The Sherwin-Williams Company (SHW) DEF 14ADefinitive proxy

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

Filed by the Registrant  ☑

Filed by a Party other than the Registrant  ☐

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Proxy Statement

We are providing the enclosed proxy materials to you in connection with the solicitation by the Board of Directors (the Board) of proxies to be voted during the Annual Meeting of Shareholders to be held on April 21, 2021 (the Annual Meeting).

As used in this Proxy Statement, the terms “Sherwin-Williams,” “the company,” “we,” and “our” refer to The Sherwin-Williams Company.

None of the share, restricted stock unit, per share, or per restricted stock unit information included in this Proxy Statement has been adjusted to reflect Sherwin-Williams’ three-for-one stock split announced on February 3, 2021.

In accordance with rules and regulations adopted by the Securities and Exchange Commission (SEC), Sherwin-Williams may furnish proxy materials by making them available via the Internet, instead of mailing printed copies to each shareholder of record. If you receive a Notice of Internet Availability of Proxy Materials by mail, you will not receive printed copies of our proxy materials unless you specifically request printed materials. You may request printed materials by following the instructions on the Notice of Internet Availability of Proxy Materials. We began making our proxy materials available on or about March 10, 2021.

Table of Contents

Proxy Summary

This summary highlights information contained elsewhere in this Proxy Statement and does not contain all of the information you should consider. Please carefully read the entire Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 before voting.

2021 Annual Meeting of Shareholders

Proposals and Board Recommendations

2020 Business Highlights

Throughout 2020, Sherwin-Williams devoted significant attention to responding to the COVID-19 pandemic to protect the health and well-being of our employees, customers, and communities and to mitigate the business impact, while maintaining focus on our near- and long-term strategies to drive future growth and continue delivering value to our shareholders.

Our Comprehensive COVID-19 Response

Beginning in March 2020, we began implementing changes in our business to protect and support our employees, customers, and communities during these challenging times, as well as to assist with efforts to contain and combat the spread of COVID-19. These changes have included the following.

Financial and Operating Performance

Achieving Record Results. Despite the unprecedented challenges of the COVID-19 pandemic and its impact to our business, 2020 was another outstanding year for Sherwin-Williams’ financial performance. While none of us anticipated the severity of these challenges, our employees responded as they always do when facing adversity – with extraordinary effort, determination, and resiliency. Consolidated net sales increased to a record $18.36 billion in 2020. Net income increased to $2.03 billion, and diluted net income per share increased 33.9% to $22.08. We also generated record net operating cash of $3.41 billion in 2020 — an increase of $1.09 billion.

Returning Significant Value to Shareholders. In 2020, we continued our history of returning significant value to our shareholders and continued to execute on our disciplined capital allocation strategy. We returned approximately $2.93 billion to our shareholders in the form of dividends and share repurchases, an increase of 145% over the prior year. We also increased our annual dividend to $5.36 per share, extending our string of dividend increases to 42 consecutive years. In February 2021, the Board increased the quarterly cash dividend to $1.65 per share, an increase of approximately 23% over the dividend paid in the same quarter in 2020.

Sherwin-Williams has returned approximately $5.1 billion to shareholders over the three-year period		Total Shareholder Return, including reinvestment of dividends

Our Director Nominees

The following table provides summary information about each of our director nominees. Directors are elected annually by a majority of votes cast.

This year, we have included a new director nominee—Aaron M. Powell, President, Asia-Pacific Consumer Business, Kimberly-Clark Corporation. Susan J. Kropf, who has served as a director since 2003, is not standing for re-election, as she will retire as a director at the end of her current term at the Annual Meeting in accordance with the Board’s retirement policy.

Board Composition

Our Board utilizes a thoughtful approach to board composition to ensure a proper balance between the addition of new directors who bring fresh and diverse perspectives, and the stability of the Board as a whole. Our director nominees reflect the Board’s efforts and commitment to achieving diversity, including with respect to age, gender, race, and ethnicity and the need for periodic refreshment to maintain this commitment. Recently, the Board adopted a policy to include, and to request that any search firm it engages include, a diverse pool of qualified candidates, including women and racially/ethnically diverse persons, from which director nominees are chosen.

Balanced Mix of Skills and Experience

Our director nominees also reflect the Board’s efforts to ensure our directors have the variety of experiences, qualifications, attributes, and skills necessary to make significant contributions to the Board, Sherwin-Williams, and our shareholders. Our Board believes this mix contributes to a well-balanced Board and enables the Board to provide effective oversight of our management and business. These experiences, qualifications, attributes, and skills are reviewed regularly in considering the composition of the full Board and each director nominee.

Corporate Governance

The Board and management have recognized for many years the importance of sound corporate governance practices in fulfilling their respective duties and responsibilities.

Our Board and Committees

Under our Corporate Governance Guidelines, each director is expected to attend, absent unusual circumstances, all meetings of the Board and each committee on which he or she serves. Each director is also expected to attend, absent unusual circumstances, all annual and special meetings of shareholders.

Each of our current directors attended at least 75% of all of the 2020 meetings of the Board and the committees on which he or she served. All of our current directors also attended the 2020 Annual Meeting.

Sound Corporate Governance Practices

Our corporate governance practices are designed to enable the Board to set objectives and monitor performance and to strengthen the accountability of the Board and management. We actively monitor our corporate governance practices to ensure we continue to manage our business in accordance with high standards of ethics, business integrity, and corporate governance. The following table highlights some of our corporate governance practices and policies.

Risk Management & Oversight

While management is responsible for assessing and managing our exposure to various risks, the Board has responsibility for the oversight of risk management. Certain Board committees review specific risk areas to assist the Board with its overall risk management oversight responsibility. The following highlights select areas of Board and committee oversight during 2020.

Executive Compensation

Our Compensation Objectives

We design and manage our company-wide compensation programs to align with our overall business strategy and to focus our employees on delivering sustained financial and operating results. We believe it is important that our compensation programs: (a) be competitive; (b) maintain a performance and achievement-oriented culture; and (c) align the interests of our executives with those of our shareholders.

Our Compensation Mix

A significant percentage of our executives’ compensation opportunity is variable, at-risk, and tied to company or business unit performance, including stock price appreciation. For 2020, 90% of total direct compensation (base salary, annual incentive, and long-term incentive) for our CEO and an average of 79% for our other named executives was at-risk and tied to performance.

Our Responsible Compensation Practices

Our compensation programs, practices, and policies demonstrate our commitment to responsible pay and governance principles. We review and evaluate our compensation programs, practices, and policies on an ongoing basis, and we modify them to address evolving best practices and changing regulatory requirements, as well as significant events, such as the COVID-19 pandemic. The following table highlights some of the more significant best practices we have adopted, and the practices we have avoided, to maintain our commitment.

Corporate Governance

The Board and management have recognized for many years the importance of sound corporate governance practices in fulfilling their respective duties and responsibilities. We describe below our key corporate governance policies and practices.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines, which provide the framework for the governance of our company. The Board reviews our Corporate Governance Guidelines at least annually. From time to time, the Board may revise our Corporate Governance Guidelines to reflect new regulatory requirements and evolving corporate governance practices.

In February 2021, the Board conducted its annual review of our Corporate Governance Guidelines. Based upon its evaluation and consideration of evolving corporate governance practices with respect to board diversity, the Board revised our Corporate Governance Guidelines to include a policy that, when identifying candidates for Board membership, the Nominating and Corporate Governance Committee (the Nominating Committee) will include, and will request that any search firm it engages include, a diverse pool of qualified candidates, including women and racially/ethnically diverse persons, from which director nominees are chosen.

Leadership Structure and Lead Director

Combined Chairman and Chief Executive Officer Role

Our Corporate Governance Guidelines provide that the same person should hold the positions of Chairman and CEO, except in unusual circumstances, such as during a period of transition in the office of the CEO. The Board believes this structure provides the most efficient and effective leadership model. A combined Chairman and CEO role provides clear insight and direction of business strategies and plans to both the Board and management, which facilitates the efficient and effective functioning of the Board and our company. The Board also believes we can most effectively execute our business strategies and plans if our Chairman is a member of our management team, providing unified leadership and focus.

Lead Director

Under our Corporate Governance Guidelines, if the Chairman is not an independent director, the independent directors of the Board will annually elect an independent director to serve as Lead Director. Steven H. Wunning is currently the Lead Director. The Board believes a Lead Director improves the Board’s overall performance by enhancing the efficiency of the Board’s oversight and governance responsibilities and by supporting the relationship between the CEO and the independent directors.

The Lead Director has a significant role, with comprehensive governance responsibilities that are clearly described in our Corporate Governance Guidelines. These responsibilities are as follows:

Other Leadership Components

Our strong leadership structure ensures the Board effectively carries out its responsibility to oversee management. All Board committees are entirely composed of independent directors. Non-management directors meet in executive session following every regularly scheduled Board meeting. The Lead Director may schedule additional executive sessions, as appropriate. The Board has full access to our management team at all times. In addition, the Board, the Lead Director, and any committee may retain independent legal, financial, compensation, or other consultants and advisors to advise and assist the Board or committee in discharging its responsibilities.

Management Succession Planning

In light of the importance of management development and succession planning to Sherwin-Williams’ success, the Board’s oversight function includes responsibility for selecting and evaluating our CEO, electing or appointing other senior management, and reviewing management succession planning, including with respect to our CEO. The Compensation and Management Development Committee (the Compensation Committee) supports the Board in overseeing this process. Succession planning is reviewed by the Board at least once per year and may be reviewed more frequently as the Board deems appropriate.

On an annual basis, the CEO conducts an evaluation of the performance of the senior management team. The CEO reports the results of such evaluation to the Board, along with the CEO’s thoughts and recommendations on management succession planning and development plans to help prepare management for future succession. The Board and our CEO also engage in discussions to plan for CEO succession, including in the event of an unexpected occurrence resulting in a temporary incapacity or a sudden departure of the CEO.

Code of Conduct

Our Code of Conduct applies to all directors and employees, including executive officers, of Sherwin-Williams and our subsidiaries, wherever located. It contains the general guidelines and principles for conducting Sherwin-Williams’ business, consistent with the highest standards of business ethics. Our Code of Conduct also embodies our seven guiding values, which form the foundation of our company: Integrity, People, Service, Quality, Performance, Innovation, and Growth. We encourage our employees to report all violations of company policies and applicable law, including incidents of harassment or discrimination. We will take appropriate steps to investigate all such reports and take appropriate action. Under no circumstances will employees be subject to any disciplinary or retaliatory action for reporting, in good faith, a possible violation of our Code of Conduct or applicable law, or for cooperating in any investigation of such a possible violation.

Under our Code of Ethics for Senior Financial Management, our CEO, CFO, and senior financial management are responsible for creating and maintaining a culture of high ethical standards and commitment to compliance throughout our company to ensure the fair and timely reporting of Sherwin-Williams’ financial results and condition. Senior financial management includes our controller, treasurer, principal financial/accounting personnel in our operating groups and divisions, and all other financial/accounting personnel with staff supervision responsibilities in our corporate departments and operating groups and divisions.

Risk Management and Oversight

While management is responsible for assessing and managing our exposure to various risks, the Board has responsibility for the oversight of risk management. We have an enterprise risk management process to identify, assess, and manage the most significant risks facing us, including financial, operational, litigation, compliance, reputational, environmental, and cybersecurity risks. Management reviews various significant risks with the Board throughout the year, as necessary and/or appropriate, and conducts a formal annual review of its assessment and management of the most significant risks with the Board.

Certain Board committees review specific risk areas to assist the Board with its overall risk management oversight responsibility.

Management’s role in identifying, assessing, and managing risk, and the Board’s role in risk oversight, have been well defined for many years. The Board’s role in risk oversight has not significantly impacted the Board’s leadership structure. We believe our current leadership structure, with Mr. Morikis serving as Chairman and CEO, enhances the Board’s effectiveness in risk oversight due to his extensive knowledge of our operations and the paint and coatings industry.

How You May Communicate with Directors

The Board has adopted a process by which shareholders and all other interested parties may communicate with the Lead Director, the chairperson of any of the committees of the Board, or the non-management directors as a group. You may send communications by regular mail to the attention of the: Lead Director; Chair, Audit Committee; Chair, Compensation and Management Development Committee; Chair, Nominating and Corporate Governance Committee; or non-management directors as a group, Non-Management Directors; each, c/o Corporate Secretary, The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115.

Sherwin-Williams’ management will review all communications received to determine whether the communication requires immediate action. Management will relay all appropriate and applicable communications received, or a summary of such communications, to the appropriate director or directors.

Complaint Procedures for Accounting, Auditing, and Financial-Related Matters

The Audit Committee has established procedures for receiving, retaining, and treating complaints from any source regarding accounting, internal accounting controls, and auditing matters. The Audit Committee has also established procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Interested parties may communicate such complaints by following the procedures described in the section above under the heading “How You May Communicate with Directors.” Employees may report such complaints by following the procedures outlined in our Code of Conduct. We do not permit any disciplinary or retaliatory action against any person who, in good faith, submits a complaint or concern under these procedures.

Director Independence

Under our Director Independence Standards (included in this Proxy Statement as Appendix A), 9 of our 10 current directors and 9 of our 10 director nominees are independent. All members of the Audit Committee, Compensation Committee, and Nominating Committee are independent. More information is set forth under the heading “Independence of Directors” in the “Proposal 1 — Election of Directors” section.

Majority Voting for Directors

As provided in our Amended and Restated Articles of Incorporation, for an individual to be elected to the Board in an uncontested election of directors, the number of votes cast in favor of the individual’s election must exceed the number of votes cast against the individual’s election.

Any incumbent nominee for director in an uncontested election who receives a greater number of “against” votes than “for” votes shall continue to serve on the Board pursuant to Ohio law, but is required to promptly tender his or her resignation to the Board under our Corporate Governance Guidelines. The Nominating Committee will promptly consider the tendered resignation and will recommend to the Board whether to accept the tendered resignation or to take some other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the vote result.

In making this recommendation, the Nominating Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons why shareholders voted against the director (if ascertainable), the length of service and qualifications of the director whose resignation has been tendered, the director’s contributions to Sherwin-Williams, whether by accepting the resignation Sherwin-Williams will no longer be in compliance with any applicable law, rule, regulation, or governing document, and whether accepting the resignation is in the best interest of Sherwin-Williams and our shareholders. In considering the Nominating Committee’s recommendation, the Board will consider the factors considered by the Nominating Committee and such additional information and factors the Board believes to be relevant. We will promptly publicly disclose the Board’s decision and process in a report filed with or furnished to the SEC.

Executive Sessions of Non-Management Directors

The non-management members of the Board meet in executive session in connection with regularly scheduled Board meetings. Additional executive sessions may be scheduled by the Lead Director or the non-management directors. The Lead Director chairs these sessions.

Annual Board Self-Assessments

The Board, Audit Committee, Compensation Committee, and Nominating Committee each complete an annual self-assessment to assist in determining whether the Board and its committees are functioning effectively. The Nominating Committee oversees this process.

The Board may periodically engage an independent third-party advisor experienced in corporate governance matters to facilitate, and bring an outside perspective to, the annual self-assessment process. The Board last engaged such an advisor in 2018. During 2018, the advisor conducted one-on-one, open-ended interviews with all Board members to provide each director with the opportunity to openly discuss the performance and effectiveness of the Board as a whole and its committees. The interviews also provided each director with an opportunity to identify areas for improvement. In addition to the director interviews, the advisor conducted interviews with members of senior management who regularly attend Board meetings to solicit their perspectives on the relationship between the Board and management. The advisor’s process was developed in consultation with the Lead Director and the chair of the Nominating Committee, as well as our Chairman and CEO and our Senior Vice President, General Counsel and Secretary. The advisor gathered and analyzed the data and presented its findings and recommendations to the full Board.

Board Committee Charters

The Audit Committee, Compensation Committee, and Nominating Committee each have adopted written charters. Each committee reviews and evaluates the adequacy of its charter at least annually.

Stock Ownership Guidelines

The Board believes our directors and executives should have meaningful share ownership in Sherwin-Williams. Accordingly, the Board has established minimum share ownership requirements. Additional information is set forth under the heading “Stock Ownership Guidelines” in the “Other Arrangements, Policies, and Practices” section of the Compensation Discussion and Analysis (CD&A).

Director Overboarding Policy

As provided in our Corporate Governance Guidelines, the Board has established an overboarding policy to help ensure a director’s service on other public company boards does not impair the director’s ability to effectively serve on our Board. To that end, the Board believes that directors who are executive officers of public companies should not serve on more than two public company boards (inclusive of our Board) and that all other members should not serve on more than four public company boards (inclusive of our Board).

Anti-Hedging and Anti-Pledging Policy

Directors and all employees, including our executive officers, are prohibited from engaging in hedging transactions with respect to our securities. “Hedging transactions” can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars, and exchange funds or through other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of our securities. Because hedging transactions might permit a director or employee, including our executive officers, to continue to own our securities, whether obtained through our equity compensation plans or otherwise, without the full rewards and risks of ownership, such hedging transactions are prohibited.

We also prohibit our directors, executive officers, and certain of our other employees that are subject to the preclearance procedures of our Insider Trading Policy from holding our securities in margin accounts or otherwise pledging our securities for a loan. Additionally, we prohibit our directors and employees, including our executive officers, from engaging in short sales of our securities, and purchasing and selling put options, call options, or other such derivative securities relating to our securities.

Clawback and Recapture Policy

The Board has adopted a policy regarding the adjustment and recapture of compensation paid or payable to executives and key employees. Under this clawback and recapture policy, employees who participate in our 2007 Executive Annual Performance Bonus Plan are required to reimburse Sherwin-Williams for any award paid under this plan in the event:

The reimbursement will be equal to the difference in the amount of the award prior to the restatement and the amount of the award determined using the restated financial results.

In addition, (a) all outstanding stock awards will be canceled and (b) the employee will be required to reimburse Sherwin-Williams for any economic gains received by the employee pursuant to a stock award during the one-year period preceding the Board’s determination that the employee engaged in the conduct described above.

Availability of Corporate Governance Materials

You may access all committee charters and our Corporate Governance Guidelines, Director Independence Standards, Code of Conduct, and other governance materials on our Investor Relations website, investors.sherwin-williams.com.

Corporate Responsibility

Our approach to corporate responsibility is grounded in our commitment to protecting and developing our greatest assets— our company, our employees, the communities where we live and operate, and the world around us. Presented below are highlights of our corporate responsibility programs and efforts, including with respect to human capital management and other environmental and social matters. You can find additional information about our programs and efforts on our Investor Relations website, investors.sherwin-williams.com.

Proposal 1 — Election of Directors

Our Board has nominated the following 10 director nominees for election at the Annual Meeting to hold office until the next Annual Meeting and until their successors are elected or until their earlier resignation, removal from office, or death.

Our Board currently has 10 members. All are standing for re-election as nominees, except Mrs. Kropf, who is retiring as a director at the Annual Meeting in accordance with the Board’s retirement policy. Each nominee was elected by our shareholders at the 2020 Annual Meeting, except for our new nominee, Mr. Powell, who was nominated to be elected as a director by unanimous action of the Board on February 17, 2021.

All of the nominees are independent, except Mr. Morikis, who is not considered to be independent because of his position as our Chairman and CEO.

There are no family relationships among any of the directors, director nominees, and executive officers.

Each nominee has agreed to serve, if elected. If any nominee declines or is unable to accept such nomination or is unable to serve, an event which we do not expect, the Board reserves the right in its discretion to substitute another person as a nominee or to reduce the number of nominees. In this event, the proxy holders may vote, in their discretion, for any substitute nominee proposed by the Board.

We have presented below biographical information regarding each nominee. This biographical information is supplemented by additional information regarding the particular experiences, qualifications, attributes, and skills that led the Board to conclude each nominee should serve on the Board. This additional information is set forth under the heading “Experiences, Qualifications, Attributes, and Skills of Director Nominees.”

Independence of Directors

The Board has adopted categorical Director Independence Standards to assist the Board in determining the independence of each director. To be considered independent, the Board must affirmatively determine that the director has no material relationship with Sherwin-Williams. In each case, the Board broadly considers all relevant facts and circumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, and such other criteria as the Board may determine from time to time. Our Director Independence Standards also include additional independence requirements for members of the Audit Committee and Compensation Committee. A complete copy of our Director Independence Standards is included in this Proxy Statement as Appendix A.

During the Board’s annual review of director independence, the Board considers transactions, relationships, and arrangements between each director or an immediate family member of the director and Sherwin-Williams. The Board also considers transactions, relationships, and arrangements between each director or an immediate family member of the director and our senior management. Under our Director Independence Standards, the following relationships are not considered to be material relationships that would impair a director’s independence:

Early this year, the Board performed its annual independence review. As a result of this review, the Board determined that 9 of our 10 current directors and 9 of our 10 director nominees are independent. All members of the Audit Committee, Compensation Committee, and Nominating Committee are independent. The Board determined that Ms. Anderson, Mrs. Kropf, Ms. Poon and Messrs. Anton, Fettig, Kramer, Powell, Thaman, Thornton, and Wunning meet these standards and are independent and, in addition, satisfy the independence requirements of the New York Stock Exchange (NYSE). The Board also determined that David F. Hodnik, who served as a director until his retirement in April 2020, was independent under our Director Independence Standards and the independence requirements of the NYSE. Mr. Morikis is not considered to be independent because of his employment with Sherwin-Williams.

Experiences, Qualifications, Attributes, and Skills of Director Nominees

In considering each director nominee and the composition of the Board as a whole, the Nominating Committee utilizes a director matrix consisting of a diverse set of experiences, qualifications, attributes, and skills, including self-identified diversity characteristics, such as with respect to gender, race, and ethnicity, that it believes enables a director nominee to make significant contributions to the Board, Sherwin-Williams, and our shareholders. These experiences, qualifications, attributes, and skills are more fully described below. Additionally, in connection with director candidate searches, the Board’s policy is to include a diverse pool of qualified candidates, including women and racially/ethnically diverse persons, from which new director candidates are chosen for Board membership.

The Nominating Committee regularly reviews the director matrix as part of its annual Board composition review, which includes a review of potential director candidates. The Nominating Committee may also consider such other experiences, qualifications, attributes, and skills, as it deems appropriate, given the then-current needs of the Board and Sherwin-Williams.

Director Compensation

2020 Director Compensation Table

The following table sets forth information regarding the compensation of our non-management directors for 2020.

Director Compensation Program

The Compensation Committee is responsible for reviewing and approving the compensation for our non-management directors. All of our non-management directors are paid under the same compensation program. Any executive officer of Sherwin-Williams who also serves as a director does not receive any additional compensation for serving as a director.

Our non-management director compensation program is designed to attract and retain highly qualified directors by ensuring non-management director compensation is competitive relative to market practices, addresses the time, effort, expertise, and accountability required of active Board membership, and aligns directors’ interests with those of our shareholders through the equity component of the compensation program.

Director Fees

During 2020, the cash and equity compensation program for our non-management directors consisted of the following:

We reimburse all directors for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board and its committees. We do not provide retirement benefits to our non-management directors.

It is the Compensation Committee’s practice to engage its independent compensation consultant, Compensation Advisory Partners, every other year to assess the competitiveness of our director compensation program relative to market practices, including the peer group we use for executive compensation purposes. During 2020, the Compensation Committee performed such assessment and, based upon its evaluation and the recommendation of the compensation consultant, the Committee approved maintaining the current compensation program for our non-management directors. Additional information regarding the role and independence of our compensation consultant is set forth under the heading “Compensation and Management Development Committee” in the “Board Meetings and Committees” section.

Director Stock Ownership Requirement

The Board has established a minimum share ownership requirement to ensure the interests of our directors are aligned with the interests of our shareholders. Each non-management director who has served on the Board for at least five years is required to own shares of common stock equal in value to at least seven times the annual Board cash retainer. We include additional information about this requirement and the Compensation Committee’s annual review to determine whether our non-management directors are meeting this requirement under the heading “Stock Ownership Guidelines” in the “Other Arrangements, Policies, and Practices” section of the CD&A.

Other Benefits

We also provide liability insurance and business travel accident insurance for all directors, including $300,000 accidental death and dismemberment coverage and $300,000 permanent total disability coverage, while the directors are traveling on Sherwin-Williams’ business.

Directors may also receive the same discounts as our employees on the purchase of products at Sherwin-Williams’ stores and are eligible to participate in The Sherwin-Williams Foundation Matching Gifts Program and Grants for Volunteers Program on the same basis as employees. For the Matching Gifts Program, the Foundation will match, on a 1:1 basis, gifts of $100 or more, up to an annual maximum of $3,000, made by eligible participants to qualifying nonprofit organizations and educational institutions with tax-exempt affiliates.

Directors may defer all or a part of their retainer and meeting fees under our Director Deferred Fee Plan into a common stock unit account, a shadow stock unit account, or an interest bearing cash account. Amounts deferred may be distributed either in annual installments over a period of up to ten years or in a lump sum pursuant to a director’s payment election. Amounts credited to a shadow stock unit account are distributed in cash, and units are vested in shadow stock and common stock unit accounts upon allocation to such accounts.

Board Meetings and Committees

The Board held seven meetings during 2020. Each incumbent director attended at least 75% of all of the meetings of the Board and committees on which he or she served. Under our Corporate Governance Guidelines, each director is expected to attend, absent unusual circumstances, all meetings of shareholders. All current directors attended the 2020 Annual Meeting.

The Board has established an Audit Committee, Compensation Committee, and Nominating Committee. Each committee has adopted a written charter. You may find a complete copy of each committee charter on our Investor Relations website, investors.sherwin-williams.com.

Committee Membership

The following table sets forth the current membership and chairs of the committees of the Board.

Audit Committee

The purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:

The Audit Committee met eight times during 2020 and made regular reports to the Board. Each member of the Audit Committee is independent under applicable SEC rules, NYSE listing standards, and our Director Independence Standards. The Board has determined that Messrs. Anton, Fettig, and Kramer are “audit committee financial experts” under SEC rules.

Compensation and Management Development Committee

The purpose of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:

As part of its charter, the Compensation Committee reviews and evaluates our programs, priorities, and progress for recruiting, staffing, developing, and retaining competent managers, including supporting the Board in overseeing management succession planning for our CEO and other executives.

The Compensation Committee met four times during 2020 and made regular reports to the Board. Each member of the Compensation Committee meets the independence requirements under applicable SEC rules, NYSE listing standards, and our Director Independence Standards.

Process for Determining Director and Executive Compensation

The Compensation Committee reports to the Board on all compensation matters regarding our directors and management, which includes our executive officers and operating management. The Compensation Committee does not generally delegate any of its authority to other persons, although it has the power to delegate authority to subcommittees and executive officers. The Compensation Committee relies upon several members of our management and their staff, as well as an independent compensation consultant, for assistance in performing its duties.

The Compensation Committee has directly engaged Compensation Advisory Partners as its outside compensation consultant reporting directly to the Compensation Committee. The Compensation Committee evaluated the independence of Compensation Advisory Partners, taking into account all factors relevant to its independence from management under applicable SEC rules and NYSE listing standards. Based upon that evaluation, the Compensation Committee determined Compensation Advisory Partners is independent. The Compensation Committee also conducted an assessment to evaluate whether the work performed by Compensation Advisory Partners raises a conflict of interest. Based upon that assessment, the Compensation Committee determined that no conflict of interest exists. Compensation Advisory Partners did not provide any services to Sherwin-Williams during 2020 other than those matters for which it was engaged by the Compensation Committee.

Role of the Compensation Consultant

The compensation consultant performs services for the Compensation Committee relating to director and executive compensation, including the following:

The Compensation Committee meets multiple times throughout the year with the compensation consultant in executive session without management present.

Role of Management

Several members of our management participate in the Compensation Committee’s executive compensation process. The Compensation Committee relies upon our Senior Vice President – Human Resources (SVP – HR) and his staff for input related to director and executive compensation matters. With regard to executive compensation, management plays a more active role in the compensation process and makes recommendations with respect to:

Prior to providing recommendations to the Compensation Committee at its meetings, our SVP – HR will meet with our CEO to review the recommendations, except for recommendations concerning our CEO’s compensation. Our CEO and our SVP – HR also meet with the chair of the Compensation Committee and the compensation consultant prior to meetings to review the agenda for the meetings and the compensation recommendations. Our CEO and our SVP – HR generally attend all Compensation Committee meetings. Our CEO does not have the ability to call meetings. Our SVP – HR serves as secretary for the Compensation Committee at its meetings. Our CEO is excused from that part of the meeting during which the Compensation Committee discusses his annual performance evaluation and compensation.

Nominating and Corporate Governance Committee

The purpose of the Nominating Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:

The Nominating Committee met two times in 2020 and made regular reports to the Board. Each member of the Nominating Committee is independent under NYSE listing standards and our Director Independence Standards.

Director Qualifications

The Nominating Committee seeks a diverse group of candidates who possess the appropriate experiences, qualifications, attributes, and skills to make a significant contribution to the Board, Sherwin-Williams, and our shareholders. From time to time, the Nominating Committee receives input from senior management and other members of the Board to identify and evaluate potential director candidates. The Nominating Committee may also employ a professional search firm (for which it would be paid a fee) to assist it in identifying potential members of the Board. Each candidate is evaluated in the context of the Board as a whole, with the objective that the Board can best perpetuate our company’s success and represent shareholders’ interests through the exercise of sound business judgment using the directors’ diversity of experiences, qualifications, attributes, and skills, including directors’ self-identified diversity characteristics, such as gender, race, ethnicity, religion, national origin, sexual orientation, disability, military service, or other socio-economic or demographic characteristics. Each candidate shall have the highest personal and professional character and integrity and shall have demonstrated exceptional ability and judgment in their respective endeavors. Candidates must possess sufficient time to effectively carry out their duties and responsibilities.

Aaron M. Powell was identified as a director candidate by an outside search firm. The Nominating Committee provided the search firm with guidance as to the skills, experience, and qualifications that the Nominating Committee was seeking in potential candidates, and the search firm identified candidates for the Nominating Committee’s consideration. After evaluating Mr. Powell in the manner described above and considering input from our other independent directors and our Chairman and CEO, the Nominating Committee identified Mr. Powell as a director candidate and recommended him as a nominee to the Board.

Diversity of Directors and Director Nominees

In considering the composition of the Board, the Nominating Committee seeks to strike a proper balance between the addition of new directors who bring fresh and diverse perspectives and the stability of the Board as a whole. To maintain this commitment to a well-balanced, diverse Board, the Nominating Committee utilizes a director matrix consisting of a

diverse set of experiences, qualifications, attributes, and skills, including self-identified diversity characteristics, such as gender, race, and ethnicity. This matrix is included in this Proxy Statement under the heading “Experiences, Qualifications, Attributes, and Skills of Director Nominees.” The Nominating Committee utilizes the matrix when identifying, considering, and recommending director nominees, as well as potential director candidates as part of its process of identifying individuals qualified to become Board members. The Nominating Committee also regularly uses the matrix in reviewing the experiences, qualifications, attributes, and skills of current directors. In assessing its overall effectiveness in recommending a diverse group of director nominees, the Nominating Committee utilizes these reviews, as well as its committee self-assessments.

In connection with director candidate searches, the Board’s policy is to include a diverse pool of qualified candidates, including women and racially/ethnically diverse persons, from which new director candidates are chosen for Board membership.

Consideration of Candidates Recommended by Shareholders

The Nominating Committee’s policy with respect to the consideration of director candidates recommended by shareholders is that the Nominating Committee will consider such candidates on the same basis and in the same manner as it considers all director candidates. Recommendations are required to include the following information:

You may find a complete description of these requirements on our Investor Relations website, investors.sherwin-williams.com. Shareholders may submit recommendations, along with proof of shareholder status, in writing to: Chair, Nominating and Corporate Governance Committee, c/o Corporate Secretary, The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115.

Ability of Shareholders to Nominate Directors via Proxy Access

Our Regulations provide a “proxy access” right to permit any shareholder, or group of up to 20 shareholders collectively, owning 3% or more of our outstanding shares of common stock continuously for at least three years to nominate and include in our proxy materials director nominees for election to the Board. A shareholder or shareholders, as applicable, can nominate up to 20% of the total number of directors on the Board, rounding down to the nearest whole number, in accordance with the requirements set forth in our Regulations. Under our Regulations, requests to include shareholder-nominated candidates for director in our proxy materials must be received no earlier than 150 days and no later than 120 days before the anniversary of the date that we issued our proxy statement for the previous year’s Annual Meeting of Shareholders. You may find a complete description of the requirements to nominate a director utilizing proxy access in our Regulations.

Audit Committee Report

Management has the primary responsibility for the integrity of Sherwin-Williams’ financial information and the financial reporting process, including the system of internal control over financial reporting. Ernst & Young LLP, Sherwin-Williams’ independent registered public accounting firm, is responsible for conducting independent audits of Sherwin-Williams’ financial statements and the effectiveness of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and expressing an opinion on the financial statements and the effectiveness of internal control over financial reporting based upon those audits. The Audit Committee is responsible for overseeing the conduct of these activities by management and Ernst & Young LLP.

As part of its oversight responsibility, the Audit Committee has reviewed and discussed the audited financial statements, the adequacy of financial controls, and the effectiveness of Sherwin-Williams’ internal control over financial reporting with management and Ernst & Young LLP. The Audit Committee also has discussed with Ernst & Young LLP the matters required to be discussed by the applicable requirements of the PCAOB and SEC rules. The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence. The Audit Committee also has discussed with Ernst & Young LLP the firm’s independence.

Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Sherwin-Williams’ Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for filing with the SEC.

AUDIT COMMITTEE

Arthur F. Anton, Chair

Jeff M. Fettig

Richard J. Kramer

Matthew Thornton III

Compensation Risk Assessment

The Compensation Committee annually assesses the risks related to our compensation policies and practices. During 2020, the Compensation Committee engaged Compensation Advisory Partners to conduct a comprehensive risk assessment of our incentive compensation programs, plans, and policies. Compensation Advisory Partners presented the risk assessment to the Compensation Committee.

Based upon the assessment, the Compensation Committee and Compensation Advisory Partners concluded that our compensation policies and practices do not encourage excessive or unnecessary risk-taking and are not reasonably likely to have a material adverse effect on Sherwin-Williams. The following factors help mitigate against employees taking excessive or unnecessary risks:

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Sherwin-Williams’ Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and this Proxy Statement.

COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE

Susan J. Kropf, Chair

Kerrii B. Anderson

Christine A. Poon

Michael H. Thaman

Steven H. Wunning

Compensation Discussion and Analysis

Named Executive Officers.    This Compensation Discussion and Analysis (CD&A) describes our executive compensation program and how it applies to our five “named executives” listed below.

Table of Contents

Executive Summary

We manage our business with the long-term fundamental objective of creating and maximizing value for our shareholders. Our pay for performance philosophy supports this objective by linking a significant percentage of our executive compensation program to company performance, business unit performance (where applicable), and stock price appreciation. Guided by this philosophy and our objective of creating and maximizing shareholder value, we retained our focus on business execution throughout 2020 and delivered strong performance as we adapted our operations to address the unique challenges presented by the COVID-19 pandemic. Throughout the year, the Compensation Committee monitored and assessed the impact of the pandemic on our compensation programs, with a focus on ensuring that our programs continued to fairly reflect corporate and individual performance, motivate our employees, and mitigate risks.

Our compensation programs are integral to our longstanding success as they assist us in attracting, retaining, and motivating talented and high-performing people throughout our organization to drive consistent and strong financial and operating results. Our long track record of sustained success is exemplified by the following:

2020 Business Highlights

Since the beginning of the COVID-19 pandemic, we have implemented changes in our business to protect and support our employees, customers, and communities and to respond to the uncertainties and challenges of the pandemic, including the wide-ranging actions and mandates instituted by public health and government authorities to contain and combat the spread of COVID-19. These changes and management’s extraordinary efforts throughout 2020 are further described in the Proxy Summary and elsewhere in this CD&A.

Despite the unprecedented challenges of the COVID-19 pandemic and its impact to our business, 2020 was another outstanding year for Sherwin-Williams’ financial performance. Consolidated net sales increased to a record $18.36 billion in 2020. Net income increased to $2.03 billion, and diluted net income per share increased 33.9% to $22.08. We also generated record net operating cash of $3.41 billion in 2020 — an increase of $1.09 billion.

The following graphs show our company’s performance for key financial measures over the past three-year period.

2020 Compensation Highlights

Recent key executive compensation highlights include the following:

^¡    In the first quarter of 2020, the Compensation Committee set threshold, target, and maximum annual cash incentive performance goals at levels they considered appropriately rigorous for the year and represented continued strong financial performance. The COVID-19 pandemic was not a consideration at the time these goals were approved.

^¡    When the uncertainties relating to the potential impact of the COVID-19 pandemic to the company’s business began to become more apparent, the CEO volunteered to forego, and the Compensation Committee approved rescinding, the previously approved increase to the CEO’s target and maximum annual incentive opportunities from 145% and 290% to 160% and 320%, respectively, of his base salary.

^¡    2020 was a challenging year for businesses worldwide due to the COVID-19 pandemic. Management took extraordinary efforts to mitigate the impact of COVID-19 to the company’s business and effectively manage costs, operations, and working capital. With these efforts, we earned maximum achievement for our earnings per share (EPS) and adjusted Free Cash Flow (FCF) metrics for the corporate performance goals. Given the nature of the pandemic, including shutdowns and other government and public health mandates, our sales were adversely impacted and resulted in below target achievement for both the corporate and TAG sales performance metrics (each, weighted 25%). To better reflect management’s efforts and accomplishments in delivering record 2020 financial performance, the Compensation Committee adjusted the achievement levels of these performance metrics by adding to the achievement levels for the corporate and TAG sales performance goals an amount attributable to lost sales as a result of the COVID-19 pandemic, as further described below. No adjustments were made to any other 2020 annual cash incentive performance goals. With the sales adjustments, our named executives earned an average of 193.2% of their 2020 target annual cash incentive compensation.

Relationship Between Pay and Performance

Our executive compensation program combines different elements of compensation. As a result, the total amount of executive compensation paid is not directly tied to any one measure or component of compensation. We believe this approach assists us in viewing performance holistically and helps mitigate the risk of over-emphasizing any one metric. That said, a significant portion of our executive compensation program is tied to the value of our stock, which we believe is critical to ensuring we deliver value to shareholders. Our executives only realize the full value of their compensation if our shareholders also realize value.

Each year, the Compensation Committee assesses our CEO’s compensation in light of Sherwin-Williams’ performance relative to its peers. In October 2020, the Compensation Committee analyzed the relationship between the realizable pay of our CEO and total shareholder return (TSR) over the five-year period ended December 31, 2019, comparing Sherwin-Williams to the peer group we use when making executive compensation decisions. At the time of such review, 2019 was the most recent year for which compensation information was available for our peer group. TSR includes the reinvestment of dividends and is calculated on a compounded annual growth rate basis.

The following chart, prepared by our independent compensation consultant, Compensation Advisory Partners, shows the degree of alignment between the total realizable pay of our CEO and Sherwin-Williams’ TSR relative to our peer group over the five-year period. Sherwin-Williams’ cumulative TSR over the five-year period was 133%, which was higher than all but one company in our peer group. Peer group companies are indicated by the circles in the chart. Companies that fall within the shaded diagonal alignment zone are generally viewed as having pay and performance alignment. As illustrated below, our CEO’s realizable pay was well aligned with Sherwin-Williams’ performance.

PAY FOR PERFORMANCE ALIGNMENT

CEO REALIZABLE PAY AND TSR

Realizable pay includes: (a) base salary during the five-year period; (b) actual cash incentive compensation earned during the five-year period; (c) the value of RSUs granted during the five-year period based on the 2019 year-end closing stock price per share; (d) the vesting date value of long-term performance equity awards that were earned in 2017, 2018, and 2019, which consisted of PRSUs; (e) the value of target long-term performance equity awards granted in 2018 and 2019, which consisted of PRSUs, based on the 2019 year-end closing stock price per share; and (f) the in-the-money value of stock options granted during the five-year period based on the 2019 year-end closing stock price per share. Valuing equity awards in this manner is different from valuing equity awards at their aggregate grant date fair value, which is the method used in the Summary Compensation Table and the 2020 Grants of Plan-Based Awards Table.

Independent Compensation Consultant

The Compensation Committee assessed the independence of Compensation Advisory Partners under applicable SEC rules and NYSE listing standards. The Compensation Committee determined that Compensation Advisory Partners is independent and its work raises no conflicts of interest. Compensation Advisory Partners did not provide any services to Sherwin-Williams during 2020 other than those matters for which it was engaged by the Compensation Committee.

Overview of Executive Compensation Practices

Our compensation programs, practices, and policies are reviewed and evaluated on an ongoing basis. We modify our compensation programs to address evolving best practices and changing regulatory requirements, as well as significant events, such as the COVID-19 pandemic. We list below some of the more significant best practices we have adopted, and the practices we have avoided, which we believe highlight our commitment to responsible pay and governance principles that best serve our shareholders’ long-term interests.

Impact of Last Year’s Say-on-Pay Vote

At our 2020 Annual Meeting, a substantial majority of shareholders (96.0% of votes cast) approved the compensation of our named executives. We consider this vote to be a strong endorsement of our executive compensation program, practices, and policies. Based on this strong shareholder support, the Compensation Committee does not believe our executive compensation program requires material changes. However, the Compensation Committee has made, and will continue to

make, changes designed to further enhance the objectives of our program, as well as to address significant events to the extent appropriate to do so, such as in connection with the COVID-19 pandemic. We will continue to hold the advisory say-on-pay vote annually until the next shareholder vote on say-on-pay frequency in 2023.

The Compensation Committee highly values the input of our shareholders. The Compensation Committee will continue to consider the views of our shareholders in connection with our executive compensation program, including the results of the 2021 say-on-pay vote. We will make modifications based upon evolving best practices, developments in our business, input from our shareholders, market compensation information, and changing regulatory requirements. We encourage you to support this year’s say-on-pay proposal.

Overview of Our Executive Compensation Program

Independent Compensation Committee

The Compensation Committee, which is comprised entirely of independent directors, oversees our executive compensation program. The Compensation Committee reports to the Board on all compensation matters for members of our senior management team, including our named executives. The Compensation Committee has engaged Compensation Advisory Partners as its independent compensation consultant in order to fulfill its responsibilities. We include additional information about the Compensation Committee, including the role of the compensation consultant and management in the compensation setting process, under the heading “Compensation and Management Development Committee” in the “Board Meetings and Committees” section.

Compensation Objectives

We design and manage our company-wide compensation programs to align with our overall business strategy and to focus our employees on delivering sustained financial and operating results and creating value for our shareholders on a consistent, long-term basis. We believe it is important that our compensation programs:

We believe our compensation programs achieve these goals.

Components of Compensation

The components of our executive compensation program, the primary purpose of each component, and the form of compensation for each component are described in the following table.

Mix of Compensation Components

Our Approach.    We maintain a balanced approach to compensating our named executives by combining elements that vary by the (a) type of compensation (fixed and variable), (b) length of the performance period (short-term and long-term), and (c) form of compensation (cash and equity). We believe this mix aligns with our business strategies and emphasizes pay for performance. We determine this mix by reviewing market compensation information. We do not have a specific policy for the allocation of compensation between fixed and performance-based, annual and long-term, and cash and equity.

At-Risk Compensation.    A core principle of our executive compensation program is that a significant percentage of the compensation opportunity of each named executive, especially our CEO, is variable and at-risk. This type of compensation is primarily dependent upon the financial success of our company and the performance of Sherwin-Williams common stock. This means that our executives are rewarded when they produce value for our shareholders.

The following chart illustrates the mix of the key compensation components for our named executives for 2020. The percentages reflect the amounts of 2020 base salary, targeted annual cash incentive compensation, and the aggregate grant date fair values of stock options and PRSUs granted in 2020.

Peer Group

The Compensation Committee utilizes a peer group of companies to assess the competitiveness of our executive compensation program relative to the market. The compensation consultant annually identifies the compensation paid to named executives with similar roles and responsibilities at a group of chemical, industrial, manufacturing, consumer product, and retail companies with comparable sales, which are considered to be our peer group companies. The compensation consultant also compiles compensation data from broad-based surveys of companies of similar size and industry to us. These surveys are sponsored by nationally recognized compensation consulting firms. We, along with many of our peer group companies, participate in these surveys.

We monitor executive compensation levels and program design at these peer group companies because their size and business make them most comparable to us. We also believe these companies likely compete with us for executive talent. The compensation consultant annually reviews current and potential peer companies and recommends changes primarily based upon revenue size, market capitalization, industry, business description/mix, and brand recognition. The Compensation Committee periodically evaluates and, if necessary, adjusts the composition of our peer group to ensure it remains the most relevant group of companies to use for compensation purposes. During 2020, the Compensation Committee reviewed the continued appropriateness of our peer group, and based upon the evaluation and recommendation of the compensation consultant, did not make any changes.

Our peer group consists of the 23 companies listed below. 2019 annual revenues for the companies in our peer group ranged from approximately $6.7 billion to $39.2 billion, with Sherwin-Williams ranking at the 58th percentile in annual revenues.