Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

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In 2023, we navigated a dynamic market environment by focusing on customers’ needs, driving operational excellence and delivering profitability. The team enhanced our business capabilities and deepened our commitment to a culture of performance and innovation. We celebrated Utilimaster’s® 50th anniversary and Builtmore’s® production of the 100,000th Isuzu N-Series gas-powered truck – testaments to our enduring commitment to quality and customer relationships. Our Specialty Vehicles business achieved record results and we made strides in our last-mile EV delivery program, Blue Arc, obtaining essential certifications and securing important dealer agreements.

We significantly improved employee safety with a 40% reduction in our Total Recordable Incident Rate (TRIR), advancing our goal of a zero-injury workplace, and launched Shyft For Good to highlight the alignment of corporate philanthropy with our core values.

We executed a CEO succession process in 2023 and invested in our teams to better position us for future success. We are strategically placed in 2024 to deploy the strength of our people, processes, and technology to enhance quality and drive performance, strengthen customer connections to expand the business, and further Shyft’s industry leading position.

It is our pleasure to invite you to join us for The Shyft Group, Inc. 2024 Annual Meeting of Shareholders, which will be webcast on Wednesday, May 15, 2024, 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,” “project,” “expect,” “predict,” “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, 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, 2023, 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 reconciliations to the corresponding GAAP measures 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.

Shyft is overseen by directors with diverse skills, qualities, attributes and experiences that effectively address the Company’s evolving needs and represent the best interests of Shyft’s shareholders.

 

Consistent with the supply chain, operational and macroeconomic challenges we faced in 2023, we did not achieve the threshold performance necessary to pay the portion of the annual cash incentive indexed at the corporate level to Adjusted EBITDA. We did achieve above threshold on the annual cash incentive Free Cash Flow metric at the corporate level resulting in payment at 22% of target. At the corporate level, annual incentive payments also considered achievement by the NEOs of individual management business objectives which comprised 20% of the target incentive with maximum payout being made at 200% of that metric. NEOs achieved between 50% and 175% of their respective management business objectives. Mr. Dunn’s annual incentive payment is prorated based on his hire date, and between his tenure as President of FVS (through October 26, 2023) and CEO of the Company (from October 26, 2023 through year-end). Mr. Farmer’s annual incentive payment is prorated based on his hire date and reflected the strong performance of the Specialty Vehicles segment. Mr. Adams’ incentive payment is prorated through the completion of his tenure as CEO on October 26, 2023.

The performance period applicable to 2021 performance-based restricted stock units (“PSUs”) ended December 31, 2023. For such period, Shyft’s TSR was at the 3rd percentile relative to other companies in the TSR Comparator Group (as defined on page 44) and Shyft achieved Cumulative GAAP Net Income of $159.1 million, including considerations approved by the Human Resources and Compensation Committee and described on page 46. As a result, the 2021 PSUs vested at 89% of the Cumulative GAAP Net Income target and 0% of the TSR target for each of our NEOs who had PSUs vesting under this grant.

 

For more information on our executive compensation program and the 2023 compensation of our named executive officers, see the section titled “Compensation Discussion and Analysis” beginning on page 32.

We proactively engage with shareholders throughout the year to better understand their priorities and perspectives on significant issues, including company performance and strategy, executive compensation, corporate governance, shareholder proposals, and environmental and social matters. Members of our senior management lead our shareholder engagement and Shyft and its Board consider feedback and insights from shareholders and other stakeholders as we review our practices and disclosures. 

 

Shyft operates under a corporate governance framework designed to be a flexible working structure for principled actions, effective decision-making, and appropriate monitoring of both compliance and performance. Shyft’s key governance documents, including our Corporate Governance Guidelines are available at https://theshyftgroup.com/about-us/policies-charters/.

 

Shyft’s Board oversees the CEO and other senior management in the competent and ethical operation of Shyft and seeks to ensure that the long-term interests of shareholders are served. Directors are expected to take a proactive, focused approach to their position to ensure Shyft is committed to business success through the maintenance of high standards of responsibility and ethics.

Shyft’s Corporate Governance Principles require a majority of Board members to be independent. The Board has determined that all Board members, other than Mr. Dunn, who joined the Board on October 26, 2023, simultaneous with his appointment as CEO, and Mr. Adams, who resigned from the Board on October 26, 2023, coincident with the end of his tenure as CEO, are independent under applicable rules of the Nasdaq. Additionally, the Board determined that Mr. Thomas Clevinger, who resigned from the Board for personal reasons effective December 31, 2023 prior to the conclusion of his then-current Board term, was independent under applicable rules of the Nasdaq.

Shyft’s Board has a standing Audit Committee (the “Audit Committee”), Human Resources and Compensation Committee (the “Compensation Committee”), and Governance and Sustainability Committee (the “Governance Committee”). The Board has determined that all committee members are independent under applicable Nasdaq and Securities and Exchange Commission (“SEC”) rules for committee memberships, and that each member of the Audit Committee also meets the additional independence criteria set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Shyft regularly reviews the Board’s leadership structure and the responsibilities and composition of its standing committees. The structure and composition of Shyft’s Board and its committees are intended to leverage the diverse perspectives of the Board members and promote effective oversight.

The Board believes its current leadership structure, in which the roles of Chair and CEO are separated, best serves Shyft’s overall corporate structure and the Board’s ability to carry out its roles and responsibilities on behalf of Shyft’s shareholders, including its oversight of management and corporate governance matters. The Board also believes that the current structure allows our CEO to focus on managing Shyft, while leveraging our independent Chair’s experience to drive accountability at the Board level.

The current membership and function of each standing committee is described on the following page. Each committee operates under a written charter adopted by the Board, which is available at https://theshyftgroup.com/about-us/policies-charters/. Each committee reviews and assesses its charter annually.

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. 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.

 

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.

Management 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. In addition to the daily risk management processes of management, we use an enterprise risk management prioritization approach, involving risk ranking and assessment of management progress in monitoring and mitigating key identified risks, including financial, operational, compliance, and reputational risks.

Compliance and Business Conduct

Our Chief Legal Officer, Chief Compliance Officer and Corporate Secretary (“CLO”) oversees our corporate ethics and compliance program (including a review with the Governance Committee as to program effectiveness at least annually), our Code of Conduct training, and compliance with Company policies, standards and procedures. The CLO, or a delegee, reports to the Audit Committee regarding Code of Conduct matters related to accounting and auditing concerns and to the Governance Committee regarding all other Code of Conduct concerns.

Enterprise Risk Management

Our Internal Audit function develops and deploys an internal audit risk assessment and internal audit plan based on input from the Company’s leadership and Board members regarding the risk landscape. The Audit Committee reviews the risk assessment and internal audit plan and audit results.

Environment

The Governance Committee’s oversight of Shyft’s strategies relating to ESG includes reviewing and discussing environmental matters with Shyft’s CLO, who is responsible for coordinating activities related to minimizing Shyft’s impact on the environment. This oversight includes Governance Committee input into the Company’s sustainability priorities and strategies, and preview and revision to the Company’s annual sustainability report.

Human Rights

In 2020, the Board adopted Shyft’s human rights policy. The policy governs how we treat all stakeholders, including our customers, employees, business partners and participants in our supply chain. Consistent with our human rights policy, we became a signatory in 2021 to the United Nations Compact in support of principles relating to human rights, labor, environment, and anti-corruption. The Board is responsible for overseeing and periodically reviewing our human rights policy. Shyft’s CLO is responsible for its ongoing implementation and reports to the Board and its committees on any significant related issues.

People

The Board takes an active role in overseeing matters related to our people, including with respect to inclusion and diversity, culture and engagement, talent recruitment, development, and retention, and in 2022 formalized its policy of allocating direct responsibilities for belonging and inclusion and human capital management to the Compensation Committee. On a regular basis, the Chief Human Resources Officer (“CHRO”), reports to the Compensation Committee on belonging and inclusion talent related developments and risks.

Additionally, Shyft’s Compensation Committee oversees risks related to the Company’s compensation programs. Each year, the Compensation Committee evaluates whether the design and operation of Shyft’s compensation programs and policies encourage

management to take unnecessary or excessive risks. In assessing Shyft’s compensation programs for risk, the Compensation Committee evaluates program features that mitigate against potential risks for our executive officers, such as fixed base salaries; goals that are tied to specific company financial measures and payout caps for the annual cash incentive program; clawbacks for our cash and equity incentives; the quantity and mix of long-term performance-based and time-based equity incentives; and stock ownership requirements. In its annual review, the Compensation Committee concluded that Shyft’s executive compensation programs and policies continue to provide an effective and appropriate mix of incentives to help ensure performance is focused on long-term shareholder value creation, and do not encourage short-term risk taking at the expense of long-term results.

Cybersecurity

The Board, together with the Audit Committee, regularly reviews with the Chief Information Officer our information security and enterprise-wide cybersecurity risk management program. Oversight includes visibility to our mandatory cybersecurity training for Shyft employees and third parties who may have access to our systems, the maintenance of internal controls for our systems, our ongoing evaluation of the cybersecurity threat landscape, our implementation of the National Institute of Standards and Technology Cybersecurity Framework, our management of information technology risks and resources, and conducting penetration testing of our information technology infrastructure. As part of this oversight, the Audit Committee also collaborates with external parties to evaluate the Company’s cybersecurity strategy and integrate best practices.

Supply Chain

The Board reviews management reports regarding Shyft’s supply chain and operations. These records include updates from Shyft’s business segment leadership on the performance and management of our supply chain with focus on potential operational impacts.

Regulatory Compliance

Shyft’s full Board takes an active role in overseeing legal and regulatory risks related to Shyft’s business. The Board receives regular updates from Shyft’s CLO on legal and regulatory developments affecting the Company, including updates on legislative developments, government investigations, litigation, and other legal proceedings.

We are committed to ongoing constructive and meaningful engagement with our shareholders to drive accountability to our shareholders.

The management team conducts shareholder outreach throughout the year to ensure management and the Board understand and consider the issues that matter most to our shareholders and reflect the insights and perspectives of our many stakeholders.

Investor conferences, industry tradeshows and individual communication with our shareholders provides the opportunity for them to interact directly with management.

These engagements allow us to receive feedback concerning our operational and financial results, board composition, executive compensation, human capital management and sustainability matters, along with other topics of interest to shareholders. We greatly value our relationships with our shareholders and hearing their feedback directly.

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 outreach, we also provide a means for shareholders to communicate directly with our Board, as provided under “Communications with Directors.”

The Company’s Board of Directors currently consists of 9 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 2023, the Board initially consisted of 9 directors until Ms. Kermisch joined the Board on March 21, 2023, at which time the Board expanded to 10 directors. On October 26, 2023, Mr. Adams resigned from the Board and Mr. Dunn joined the Board, in connection with the completion of our CEO succession process. Mr. Clevinger resigned from the Board for personal reasons effective December 31, 2023 prior to the conclusion of his then-current term after serving on the Board for 6 years, at which time the Board was reduced to 9 directors.

Given the director transitions that occurred during 2023, the class of directors whose term expires at the Annual Meeting currently only consists of two directors. Accordingly, in furtherance of our commitment to maintain the director classes as nearly equal in number as possible, Ms. Kermisch, whose term would otherwise expire at the 2026 Annual Meeting, has agreed to be renominated for election with the class of directors whose current terms will expire at the 2024 Annual Meeting.

The Board met 8 times during 2023. Each member of the Board who served during 2023 attended or participated in 75% or more of the aggregate of (i) the total number of meetings of the Board held during 2023 (other than Mr. Dunn who did not join the Board until October 26, 2023), and (ii) the total number of meetings held by each committee of the Board on which the member served during 2023.

Shyft expects all of its directors to attend the Annual Meeting. All directors then serving on the Board attended the 2023 annual meeting of shareholders.

The Board has three standing committees: Audit, Compensation, and Governance. 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 Board conducts an annual self-evaluation to assess whether the Board, its committees, and each member of the Board are working effectively, and to provide an opportunity to reflect upon and improve processes and effectiveness.

The Governance Committee designs and establishes the overall evaluation framework, and Messrs. Sharman and Mascarenas, the Board Chair and Governance Committee chair, respectively, lead the feedback session. Topics covered in the evaluation process include the effectiveness and performance of the Board and its committees; Board and committee composition and refreshment; timing, agenda, and content of Board and committee meetings; Board dynamics and function; peer contributions; and executive succession planning. A summary identifying any themes or issues that have emerged is presented to the Board on an anonymous basis.

Our Corporate Governance Principles require that the Board annually determines whether our directors are independent. Nasdaq’s rules require that the Board affirmatively determine that a director does not have a relationship that would interfere with the exercise of a director’s independent judgment. Based on the evaluations performed and recommendations made by the Governance Committee, the Board determined that each of our directors is independent, other than Mr. Dunn, our current CEO and Mr. Adams, who served as a member of the Board until the end of his tenure as CEO on October 26, 2023, and that Mr. Clevinger, who resigned from the Board effective December 31,2023, was independent.

The Board has adopted written policies and procedures with respect to related party transactions, as defined in rules issued by the 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 2023. During 2023, Shyft conducted business in the ordinary course with C.H. Robinson Worldwide, Inc., a global provider of multimodal transportation services and third-party logistics, where Ms. Freeman, a member of the Shyft Board, serves as the Chief Human Resources and ESG Officer.

Any shareholder or other interested party may communicate with our directors, individually or as a group, by contacting our CLO or our Board Chair. The contact information is maintained through the Investors page of our website at www.theshyftgroup.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.

Shyft conducts business ethically, honestly, and in compliance with laws. Shyft’s Code of Conduct details the principles that guide Shyft’s business practices – honesty, respect, confidentiality, and compliance. The Code of Conduct applies to all employees, including Shyft’s CEO and CFO, as well as our Board of Directors. We expect our suppliers, contractors, consultants, and other business partners to follow the principles set forth in the Code of Conduct when providing goods and services to Shyft or acting on its behalf. The Code is available at https://theshyftgroup.com/wp-content/uploads/2022/04/ShyftGroupCodeofConduct_2023.pdf.

Shyft’s CLO is responsible for managing oversight of the Code of Conduct. Employees and Board members are required to complete training on the Code of Conduct upon joining Shyft and annually thereafter.

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 CLO 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.

At Shyft, we champion an environmentally sustainable future and are committed to advancing clean and green commercial transportation. This is a defining aspect of our business, and we strive for a future where our purpose-built technology and cross-brand collaboration fuel innovations and make transportation more eco-friendly and efficient. Our mission is to provide the tools and technologies to safely and efficiently deliver people, packages, and services where they are needed most. As part of this overall mission, we focus on integrating environmental, social and governance principles into how we conduct business.

In 2023, Shyft continued to build upon and improve our oversight framework, and to further evolve our strategy. Our executive management team and our Board recognized the importance of these responsibilities, and we established an internal cross-functional Sustainability Working Group that was tasked with driving progress in the initiatives that promote sustainability and further transparency. The Board is updated quarterly regarding Shyft’s sustainability initiatives, and the Working Group meets regularly. Our Board actively oversees and supports the management team as they lead the Company’s efforts to integrate sustainability into day-to-day operations.

Against this backdrop, we have, with the assistance of outside expertise, performed an assessment of key indicators and engaged with our internal and external stakeholders on sustainability topics to help further inform our future direction and priorities. The three tenets of our sustainability strategy are: (1) Environmental Stewardship; (2) Social Responsibility; and (3) Our Culture of Governance.

 

Our three tenets arose from a priority-based approach to disclosure, in line with best practices. In the spring of 2023, Shyft completed its second assessment of sustainability priorities – examining a range of key stakeholders, including investors, customers, employees, and rating organizations and by studying industry peers. Our analysis of sustainability topics included the Task Force on Climate-Related Financial Disclosures (TCFD), and the 17 United Nations Sustainable Development Goals (SDGs), as well as the Sustainability Accounting Standards Board (SASB).

As we work to reduce our own emissions, we are also realizing sustainability opportunities in our supply chain. Through a proactive approach to supplier onboarding, combined with ongoing assessments of potential supply chain risks, we actively manage our supply chain, and have the ability to audit our supply chain partners for compliance with our requirements, including with respect to achievement of sustainability objectives.

We routinely engage with our stakeholders to better understand their views on ESG matters, carefully considering the feedback we receive and acting when appropriate. For more information on our sustainability program, policies, or to view our 2023 Sustainability Report, please visit: theshyftgroup.com.

PROPOSAL ONE

The following includes a brief overview of the experience, qualifications, attributes, and skills that led to the conclusion that the directors and nominees should serve on the Board at this time. The Governance Committee and the Board consider the experience, mix of skills, and other qualities of the existing Board to ensure appropriate Board composition. The Governance Committee and the Board believe that directors must have demonstrated excellence in their chosen field, high ethical standards and integrity, and sound business judgment. In addition, they seek to ensure the Board includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to the Company’s business.

As more fully reflected below, the Board believes that the directors and nominees have an appropriate balance of knowledge, experience, attributes, skills and expertise as a whole to ensure the Board appropriately fulfills its oversight responsibilities and acts in the best interests of shareholders. The Board believes that each director satisfies its criteria for demonstrating excellence in his or her chosen field, high ethical standards and integrity, and sound business judgment. Further, each director or nominee brings a strong background and set of skills to the Board, giving the Board competence and experience in a wide variety of areas.

Under Michigan law and our bylaws, directors are elected by a plurality. This means the nominees who receive the most votes will be elected to the open director positions. However, we have adopted a majority vote standard in our Corporate Governance Principles that will require, in uncontested elections, any nominee for director who receives a greater number of votes “withheld” for their election than votes “for” such election to promptly tender his or her offer of resignation to the Chair of the Board for consideration by the Governance Committee.

The following matrix highlights the mix of skills, qualities, attributes, and experiences or our directors, including the nominees (Dunn, Kermisch and Mascarenas), that among other factors, led the Board and the Governance Committee to recommend the nominees for election to the Board. The matrix is intended to depict notable areas of focus for each director, and not having a mark does not mean that a particular director does not possess that qualification or skill. The demographic information presented below is based on voluntary self-identification by each director. Additional biographical information on each director begins on page 22.

The Board Diversity Matrix below presents the Board’s diversity statistics (as of March 18, 2024) as required by applicable Nasdaq rules.*

 

 

 

 

 

 

 

 

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 & Touche LLP (“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, 2023, for filing with the SEC.

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

The Audit Committee

PROPOSAL TWO

The Audit Committee is responsible for selecting, in its sole discretion, the firm of independent auditors to audit Shyft’s financial statements for each fiscal year. The Audit Committee is also directly responsible for the appointment, compensation, retention, and oversight of the work of the independent auditors, including resolution of any disagreements that arise between management and the auditor regarding financial reporting or other audit, review or attest services for the Company. The independent auditors report directly to the Audit Committee.

The Audit Committee annually reviews and evaluates the performance of the Company’s independent auditors. In evaluating the independent auditors, the Audit Committee considers, among other things, the quality of the independent auditor’s service, the sufficiency of its resources, its independence and objectivity, and the length of time the firm has been engaged as Shyft’s independent auditors.

Set forth below is a summary of the fees paid by Shyft for the years ended December 31, 2023 and 2022, 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 THREE

We believe the compensation of our named executive officers should be:

At the 2023 Annual Meeting, 91% of the votes cast on the advisory Say on Pay proposal voted in favor of the compensation of our named executive officers.

The Compensation Discussion and Analysis beginning on page 32 explains in detail the elements of the Company’s executive compensation program with respect to our NEOs, and the steps taken by the Company to help ensure that the program, as implemented in 2023, was aligned with these core principles. Balancing annual and long-term compensation elements, the program directly links incentive compensation for named executive officers with increases in shareholder value, principally by means of annual cash incentives based on achievement of performance goals set by the Compensation Committee at the beginning of the year, performance-based restricted share units that vest based on the Company’s TSR performance relative to the TSR Comparator Group and the Company’s Cumulative GAAP Net Income over a three-year period, and time-based restricted share units that vest over a three-year period. The Company believes this system, as put into practice under the supervision of the Compensation Committee, is instrumental in enabling the Company to achieve long-term financial performance and investor returns.

The Board strongly endorses the Company’s actions in this regard and recommends that shareholders vote to approve, on an advisory basis, the compensation of the named executive officers as disclosed in this proxy statement, according to the following resolution:

RESOLVED, that the compensation of the named executive officers, as disclosed in the proxy statement for the 2024 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.

Mr. Adams served as President and Chief Executive Officer (“CEO”) during 2023 until October 26, 2023, when he moved into a non-executive officer role as Special Advisor. Mr. Dunn joined the Company on January 30, 2023 as President, Fleet Vehicles and Services (“FVS”), and served in that role until he succeeded Mr. Adams as President and CEO on October 26, 2023. Mr. Farmer joined the Company on July 17, 2023 in the role of President, Specialty Vehicles (“SV”) and was also appointed President, Fleet Vehicles and Services on January 1, 2024.

In 2023, faced with a dynamic operating environment, our team concentrated on enhancing operational efficiency and boosting shareholder value by generating positive Operating Cash Flow and sustaining profitability across all segments. Our dedication to operational excellence and focusing on customer needs has made us competitive in key markets, such as parcel delivery and infrastructure, providing a solid financial base.

Over the course of the year, we accomplished the following milestones:

Looking forward, we are committed to further improving our financial performance and Operating Cash Flow generation, while continuing to invest in initiatives that position us for future growth.

The Board believes its NEO compensation approach and practices contribute to the Company’s success in enhancing shareholder value and driving long-term growth and profitability. The key compensation decisions the Committee made for 2023 are summarized below and discussed in greater detail in the remainder of this CD&A.

The Committee approved base salary increases for all NEOs who were hired prior to 2023 to maintain alignment with market median per our compensation philosophy and to recognize individual performance in 2022. Mr. Dunn’s base salary, initially set when he joined the Company in January 2023, was increased when he was appointed CEO in October 2023. Mr. Adams’ base salary was adjusted when he transitioned from CEO to Special Advisor consistent with the terms of the Transition and Separation Agreement dated June 9, 2023 (the “Transition Agreement”) between Mr. Adams and the Company. Mr. Farmer’s base salary was determined when he joined the Company in July 2023.

For fiscal year 2023, Mr. Dunn’s award payout under the annual incentive compensation program (“AIC”) was prorated based on his hire date, and his respective base salary and percentage of 2023 spent as President of FVS (80% of 2023), and CEO (20% of 2023). As President of FVS, Mr. Dunn’s AIC award was based on the following performance metrics and weightings: Company Adjusted EBITDA 25%; Company Free Cash Flow 25%; segment Adjusted EBITDA 30%; and individual management business objectives (“MBOs”) 20%. As CEO, his AIC award was based on the following performance metrics and weightings: Company Adjusted EBITDA 55%; Company Free Cash Flow 25%; and MBOs 20%.

For fiscal year 2023, the AIC award for Messrs. Adams, Douyard, Hindman and Sherbin was based on the following performance metrics and weightings: Company Adjusted EBITDA 55%; Company Free Cash Flow 25%; and MBOs 20%. Additionally, the AIC payout for Mr. Adams was prorated for the period he served as CEO.

For fiscal year 2023, the AIC award for Mr. Farmer was prorated based on his hire date, and based on the following performance measures and weightings: Company Adjusted EBITDA 25%; Company Free Cash Flow 25%; segment Adjusted EBITDA 30%; and MBOs 20%.

In addition to his AIC bonus payment, Mr. Dunn received a cash sign-on bonus of $500,000 soon after joining the Company in January 2023 to incentivize him to join the Company and partially offset the compensation impact related to the transition from his prior employer.

In March 2023, the Committee granted both performance-based restricted stock units (“PSUs”) and time-based restricted stock units (“RSUs”) to the NEOs who were employed at that time, other than Mr. Adams. For each NEO employed at that time, other than Mr. Adams, the total long-term incentive compensation (“LTIC”) target award value was allocated 70% to target PSUs and 30% to RSUs. For Mr. Adams, the LTIC target award value was allocated 100% to target PSUs to increase the focus of his award on

Company performance. All awards earned will be settled in shares. The RSUs vest in three equal installments on the first three anniversaries of the grant date of the award. The PSUs are subject to a performance period of 36 months and cliff vesting at the end of the performance period following Committee approval. These PSU awards are subject to Total Shareholder Return (“TSR”) and Cumulative GAAP Net Income performance measures, as further described below.

In addition to the 2023 annual LTIC award, the Committee approved additional 2023 equity awards as follows:

These grants are described in greater detail below and are reflected in the Grants of Plan-Based Awards table.

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:

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 following are the primary elements of our NEO compensation program and the objectives for including them.

The mix of target total direct compensation (base salary, target annual incentive awards, and target long-term incentive awards) for 2023 was structured to deliver the approximate proportions set forth below of total compensation to each of Mr. Adams and Mr. Dunn (in each case, on an annualized basis in the CEO role) 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 annual incentives and long-term equity awards is larger relative to other employees.

 

The Say on Pay advisory vote to approve named executive compensation was conducted at our 2023 Annual Meeting 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, approximately 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 the vote. Furthermore, almost 95% of the shares of common stock entitled to vote that were represented at the 2023 Annual Meeting voted to approve the Board’s recommendation that we continue to hold Say on Pay votes on an annual basis.

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. 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 Committee has selected and retained Mercer US LLC (“Mercer”), an independent executive compensation consulting firm, to provide competitive market data and advice related to each NEO’s compensation level and incentive design; review and evaluate management-developed recommendations on compensation levels, incentive mix, and incentive design for the non-CEO 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. In 2023, Mercer also provided guidance on the Company’s pay versus performance analysis and disclosure and the CEO transition process, including Mr. Adams’ Transition Agreement and Mr. Dunn’s compensation as CEO.

The Committee evaluates and assesses the independence of Mercer to ensure it maintains objectivity and independence when rendering advice to the Committee. Neither Mercer nor any of its affiliates provided any additional services to the Company during 2023 (beyond those described above). Mercer reports directly to the Committee and is independent of management. The Committee has determined that the services Mercer provides do not create or present any conflicts of interest.

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:

Compared to the 2022 peer group, the Committee removed the following companies from the 2023 peer group: LCI Industries, Inc. due to its revenue growth beyond the typical range for comparators, and Lydall Corporation due to it being acquired. To partially offset the peer group removals, the Committee added EnPro Industries, Inc.

In late 2022, the Committee engaged Mercer to update the comparative compensation analysis that reviewed total direct compensation (consisting of base salary, target annual incentive compensation, 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 comparative compensation analysis of the NEOs’ compensation, including base salaries, short- and long-term incentives, and severance practices, using information from proxy disclosures and published surveys.

The Committee generally considered the peer group data when making compensation decisions in 2023. The Committee generally uses the median of the peer group as an initial reference point for evaluating base salary, annual incentive and long-term incentive targets. The actual base salary and incentive targets for an individual NEO, however, may be set higher or lower than median based on the Committee’s assessment of individual NEO performance, experience, and potential. 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.

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 base salaries 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 in this analysis.

The Committee made recommendations for 2023 base salary adjustments consistent with the comparative compensation analysis conducted by Mercer and, more generally, the considerations described above. For the NEOs who were hired prior to 2023, the annual base salary adjustments shown below were implemented in April 2023.

These annual base salary adjustments were intended to recognize performance, enhance retention, and align executive total compensation levels with the Company’s stated compensation philosophy of targeting the market median.

In addition to the base salary adjustments noted in the table above, the following base salary decisions or adjustments were made in 2023:

The AIC provides an opportunity for our NEOs to earn an annual cash payment (or bonus) based upon achievement of key metrics that reflect the top priorities for business performance. The metrics and associated weights used in the AIC are reviewed annually to ensure alignment with business priorities and are approved by the Committee.

Each participant’s AIC bonus is determined as follows:

 

The target bonus percentage is a percentage of the participant’s base salary. AIC awards are generally prorated to reflect base salary or target bonus percentage changes during the year, as well as partial year participation (for example, for newly hired or newly eligible participants). The Committee established the target bonus percentage for each NEO at the beginning of 2023 as follows: 150% of base salary for Mr. Adams in his CEO role, 70% of base salary for our CFO, and 60% of base salary for each of our other then-serving NEOs. These targets were not increased from 2022 targets. When Mr. Dunn joined the Company on January 30, 2023, his AIC target was 65% of base salary, and increased to 100% when he was appointed CEO on October 26, 2023. When Mr. Farmer joined the Company on July 17, 2023, the Committee set his AIC target at 60% of base salary.

The AIC bonus achievement multiplier is a multiple of the target bonus percentage. For example, achievement of bonus metrics at exactly target performance would result in a bonus multiplier of 100%. The threshold (minimum) bonus multiplier is 50% and the maximum bonus multiplier is 200%. 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 as a percent of base salary for our NEOs for 2023 (which were unchanged from 2022 levels for the NEOs who were serving in 2022) were as follows:

The Committee retains the right to adjust the AIC awards or payouts, or grant discretionary cash bonuses, as it deems appropriate. The Committee did not grant any discretionary cash bonuses in 2023 or make any such adjustments to the AIC awards or payouts.

At the discretion of the Committee, any AIC bonus may be paid in the form of the Company’s common stock. All AIC bonuses for 2023 were paid in cash.

For 2023, the tables below show the performance metrics and targets established for our NEOs to earn an AIC bonus. 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 and cash generation. For 2023, the Committee increased the weight of the Free Cash Flow metric by 10% to drive enhanced focus on cash conversion activities. For each executive, the AIC bonus is also based, in part, on MBOs, which are individual management business objectives specific to that executive’s area of responsibility. The MBOs are established at the beginning of the year with approval from the Committee. Progress on the MBOs is reviewed during the year, and final performance is determined by the Committee following year-end.

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 Stock Ownership Requirements” below.

The Company currently has the ability to grant equity-based compensation to its NEOs pursuant to the Stock Incentive Plan, which was amended and restated at the 2023 Annual Meeting (the “Stock Incentive Plan”). The Committee administers all aspects of the Stock Incentive Plan.

Annual long-term equity incentives for the NEOs typically consist of (1) the grant of RSUs with time-based vesting, and (2) the grant of PSUs, which are generally subject to the achievement of certain performance metrics over a cumulative three-year period. The Committee believes using a combination of RSUs and PSUs 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. It is also intended to enhance executive retention.

For 2023, the Committee granted 100% of Mr. Adams’ LTIC award in the form of PSUs to align the CEO’s compensation more strongly with the Company’s performance. For the other NEOs (other than Mr. Farmer who had not yet joined the Company as of the LTIC grant date), 30% of the target annual LTIC award was comprised of RSUs and the other 70% was awarded in target 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 participating NEO’s target annual LTIC award for a particular year is based on a percentage of the executive’s annual base salary. Considering our compensation philosophy and based on the comparative compensation analysis completed in late 2022, the Committee increased the 2023 LTIC target award for the CHRO from 85% to 100%. The targets for the other participating NEOs were unchanged and are shown in the 2023 Long-Term Equity Incentive Compensation table below. These decisions are consistent with and were motivated by our compensation philosophy described above to generally align executive pay with the market median.

For each of Messrs. Dunn, Douyard, Hindman and Sherbin, 30% of the value of the executive’s 2023 LTIC award was granted in the form of RSUs. The award was 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 generally vest ratably over a three-year period, subject to any exceptions set forth in the applicable award agreement. Dividend equivalents for RSUs are accrued and paid upon vesting.

For each of Messrs. Dunn, Douyard, Hindman and Sherbin, 70% of the value of the executive’s 2023 annual LTIC award was granted in the form of PSUs, and for Mr. Adams, 100% of the value of his 2023 LTIC award was granted in the form of PSUs. The PSU portion of the annual LTIC award is designed to reward the NEOs based upon achievement of cumulative financial performance over a three-year period (with cliff vesting following such three-year performance period) starting with the performance year in which the annual LTIC award is granted. For grants made in 2023, two cumulative performance metrics apply: