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We are pleased to report that, in a year filled with industry-wide challenges and uncertainty, the Shyft team proactively managed through it all with resourcefulness and relentless focus on execution for all of our stakeholders, to deliver consistent, industry-leading results quarter after quarter.

Highlights of Shyft performance in 2021 include:

Looking ahead, it is our pleasure to invite you to join us for The Shyft Group, Inc. 2022 Annual Meeting of Shareholders, which will be webcast on Wednesday, May 18, 2022, at 10:00 a.m. Eastern Time.

The annual meeting will be conducted in a virtual-only format. Information regarding attending the virtual annual meeting can be found in the proxy statement. Details about the annual meeting, nominees for election to the Board of Directors and other matters to be acted on at the annual meeting are presented in the notice of the annual meeting and proxy statement to follow.

Thank you for your continued support of Shyft.

Sincerely,

 

Cautionary note regarding forward-looking statements.

This document contains information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in those sections. Generally, we have identified such forward-looking statements by using words such as “believe,” “expect,” “intend,” “potential,” “future,” “may,” “will,” “should,” and similar expressions or by using future dates in connection with any discussion of, among other things, the construction or operation of new or existing facilities, operating performance, trends, events or developments that we expect or anticipate will occur in the future, statements relating to volume changes, share of sales and earnings per share changes, anticipated cost savings, potential capital and operational cash improvements, anticipated disruptions to our operations and industry due to the COVID-19 pandemic, changes in supply and demand conditions and prices for our products, trade duties and other aspects of trade policy, statements regarding our future strategies, products and innovations, and statements expressing general views about future operating results. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements are not historical facts, but instead represent only the Company’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that the Company’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Management believes that these forward-looking statements are reasonable as of the time made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to the risks and uncertainties described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

Shyft does not incorporate into this document the contents of any website or the documents referred to in this proxy statement.

Throughout this proxy statement, we refer to certain non-GAAP measures, including Adjusted EBITDA, and free cash flow. See the reconciliation to the corresponding GAAP measure set forth in Appendix A of this proxy statement.

This summary highlights information contained elsewhere in this proxy statement. It does not contain all the information that you should consider. Please read this entire proxy statement carefully before voting.

Key achievements of the Company during the year included:

 

Our Board believes that strong corporate governance is critical to achieving our performance goals and to maintaining the trust and confidence of investors, employees, customers, business partners, regulatory agencies and other stakeholders.

Our Corporate Governance Principles provide a framework for the governance of Shyft and address the operation, structure, and practice of the Board and its committees. The Corporate Governance Principles can be found in the Corporate Responsibility section of our website. The Governance and Sustainability Committee reviews these principles at least annually and recommends changes to the Board, as necessary.

Throughout the year, the Board meets with management to discuss and approve strategic plans, financial goals, capital spending, and other factors critical to successful performance. The Board also reviews the Company’s long-term strategic planning at least annually and monitors the implementation of the Company’s strategic plan throughout the year. During Board meetings, directors review key issues and financial performance. The CEO regularly communicates with the Board regarding the implementation of the Company’s strategic and financial plans.

The Board and each of its committees conduct annual evaluations and self-assessments. The results of those reviews are made available to all directors. The evaluation process is reviewed annually by the Governance and Sustainability Committee which considers general trends and feedback regarding the prior year’s evaluations. In addition, the Corporate Governance Principles and the Governance and Sustainability Committee Charter provide that individual directors will be evaluated, as necessary.

The Board and CEO annually discuss and collaborate to set the CEO’s performance goals and objectives. The Board annually meets in executive session to assess the CEO’s performance. The Board’s focus includes orderly succession for the CEO and other executive positions and the oversight of executive officer development.

Pursuant to our Corporate Governance Principles, the Board has a policy to separate the offices of Chair of the Board and CEO. At this time, the Board believes that having an independent Board Chair is the most appropriate Board leadership structure. However, the Board has the flexibility to revise this structure under circumstances involving management and Board transition or succession. The Board believes that having an independent Chair aids in the Board’s oversight of management and promotes communications among the Board, the CEO, and other members of senior management. In addition, having a separate Chair of the Board and CEO allows our CEO to focus on his responsibilities in managing the Company.

We believe it is important for directors to stay current and informed on developments in corporate governance best practices in order to effectively discharge their duties. Our directors are provided updates on corporate governance developments at regularly scheduled Board meetings and are encouraged to participate in programs offered by nationally recognized organizations that specialize in director education. The Company reimburses its directors for their reasonable costs and attendance fees to participate in such programs.

The Board has oversight responsibility regarding the assessment of the major risks inherent in our business. Accordingly, the Board reviews management’s efforts to address and mitigate risks, including strategic, regulatory, compliance, operational, financial, reputational, and cybersecurity risks, among others. The Board reviews risk in the context of discussions and management reports at each regular Board meeting. The Board also evaluates the risks inherent in significant transactions. While the Board is ultimately responsible for risk oversight, the committees of the Board assist it in fulfilling its oversight responsibilities. The Board’s committees do so by considering the risks within their respective areas of expertise. For example:

At each regular Board meeting, the Board receives reports on significant committee activities, including oversight of risks addressed by each committee. In addition, risk management is incorporated in the Company’s annual strategic planning process, which is periodically reviewed by the Board. The Board also periodically reviews with management the Company’s insurance program and policies, including its cyber insurance coverage.

Management also plays an important role in implementing the processes and procedures designed to mitigate risk and assist the Board in the exercise of its oversight function. For example, we use a risk-based prioritization approach, involving risk ranking and assessment of management progress in monitoring and mitigating each identified risk. Our Chief Compliance Officer, who also serves as our Chief Legal Officer, oversees our corporate ethics and compliance program, our Code of Conduct training, and compliance with Company policies, standards and procedures. Our Chief Compliance Officer, or his delegee, reports on an as-needed basis to the Audit Committee regarding Code of Conduct matters and calls to our ethics hotline related to accounting and auditing concerns. This officer also reports throughout the year to the Governance and Sustainability Committee regarding all other Code of Conduct concerns and calls to our ethics hotline. At least annually, our Chief Compliance Officer meets with the Governance and Sustainability Committee to review the effectiveness of our corporate ethics and compliance program.

Management also periodically engages in a review of the critical risks to the Company and establishes and implements policies and procedures to address and mitigate such risks. For example, our Chief Information Officer assesses our information security and oversees our enterprise-wide cybersecurity risk management program. This program includes, among other elements, mandatory

cybersecurity training for our employees and third parties who may have access to our systems, the maintenance of industrial control systems that meet or exceed industry cybersecurity standards, and the ongoing evaluation of the threat landscape. We engage assessments of our implementation of the NIST Cybersecurity Framework and conduct ongoing penetration testing of our information technology infrastructure.

The Chief Information Officer also meets quarterly with the Audit Committee to present a cybersecurity update, including an analysis of our cybersecurity risk management program’s strengths, weaknesses and opportunities, and cyber threats to the Company.

Non-employee directors meet without management present at each regularly scheduled Board meeting. Additional meetings may be called at the discretion of the Board Chair or at the request of any Board member.

Our Corporate Governance Principles require that the Board annually determine whether our directors are independent. In evaluating independence, Nasdaq’s rules require that the Board affirmatively determine that a director does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Prior to making a recommendation to the Board, our Governance and Sustainability Committee considers relationships that, while not constituting related party transactions in which a director had a direct or indirect material interest, nonetheless involved transactions between the Company and a company with which a director is affiliated, whether through employment status or by virtue of serving as a director. Based on the evaluations performed and recommendations made by the Governance and Sustainability Committee, the Board affirmatively determined that each of our directors other than our CEO is independent as defined by Nasdaq rules.

The Board has adopted written policies and procedures with respect to related party transactions, as defined in rules issued by the Securities and Exchange Commission (“SEC”). Any proposed related party transaction must be reviewed and approved by the full Board. There were no such transactions that required review or approval by the Board in 2021.

We have a majority vote standard for the election of directors in uncontested elections, which requires any nominee for director who receives more “withheld” votes for their re-election than “for” votes to promptly offer their resignation to the Board Chair. The Governance and Sustainability Committee will act on an expedited basis to determine whether to recommend acceptance of the resignation and will then submit its recommendation for consideration by the Board. The Board will act on the recommendation, and publicly disclose its decision, within 90 days following the date of the shareholder meeting at which the election occurred. The Board expects the director whose tendered resignation is under consideration to abstain from participating in any decision regarding the resignation. The Governance and Sustainability Committee and the Board may consider any factors they deem relevant in deciding whether to make such recommendation or to accept a director’s tendered resignation. If the Board accepts a director’s resignation, the Governance and Sustainability Committee will recommend to the Board whether to fill such vacancy or to reduce the size of the Board.

We have a policy that all directors are expected to attend our annual meeting of shareholders. All Board members attended the 2021 Annual Meeting of Shareholders.

We are committed to ongoing, constructive, and meaningful engagement with our shareholders. During 2021, members of our executive management team attended investor conferences, engaged in non-deal roadshows where they met with existing and potential shareholders, and hosted our annual analyst day. Due to the ongoing pandemic, we participated virtually in a number of these events. Presentations from these meetings and conferences are typically posted on the Investors page of our website.

We also engage with investors concerning ESG matters. These various engagements allow us to receive feedback concerning our operational, financial, and strategic results, as well as ESG matters important to shareholders.

In addition, we host a quarterly earnings call during which our executive management team responds to analyst questions regarding both historical results and forward-looking information. Transcripts of our quarterly earnings calls, including the question and answer sessions, are posted on our website. In addition to the required reports we file with the SEC, we make available on our website earnings analyst packages, investor presentations, and other reports with supplementary financial and operational information. In addition to having a dedicated Investor Relations function that receives and responds to shareholder telephone calls and other communications, we also provide a means for shareholders to communicate directly with our Board, as provided under “Communications with Directors” below.

Any shareholder or other interested party may communicate with our directors, individually or as a group, by contacting our Corporate Secretary or our Board Chair. The contact information is maintained through the Investors page of our website at www.theyshyftgroup.com. Inquiries may also be addressed as follows:

Communications will be forwarded to the relevant director(s) except for solicitations or other matters not related to the Company.

Our Code of Conduct is applicable to all employees, including our CEO and CFO, as well as our directors.

The following documents are available through the Corporate Responsibility page of our website at www.theshyftgroup.com:

If you prefer to receive printed copies of these documents, please send a written request to our Corporate Secretary at The Shyft Group, Inc., 41280 Bridge Street, Novi, Michigan 48375.

As part of the Company’s Insider Trading Policy, we prohibit directors, officers, and other employees from (1) engaging in short sales of any Shyft securities, and (2) engaging in hedging or similar transactions involving any Shyft securities, including option contracts, puts, calls, straddles, collars, hedges, swaps, forward contracts, exchange funds, or any transactions that hedge or offset, or are designed to hedge or offset, any decrease in market value of any Shyft securities. These restrictions also apply to each employee and director’s family members and others living in their households and entities that are directed by or subject to the employee’s or director’s influence or control.

The Company’s anti-pledging policy prohibits our directors and executives, including NEOs, from purchasing Shyft securities on margin, holding Shyft securities in a margin account, or pledging Shyft securities as collateral for a loan.

We value diversity, respect human rights and the rule of law, and recognize environmental management among our highest priorities at Shyft. In addition to the leadership of senior management on these topics, the charters of our Board committees detail the importance of these issues to the Company. The Human Resource and Compensation Committee Charter details the committee’s role in the oversight of the Company’s DEI initiatives and commitment to human capital management. The Governance and Sustainability Committee Charter reflects the committee’s responsibility for oversight of the Company’s ESG strategies and performance. While the Company’s commitment to each of these areas has been reflected on our website www.theshyftgroup.com at the Corporate Responsibility tab, the Company will publish a separate report in 2022 on the Company’s efforts and achievements with respect to sustainability, equality, and philanthropy.

