UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.  )

 

 

 

 

 

 

 

 

NOTICE OF ANNUAL MEETING OF SHARE OWNERS

 

To Our Share Owner:

You are cordially invited to attend the Annual Meeting (the “Annual Meeting”) of the share owners of Owens-Illinois, Inc. (the “Company”) for the purpose of considering and voting upon the following matters:

Mail Date:

The Company intends to commence distribution of this notice and the accompanying Proxy Statement and proxy card on or about April 2, 2019.

Record Date:

The Board fixed the close of business on March 18, 2019, as the record date for the determination of share owners owning the Company’s Common Stock, par value $.01 per share, entitled to notice of, and to vote at, the Annual Meeting.

Your Vote is Important:

Enclosed is a proxy card that provides you with a convenient means of voting on the matters to be considered at the meeting, whether or not you attend the meeting in person. All you need do is mark the proxy card to indicate your vote, sign and date the card, then return it in the enclosed envelope as soon as conveniently possible. If the shares are held of record in more than one name, all holders of record should sign the proxy card. If you are a share owner of record and you submit a proxy, but you do not provide voting instructions, your shares will be voted: for each of the Board nominees, for the ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2019, for the approval of the Owens-Illinois, Inc. Amended and Restated 2017 Incentive Award Plan, and for the advisory vote to approve named executive officer compensation. As an alternative to

returning the proxy card, you may use the Internet or telephone to submit your proxy as described in the enclosed Proxy Statement and on the proxy card.

We sincerely appreciate your interest in and support of Owens-Illinois, and we hope to see you at the Annual Meeting.

April 2, 2019

Perrysburg, Ohio

 

 

 

TABLE OF CONTENTS

 

TABLE OF CONTENTS (continued)

 

 

 

PROXY STATEMENT FOR THE ANNUAL MEETING OF SHARE OWNERS To Be Held May 16, 2019

The Annual Meeting of the share owners of Owens-Illinois, Inc. (the “Company”) will be held on Thursday, May 16, 2019, at 9:00 a.m. in Plaza 2 of the O-I World Headquarters, Perrysburg, Ohio. At the Annual Meeting, share owners will: (1) vote to elect 12 directors, each to serve a term of one year; (2) consider the ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2019; (3) vote to approve the Owens-Illinois, Inc. Amended and Restated 2017 Incentive Award Plan; and (4) participate in an advisory vote to approve named executive officer compensation.

This Proxy Statement has been prepared in connection with the solicitation by the Company’s Board of Directors (the “Board”) of proxies for the Annual Meeting and provides information concerning the persons nominated by the Board for election as directors, and other information relevant to the Annual Meeting. The Company intends to commence distribution of this Proxy Statement and the accompanying proxy card on or about April 2, 2019.

The Securities and Exchange Commission (“SEC”) has adopted a “Notice and Access” rule that allows companies to deliver a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) to share owners in lieu of a paper copy of the proxy statement and related materials and the Company’s 2018 Annual Report to share owners. The Notice of Internet Availability provides instructions as to how share owners can access the proxy materials online, contains a listing of matters to be considered at the meeting, and sets forth instructions as to how shares can be voted. Shares must be voted either by telephone, on the Internet or by completing and returning a proxy card. Shares cannot be voted by marking, writing on and/or returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes. Instructions for requesting a paper copy of the proxy materials are set forth on the Notice of Internet Availability.

The Notice of Annual Meeting and Proxy Statement, the Company’s 2018 Annual Report to share owners and the Stakeholder Letter are available at www.proxyvote.com. You will need your assigned control number to vote your shares. Your control number can be found on your proxy card.

Who May Vote

You will be entitled to vote at the Annual Meeting if you are a share owner of record as of the close of business on March 18, 2019 (the “record date”). At the close of business on the record date, 155,221,763 shares of the Company’s common stock, par value $.01 per share (“Common Stock”), were outstanding. Each share of Common Stock entitles the holder of record to one vote on all matters to be voted upon at the Annual Meeting. Shares of Common Stock held by the trustee under the Company’s 401(k) plans must be voted by the trustee in accordance with written instructions from participants in such plan or, as to those shares for which no instructions are received, in a uniform manner as a single block in accordance with the instructions received with respect to the majority of shares for which instructions were received from participants. No other securities are entitled to be voted at the Annual Meeting.

How to Vote

Shares of Common Stock can be voted at the Annual Meeting only if the share owner is present in person or represented by proxy. If shares are owned of record in the share owner’s name, the share owner may cause these shares to be voted at the Annual Meeting in one of four ways.

Deadline

The deadline for submitting a proxy by internet or telephone is 11:59 p.m., Eastern Time, on May 15, 2019. If a proxy is submitted by internet or telephone, the share owner does not need to return the proxy card. If the share owner chooses to submit its proxy by mail, the deadline for Broadridge to receive and count a proxy by mail is 11:59 p.m., Eastern Time, on May 15, 2019.

Householding

To reduce costs and the environmental impact of the Company’s Annual Meeting, a single copy of the Proxy Statement and 2018 Annual Report to Share Owners will be delivered to two or more share owners who share an address, unless contrary instructions have been received from an affected share owner, a practice commonly referred to as “householding.” The Company will promptly deliver, upon written or oral request, individual copies of the proxy materials to any share owner at the shared address to which single copies of those documents were delivered. To make such a request, please contact Broadridge Householding Department by phone at 1-866-540-7095 or by mail to Broadridge Householding Department, 51 Mercedes Way, Edgewood, New York 11717.  If you are a share owner of record and would like to enroll in this householding service or would like to receive individual copies of future proxy materials, please contact Broadridge Householding Department by phone at 1-866-540-7095 or by mail to Broadridge Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Share owners who hold their shares beneficially in street name should contact their bank, broker or other holder of record to request information about householding.

Further Instructions Regarding “How to Vote”

The telephonic and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. These procedures allow share owners to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded.

Share owners who hold their shares beneficially in street name through a nominee (such as a bank or broker) may be able to submit their proxy by telephone or the Internet as well as by mail. The share owner should follow the instructions received from the nominee to vote these shares. Share owners who hold their shares beneficially in street name can also choose to vote in person by ballot at the Annual Meeting, but must have a legal proxy with them executed by the nominee in order for their vote to count. At the meeting, the share owner will need to request a ballot to vote these shares.

The proxy card lists each person nominated by the Board for election as a director. Proxies duly executed and received in time for the meeting will be voted in accordance with share owners’ instructions. If no instructions are given, proxies will be voted to (a) elect each of the 12 nominated directors of the Company for a term of one year to expire at the Annual Meeting in 2020; (b) ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2019; (c) approve the Owens-Illinois, Inc. Amended and Restated 2017 Incentive Award Plan; (d) approve the compensation of the Company’s named executive officers; and (e) in the discretion of the proxy holders as to any other business that may properly come before the meeting.

Revocability of Proxies

Any proxy solicited hereby may be revoked by the person or persons giving it at any time before it has been exercised at the Annual Meeting by (a) giving notice of revocation to the Company in writing or at the 2019 Annual Meeting; (b) submitting a later dated proxy; or (c) attending the Annual Meeting in person and voting at the meeting.

Vote Required to Approve Matters

There must be a quorum for the transaction of business at the meeting. A quorum is the presence at the meeting of a number of shares that are either present or represented by proxy, constituting a majority of the outstanding shares entitled to vote at the meeting. If you submit a properly executed proxy card or a telephonic or Internet proxy, or you are present at the meeting in person, even if you abstain from voting, your shares will be considered part of the quorum. Broker non‑votes (shares held by a broker or nominee that are represented at the meeting, but with respect to which the broker or nominee is not empowered to vote on a proposal) are included in determining the presence of a quorum.

Proposal One. Each director to be elected by the share owners of the Company shall be elected by the affirmative vote of a majority of the votes cast with respect to such director by the shares represented and entitled to vote thereon at a meeting of the share owners for the election of directors at which a quorum is present (an “Election Meeting”); provided, however, that if the Board determines that the number of nominees exceeds the number of directors to be elected at such meeting (a “Contested Election”), whether or not the election becomes an uncontested election after such determination, each of the directors to be elected at the Election Meeting shall be elected by the affirmative vote of a plurality of the votes cast by the shares represented and entitled to vote at such meeting with respect to the election of such director. For purposes of electing directors, a “majority of the votes cast” means that the number of votes cast “for” a candidate for director exceeds the number of votes cast “against” that director (with “abstentions” and “broker non‑votes” not counted as votes cast as either “for” or “against” such director’s election). In an election other than a Contested Election, share owners will be given the choice to cast votes “for” or “against” the election of directors or to “abstain” from such vote and shall not have the ability to cast any other vote with respect to such election of directors. In a Contested Election, share owners will be given the choice to cast “for” or “withhold” votes for the election of directors and shall not have the ability to cast any other vote with respect to such election of directors. The Board has established procedures under which any director who is not elected shall offer to tender his or her resignation to the Board.

Proposal Two. The affirmative vote of a majority of the stock having voting power present in person or represented by proxy and entitled to vote thereon is required to ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2019. Abstentions will have the same effect as votes “against” this proposal. “Broker non‑votes” are not expected for this proposal as NYSE rules allow brokers or nominees to exercise discretionary voting authority on this “routine” proposal.

Proposal Three. The affirmative vote of a majority of the stock having voting power present in person or represented by proxy and entitled to vote thereon is required for the approval of the Owens-Illinois, Inc. Amended and Restated 2017 Incentive Award Plan. Abstentions will have the same effect as votes “against” this proposal and “broker non‑votes” will not be counted in determining whether this proposal has been approved.

Proposal Four. The affirmative vote of a majority of the stock having voting power present in person or represented by proxy and entitled to vote thereon is required for the advisory vote to approve named executive officer compensation. Abstentions will have the same effect as votes “against” this proposal and “broker non‑votes” will not be counted in determining whether this proposal has been approved.

Other Matters

Management of the Company does not know of any matter that will be presented for action at the 2019 Annual Meeting other than as described in this Proxy Statement. However, if any other matter should properly be brought to a vote at the meeting, or any adjournment or postponement thereof, all shares covered by proxies solicited hereby will be voted with respect to such matter in accordance with the proxy holders’ discretion.

PROPOSAL 1: ELECTION OF DIRECTORS

General

The Board currently consists of 12 members whose terms expire at this year’s Annual Meeting. The Board believes that refreshment is important to help ensure that Board composition is appropriately aligned with the Company’s evolving business and strategic needs. The Nominating/Corporate Governance Committee has reviewed the composition of the Board for a balance of tenure, skills and diversity on the Board and pursuant to the Nominating/Corporate Governance Committee’s Policies and Procedures Regarding the Identification and Evaluation of Candidates for Director (the “Policies and Procedures”), the qualifications, performance and circumstances of each incumbent director. After completing its review, the Nominating/Corporate Governance Committee recommended all incumbent directors for re‑election, except for John J. McMackin, Jr. Mr. McMackin’s long-term service on the Board is ending at the conclusion of the Annual Meeting. In addition, the Nominating/Corporate Governance Committee, pursuant to the Policies and Procedures, considered Dennis K. Williams’ deep understanding of the Company’s technology in recommending the re-election of Mr. Williams, age 73. The Board approved the Nominating/Corporate Governance Committee’s recommendations regarding the incumbent directors and also approved the Nominating/Corporate Governance Committee’s recommendation that one new candidate, John H. Walker, stand for election to fill the vacancy.

Information on Nominees

The Board, at the recommendation of the Nominating/Corporate Governance Committee, has nominated 12 persons for election as directors to serve for a one year term expiring at the 2020 annual meeting of share owners and until their successors have been elected. The nominees of the Board are Gordon J. Hardie, Peter S. Hellman, John Humphrey, Anastasia D. Kelly, Andres A. Lopez, Alan J. Murray, Hari N. Nair, Hugh H. Roberts, Joseph D. Rupp, John H. Walker, Carol A. Williams and Dennis K. Williams. Except for Mr. Walker, each nominee is currently serving as a director of the Company and each nominee, including Mr. Walker, has consented to being named in this Proxy Statement and has agreed to serve if elected. If for any reason any nominee should be unavailable to serve, proxies solicited hereby may be voted for a substitute as well as for the other Board nominees. The Board, however, expects all of its nominees to be available to serve.

Following is information on the persons nominated for election to the Board at the 2019 Annual Meeting:

Nominees—To be elected for terms expiring at the 2020 Annual Meeting

Gordon J. Hardie, Age 55

 

Peter S. Hellman, Age 69

 

John Humphrey, Age 53

Anastasia D. Kelly, Age 69

 

Andres A. Lopez, Age 56

 

Alan J. Murray, Age 65

 

Hari N. Nair, Age 59

 

Hugh H. Roberts, Age 67

 

Joseph D. Rupp, Age 68

 

John H. Walker, Age 61

 

Carol A. Williams, Age 61

 

Dennis K. Williams, Age 73

 

 

 

GOVERNANCE INFORMATION

Board Leadership Structure

The Board decided that the roles of the Board Chair and CEO would be separated as of January 1, 2016. At the 2016 Annual Meeting, the Board selected Carol A. Williams, an independent member of the Board, to become its Independent Board Chair (“IBC”) and the Company eliminated the role of Lead Director.

The primary responsibility of the IBC is to make the Board as effective as possible in fulfilling its oversight responsibility for the Company and to ensure that the Company derives the most benefit from the experience, education and skills of individual Board members.

In fulfilling this primary responsibility, the IBC will be expected to be a leader of his/her peers by taking personal responsibility for delivering excellence in the boardroom. This will mean helping shape meeting agendas, ensuring open communication, meaningful participation and constructive debate and focusing on appropriate follow-through regarding Board conclusions and recommendations.

The IBC will maintain regular communications with other Board members, with the frequency and depth of communications dependent on the issues that are the current focus of the Company. In addition, the IBC will act as a sounding board for the CEO, as well as other members of senior management. In separating the roles of CEO and IBC, the Board has expressly decided that it does not want the IBC to be perceived as “managing the Company” or as an “executive chair” in the eyes of management or the Company’s investors.

As the leader of the Board, the IBC is expected to take the lead in connection with the Board’s self-assessment process and the follow-through necessary to improve the Board’s overall oversight of the Company. Moreover, the IBC will assume a leadership role in CEO succession planning.

Executive Sessions

The Company’s non-employee directors meet in regularly scheduled executive sessions, both with the CEO and also without any members of management present. The purpose of these executive sessions is to promote open and candid discussion between the Board and the CEO and separately among the non-employee directors of the Board. The Board believes this approach effectively complements the Company’s Board leadership structure. The non-employee directors met six times in executive session in 2018 without management present, and the independent directors met twice in executive session in 2018. As provided by the Guidelines, the IBC presided at these executive sessions.

Risk Oversight

The Board recognizes that an important part of its responsibilities is to evaluate the Company’s exposure to risk and to monitor the steps management has taken to assess and control risk. The Board primarily oversees risks through committees of the Board, particularly through the Risk Oversight Committee and the Audit Committee, as discussed in the descriptions of the committees below. The committees report to the Board and matters of particular importance or concern, including any significant areas of risk faced by the Company, are discussed by the entire Board. In addition, the Board meets with the Company’s regional presidents on a rotating basis to review risk exposure with respect to the Company’s strategic plans and objectives in order to improve long-term organizational performance.

General Board Responsibilities

The Board has the ultimate authority for overseeing the management of the Company’s business. The Board also identifies and evaluates candidates for, and ultimately appoints the Company’s officers, delegates responsibilities for the conduct of the Company’s operations to those officers, and monitors their and the Company’s performance. Certain important functions of the Board are performed by committees comprised of members of the Board, as provided below.

Board Independence

The vast majority of the members of the Board are “independent” in accordance with the New York Stock Exchange listing standards. The Board has affirmatively determined that each of the following directors is an independent director of the Company under the listing standards of the New York Stock Exchange: Gordon J. Hardie, Peter S. Hellman, John Humphrey, Anastasia D. Kelly, Alan J. Murray, Hari N. Nair, Hugh H. Roberts, Joseph D. Rupp, Carol A. Williams and

Dennis K. Williams. The Board has also affirmatively determined that the director nominee, John H. Walker, is independent. In making this determination, the Board has determined that none of these directors or nominees have any material relationships with the Company other than their roles as directors.

Board Member Stock Ownership

The Board has established stock ownership guidelines for its members. Each member of the Board is required to own shares of the Company’s Common Stock having a value equal to five times the director’s annual cash retainer. New directors have four years from the date of joining the Board to attain the required stock ownership. Until the stock ownership guidelines are met, directors are required to retain 100% of the “net profit shares” acquired from grants of restricted stock or exercises of stock options. Net profit shares are those shares remaining after payment of tax obligations.

Board Size

The Board currently consists of 12 members. Under the Company’s Third Restated Certificate of Incorporation, the maximum size of the Board is 12 members.

Board Meeting Attendance

In 2018, the full Board met 11 times. All of the incumbent members of the Board attended more than 75% or more of the aggregate number of meetings of the Board and of committees of the Board of which such director was a member. Attendance at Board and committee meetings during 2018 averaged over 95% for directors as a group.

The Company does not have a policy with regard to Board members’ attendance at Annual Meetings, although members of the Board are encouraged to attend. All members of the then-current Board attended the 2018 Annual Meeting.

Corporate Governance Guidelines

A copy of the Company’s Corporate Governance Guidelines is available on the “Investors” section of the Company’s website (www.o-i.com). A copy is also available in print to share owners upon request, addressed to the “Corporate Secretary” at Owens-Illinois, Inc., One Michael Owens Way, Perrysburg, Ohio 43551‑2999. The address of the Company’s website provided above or elsewhere in the Proxy Statement is not intended to function as a hyperlink, and the contents of the Company’s website are neither a part of this Proxy Statement nor incorporated by reference.

Board Nominees

The Nominating/Corporate Governance Committee is responsible for identifying individuals qualified to become members of the Board and recommending that the Board select the candidates for all directorships to be filled by the Board or by the share owners. The Nominating/Corporate Governance Committee is governed in this regard by its Policies and Procedures Regarding the Identification and Evaluation of Candidates for Director (the “Policies and Procedures”), copies of which are available on the “Investors” section of the Company’s website (www.o-i.com) and in print, free of charge, to share owners upon request to the “Corporate Secretary” at Owens-Illinois, Inc., One Michael Owens Way, Perrysburg, Ohio 43551‑2999.

Pursuant to the Policies and Procedures, candidates for the Board must demonstrate strong leadership in their particular field, and have broad business experience and the ability to exercise sound business judgment. In addition, candidates must possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the share owners. Candidates must also be willing to devote sufficient time to carry out their duties and responsibilities effectively, and be committed to serve on the Board for an extended period of time.

The Policies and Procedures require the Nominating/Corporate Governance Committee to consider the contributions that a candidate can be expected to make to the collective functioning of the Board based on the totality of the candidate’s background, skills, experience and expertise and the composition of the Board at the time. The Policies and Procedures also state the Nominating/Corporate Governance Committee’s belief that diversity is an important attribute of a well-functioning Board and the Policies and Procedures, the Guidelines and the Nominating/Corporate Governance Committee’s Charter each require the Nominating/Corporate Governance Committee to take into consideration the benefits of having Board members who reflect a diversity of age, gender, ethnicity and country of citizenship.

The Company maintains a skills matrix, and actively monitors the skills, experience and expertise of all its individual directors with an eye towards ensuring that the Board is balanced with respect to key skill sets. Given that the Company

is a large global public manufacturing company, many of the Board’s directors have skills and experience relating to similar organizations. The Board also has strong skills, experience and expertise in other areas, including finance and capital allocation, mergers and acquisitions, strategic planning and corporate governance. The Nominating/Corporate Governance Committee considers the skills, experience and expertise of Board members expected to retire or leave the Board in the near future when it identifies candidates for Board membership. The Nominating/Corporate Governance Committee also considers in its nomination processes the recommendations of current Board members regarding particular skills that could improve the ability of the Board to carry out its responsibilities.

Director Experience and Skills

The following chart represents the diverse range of experience and skills offered by the 12 nominees for director.

The Nominating/Corporate Governance Committee will consider potential candidates for director who have been recommended by the Company’s directors, the CEO, other members of senior management and share owners. Outside consultants may also be employed to help identify potential candidates. Mr. Walker was recommended to the Nominating/Corporate Governance Committee as a director candidate by a third-party search firm engaged by the Company under the direction of the Nominating/Corporate Governance Committee to assist in identifying potential director candidates. Pursuant to its Policies and Procedures, the Nominating/Corporate Governance Committee conducts all necessary and appropriate inquiries into the backgrounds and qualifications of possible candidates and considers questions of independence and possible conflicts of interest. Members of the Nominating/Corporate Governance Committee discuss and evaluate possible candidates in detail, and determine which individuals to consider in more depth. Once a candidate is identified whom the Nominating/Corporate Governance Committee wants to move toward nomination, one or more members of the Nominating/Corporate Governance Committee will enter into discussions with the candidate. The procedures for the nomination of director candidates by share owners are described under the heading “2020 Annual Meeting of Share Owners.”

The performance of incumbent members of the Board is evaluated annually by the Nominating/Corporate Governance Committee. Incumbent directors who continue to satisfy the Nominating/Corporate Governance Committee’s criteria for Board membership and whom the Nominating/Corporate Governance Committee believes continue to make important contributions to the Board generally will be renominated by the Board at the end of their term.

Code of Business Conduct and Ethics

The Company has a Global Code of Business Conduct and Ethics (the “Code”) that is applicable to all directors, officers and employees of the Company, including the Chief Executive Officer and Chief Financial Officer. The Code is available on the “Investors” section of the Company’s website (www.o-i.com) and in print, free of charge, to share owners upon

request, addressed to the “Corporate Secretary” at Owens-Illinois, Inc., One Michael Owens Way, Perrysburg, Ohio 43551‑2999.

Communicating with the Board

Share owners and other interested parties may contact any member (or all members) of the Board (including, without limitation, the non-employee directors as a group), the IBC, any Board committee or any Chair of any such committee. To communicate with the Board, the IBC, any individual directors or any group or committee of directors, correspondence should be addressed to the “Board of Directors”, the “IBC” or any such individual directors or group or committee of directors by either name or title. All such correspondence should be addressed to the “Corporate Secretary” at Owens-Illinois, Inc., One Michael Owens Way, Perrysburg, Ohio 43551‑2999. All communications so received will be opened by the Corporate Secretary for the sole purpose of determining whether the contents represent a message to the directors. Any contents that are not in the nature of advertising, promotions of a product or service or patently offensive material will be forwarded promptly to the addressees. In the case of communications to the Board, the IBC or any group or committee of directors, the Corporate Secretary will distribute the contents to each director who is a member of the group or committee to which the contents are addressed.

 

 

BOARD AND COMMITTEE MEMBERSHIP

There are four standing committees of the Board: the Audit Committee, the Compensation and Talent Development Committee, the Nominating/Corporate Governance Committee and the Risk Oversight Committee. Subject to applicable provisions of the Company’s By-Laws and Corporate Governance Guidelines, the Board appoints the members of each committee and rotates members periodically consistent with the experience and expertise of individual directors.

Current Committee Membership

Directors currently serving on committees of the Board and the number of meetings held in 2018 by the committees are identified below.

Audit Committee

The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee represents and assists the Board with the oversight of: (a) the integrity of the Company’s financial statements and internal controls; (b) the Company’s compliance with legal and regulatory requirements; (c) the independent registered public accounting firm’s qualifications and independence; and (d) the performance of the Company’s internal audit function and of the independent registered public accounting firm. The Audit Committee operates under a written charter adopted by the Board that sets forth the specific responsibilities of the Audit Committee. A copy of the Audit Committee Charter is available on the “Investors” section of the Company’s website (www.o-i.com) and in print, free of charge, to any share owner upon request addressed to the “Corporate Secretary” at Owens-Illinois, Inc., One Michael Owens Way, Perrysburg, Ohio 43551‑2999.

All members of the Audit Committee meet the audit committee independence requirements of the New York Stock Exchange and also satisfy the independence standards applicable to audit committees pursuant to Rule 10A‑3(b)(i) under the Exchange Act. The Board has determined that Mr. Murray, the Chair of the Audit Committee,  and Messrs. Hellman and Humphrey are each qualified as an “audit committee financial expert” within the meaning of Securities and Exchange Commission (“SEC”) regulations and that all of the Audit Committee members meet the financial literacy requirements of the New York Stock Exchange. No member of the Audit Committee serves on the audit committee of more than three public companies.

Compensation and Talent Development Committee

The Compensation and Talent Development Committee assists the Board with respect to compensation of the Company’s directors, officers and employees. In carrying out such responsibilities, the Compensation and Talent Development Committee administers the Amended and Restated 1997 Equity Participation Plan, the Second Amended and Restated 2005 Incentive Award Plan, the 2017 Incentive Award Plan, the Company’s annual bonus plans and certain other benefit plans of the Company and makes recommendations to the Board with respect to the compensation to be paid and benefits to be provided to directors, officers and employees of the Company. The Compensation and Talent Development Committee also oversees and reviews management succession planning and development for key executive positions other than the CEO, including ensuring the availability of qualified replacements and planning for contingencies such as the departure, death or disability of key executives so that the Company has in place an emergency succession plan that addresses both interim and longer-term leadership for the Company. The Compensation and Talent Development Committee makes recommendations to the Board with respect to the adequacy of the succession and development plans for key executive officer positions other than the CEO.

The Compensation and Talent Development Committee operates under a written charter adopted by the Board that sets forth the specific responsibilities of the Compensation and Talent Development Committee. A copy of the Compensation and Talent Development Committee Charter is available on the “Investors” section of the Company’s website (www.o‑i.com) and in print, free of charge, to any share owner upon request addressed to the “Corporate Secretary” at Owens-Illinois, Inc., One Michael Owens Way, Perrysburg, Ohio 43551‑2999.

Each member of the Compensation and Talent Development Committee is an “independent director” under the New York Stock Exchange listing standards.

Nominating/Corporate Governance Committee

The Nominating/Corporate Governance Committee assists the Board by (a) identifying and evaluating individuals qualified to become directors; (b) selecting, or recommending that the Board select, the candidates for all directorships to be filled by the Board or by the share owners; (c) developing and recommending to the Board a set of corporate governance principles contained in the Company’s Corporate Governance Guidelines and Global Code of Business Conduct and Ethics; (d) overseeing the evaluation of the Board and management of the Company; (e) taking a leadership role in shaping the corporate governance of the Company; (f) overseeing CEO succession planning and development; and (g) overseeing the Company’s Ethics and Compliance function, in conjunction with other committees requested to address issues arising in this area.

The Nominating/Corporate Governance Committee operates under a written charter adopted by the Board that sets forth the specific responsibilities of the Nominating/Corporate Governance Committee. A copy of the Nominating/Corporate Governance Committee Charter is available on the “Investors” section of the Company’s website (www.o-i.com) and in print, free of charge, to share owners upon request, addressed to the “Corporate Secretary” at Owens-Illinois, Inc., One Michael Owens Way, Perrysburg, Ohio 43551‑2999.

Each member of the Nominating/Corporate Governance Committee is an “independent director” under the New York Stock Exchange listing standards.

The Nominating/Corporate Governance Committee will accept recommendations from share owners for nominees for the Board. The procedures for submitting share owner recommendations are described under the heading “2020 Annual Meeting of Share Owners.”

Risk Oversight Committee

The Risk Oversight Committee assists the Board in fulfilling its oversight responsibilities with respect to the Company’s risk management processes. The Risk Oversight Committee: (a) provides oversight of management’s policies and activities relating to the identification, evaluation, management and monitoring of the Company’s significant enterprise risks, including the major strategic, operational, financial, regulatory, compliance, cyber security, reporting, reputational, governance and human resources and labor risks inherent in the business of the Company (the “Enterprise Risks”); (b) oversees compliance with legal and regulatory requirements with respect to the conduct of the Company’s business, except for those specific compliance matters under the jurisdiction of other Committees of the Board, as determined by the Board; and (c) reports to the Board regarding the Enterprise Risks that have the potential to significantly impact the Company’s ability to execute its strategic priorities and achieve its performance goals.

The Risk Oversight Committee operates under a written charter adopted by the Board that sets forth the specific responsibilities of the Risk Oversight Committee. A copy of the Risk Oversight Committee Charter is available on the “Investors” section of the Company’s website (www.o-i.com) and in print, free of charge, to share owners upon request to the “Corporate Secretary” at Owens-Illinois, Inc., One Michael Owens Way, Perrysburg, Ohio 43551‑2999.

Under the terms of the Risk Oversight Committee Charter, the Risk Oversight Committee (a) reviews and submits for Board approval the Company’s Risk Management Philosophy, Risk Management Policy and Statement of Risk Appetite, as developed by management; (b) reviews management’s processes designed to identify, assess, manage, monitor and report the Company’s significant Enterprise Risks; (c) reviews, monitors and discusses with management the Company’s significant Enterprise Risks and opportunities including steps management is taking to assess and manage such risks and opportunities; (d) reviews the Company’s disclosure of Enterprise Risks in all filings with the SEC (including the Annual Report on Form 10-K); and (e) together with the Audit Committee, reviews, assesses and discusses with the general counsel, the Chief Financial Officer and the independent registered public accounting firm (i) any significant risks or exposures; (ii) the steps management has taken to minimize such risks or exposures; and (iii) the Company’s underlying policies with respect to risk assessment and risk management.

 

DIRECTOR COMPENSATION AND OTHER INFORMATION

Director Compensation

Prior to 2019, each non-employee director of the Company received an annual retainer of $67,500, paid quarterly. Effective January 1, 2019, the Board approved an increase in the amount of the annual retainer each non-employee director of the Company receives to $72,500. Each non-employee director also receives $2,000 for each Board meeting in which such director participates and for each committee meeting in which such director participates as a member (including as Chair).

The Independent Board Chair receives an annual retainer of $150,000. Prior to 2019, committee chairs received additional annual retainers as follows:

Effective January 1, 2019, the amount of the annual retainer each committee chair receives was increased to:

Each non-employee director also receives on the date immediately following the date of the Company’s annual meeting of share owners at which directors are elected (“Date of Grant”), a grant of restricted stock units (“RSUs”) with respect to a number of shares of Common Stock having a fair market value on the Date of Grant equal to $120,000, rounded up or down to nearest whole share of Common Stock, pursuant to the terms of the applicable Company equity incentive plan. The Board approved the increase of the annual equity award from $120,000 to $125,000 effective in 2019.

In October 2018, the Company’s outside executive compensation consultant reviewed the competiveness of the current compensation programs and found them to be below the market median in the value of its equity awards, annual retainer and annual committee chair retainer. Therefore, the Board approved the increases noted above.

The RSUs vest in full on the date of the Company’s next annual meeting of share owners at which directors are elected following the Date of Grant (“Normal Vesting Date”) or earlier upon a director’s termination of service due to death, disability or retirement (after reaching age 60). In addition, upon termination of service for reasons other than death, disability, retirement or removal for cause, the RSUs will vest pro rata on a daily basis based on the number of days of service from the Date of Grant to the Normal Vesting Date.  All RSUs are immediately forfeited upon a non-employee director’s removal for cause. All RSUs will fully vest upon a change in control. Vested RSUs are paid in shares of Common Stock, on a one for one basis, within 30-days after the Normal Vesting Date, or if earlier, termination of service.

In the event a new non-employee director joins the Board on any date other than the date of the annual meeting of share owners, in addition to the RSU grant described in the previous paragraph, such new non-employee director will also receive on the date immediately following the first annual meeting of share owners at which directors are elected during such director’s tenure on the Board an additional grant of RSUs with respect to a number of shares of Common Stock having a fair market value on the date of such grant equal to a pro rata allocation of the dollar amount of the prior year’s RSU grant based on the number of days of service in the period from the commencement of such director’s service on the Board to the date of such grant, rounded up or down to the nearest whole share of Common Stock.

The Deferred Compensation Plan for Directors of Owens-Illinois, Inc. provides an opportunity for non-employee directors to defer payment of their directors’ fees. Under the plan, a non-employee director may defer receipt of all or any portion of the cash portion of the compensation described above. Deferrals may be credited into a cash account or into a Company stock unit account. Funds held in a cash account accrue interest at a rate equal from time to time to the average annual yield on domestic corporate bonds of Moody’s A-rated companies, plus one percent. Distributions from the plan are made in cash.

Each director is reimbursed for expenses associated with meetings of the Board or its committees.

The total compensation earned by non-employee directors in 2018 is reflected in the following table:

DIRECTOR COMPENSATION IN 2018

Related Person Transactions

Pursuant to written policies and procedures set forth in the Company’s Corporate Governance Guidelines, the Company reviews relationships and transactions in which the Company and its directors and executive officers, or their immediate family members, are participants. The Board has delegated initial review of such transactions to the Nominating/Corporate Governance Committee. The Company’s Corporate Governance Guidelines provide that the Nominating/Corporate Governance Committee will review and, if appropriate, recommend to the full Board the approval

or ratification of related party transactions. Pursuant to the Guidelines, the Nominating/Corporate Governance Committee takes into account the following factors: the related person’s connection to the Company and interest in the transaction, the approximate dollar value of the transaction, the importance of the transaction to the related person and the Company, whether the transaction would impair the judgment of the director or executive officer to act in the best interests of the Company, and any other appropriate information.

During 2018, the law firm of Williams & Jensen, PLLC, of which director McMackin is a principal, billed the Company approximately $833,000 for legal services in connection with various matters. Williams & Jensen, PLLC is an independently owned, Washington, D.C. law firm with particular expertise in the area of government affairs. Upon the review and recommendation of the Nominating/Corporate Governance Committee, the Board reviewed and approved the Company’s 2018 engagement of Williams & Jensen, PLLC at the billing levels indicated above.

Compensation and Talent Development Committee Interlocks and Insider Participation

During 2018, the following directors served on the Compensation and Talent Development Committee of the Board: Gary F. Colter, Peter S. Hellman, Hari N. Nair (Chair), Hugh H. Roberts, Joseph D. Rupp and Dennis K. Williams. No member of the Compensation and Talent Development Committee is a current or former officer or employee of the Company or has any relationship with the Company requiring disclosure under Item 404 or Item 407(e)(4)(iii) of Regulation S‑K. In addition, no executive officer of the Company served on any board of directors or compensation committee of any other board for which any of the Company’s directors served as an executive officer at any time during 2018.

 

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Summary

The Owens-Illinois Compensation and Talent Development Committee (“the Committee”) is committed to working with the Board of Directors and management to design compensation plans that motivate the Company’s executives and support business objectives that create share owner value. The Company’s compensation plans for 2018 follow the same framework used in 2017. The Committee believes that the 2017 structure remains appropriate, supports the Company’s business objectives and reflects share owners’ interests, as demonstrated by the overwhelmingly strong support (97% approval) from share owners for the Company’s advisory vote for Say on Pay received in 2017.

However, following a drop in share owner support for the Company’s advisory vote for Say on Pay in 2018 (78% approval), the Company engaged in extensive share owner outreach. While the outreach discussions indicated support for the pay program and identified no fundamental issues, the Committee made two important changes to the Company’s compensation plans for the 2019-2021 performance cycle to strengthen the program’s ties to performance in general and share owners’ interests in particular: 

The Foundation: The Strategic Plan for the Company

The strategic plan for the Company serves as the foundation for its pay program. Following a year when the Company continued to focus on stabilizing the business, the strategy concentrated on one team, one enterprise and one plan. The plan looks to expand the markets in which the Company competes by being recognized as the preferred glass supplier, as well as being the most cost-effective producer of glass. The Company is focusing its employees on understanding customer needs, managing costs of the total enterprise, improving flexibility, taking an integrated approach to problem solving, developing breakthrough innovation, and delivering on its commitments. The Company is doing this by emphasizing collaboration across the Company, leveraging its knowledge and expertise, increasing accountability, and aligning incentives with the right results. The Company believes successful execution along these lines will lead to enhanced value for share owners, customers, and employees.

Linking the Company’s Incentives to Its Plan and Share Owner Interests

For the 2018 Short-Term Incentive (“STI”) Plan, the Committee maintained the measures of Earnings Before Interest and Taxes (“EBIT”) (weighted at 80%) to continue management’s focus on profitability, the need to control costs and accountability for delivering financial results, and Free Cash Flow (“FCF”) (weighted at 20%) critical for managing the Company’s financial obligations, deleveraging its balance sheet, investing in its business, and returning value to share owners.  Further, the Committee continued to base the Global Leadership Team’s STI Awards on overall enterprise results, reinforcing the Company’s strategy of one team, one enterprise and one plan.

For the 2018 LTI Plan, the Committee continued its balanced approach to delivering LTI by awarding 50% of target value in the form of performance stock units and 50% in the form of time-based restricted stock units. The Committee also continued its approach for measuring long-term results associated with the performance stock units, wherein awards are based on the Company’s performance for a full three-year period as measured by cumulative Adjusted Net Earnings Per Share (“EPS”) and a three-year average Return on Invested Capital (“ROIC”), weighted equally, maintaining the program’s ties to delivering sustained, long-term financial results.

The Committee continued to set reasonably demanding incentive goals for both the STI and LTI plans consistent with the Board’s expectations of management and its commitments to share owners.  As shown below, our incentive structure is highly motivational and creates share owner alignment.

Incentive Plan Results: Reflect the Company’s Performance

These results were reflected in the rewards earned for 2018 under the Company’s incentive plans, which required management to meet challenging goals. When approving the STI payout, the Committee considered certain non-budgeted events, including a non-operational tax credit and non-recurring changes in working capital. Considering these factors, based on management’s recommendation, the Committee elected to apply its discretion and approve an 80% STI payout. Management and the Committee believe this payout result is aligned with the underlying operating performance of the Company for the year, while supporting management engagement and recognizing the actual achievement against the performance ranges. The Company’s actual performance against those goals supported a payout of 148.6% of target as FCF results exceeded our maximum performance objective which was partially offset by EBIT results that were between target and maximum goals.

The Company’s executives earned performance stock units for the 2016-2018 period at maximum levels (200% of target), based on strong EPS, ROIC, and revenue performances. The Committee felt that the payout reflected the Company performance for the period, as the Company achieved or exceeded key targets established during the 2016 Investor Day for the 2016-2018 period.  In addition, over the preceding three years, the Company increased EPS (as defined on page 33) by approximately 30%. These results were achieved despite significant headwinds, including the effect of unfavorable foreign exchange rates.  Overall, these results represented a significant improvement from the inconsistent financial performance achieved prior to the 2016-2018 performance cycle.

These payout levels and the associated stock price movement are consistent with a historical trend of being closely aligned with the returns earned by its investors relative to those of the S&P 500 or its pay benchmarking companies as more clearly seen in the realizable pay and performance analysis covered beginning on page 24.

No Problematic Pay Practices

The Committee regularly monitors the Company’s pay practices, which are consistent with good corporate governance and identified best practices.  The Committee has established a clawback or recovery policy covering cash and equity incentives. Double triggers have been established for receiving any benefits associated with a change-in-control. The stock ownership guidelines are consistent with those of other large companies and are reinforced by stock holding requirements. The Committee also prohibits executives from hedging and pledging their positions in Owens-Illinois stock, a policy which was strengthened in 2018.

2019 Say on Pay

The Company’s 2019 Say on Pay proposal is found on page 69. The proposal received 78% support from share owners in 2018, down from overwhelmingly strong support (97% in 2017) from share owners in past years. In response to this decline in support, the Company conducted a share owner outreach initiative, wherein it reached out to its top 20 share owners and met with those that expressed interest. While the outreach discussions indicated strong support for the pay program and identified no fundamental issues, the Committee made two important changes to the Company’s compensation plans for 2019 to strengthen the program’s ties to performance in general and share owners’ interests in particular:

In addition, the Board, at the recommendation of the Committee, amended its Insider Trading Policy in 2018 to prohibit the Company’s directors, executive officers and other covered personnel from purchasing company securities on margin, pledging company securities as collateral for a loan, and borrowing against any account in which company securities are held. Prior to this revision, company securities could be pledged with pre-clearance from the Company’s General Counsel and notice to the Committee. (None of our named executive officers (“NEOs”) or directors had actually pledged shares.)

As a result, the Committee believes the Company’s executive compensation program represents share owners’ interests in a responsible and reasonable fashion and warrants your support at this year’s Annual Meeting.

Compensation Principles

The Committee approves executive compensation programs that are designed to align executive pay with share owner interests and the annual and long‑term performance of the Company. The Company believes that its executive compensation program strikes the appropriate balance between using responsible, measured pay practices and providing rewards that effectively attract and retain executives while motivating them to create value for the share owners. Key elements of this pay strategy include:

Say on Pay Vote and Share Owner Outreach

The Committee continues to believe that, overall, the Company’s compensation programs are well aligned with both share owners’ interests and the competitive market, and are designed to reward overall Company and individual performance. Nonetheless, the Committee and management regularly review compensation programs to ensure such alignment continues and make changes as appropriate or necessary.

As the Company believes that an annual “Say on Pay” vote encourages beneficial dialogue on compensation and provides the most consistent and clear communication channel for share owner concerns about executive compensation, the Company will again hold an annual advisory vote in 2019 to approve executive compensation. The Committee will continue to consider the results from this year’s and future advisory votes on executive compensation. The Company continues to actively engage major share owners and proxy advisory firms, ISS and Glass Lewis, regarding executive pay and its alignment with share owner interests, as well as the preferred frequency in which to conduct the “Say on Pay” vote.

Compensation and Governance Practices

The Company’s executive compensation programs are designed to reflect appropriate governance practices aligned with the needs of the business. Below is a summary of compensation practices the Company has adopted to drive performance and to align with share owner interests, followed by a list of practices the Company does not subscribe to because the Company does not believe they would serve their share owners’ long‑term interests.

 

This Compensation Discussion and Analysis describes the material elements of the compensation of the Company’s NEOs, the objectives and principles underlying executive compensation programs, the Company’s recent compensation decisions, and the factors considered in making those decisions. The Company’s NEOs for 2018 were:

Assessment of Realizable Pay and Performance

The Committee annually compares the NEOs’ realizable pay and the Company’s performance to the pay and performance of comparator companies in order to assess the alignment of the Company’s pay and performance.

In assessing pay and performance, the Company’s independent compensation advisors, Pay Governance, analyzed the Company’s 2015-2017 realizable pay and performance relative to comparator companies. Unlike the results reported in the Summary Compensation Table reported on page 41, realizable pay looks at the pay an executive earned or could have earned for a period based on the actual financial performance against the Company’s incentive goals and the stock price performance that drove those results (December 31, 2017 stock price). The Committee believes realizable pay is a better gauge for assessing pay and performance than the data found in the Summary Compensation Table, as the Summary Compensation Table definition of total pay includes a mix of some elements that are actual pay, such as salary and annual incentives, and other elements that are accounting estimates of future potential pay, such as performance stock units, restricted stock units and options. Further, annual changes in the discount rate for pension calculations are not part of the pay decisions made by the Committee and may significantly distort pay reported in the Summary Compensation Table and how it relates to the Company’s performance.

In assessing realizable pay, the Committee reviewed the actual rewards earned by the CEO and CFO from 2015 to 2017: base salaries received by the executive, annual bonuses earned, vesting date value (as opposed to grant date or accounting value used in the Summary Compensation Table) of time‑based restricted awards granted during the period, any exercise gains realized on options granted during the period and the value of any long‑term performance awards made and earned in the three‑year period. In addition, realizable pay includes the value of any outstanding (unvested, unexercised or unearned) long‑term incentives awarded during the three‑year period based on the Company’s stock price as of December 31, 2017. The same approach is used to calculate the realizable pay of the CEOs and CFOs at comparator companies. This enables the Committee to compare the Company’s realizable pay levels with similar executives at comparator companies. As a result, realizable pay relies on information reported in comparator company proxies, the latest year for which pay is available being 2017.

In addition to assessing the Company’s realizable pay levels relative to comparator companies, the Committee also examined the Company’s annual and long‑term performance versus those companies. From a long‑term performance perspective, the analysis focused on TSR relative to those companies, which captures the principal goal of the Company’s long‑term incentive plans—creating value for investors. As shown in the following two exhibits, the Company’s pay program has produced realizable pay levels relative to peers that are directionally and reasonably aligned with the Company’s TSR performance relative to those companies.

From an annual or short‑term performance perspective, the Company’s performance across several perspectives of EBIT and cash flow performance (growth, percent of revenue and percent of invested capital) was evaluated relative to similar metrics for comparator companies for each year of the past five years. These results captured the key drivers of the Company’s STI program, which support the Company’s strategic objectives as well as its value creation efforts. The Company’s rankings relative to comparator companies across these annual performance metrics were compared to rankings of the cash compensation (salary + actual bonus) earned by the Company’s CEO and CFO during the period. As with the Company’s realizable pay and TSR comparisons, the Company’s annual cash compensation was appropriately aligned with its annual performance rankings relative to peers.  When considering financial performance for each of the past five years, the Company’s average peer ranking equaled the 40th percentile, comparable to the average cash compensation (salary & bonus) ranking of its CEO (44th percentile) and CFO (42nd percentile).

From these perspectives, the Company believes the pay program produced acceptable outcomes with officers’ relative pay levels aligned with its relative annual and long‑term performance levels, supportive of share owners’ interests.

Compensation Benchmarking

While realizable pay examines the alignment of the Company’s performance and the pay actually realized or realizable by those results, the Committee also annually reviews the competitiveness of the target pay opportunities provided to the Company’s senior leadership team (including the CEO and his key direct reports). This review encompasses all elements of target direct compensation: base salary, annual incentives and cash compensation (base salary + annual incentives), LTI and direct compensation (base salary + annual incentives + LTI). In addition, the review examines the mix of total pay (fixed to variable pay, short to long‑term compensation and cash to stock compensation) and LTI mix (stock awards versus options and service versus performance‑based awards). The objectives of this review are to ensure the opportunities associated with the Company’s program are aligned with its pay philosophy, which targets market median and also considers internal equity between senior leadership team members.

Market Data

In determining compensation levels for the senior leadership team, the Committee reviews competitive market remuneration data including:

     proxies of companies in the comparator group used to benchmark pay (shown below). Proxy data is only considered for the Company’s CEO and CFO; and

     surveys published by Aon Hewitt, Mercer and Willis Towers Watson, which provide data reflecting the incumbent’s functional responsibilities and the appropriate revenue scope (corporate or region) of their operating unit, are used to assess the target compensation for other senior leaders.

Comparator Group Companies

While there is no other company of comparable size to O-I that also focuses purely on glass container production, the group of comparator companies used to benchmark executive pay practices and pay levels for select officers is selected primarily from companies in the packaging and manufacturing sectors that resemble the Company in size, business profile, global presence, asset intensity, and other relevant factors. After a review of the comparator group companies in 2018, the Committee elected not to make any changes to the comparator group from that used in 2017.

Compensation Program Overview

Total Direct Compensation

Total direct compensation is the combination of base pay, annual incentive and long‑term incentives. Although the Company’s pay philosophy targets market median, while also considering internal equity, an NEO’s total direct compensation opportunity may be higher or lower than the market 50th percentile based on individual performance, experience, past leadership roles, potential future contributions and Company performance. In making compensation decisions, the Committee considers each of these factors and the NEO’s total direct compensation to ensure overall alignment with the Company’s compensation philosophy and principles.

It is the Company’s philosophy that a significant portion of the target compensation opportunity provided to the NEOs be “variable” or “at risk”—based on Company performance and/or the price of the Company’s stock. Based on compensation packages in effect on December 31, 2018, the CEO had 87% of his target total direct compensation “at risk” and the other NEOs had approximately 69% of their target total direct compensation “at risk.” The Company has no prescribed pay mix that drives compensation decisions. The resulting pay mix is based on the Company’s pay philosophy, market pay data used to establish individual executive’s compensation and internal equity pay considerations.

The Committee strives to achieve alignment between executive pay and performance by establishing and adhering to a fair and performance‑oriented rewards philosophy/strategy, setting appropriate performance objectives, and regularly testing the relationship between pay and performance.

Base Pay

The base pay program is designed to ensure the Company’s ability to attract and retain key executives. The Committee reviews NEO salaries and pay positioning at least once per year, and may adjust salaries based on several factors, including: current market conditions, Company performance, individual performance, previous experience, potential and the results of benchmarking against market data. Merit pay budgets are set annually based on external labor market trends, business performance, inflation and other pertinent factors. In 2018, the Company’s merit budget was 3% for the United States and 1% for Switzerland. After considering the factors listed above, the Committee approved a base pay increase of 5% for Mr. Lopez (to reduce but not eliminate the differences between his salary and the median of the peer group), 3% for Ms. Bertsch and Messrs. Alvarez and Webb and 8% for Mr. Torno (to bring his salary closer to the market median), all effective April 1, 2018. Mr. Galindo was not employed with the Company at the time of the merit increase.

Short-Term Incentive

The annual incentive is designed to promote the achievement of short‑term financial results and motivate individual performance.

Measures

The Committee annually reviews the performance measures for the STI each year to ensure they support the Company’s ongoing business strategies and reflect the needs of the business as well as drive share owner value. For the 2018 STI,  the Committee considered performance against the following measures to determine the awards under the 2017 Incentive Award Plan:

The Committee believes these measures improved the balance between accounting (EBIT) versus value-based metrics (FCF) and reward results within management’s control versus those outside their ability to influence. These metrics also aligned with the Company’s strategic objectives for 2018 and supported both short- and long-term share owner value creation based on discussions with its investors.  In addition, by rewarding the senior leadership team, including Regional Presidents, based on enterprise performance, the senior leadership team is encouraged to leverage one region of the Company to compensate for pressures in another region, for the good of the Company.

While the Company is affected by broader macroeconomic trends, including currency and interest rate shifts, by measuring results on a constant currency basis, management is squarely focused on select key value drivers and delivering steady—and improving—performance on those metrics. The Company bases its incentive programs and sets core operating goals on metrics the executive team can influence and thus create increased long-term share owner value. This design drives motivation and retention despite cost headwinds and other external challenges that may be out of the executive team’s control.

Each measure stands alone for payment, so results under one measure can result in payment (up to the established maximum for that metric) even if results under the other measure result in no award.

Determining Performance Targets and Measure Weights

The Committee reviews and approves the financial targets and measure weightings set for the metrics for each plan year after considering the overall Company budget (as approved by the Board of Directors), the state of the industry and other external economic factors for the Company overall. Performance is based on the Company’s absolute performance.

When setting the targets for the measures, the Committee considers the assessment prepared by its independent executive compensation consultant, Pay Governance, of the difficulty of its financial goals from various perspectives, including the Company’s historic payout results, as well as a comparison of proposed goals versus: previous goals, public guidance, analyst estimates for the Company and its peers, and historic performance of the Company and its peers. The assessment found the Company’s goals for 2018 to be challenging, overall.

2018 Performance Results

For 2018, the STI awards for the NEOs were determined by the financial results of the enterprise.

Based on the targets set and actual achievement against those targets, the Company’s performance would have resulted in a payout of 148.6% of target opportunities.  However, both the Committee and management believed those results were achieved, in part, because of certain non-budgeted events, including a non-operational tax credit and non-recurring changes in working capital.  Based on management’s recommendation, the Committee elected to apply its discretion under the STI plan to reduce the payout to 80% of target to reflect these non-budgeted events.  Management and the Committee believe this reduction results in a payout that is more aligned with the underlying operating performance of the Company for the year, while continuing to support management engagement and recognizing the actual achievement against the performance ranges.

The performance targets, results, and payouts for the enterprise are as follows (dollars in millions):

Measures:

Individual Award Determination

In determining individual payouts, the Committee considers the Company’s performance relative to the EBIT and FCF performance targets as well as the individual performance of each NEO.  Per the plan’s design, payouts based on the Company’s achievement of financial performance goals can be adjusted by +/-20% based on each NEO’s  performance against personal objectives. For the 2018 STI awards, the Committee, with input from the Board of Directors (also the CEO in the case of the other NEO’s), did not adjust any of the STI awards for the NEOs based on individual performance.

Individual Target Opportunities and 2018 STI Payouts

Target awards for each NEO are expressed as a percentage of annual earnings based on market competitiveness and considering the Company’s overall median pay philosophy. Achievement of threshold financial performance against the performance measures would imply funding of 30% of the target opportunity, while maximum performance would yield a payout of 200% of the target.

Target bonuses are sufficient to produce median cash compensation (salary + annual incentives) if earned, with maximum bonuses capable of producing top quartile pay if maximum performance goals are achieved. If no bonus is paid, pay for the Company’s NEOs would rank in the market’s bottom quartile on a cash compensation basis.

The individual target opportunities and payouts based on 2018 performance were as follows: