital budget or other balance sheet goals; (7) debt or equity financings or improvement of financial ratings; (8) general and administrative expenses; (9) net asset value; (10) fair market value of the common stock, share price, share price appreciation, total stockholder return or payments of dividends; (11) achievement of savings from business improvement projects and achievement of capital projects deliverables; (12) working capital or working capital changes; (13) operating profit or net operating profit; (14) internal research or development programs; (15) geographic business expansion; (16) corporate development (including licenses, innovation, research or establishment of third party collaborations); (17) performance against environmental, ethics or sustainability targets; (18) safety performance and/or incident rate; (19) human resources management targets, including medical cost reductions, employee satisfaction or retention, workforce diversity and time to hire; (20) satisfactory internal or external audits; (21) consummation, implementation or completion of a change in control or other strategic partnerships, transactions, projects, processes or initiatives or other goals relating to acquisitions or divestitures (in whole or in part), joint ventures or strategic alliances; (22) regulatory approvals or other regulatory milestones; (23) legal compliance or risk reduction; (24) market share; (25) economic value added; or (26) cost reduction targets.

The 2020 Plan allows for awards subject to either time-based vesting or performance-based vesting, or both. Awards that are designated to be settled solely in shares of common stock have a minimum vesting period of one year, subject to a five percent exception and the permitted acceleration of vesting in the event of a participant’s death, disability, retirement, termination of employment, as a result of a change in control or such other events that the Compensation Committee determines.

In the event of changes in the outstanding common stock or in the capital structure of the Company by reason of any stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, change of control, or other relevant change in capitalization occurring after the grant date of any award, awards granted under the 2020 Plan and any award agreements, the exercise price of options and SARs, the price of common stock, and the maximum number of shares of common stock subject to all awards will be equitably adjusted or substituted, as to the number or price of a share of common stock or other consideration subject to such awards to the extent necessary to preserve the economic intent of the award.

The 2020 Plan provides that in the event of a change in control, the Compensation Committee may, in its discretion, accelerate the vesting of awards, accelerate the exercisability of stock options and stock appreciation rights, redeem awards in exchange for cash payment or other consideration, cancel awards which remain subject to a restricted period for no consideration, or adjust awards as appropriate to reflect the change in control, including providing for the substitution, assumption or continuation of the awards by a successor company.

 

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A change in control is defined as (a) the acquisition by an individual, entity or more than one individual or entity acting as a group, of common stock representing more than 50% of the total fair market value or total voting power of the Company; (b) the acquisition by an individual, entity or more than one individual or entity acting as a group, during a 12-month period, of common stock representing 30% or more of the total voting power of the Company; (c) a majority of the members of the Board are replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election; or (d) the acquisition by an individual, entity or more than one individual or entity acting as a group, during a 12-month period, of 40% of the assets of the Company.

The Compensation Committee may amend, alter, suspend, discontinue or terminate the 2020 Plan at any time. However, except in the case of adjustments upon changes in common stock, any amendment or alteration to the 2020 Plan, including any increase in any share limitation, shall be subject to the approval of the Company’s stockholders not later than the annual meeting next following such Compensation Committee action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which shares of common stock of the Company may then be listed or quoted.

The Compensation Committee may amend the terms of any one or more awards. However, the Compensation Committee may not amend an award that would impair a participant’s rights under the award without the participant’s written consent.

The Company is authorized to deduct all applicable withholding taxes from any award or payment made under the 2020 Plan. The Company may allow the participant to satisfy the tax withholding obligation by delivering cash, common stock (including through previously owned shares, net settlement, broker-assisted sale, or other cashless withholding) or other property.

All awards are subject to cancellation, forfeiture or recoupment of previously paid compensation provided under the 2020 Plan or an award agreement in accordance with the Company’s clawback policy.

The following summary is based on an analysis of the Code as currently in effect, existing laws, judicial decisions, administrative rulings, regulations and proposed regulations, all of which are subject to change. Moreover, the following is only a summary of United States federal income tax consequences. Actual tax consequences to participants may be either more or less favorable than those described below depending on the participants’ particular circumstances. State and local tax consequences may in some cases differ from the federal tax consequences. The following summary of the income tax consequences in respect of the 2020 Plan is for general information only. Interested parties should consult their own advisors as to specific tax consequences of their awards, including the applicability and effect of state, local and foreign laws.

No income will be recognized by a participant for federal income tax purposes upon the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the amount paid for the shares. Income recognized upon the exercise of a nonstatutory stock option will be considered compensation subject to withholding at the time the income is recognized. Nonstatutory stock options are designed to provide the employer with a deduction equal to the amount of ordinary income recognized by the participant at the time of the recognition by the participant.

 

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There will be no federal income tax consequences to either the participant or the employer upon the grant of a performance award. Generally, the participant will recognize ordinary income subject to withholding upon the receipt of cash and/or shares of common stock in payment of performance awards in an amount equal to the aggregate of the cash received and the fair market value of the common stock so transferred. The employer generally will be entitled to a corresponding tax deduction equal to the amount includible in the participant’s income.

The participant will recognize income for federal income tax purposes at the time of the stock award and the employer will be entitled to a corresponding deduction.

The tax treatment of other incentive awards will depend on the type of award. In general, the participant will be subject to income tax withholding at the time when the ordinary income is recognized. The participant’s employer will be entitled to a tax deduction at the same time and for the same amount.

Section 409A of the Code imposes complex rules on nonqualified deferred compensation arrangements, including requirements with respect to elections to defer compensation and the timing of payment of deferred amounts. Depending on how they are structured, certain equity-based awards may be subject to Section 409A of the Code, while others are exempt. If an award is subject to Section 409A of the Code and a violation occurs, the compensation is includible in income when no longer subject to a substantial risk of forfeiture and the participant may be subject to a 20% penalty tax and, in some cases, interest and penalties. The 2020 Plan and awards granted under the 2020 Plan are intended to be exempt from or to conform to the requirements of Section 409A of the Code, although no guarantees are made that awards will not be subject to taxes, interest and penalties under Section 409A of the Code.

Section 162(m) of the Code denies deductions to publicly held corporations for compensation paid to certain senior executives that exceeds $1,000,000 per year. The Compensation Committee retains authority to make payments or grant awards under the 2020 Plan that are not fully deductible if, in its sole discretion, such payments are necessary to achieve our compensation objectives and to protect shareholder interests.

If an individual’s rights under the 2020 Plan are accelerated as a result of, or considered contingent on, a change in control and the individual is a “disqualified individual” under Section 280G of the Code, the value of such rights received by such individual may be included in determining whether or not such individual has received an “excess parachute payment” under Section 280G of the Code, which could result in both the imposition of a 20% federal excise tax (in addition to federal income tax) payable by the individual on the value of such accelerated rights, and the loss by the Company of a compensation deduction.

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECTS OF U.S. FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO AWARDS UNDER THE 2020 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE IMPACT OF EMPLOYMENT OR OTHER TAX REQUIREMENTS, THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.

Awards under the amended 2020 Plan will be granted in amounts and to individuals as determined by the Compensation Committee in its sole discretion. Therefore, the benefits or amounts that will be

 

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