The Company’s Board of Directors currently consists of 10 directors, divided into 3 classes approximately equal in number. The members of each class serve for staggered, 3-year terms.

Any additional directorships resulting from an increase in the number of directors will be distributed among the 3 classes so that, as nearly as possible, each class will consist of one-third of the Company’s directors. Directors actively participate in Board and committee meetings. Meeting materials are distributed in advance of each regular Board meeting so that directors can prepare for meeting discussions.

During 2021, the Board initially consisted of 8 directors until Ms. Terri Pizzuto and Mr. Mark Rourke joined the Board on January 4, 2021, at which time there were 10 directors. On July 26, 2021, Mr. Richard Dauch resigned from the Board and there were 9 directors for the balance of 2021. On March 14, 2022, Carl A. Esposito joined the Board and the Board consisted of 10 directors. During 2021, the full Board met 5 times, the Audit Committee met 8 times, the Human Resources and Compensation Committee met 5 times, and the Governance and Sustainability Committee met 4 times. During 2021, all directors (excluding Mr. Esposito who had not yet joined the Board) attended at least 75%, in the aggregate, of the meetings of the Board and the committees of the Board on which they served. All of the directors who were serving on the Board at the time of the 2021 Annual Meeting of Shareholders attended the 2021 Annual Meeting.

The Board has three standing committees: Audit, Human Resources and Compensation, and Governance and Sustainability. Each standing committee has a charter adopted by the Board. Each committee chair gives a committee report to the full Board at each regular Board meeting. The Board annually elects each committee’s members and chair. Each committee has authority to retain, approve fees for, and terminate advisors as it deems necessary to assist in the fulfillment of its responsibilities. The chart below shows the current composition of the standing committees and the year in which each director’s term on the Board ends:

The Board has a separately designated standing Audit Committee established in accordance with the Securities and Exchange Act of 1934, SEC rules, and Nasdaq rules.

The Audit Committee:

The Board has determined that:

The Human Resources and Compensation Committee:

The Board has determined that all members of the Human Resources and Compensation Committee (Ms. Freeman and Messrs. Harbour, Mascarenas, and Rourke) meet the independence requirements under Nasdaq’s rules for persons serving on compensation committees. No member of the Human Resources and Compensation Committee is or was previously an officer or employee of the Company.

The Human Resources and Compensation Committee has selected and retained Mercer, an independent executive compensation consulting firm, to: provide competitive market data and advice related to the CEO’s compensation level and incentive design; review and evaluate management-developed market data and recommendations on compensation levels, incentive mix, and incentive design for NEOs and certain other executives; develop the selection criteria and recommend comparative companies for executive compensation and performance comparisons; provide information on executive compensation trends and their implications to Shyft; and provide competitive market data and advice on non-employee director compensation.

The Human Resources and Compensation Committee evaluates the independence of Mercer to ensure it maintains objectivity and independence when rendering advice to the committee. Mercer does not provide any additional services to Shyft. Mercer reports directly to the Human Resources and Compensation Committee and is independent of management. The Human Resources and Compensation Committee has determined that the services Mercer provides do not create or present any conflicts of interest.

The Governance and Sustainability Committee:

The Governance and Sustainability Committee will consider candidates for nomination to the Board who display high character and integrity; are free of any conflict of interest that would violate any applicable law or regulation or interfere with the proper performance of the responsibilities of a director; possess substantial and significant experience that would be of particular importance to the Company in the performance of the duties of a director; have sufficient time available to devote to the affairs of the Company in order to carry out the responsibilities of a director; and have the capacity and desire to represent the balanced, best interests of the shareholders as a whole.

In identifying candidates for directors, the Governance and Sustainability Committee and the full Board also consider the potential diversity of viewpoint that a candidate would likely bring to the Board, which could be the result of the person’s background, current occupation, career history, ethnicity, gender, and other factors. Since 2019, five new directors have joined the Board, two of whom are female and one of whom is Black.

As the need to make changes or additions to the Board arises, the Governance and Sustainability Committee considers Board size, experiences, and needs. The committee may use outside resources, including consultants retained by the committee, to assist in the process of establishing the criteria for director candidates, establishing a process to identify potential candidates, and assisting in the introduction of potential candidates to the committee.

Nominations of candidates for election to the Board of the Company at any annual meeting of shareholders or at any special meeting of shareholders called for election of directors may be made by the Board or by a shareholder of record of shares of a class entitled to vote at such annual or special meeting of shareholders pursuant to the process described below. The Governance and Sustainability Committee applies the same standards and qualification requirements to all director nominees, regardless of the party making the nomination.

The Governance and Sustainability Committee will consider nominees for election to the Board submitted by shareholders. The Company’s bylaws provide that any shareholder entitled to vote in the election of directors may nominate one or more persons for election as directors at a meeting only if written notice of the shareholder’s intent to make a nomination or nominations has been given to the Company’s Corporate Secretary by the deadline specified in the bylaws. That deadline is at least 120 days before the one-year anniversary date of the notice of the previous year’s annual meeting if the meeting is an annual meeting and not more than 7 days following the date of notice of the meeting if the meeting is a special meeting at which directors will be elected. Each such notice to the Secretary must include:

PROPOSAL 1

Our directors possess skills and experiences aligned to our current and future strategy and business needs and demonstrate a high degree of integrity, an ability to exercise sound judgment, and an understanding of corporate governance and best practices.

 

 

 

 

 

 

The Audit Committee represents and assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, the performance of the Company’s internal audit function, the performance of the Company’s independent registered public accounting firm, and risk assessment and risk management. The Audit Committee manages the Company’s relationship with the independent registered public accounting firm, which reports directly to the Audit Committee. The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting and other advisors as it deems necessary to carry out its duties and receives appropriate funding from the Company, as determined by the Audit Committee, for such advice and assistance.

The Company’s management is primarily responsible for the Company’s internal control and financial reporting process. The Company’s independent registered public accounting firm, Deloitte, is responsible for performing an independent audit of the Company’s consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting. The Audit Committee monitors the Company’s financial reporting process and reports to the Board on its findings.

In this context, the Audit Committee hereby reports as follows:

Based on the review and discussions referred to in paragraphs 1 through 3 above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, for filing with the SEC.

The undersigned members of the Audit Committee have submitted this Report to the Board.

The Audit Committee

PROPOSAL 2

Set forth below is a summary of the fees paid by Shyft for the years ended December 31, 2021 and 2020, to its independent auditor for such year and such firm’s affiliates:

We have been advised by Deloitte and BDO, respectively, that neither the firm, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in the Company or its subsidiaries.

SEC rules prohibit independent auditors of public companies from providing certain non-audit services and require that other non-audit services be approved by the Audit Committee. The Company’s policy implementing this requirement:

PROPOSAL 3

The Board strongly endorses the Company’s actions in this regard and recommends that shareholders vote for the following resolution:

RESOLVED, that the 2021 compensation of the named executive officers as disclosed in the proxy statement for the 2022 Annual Meeting of Shareholders is approved by the shareholders on an advisory basis.

Unless otherwise directed by the shareholders, proxies that are properly executed and returned will be voted for the resolution. Abstentions and broker non-votes will not count as votes for or against the proposal and will not be included in calculating the number of votes in favor of the proposal.

This Compensation Discussion and Analysis (“CD&A”) describes and analyzes the executive compensation program in place at the Company for our NEOs in 2021. Our 2021 NEOs were:

Your understanding of our executive compensation program is important to the Company. The goal of this CD&A is to explain:

The Company’s executive compensation philosophy is to provide competitive compensation that incentivizes and rewards the achievement of strong performance. The Company’s executive compensation policies are designed to achieve the following five primary objectives:

2021 was another challenging year for the economy and our business primarily due to the ongoing and simultaneous impacts of the COVID-19 pandemic, labor shortages, and supply chain disruptions. These challenges were beyond the control of management, but they did not impede our employees from stepping up to achieve another year of outstanding performance for our shareholders. Management responded to the ongoing crisis by continuing to maintain a focus on the health and safety protocols for our employees as well as expeditiously making critical business decisions to ensure business continuity.

These actions resulted in minimal impact to our employees and ensured we stayed on track with our strategic initiatives. Our teams demonstrated their strength, character, and compassion during another challenging year.

During 2021, we achieved the following results:

 

The Company’s Board of Directors believes its executive compensation approach and practices contribute to the Company’s success in enhancing shareholder value and driving long-term growth and profitability, as discussed in this CD&A.

The Committee is firmly committed to implementing an executive compensation program that aligns management and shareholder interests, encourages executives to drive sustainable shareholder value creation, mitigates risk, attracts top talent, and helps retain key people. A summary of what we do and do not do in that regard follows:

The key compensation decisions the Committee made for 2021 are summarized below and discussed in greater detail in the remainder of this CD&A.

The Committee approved base salary increases for all NEOs in 2021 to better align their pay with market median per our compensation philosophy and to recognize individual performance.

For fiscal year 2021, the annual incentive compensation program (“AIC”) for Messrs. Adams, Douyard, and Heavin was subject to the following performance metrics and weightings to evaluate and determine final payouts for the year: Company Adjusted EBITDA: 65%, Company free cash flow: 15%, and individual management business objectives (“MBO”): 20%.

For fiscal year 2021, the AIC for Messrs. Guillaume and Heminover was subject to the following performance measures and weightings to evaluate and determine final payouts for the year: Company Adjusted EBITDA: 40%, Company free cash flow: 10%, segment Adjusted EBITDA 30%, and individual MBOs: 20%.

In 2021, the Committee granted performance share units (“PSUs”) and service-based restricted share units (“RSUs”) to the NEOs. For each NEO, the total long-term incentive (“LTI”) target award value was allocated 70% to PSUs and 30% to RSUs. All awards earned will be settled in shares. Specifically:

In addition to the 2021 annual LTI award, as previously disclosed in the Company’s proxy statement for its 2021 annual meeting of shareholders, the Committee approved the following equity awards:

The advisory vote on executive compensation was conducted at our annual meeting of shareholders in 2021, based on the disclosure of our executive compensation in the proxy statement for that meeting. Of the shares of common stock represented at that meeting in person or by proxy that participated in the advisory vote, over 91% voted to approve the resolution. Our Board considered the results of this vote to be supportive of the Company’s compensation policies and programs and did not make any changes to such policies and programs as a result of such vote.

The Company takes meaningful measures to engage with its shareholders, including through attendance at multiple investor conferences throughout the year and regular phone calls, in-person meetings, and other communications, including periodic investor/analyst day events. Although the COVID-19 pandemic required many of our shareholder interactions in 2021 to be conducted virtually, the Company increased its shareholder interactions in 2021 over prior years, including participating in a virtual investor/analyst day event to stay well-connected with shareholders and their concerns. The Company works to be responsive to all shareholder inquiries raised to the Company in an effort to fully engage with shareholders and respond to shareholder concerns.

The mix of target total direct compensation (base salary, target annual incentive awards, and target long-term incentive awards) for 2021 was structured to deliver the approximate proportions set forth below of total compensation to our Chief Executive Officer and the other NEOs (on average) if target levels of performance are achieved. The Committee believes the percentage of an executive’s total compensation that is “at risk” should increase as the executive’s responsibilities and ability to influence profits increase. For this reason, the percentage of an executive officer’s potential compensation that is based on bonuses and equity awards is larger relative to other employees.

 

The 2021 Leadership Team Compensation Plan (the “LTC Plan”) sets forth the framework for compensation of the Company’s executive officers and other key employees, including each of the NEOs. The LTC Plan is intended to provide management with incentives to drive strategies and investments that maximize shareholder value, use financial measurements consistent with the market’s evaluation of the Company’s performance, and communicate the Company’s financial objectives in a clear and quantifiable manner. Total compensation is targeted at the median of the market and our peer group. The Committee is responsible for annually reviewing the provisions of the LTC Plan and all resulting payouts.

A summary of the primary features of the LTC Plan is as follows:

The Committee periodically engages independent third-party consultants to provide data and analysis regarding the compensation of executives at our peer group companies and at companies with whom we compete for talent. The Committee uses this data to design and implement competitive compensation programs.

With the assistance of its third-party consultant, Mercer, the Committee has established a group of peer companies that are:

The Company’s 2021 peer group used for this purpose consisted of ⁽¹⁾:

In late 2020, the Committee engaged Mercer to update the benchmarking analysis that reviewed total direct compensation (consisting of base salary, target bonus, and the value of long-term incentive grants) of the NEOs at the median of the peer group, with the intention that the total direct compensation of these executives would be set at amounts that are in the market median range. In performing this review, Mercer conducted benchmarking analysis of the NEO’s compensation, including base salaries, short- and long-term incentives, and severance practices, using information from proxy disclosures and published surveys.

The Committee considered the peer group data when making compensation decisions in 2021. The NEO compensation levels generally reflect the Committee’s views on general business conditions, each NEO’s tenure in the applicable role, and the importance of placing higher value on performance-based compensation.

Neither Mercer nor any of its affiliates provided any additional services during 2021 to the Company or any of its affiliates (beyond those described above).

Base salary is a fundamental component of the Company’s compensation program, and overall competitive salary levels are necessary to attract and retain well-qualified executives. The Committee determines recommended compensation for executive officers by evaluating the responsibilities of the position, experience of the individual, Company performance, performance of the individual, competitive marketplace for similar management talent, and other relevant factors. The Committee does not give specific weight to any particular factor.

As noted above, Mercer was engaged in late 2020 to benchmark the salaries of the Company’s NEOs. The Committee made recommendations for 2021 base salaries consistent with this competitive benchmarking process. For 2021, the Company implemented the base salary adjustments shown below in April 2021.

These base salary adjustments are intended to provide greater alignment of executive total compensation levels with the Company’s stated compensation philosophy of targeting the market median.

The LTC Plan provides an opportunity for our NEOs to earn an AIC bonus based upon achievement against key metrics that reflect the top priorities for business performance. The LTC Plan requires management to annually review the metrics and weightings based upon current business conditions and to obtain approval of the proposed framework from the Committee.

Each participant’s AIC bonus is determined as follows:

 

The target bonus percentage is a percentage of the participant’s salary. The LTC Plan establishes the target bonus percentage at 150% of base salary for our CEO, 70% of base salary for our CFO, and 60% of base salary for each of our other NEOs. In 2021, the Committee increased the CFO’s target bonus percentage from 60% to 70% based on its assessment of Mercer’s benchmarking review.

The AIC bonus achievement multiplier is a multiple of the target bonus percentage. For example, achievement of bonus metrics at exactly the target amounts would result in a bonus multiplier of 1.0X. The threshold (minimum) bonus multiplier is 0.5X and the maximum bonus multiplier is 2.0X. At the end of each year, based on management’s recommendations, the Committee evaluates performance against the pre-established metrics to determine the bonus achievement multiplier.

The AIC award opportunities and results for our NEOs for 2021 were as follows:

The LTC Plan prohibits an AIC bonus to our NEOs for any year in which the Company incurs a net loss. However, the Board retains the right to make adjustments or grant discretionary bonuses as it deems appropriate. The Board did not grant any discretionary cash bonuses in 2021.

At the discretion of the Committee, any AIC bonus payable under the LTC Plan may be paid in the form of the Company’s common stock. All AIC bonuses for 2021 were paid in cash.

Executives subject to the LTC Plan for a partial year are eligible for annual incentive bonuses on a prorated basis, unless otherwise approved by the Committee.

For 2021, the tables below show the performance metrics and targets established for our NEOs to earn an AIC bonus under the LTC Plan. The Committee selected Company Adjusted EBITDA as the key metric for all of our NEOs because it is viewed as the primary indicator of the performance and strength of our business on a long-term basis. For similar reasons, the Adjusted EBITDA of a segment is used as a metric for the leader of that segment. Free cash flow is used as a metric for our NEOs because of its relationship to the Company’s profitability. For each executive, the AIC bonus is also based, in part, on MBOs, specific objectives established for that executive’s near-term performance.

The Company’s equity compensation plans are designed to encourage long-term investment in the Company by participating executives and employees, more closely align executive and shareholder interests, and reward executive officers and other employees for building shareholder value. The Committee believes stock ownership by management and other employees is beneficial to all Company stakeholders. See the minimum stock ownership requirements for executive officers under “Risk Mitigation - Director and Executive Share Ownership Requirements” below.

The Company currently has the ability to grant equity-based compensation to its NEOs pursuant to the 2016 Stock Incentive Plan, as amended (the “2016 Stock Plan”). The Committee administers all aspects of the 2016 Stock Plan.

Long-term equity incentives for NEOs include (1) the grant of RSUs with time-based vesting, and (2) the grant of PSUs, which are subject to the achievement of certain performance metrics over a cumulative three-year period. The Committee believes using a combination of PSUs and RSUs further enhances alignment of executive compensation with shareholder value creation and achievement of key business objectives while focusing participants on long term performance and strategic decision making. As such, 30% of an NEO’s target long-term incentive compensation (“LTIC”) award is comprised of RSUs and the other 70% is awarded in PSUs. The greater proportion allocated to PSUs reflects the Committee’s emphasis on performance-based rather than time-based equity compensation. These awards are described in more detail below.

Each NEO’s target LTIC award for a particular year is based on a percentage of the executive’s annual base salary. The LTC Plan establishes the target LTIC award at 235% of base salary for our CEO; 125% of base salary for our CFO; 100% of base salary for our COO and the President of our Fleet Vehicles and Services segment; and 75% of base salary for the President of our Specialty Vehicles segment. Based on the benchmarking analysis completed in late 2020, the Committee increased the target awards for our CEO (from 225% to 235%), our CFO (from 100% to 125%), and the President of our Specialty Vehicles segment (from 70% to 75%). These decisions are consistent with our compensation philosophy described above to align executive pay with the market median.

The LTC Plan provides that 30% of the value of each executive’s annual LTIC award will be granted in the form of RSUs. The award is generally made on the last business day of March, with the number of RSUs granted based on the average of the closing stock price over the preceding 30 calendar days. The RSUs vest ratably over a three-year period, subject to any exceptions set forth in the applicable award agreement.

The portion of each annual LTIC award to be made in the form of PSUs is designed to reward the NEOs based upon achievement of cumulative financial performance over a three-year period (with cliff vesting at the end of such three-year performance period) starting with the performance year in which the annual LTIC award is granted. For grants made in 2021, two cumulative financial performance metrics apply:

The LTC Plan provides that the number of PSUs earned with respect to a three-year performance period is determined as follows:

With respect to both the Company’s stock and the stock of each company in the Dow Jones Commercial Vehicle Index, TSR performance will be calculated (a) using a 20-trading day average of the stock price ending on the first day and last day of the performance period, and (b) assuming all dividends declared during the performance period are reinvested at the closing price on the applicable ex-dividend date. Achievement between the stated percentages will be interpolated on a straight-line basis.

Achievement between the stated dollar amounts will be interpolated on a straight-line basis.

At the end of the three-year performance period, the executive will be issued shares of the Company’s common stock in settlement of the PSUs, if earned, with the number of shares calculated based on the Company’s TSR over the three-year performance period relative to the Dow Jones Commercial Vehicle Index and the Company’s cumulative GAAP net income over the three-year performance period. The aggregate number of shares earned may be between 0% and 200% of the number of PSUs granted.

For 2021, our NEOs were granted the following annual LTIC awards: