SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Filed by the Registrant  ☒

Filed by a party other than the Registrant  ☐

 

Check the appropriate box:

 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preformed Line Products Company

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

 

 

 

 

 

Dated:  March 29, 2019

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON TUESDAY, MAY 7, 2019:

This notice of annual meeting of shareholders, the accompanying proxy statement and the Company’s 2018 Annual Report to Shareholders are also available at: www.proxydocs.com/PLPC.

 

 

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Preformed Line Products Company

 

Our Board of Directors is sending you this proxy statement to ask for your vote as a Preformed Line Products Company shareholder on the matters to be voted on at the annual meeting of shareholders to be held at 660 Beta Drive, Mayfield Village, Ohio, 44143, on Tuesday, May 7, 2019, at 9:30 a.m., local time and at any adjournment of the meeting.  We are mailing this proxy statement and the accompanying notice and proxy to you on or about March 29, 2019.

Annual Report.  A copy of our Annual Report to Shareholders for the fiscal year ended December 31, 2018 is enclosed with this proxy statement.

Solicitation of Proxies.  Our Board of Directors is making this solicitation of proxies and the Company will pay the cost of the solicitation.  In addition to solicitation of proxies by mail, our employees may solicit proxies by telephone, facsimile or electronic mail.

Proxies; Revocation of Proxies; Voting Instructions.  If you are a shareholder of record, the shares represented by your signed and returned proxy will be voted in accordance with the instructions as indicated on your proxy.  In the absence of any such instructions, they will be voted to (a) elect the director nominees set forth under “Election of Directors”, and (b) ratify the appointment of Ernst & Young LLP (EY) as our independent registered accounting firm for the fiscal year ending December 31, 2019.  Your presence at the annual meeting of shareholders, without more, will not revoke your proxy.  However, you may revoke your proxy at any time before it has been exercised by signing and delivering a later-dated proxy or by giving notice to us in writing at our address indicated on the attached Notice of Annual Meeting of Shareholders by May 7, 2019, or in the open meeting.

If you hold shares through an account with a bank or broker, banks and brokers have the authority to vote shares for which their customers do not provide voting instructions on certain routine matters.  The ratification of the appointment of EY as the Company’s independent registered public accounting firm is considered a routine matter for which banks and brokers may vote without specific instructions from their customers, but banks and brokers do not have the authority to vote for the election of directors.  As such, if you own your shares through a bank or broker and do not provide specific voting instructions to the bank or broker or do not obtain a proxy to vote those shares, then your shares will not be voted on this matter (“broker non-votes”).

Voting Eligibility.  Only shareholders of record at the close of business on the record date, March 8, 2019, are entitled to receive notice of the annual meeting of shareholders and to vote the common shares that they held on the record date at the meeting.  On the record date, our voting securities outstanding consisted of 5,062,324 common shares, $2 par value, each of which is entitled to one vote at the meeting.

Quorum.  Shareholders, present in person or by proxy and entitled to vote at the meeting, holding shares entitling them to exercise a majority of the voting power of the Company are necessary to constitute a quorum at the meeting. Abstaining votes and broker non-votes will be counted as “present” for purposes of determining whether a quorum has been achieved at the meeting.

Voting Required.  The vote required to approve each proposal is as follows:  

If any other matter properly comes before the meeting, the persons named in the proxy will vote thereon in accordance with their judgment.  We do not know of any other matters that will be presented for action at the meeting and we have not received any timely notice that any of our shareholders intend to present a proposal at the meeting.  If any other matters are considered at the meeting, they would require for approval the affirmative vote of a majority of the shares entitled to vote and represented at the meeting in person or by proxy.

 

 

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The following table shows the amount of the Company’s common shares beneficially owned as of March 8, 2019 by (a) the Company’s directors, (b) each other person known by the Company to own beneficially 5% or more of the outstanding common shares, (c) the Company’s named executive officers (NEOs), and (d) the Company’s executive officers and directors as a group.  Except as noted below, the mailing address for each of the beneficial owners listed below is c/o Preformed Line Products Company, 660 Beta Drive, Mayfield Village, Ohio 44143.

 

 

 

 

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Code of Conduct

The Company believes that high ethical standards are conducive to long-term performance and, as such, all Board members, officers and employees are subject to the Company’s Code of Conduct, which is available on the Company’s website www.preformed.com in the “About Us” section.  The Company will disclose any waivers granted under the Code of Conduct that are required to be disclosed in such section of the website as well.

Board Leadership

The Company’s leadership begins with the Board, where the Company has one individual, Robert G. Ruhlman, who serves as both Principal Executive Officer (President and Chief Executive Officer) and Chairman of the Board.  Mr. Ruhlman’s dual responsibility is appropriate given the Company’s size and history.  Mr. Ruhlman has led the Company for the past 14 years as both CEO and Chairman.  As such, he has thorough, specialized knowledge regarding the strategic challenges and opportunities facing the Company.  Mr. Ruhlman is supported by independent directors who play pivotal roles.  The Board has no policy that requires the separation or combination of the CEO and Chairman roles and may reconsider the leadership structure from time to time.  Additionally, the Board does not have a lead independent director.  The Board believes that the Board’s role in risk oversight does not affect this leadership structure.

Board’s Role in Risk Oversight

The Company believes taking measured and informed risks is an important element of its strategy.  The Board maintains an active role in the Company’s risk oversight to identify and mitigate broader systematic risks.  All material transactions and decisions are presented to the Board, and the Board engages in active discussions, challenging management while using its experiences to improve the Company.  The Board has a depth of risk management experience, including one Board member with over 30 years of experience as an insurance broker.  The Board members frequently have discussions with members of management outside of the meetings and have the authority to call on experts where appropriate.  Additionally, in accordance with the Audit Committee Charter, the Audit Committee reviews and discusses with management and the Company’s independent auditor, the Company’s (i) significant exposures (whether financial, operating or otherwise), and (ii) risk assessment and risk management policies.  The Compensation Committee monitors the risks that may be created through the Company’s compensation programs.  The Audit Committee also has responsibility for oversight of cybersecurity risks.

Board Composition

In accordance with our Amended and Restated Code of Regulations, the number of directors has been fixed at eight.  The Board of Directors is classified into two classes composed of four members each, with both classes serving staggered two-year terms.  The next section sets forth an overview of each current Board member including a description of the particular experiences, qualifications, attributes and skills of the directors that led to the conclusion that each should serve as a director.  

 

 

 

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Four of the Company’s directors, Ms. Maegan A. R. Cross, Mr. Matthew D. Frymier, Mr. Richard R. Gascoigne and Mr. Robert G. Ruhlman, are serving terms that expire at this year’s annual meeting of shareholders and have been nominated by the Board of Directors upon the recommendation of a majority of the Company’s independent directors, for re-election at the meeting to a term which expires in 2021.  At the annual meeting of shareholders, the shares represented by proxies, unless otherwise specified, will be voted for these four nominees.

If for any reason any of the nominees are not a candidate when the election occurs (which is not expected), the Board of Directors expects that proxies will be voted for the election of a substitute nominee designated by the Board.  Four directors, Mr. Glenn Corlett, Mr. Michael Gibbons, Mr. R. Steven Kestner and Mr. J. Ryan Ruhlman, are currently serving terms that expire in 2020.  The following information is furnished with respect to each person nominated for election as a director and the directors continuing in office.

The Board recommends that you vote “FOR” the following nominees:

 

 

 

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The Board has determined that Messrs. Corlett, Frymier, Gibbons, Kestner and Gascoigne are independent under the NASDAQ’s corporate governance rules.  In the opinion of the Board, Mr. Kestner’s affiliation with Baker & Hostetler LLP, a law firm that regularly provides legal services to the Company, does not interfere with Mr. Kestner’s exercise of independent judgment in carrying out his duties as a director of the Company.

 

 

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Nominating Committee

The Board does not have a Nominating Committee nor any charter with respect to nominations.  However, pursuant to NASDAQ corporate governance rules, any Board nominees must be recommended for Board selection by a majority of the Company’s independent directors.  The independent directors are responsible for ensuring that the members of the Board of Directors possess a variety of knowledge, experience and capabilities derived from substantial business and professional experience, based on an assessment of numerous factors such as age and understanding of and experience in manufacturing, technology, finance and marketing.  The Board considers whether potential candidates will satisfy the independent standards for the Board, Audit Committee and Compensation Committee.  Additionally, nominees for the Board of Directors should be committed to enhancing long-term shareholder value and must possess a high level of personal and professional ethics, sound business judgment and integrity.  Finally, the Board welcomes nominees with diverse backgrounds, not only in gender and ethnicity, but also in particular experience such as banking, international business, government, and health care.  To this end, the independent directors rely on their networks of contacts to compile a list of potential candidates, and may also consider qualified candidates suggested by officers, employees, shareholders and others, using the same criteria to evaluate all candidates.  While the Board considers diversity in its evaluation of candidates, the Board does not have a policy specifically focused on the consideration of diversity.

The independent directors will also consider nominees for election to the Board from shareholders. To recommend a prospective nominee, submit the candidate’s name and qualifications to Caroline Vaccariello, General Counsel and Corporate Secretary, in writing to the following address: 660 Beta Drive, Mayfield Village, Ohio, 44143.

Audit Committee

The Board of Directors has appointed an Audit Committee, comprised of Messrs. Gibbons (chairman), Corlett, Frymier and Gascoigne, each of whom qualifies as independent for audit committee purposes under the NASDAQ rules.  The Board of Directors has determined that Michael E. Gibbons is an audit committee financial expert and that each member meets the requirements under the NASDAQ rules regarding the ability to read and understand financial statements.

The Audit Committee of the Board of Directors assists the Board of Directors in fulfilling its responsibility relating to corporate accounting, reporting practices of the Company, and the quality and integrity of the financial reports and other financial information provided by the Company to NASDAQ, the Securities and Exchange Commission or the public.  The Audit Committee also engages the independent registered public accountants for the Company, reviews with the independent registered public accountants the plans and results of audit engagements, preapproves all professional services provided by the independent registered public accountants including audit and non-audit-related services, reviews the independence of the independent registered public accountants, approves the range of audit and non-audit fees, reviews the independent registered public accountants’ management letters and management’s responses, reviews with management their conclusions about the effectiveness of the Company’s disclosure controls and procedures, and reviews significant accounting or reporting changes.  Management does not approve professional services provided by the independent public accountants for audit and non-audit-related services.  The Audit Committee is governed by a written charter, which is available on the Company’s website www.preformed.com.

Compensation Committee

The Board of Directors has appointed a Compensation Committee, comprised of Messrs. Corlett (chairman), Frymier, Gascoigne and Gibbons, each of whom qualifies as independent under the NASDAQ rules.  The Compensation Committee administers the Company’s executive compensation program and as such, is responsible for reviewing all aspects of the compensation program for the Company’s executive officers.  The Compensation Committee meets at scheduled times during the year – no less than twice – and has the authority to consider and take action by written consent.  The Compensation Committee Chairman reports on Compensation Committee actions and recommendations at the Company’s Board meetings.  In order to meet its responsibilities, the Compensation Committee has the authority to delegate certain of its responsibilities to subcommittees and/or officers where necessary and consistent with applicable law and to retain consultants.  The Compensation Committee is governed by a written charter, which is available on the Company’s website www.preformed.com.  See “Compensation Discussion and Analysis” for the role of the President and Chief Executive Officer in compensation matters.

 

 

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The Compensation Committee’s primary objective with respect to executive compensation is to establish programs that attract and retain key officers and managers and align their compensation with the Company’s overall business strategies, values, and performance.  To this end, the Compensation Committee has established, and the Board of Directors has endorsed, an executive compensation philosophy to compensate executive officers based on their responsibilities and the Company’s overall annual and long-term performance, which is outlined under “Directors and Executive Officers Compensation.”

Meetings

In 2018, the Board of Directors held five meetings.  In 2018, the Audit Committee held five meetings and the Compensation Committee held four meetings.  All of the directors attended at least 75% of the total of meetings held by the Board of Directors and all committees on which the director served.  The directors are expected to attend the Company’s annual meeting of shareholders.  All the directors except Mr. Matthew Frymier attended last year’s annual meeting of shareholders.

 

 

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In accordance with its charter, the Audit Committee assists the Board of Directors in fulfilling its responsibility relating to corporate accounting, reporting practices of the Company, and the quality and integrity of the financial reports and other financial information provided by the Company to NASDAQ, the Securities and Exchange Commission or the public.  Management is responsible for the financial statements and the reporting process, including the system of internal controls.  The independent registered public accountants are responsible for expressing an opinion on the conformity of the audited financial statements with generally accepted accounting principles.  The Audit Committee is comprised of four directors who are not officers or employees of the Company and are “independent” under the current NASDAQ rules.

In discharging its oversight responsibility as to the audit process, the Audit Committee reviewed and discussed the audited financial statements of the Company for the year ended December 31, 2018, with the Company’s management.  The Audit committee reviewed with the independent auditor, which is responsible for expressing an opinion on the conformity of those audited consolidated financial statements and related schedule with US generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Committee by the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), including PCAOB Auditing Standard No. 1301, Communications with Audit Committees, the rules of the Securities and Exchange Commission, and other applicable regulations.  In addition, the Committee has discussed with the independent auditor the firm’s independence from the Company management and the Company, including the matters in the letter from the firm required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, and considered the compatibility of non-audit services with the independent auditors’ independence.

Based on the above-referenced review and discussions with management and the independent auditors, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements and management’s assessment of effectiveness of the Company’s internal control over financial reporting be included in its Annual Report on Form 10-K for the year ended December 31, 2018, for filing with the Securities and Exchange Commission.

 

 

 

 

 

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The Company’s policies and overall actual compensation practices for all employees do not create risks that are reasonably likely to have a material adverse effect on the Company.  Generally speaking, the compensation policies are consistent for all business units of the Company.  Additionally, incentives are not designed to, and do not, create risks that are reasonably likely to have a material adverse effect on the Company as the incentives generally reward growth and profitability.  The Company’s various bonus programs are based on consistent growth of the Company, relying, for example, on the total return on investment, or including language that requires any increases in sales to be on appropriate and consistent margins.  As such, they do not encourage employees to take risks in order to receive incentive compensation, nor are they reasonably likely to have a material adverse effect on the Company.

 

 

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Compensation Discussion and Analysis

Role of the Compensation Committee

The Compensation Committee (the “Committee”) administers the Company’s executive compensation programs.  The Committee’s primary role is to oversee the Company’s compensation and benefit plans and policies for its elected executive officers, including the executive officers listed in the Summary Compensation Table below (“NEOs”) who are the Company’s principal executive officer (Robert G. Ruhlman, Chairman, President and Chief Executive Officer), principal financial officer (Michael A. Weisbarth, Vice President – Finance and Treasurer) and the three other most highly compensated executive officers.  The Committee reviews and approves all executive compensation decisions relating to the officers, including all NEOs.

In the performance of its duties, the Committee has the authority to allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to a committee formed for that purpose, subject to approval from the entire Board.  Additionally, the Committee may select and appoint outside consultants to assist it.

Philosophy of the Compensation Program

The philosophy of the Committee is to provide a compensation program that will attract, motivate and retain key members of the leadership team in order to give the Company a competitive advantage while ensuring the success and growth of the Company.  The compensation program should ensure that a significant portion of compensation will be directly related to the Company’s performance by tying annual cash bonus and long-term incentive awards to Company performance.  The compensation program is intended to motivate the officers to enable the Company to achieve its short-term and long-term business goals.  The Committee has three goals to guide it in this endeavor: (a) compensation paid to officers should be aligned with the performance of the Company on both a long- and short-term basis; (b) compensation should be competitive within the employment environment; and (c) compensation should be designed to reward officers for meeting performance targets.

Compensation Program

The Committee strives to craft a compensation program that pays the officers at competitive levels reflective of their individual responsibilities while maintaining consistency and pay equity among the individual officers.  The Committee conducts an annual review of the compensation program, as well as changes in the overall composition of the management team and the responsibilities of the individual officers, to ensure that the compensation is competitive within the market, supports retention objectives and is internally equitable.  Reliance upon various tools, and the findings from such tools, assists the Committee in its analysis, and leads to decisions regarding the mix of the various compensation elements to be included.  Additionally, the cost of the compensation program is considered, in recognition that the optimal compensation program motivates employees to improve Company results on a cost-effective basis.  Typically, the Committee finalizes compensation elements for a calendar year in December of the prior year.

Tools and Findings from Analysis.  The Committee relies upon tools to analyze the compensation program internally and within the competitive landscape.  Historically, these tools have been outside data compiled by various consultants, tally sheets detailing overall compensation packages for each individual officer and discussions with the CEO regarding performance levels and goals.  The Committee also considers the results of the most recent non-binding advisory “say on pay” vote of the Company’s shareholders on executive compensation.

Consultant.  The Committee has the authority to retain its own advisor.  For 2018, the Committee did not retain an advisor.

 

 

 

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External Data.  The Committee generally relies upon various independent surveys, which are matched to specific positions with similar functional descriptions as those for the officers.  The Committee reviews surveys primarily to gain perspective on how the Company’s executive compensation compares to other similarly-sized companies so that it can assess whether the Company’s pay levels are generally competitive and represent a reward for strong performance.  For 2018, the Committee utilized the Willis Towers Watson annual compensation level survey.  Using this independent survey, the Committee analyzed the compensation paid to officers, including the CEO, compared against the compensation paid to executives holding equivalent positions in the peer classification group, consisting of surveyed manufacturers of durable goods with employment levels of between 1,000 and 4,999 (the “Peer Group”).  The survey did not include any revenue limitations as using such limitations would have resulted in a peer group that was too small to be statistically relevant.  The Committee reviews base salary and total compensation at both the 50th and 75th percentile levels to highlight where the Company’s compensation is relative to peers for competitive purposes and takes into account the individual’s experience and performance and the Company’s results.  For 2018, the officers including the CEO were near the median when reviewing base salary alone.  The Committee reviews salaries on a bi-annual basis and decided that salary levels that are near the median were appropriate for 2018, given the sales and operating income levels achieved by the Company.

The Committee also reviews total cash compensation, which included salary and the maximum available bonus for the officers and compares that data with the Peer Group data.  The Committee does not engage in specific benchmarking when comparing total compensation because a significant portion is tied to the Company’s performance, which can cause a great variation relative to the amounts paid by comparable companies with different performance results.  As a result, the Committee considers the total compensation paid by other companies to ensure that the Company’s pay is competitive, and to assess whether its payout levels for strong performance represents an incentive to achieve such performance. For 2018, total compensation of the officers was found to align near the median depending on the actual payout to be achieved.

Discussions with the CEO.  The CEO performs a yearly evaluation of the performance of each officer.  The CEO’s assessment of the individual performance forms the basis for the proposed compensation levels of each officer (other than the CEO), in light of the information derived from the aforementioned survey.  The CEO provides a written evaluation for each officer (other than the CEO) that includes his recommendations for salary adjustments for the subsequent year to the Committee, which weighs these recommendations in determining salary levels.

Results of 2017 Say on Pay and Say on Frequency Votes.  The Proxy Statement filed by the Company in 2017 included a non-binding advisory “say on pay” vote on executive compensation and a non-binding advisory “say on frequency” vote to determine whether shareholders would be asked to cast a vote on executive compensation every year, every two years or every three years. Although these votes were non-binding, the Board of Directors and the Committee value the opinions of the shareholders and considers the outcome of these votes when making compensation decisions for the Company’s NEOs. The Company’s compensation program received an affirmative vote from over 61% of the Company’s common shares who voted at the 2017 annual meeting and the Board and the Committee will consider this perspective with respect to future executive compensation decisions.  The 2017 compensation amounts for NEOs were established in February 2017, prior to the Company’s annual meeting of shareholders on May 9, 2017, and the 2016 compensation amounts described in the proxy statement for the 2017 annual meeting addressed unusual market conditions.  In early 2017, as the Committee began to review the 2016 payout amounts, the Committee recognized that the management team had put forth an extraordinary effort given the difficult economic conditions surrounding the Company’s industry. Because the Company’s customers are primarily governments or governmental-regulated entities, the economic woes facing the majority of governments in the last few years forced most of the Company’s customers to curtail capital expenditures. As such, capital expenditures at public utilities around the world slowed precipitously. Due to these significant variations in market demand, the Committee exercised its discretion to award Company executives a greater bonus in 2017 with respect to 2016 performance at lower levels of return on shareholders’ equity in an effort to compensate them for achievements with respect to market share and volume-related expense management. Such compensation decisions are made on a case-by-case basis and seek to balance the objectives of rewarding short-term and long-term goals and retaining and motivating talented executives. At the 2017 annual meeting, shareholders also provided the most votes in favor of holding the say on pay vote every three years, so the Board has determined to continue with this frequency for such vote.

 

 

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Compensation Elements.  The Company recognizes that its success depends, in large part, on a leadership team with the skills and commitment necessary to successfully manage a global organization.  The compensation program assists in achieving this objective by relying on the elements of compensation detailed below.  Certain elements are designed to enable the Company to attract and retain the officers with the skills to anticipate and respond to the market, while other elements are intended to motivate the officers to achieve financial results to enhance shareholder value.  The Company’s 2018 compensation program for officers consisted of the following elements:

The Company structures the total compensation program so that its reliance on any particular element of compensation is flexible.  Thus, the compensation program strives to meet the goals outlined above, by balancing short-term (i.e., base salaries, annual cash incentive awards) and long-term incentives (i.e., long-term equity grants), competitively in the market and to address the volatility in the Company’s performance due to external factors.  There is no difference in the policies and their application for each of the officers, except for the CEO.

Base Salaries.  The Company’s goal is to establish salaries at a level sufficient to attract and retain talented executives.  This goal is based on the Company’s belief that it is important to maintain salary levels near a midpoint of comparable company executives to be competitive within the general market and the Peer Group.  The base salaries of the officers are reviewed bi-annually and were reviewed for 2018.  In each case, factors considered in establishing an officer’s salary level include a review of the individual’s performance initiated by the CEO, an accounting of the Company’s performance, the experience level for the position, the Peer Group executive compensation information derived from the independent compensation survey using companies in similar industries and with similar employee levels and internal equity.  For 2018, the Committee ratified the CEO’s recommendations for increases for the NEOs and also approved an increase for the CEO, primarily as a result of the Company’s annual performance and taking into account the factors above.

Annual Cash Incentive Awards.  The annual cash incentive award is designed to motivate and reward the officers for their contributions to the Company’s performance by making a significant portion of their total compensation variable and dependent upon the Company’s annual financial performance.  It is tied directly to the financial performance of the Company on a sliding scale of return on shareholders’ equity.  The Committee believes that compensating management by aligning compensation with shareholders’ return on their investment is an effective way to connect the achievement of performance goals and to encourage growth in the Company while rewarding officers for their contributions.  The calculation is based on the Company’s pre-tax return on equity and assessed over a range of 3% to 11%.  The implied target is 7% which assumes a linear, symmetrical bonus curve with one-half of the maximum bonus earned at the midpoint of the performance range.  From this calculation, the awards are determined based on a schedule that provides certain percentages to be applied to base salaries.  The Company’s pre-tax return on shareholders’ equity for 2018 was 12.6%, which resulted in a payout of 100% for the CEO and 85% for the other NEOs.  The maximum bonuses are 100% of salary for the CEO and 85% of salary for the other officers.

 

 

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Long-term Equity Grants.  The Committee has the discretion under the Company’s equity award plans to set the amounts and terms of any equity compensation and may vary the equity award program from year to year to address the Company’s then-current compensation objectives and strategic goals.  The Committee believes that the Company’s shareholders will be well served if a greater percentage of the long-term equity incentive program is related to achievement of the Company’s Board-approved strategic objectives.  To that end, the “balanced LTI program” consisting of service vested restricted share units (RSUs) and performance vested RSUs is a way to achieve its objectives.  Generally, performance-vesting aligns executive long-term incentive rewards more directly with shareholders’ interests since achieving strategic objectives is a better measure of managements’ performance than the volatility of the stock market.  Furthermore, the Committee believes that the shareholders are served well by decisions that further the Company’s long-term strategic plan.  The Committee also believes that the CEO’s long-term incentive should generally be 100% dependent on the achievement of the Company’s strategic objectives.  Nevertheless, the Committee believes that it is appropriate to include some service vested RSUs in the long-term incentive program of the other officers in order to encourage retention of key executives over the duration of a business cycle.  Additionally, upon vesting, it was mandated that the officers defer receipt of the shares received from the grants in 2009 through 2013 until, at the earliest, their retirement/termination date.  This policy was replaced by the ownership guidelines discussed below in 2014.

Long-term incentive grants made after 2016 are issued under the 2016 Incentive Plan (“2016 Plan”), which was approved by the Board and by the shareholders in 2016.  The CEO’s typical annual equity compensation awards are performance-based RSUs, vesting in three years based upon achieving performance standards approved at the time of the grant by the Company’s Board of Directors.  The typical annual equity compensation awards to the other participants are as follows:  two-thirds of the award is performance-based RSUs, vesting in three years based on achieving performance standards approved at the time of the grant by the Company’s Board of Directors, and one-third of the award is service-based RSUs, vesting three years after the date of the grant based solely on continued employment by the Company.  The Committee chose to emphasize performance over three years (rather than weigh performance and service equally), because it believes this approach aligns the Company’s performance with shareholders’ interests, while acknowledging the benefit from long-term service.

For the performance-based RSUs, the number of shares in which the participant becomes vested will depend upon the specific level of growth in pre-tax income and sales growth measured over a specified period (historically, either one-year or three-year performance period), with thresholds of 5%, 7% and 10% for pre-tax income growth, and 0%, 3%, and 5% for sales growth.  The threshold payout is at 25% of the maximum number of performance-based RSUs if both measures are achieved, the target is at 50% if both 7% growth in pre-tax income and 3% growth in sales are achieved, and the maximum is at 100% of the number of RSUs subject to the award if 10% growth in pre-tax income and 5% growth in sales are achieved at the end of the three-year period.  If only one of the two measures is achieved at any of these levels, the vesting percentage is weighted to provide for some additional vesting for achieving the higher measure.  Dividends declared on unvested RSUs are accrued as cash distributions payable upon vesting.

For the 2018 grants, the Committee once again analyzed the history of the RSU grants, and whether such grants effectively aligned the interests of the NEOs with the Company’s interests, taking into account industry data and input from officers regarding the Company’s markets, projections and costs.  The Committee’s intention is to incentivize management to grow the Company while maintaining profit margins.  Given the economic conditions and volatile Company performance over the past several years and the challenges in forecasting the external factors that drive the Company’s sales, the Committee uses a three-year base to measure growth during the performance period and set the performance metrics at the growth percentages discussed above.  The Committee recommended and the Board approved the grants in February 2018 to each of the officers including the CEO.

The CEO’s award is set at a number of RSUs equal to 100% of the CEO’s salary if target performance is achieved, with a maximum award equal to 200% of his salary if the maximum performance is achieved.  The awards to the other officers are as follows:  the award is set at a number of RSUs equal to that percentage of participant’s salary that is specified at the time of grant if target performance is achieved.  The maximum amount of the performance portion of the award is equal to two times the target award.  The amount of the service-vested award that can be earned is equal to the target award.  Each officer was granted the number of RSUs equal to the maximum level under the performance criteria.

 

 

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Retirement Benefits.  The Company believes that retirement benefits are an important component of total compensation.  The Company’s primary retirement benefit consists of the Company’s 401(k) and profit-sharing plan under which all eligible salaried U.S. employees of the Company, including officers, participate starting in their third year of employment.  The amount the Company provides to the profit-sharing plan is based on the recommendation of management, with the Board’s approval.  Typically, the Company’s contribution under this plan is approximately 15% of the then-current year’s cash compensation, which is consistent with the amount contributed for all full-time salaried U.S. employees of the Company, including the cash incentive award.  When calculating the Company’s contributions under the profit-sharing plan, the Company does not consider gains from prior awards.  Every aspect of this plan is the same for all salaried U.S. employees, including officers.  Thus, each salaried participant elects the investment options with the same options offered to all salaried employees and officers.  The plan does not involve any guaranteed minimum return or above-market returns; rather, the investment returns are dependent upon actual investment results.  To the extent an employee’s award exceeds the maximum allowable contribution permitted under existing tax laws, the excess is accrued for (but not funded) under a non-qualified Supplemental Executive Retirement Plan.  The returns under this Supplemental Executive Retirement Plan are also dependent upon actual investment results, as each participant is allowed to elect investment options for their liability balance.

Executive Perquisites.  Perquisites and other personal benefits do not comprise a significant aspect of the Company’s compensation program.  Although officers participate in the same benefit programs as the Company’s other employees, the Company provides a few additional benefits to its officers.  These benefits are designed to enable the officers to balance their personal, business and travel schedules.  In 2018, benefits include the Company’s payment of club dues for two of the NEOs as indicated in the accompanying Summary Compensation Table.  The Company also pays annual dues for Robert G. Ruhlman at a club located near the Company’s Rogers, Arkansas facility.  This benefit is also provided to five other non-officer employees, primarily for business entertainment purposes.  Except as described here, the Company aircraft is available to all of the employees, including the officers, for business-related travel only.  The CEO is permitted to use the Company’s aircraft for personal purposes, as shown on the Summary Compensation Table.  The Company also makes personal financial advice available to the CEO and tax advice available to all its officers.

Ownership Guidelines.  In 2009, the Board established a requirement that the NEOs defer receipt of all shares received upon vesting of RSUs until retirement or termination of employment.  Upon advice from Aon Hewitt during its 2013 engagement, the Committee determined that ownership guidelines would provide a more flexible way to ensure executives maintain sufficient ownership position in the Company.  In February 2014, the Committee recommended and the Board approved ownership guidelines to ensure that the NEOs have a stake in the future of the Company in lieu of the deferral requirement.  The ownership guidelines require the CEO to hold six times his annualized base salary in equity of the Company, and the other officers to hold three times their annualized base salaries.  The ownership guidelines state that the types of equity that count toward the ownership requirement are stock owned directly, stock owned in a Company-sponsored retirement plan, and the unvested portion of RSUs that are subject only to time-vesting.  Each covered executive will have up to five years from the effective date of the 2014 ownership guidelines or the date such person becomes a covered executive to meet the stock ownership requirement.

Tax Deductibility of Pay.  Section 162(m) of the Internal Revenue Code of 1986 places a limit of $1 million on the amount of eligible compensation that a company may deduct in any one year with respect to each of its NEOs.  All officers were below this threshold in 2018, except the CEO.  As a result of the Tax Cuts and Jobs Act enacted in December 2017, the performance-based compensation exception has been eliminated for taxable years beginning after December 31, 2017, which may result in lost tax deductions going forward.

 

 

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The Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis, and based on the review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

 

 

 

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Applicable SEC rules require that we provide a reasonable estimate of the ratio of the annual total compensation of our Chief Executive Officer to the median of the annual total compensation of our other employees. We determined our median employee based on taxable compensation (annualized in the case of full- and part-time employees who joined the Company during 2018) of each of our 2,649 employees (excluding the Chief Executive Officer) as of December 31, 2018.  The annual total compensation of our median employee (other than the Chief Executive Officer) for 2018 was $20,659. As disclosed in the Summary Compensation Table appearing on page 22, our Chief Executive Officer’s annual total compensation for 2018 was $4,266,967. Based on the foregoing, our estimate of the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all other employees was 206 to 1.  Over 70% of our employees work in our foreign subsidiaries, which traditionally have lower salaries.  Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies.

 

 

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The table below describes the compensation earned in the last three fiscal years for our NEOs.

 

 

 

 

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All of our employees, including NEOs, are employed at will and do not have employment, severance or change-in-control agreements.  However, each LTIP plan includes a change–in-control provision which provides that in the event of a Change in Control (as defined in the Plan) (a) any options outstanding which are not then exercisable and vested shall become fully exercisable and vested; and (b) unless otherwise provided in the award agreements, any restricted share units outstanding shall vest and entitle the holder to the maximum number of shares that may be earned under the award.  The award agreements for the RSUs provide that in the event of a Change in Control (a) all time-based RSUs outstanding shall fully vest and entitle the holder to the maximum number of shares that may be earned under the award and (b) all performance-based RSUs outstanding shall vest and entitle the holder to receive, at the end of the performance period applicable to the award (whether or not then still employed by the Company), the number of shares that are earned based on the achievement of the performance vesting conditions in effect for the duration of the award.  The following table shows the amount the Company’s NEOs would have received under the LTIP if a change in control had occurred on December 31, 2018, assuming that all performance conditions of performance-based RSUs were satisfied at the maximum level and that the shares earned were issued as of December 31, 2018.  The amounts are equal to the value of the shares that would have vested as of December 31, 2018 and, in the case of options, less the aggregate exercise price.

 

 

The following details typical compensation arrangements upon retirement, resignation, death, disability or other termination for other plans.

Profit-Sharing Plan

Upon termination of employment, the employee may receive vested contributions plus income earned on those contributions under the Company’s Profit-Sharing Plan.  Upon disability, the IRS allows withdrawals to be made if the employee became permanently disabled.  Upon death, the vested account balance of the employee will be paid to the designated beneficiaries.

Non-Qualified Supplemental Executive Retirement Plan (SERP)

Our Supplemental Executive Retirement Plan was established in 2014 to compensate employees whose benefits in the Profit-Sharing Plan were reduced due to IRS limitations on compensation.  In 2018, the Company opened an account with a third-party administrator, in which the participants are able to hypothetically invest their unfunded liability balances in various investment options, primarily mutual funds.  Upon termination of employment, retirement, death, or disability, the employee may receive vested contributions plus any gains or losses on those contributions, based on pre-elections made upon the opening of their accounts.  Alongside the liability accounts, there is a Company Owned Life Insurance (COLI) policy and a mutual fund investment account, in which the Company has investments shadowing those of the liabilities, in order to mitigate the risk associated with the unfunded liability.

 

 

 

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Each director who is not an employee of the Company received an annual retainer fee of $25,000.  Directors who are also employees are not paid a director’s fee.  Additionally, board members who serve on committees are also paid an annual retainer of $10,000 plus an award of 200 shares per committee per year, to be paid upon the completion of each calendar year, and chairpersons of each committee are paid an additional annual retainer of $10,000.

Under the Board Stock Ownership Plan, committee members are required to maintain ownership of the Company’s common shares with a minimum aggregate market value of three times the amount of the annual cash retainer  paid to a director for Board service (ignoring any additional retainer fees paid for service on Board committees) (the “Ownership Requirement”), and prohibits the sale of any common shares of Company stock owned by the committee member (except to pay the exercise price of stock options or tax liability generated as a result of equity grants) until such time as the Ownership Requirement is satisfied. Each committee member will have up to five years from the effective date of the Stock Ownership Plan (2014) or the date such person becomes a committee member to meet the ownership requirement.

 

 

 

 

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No director serving on the Compensation Committee during any part of 2018 was at any time either during or before 2018, an officer or employee of the Company or any of its subsidiaries. No interlocking relationship exists between the Board or Compensation Committee and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed during 2018.

 

 

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It is the policy of the Company that the Audit Committee approves all related party transactions. Additionally, the Company has a Code of Conduct that addresses the Company’s commitment to the honesty, integrity and ethical behavior of the Company’s directors, officers and employees.  The Code governs the actions and working relationships of the Company’s directors, officers and employees with current and potential customers, consumers, fellow employees, competitors, government and self-regulatory agencies, investors, the public, the media and anyone else with whom the Company has or may have contact.  Each director, officer and employee is instructed to inform the Board when confronted with a situation that may be perceived as a conflict of interest.  All related party transactions must be approved by the Audit Committee in advance.  The Audit Committee may engage outside parties to assist it in assessing the fairness and reasonableness of related party transactions.  Although the policies and procedures for related parties are not in writing, the results of actions taken by the Audit Committee are documented in formal minutes and are reported to the Board.

The following are the Transactions with the Company’s current or former officers and directors that have been approved by the Audit Committee and reported to the Board in 2018:

 

 

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The Board recommends that you vote “FOR” this proposal.

The Audit Committee has appointed Ernst & Young LLP (“EY”) as the Company’s independent registered public accounting firm for the year ending December 31, 2019.  For 2018, the Company engaged EY to serve as the Company’s independent registered public accounting firm for the year ended December 31, 2018, to audit the annual financial statements and to perform audit-related and tax services.  Representatives of EY are expected to be present at the annual meeting of shareholders, will have an opportunity to make a statement if they so desire, and will be available to respond to appropriate questions.

The Board of Directors seeks an indication from shareholders of their approval or disapproval of the Audit Committee’s appointment of EY as the Company’s independent registered public accounting firm for 2019.  The submission of this matter for approval by the shareholders is not legally required.  The Board believes that submission of this matter presents an opportunity for the shareholders to provide feedback to the Board on an important issue of corporate governance.  If the shareholders do not approve the appointment of EY, the appointment will be re-evaluated by the Audit Committee but will not require the Audit Committee to appoint a different accounting firm.  The Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interest of the Company and its shareholders.

 

 

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Independent Registered Public Accounting Firm

The Audit Committee of the Board of Directors appointed Ernst & Young LLP (EY) as the Company’s independent registered public accounting firm for the year ended December 31, 2018.

Audit Fees

The aggregate fees billed for professional services rendered by EY were $1,830,900 for the audit of the Company’s annual financial statements for the year ended December 31, 2018, the audit of internal controls over financial reporting as of December 31, 2018, EY’s review of the financial statements included in the Company’s Form 10-Q’s filed with the Securities and Exchange Commission for the first, second and third quarters of 2018 and statutory audits of various international subsidiaries.  The aggregate fees billed for professional services rendered by EY were $1,870,300 for the audit of the Company’s annual financial statements for the year ended December 31, 2017, the audit of internal controls over financial reporting as of December 31, 2017, EY’s review of the financial statements included in the Company’s Form 10-Q’s filed with the Securities and Exchange Commission for the first, second and third quarters of 2017 and statutory audits of various international subsidiaries.

Audit Related Fees

The incremental fees billed for professional services rendered by EY for audit-related services for the year ended December 31, 2018 and 2017 were $5,000 and $4,900, respectively. Fees for both 2018 and 2017 were for a research grant audit at the Company’s New Zealand subsidiary, and a royalty audit at the Company’s South African subsidiary.

Tax Fees

The incremental fees billed for professional services rendered by EY for tax-related services for the year ended December 31, 2018 and 2017 were $4,100 and $4,000, respectively.  Fees included for 2018 and 2017 were for tax consulting and transfer pricing analysis at the Company’s Mexican subsidiary.

All Other Fees

There were no incremental fees billed for professional services rendered by EY for all other services for the years ended December 31, 2018 and 2017.

 

 

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Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and owners of more than 10% of our common shares, to file with the Securities and Exchange Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of our common shares and other equity securities.  Executive officers, directors and owners of more than 10% of the common shares are required by SEC regulations to furnish the Company with copies of all forms they file pursuant to Section 16(a).

Based solely on a review of these reports and written representations from the executive officers and directors, the Company believes that there was compliance with all such filing requirements for the fiscal year ended December 31, 2018, other than (a) Mr. J. Cecil Curlee Jr.’s Form 4 reporting his disposition of 1,250 shares back to the company on August 7, 2018, was inadvertently filed late on August 10, 2018; (b) Mr. Dennis F. McKenna’s Form 4 reporting his disposition of 1,903 shares back to the company on August 7, 2018, was inadvertently filed late on August 10, 2018; (c) Mr. Michael E. Gibbons’ Form 4 reporting his deferral of 187 shares to a Rabbi Trust on September 26, 2018, pursuant to his election under the Company’s Directors Deferred Compensation Plan for shares in lieu of fees, was inadvertently filed late on October 4, 2018; (d) Mr. Steven R. Kestner’s Form 4 reporting his deferral of 85 shares to a Rabbi Trust on September 26, 2018, pursuant to his election under the Company’s Directors Deferred Compensation Plan for shares in lieu of fees, was inadvertently filed late on October 4, 2018; and (e) Mr. Matthew D. Frymier’s Form 4 reporting the disposition of 400 common shares pursuant to a divorce agreement on February 27, 2018, was filed late on February 22, 2019 due to an administrative oversight.

 

 

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Proposals of shareholders intended to be presented, pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”), at the 2020 annual meeting of shareholders must be received by the Company at 660 Beta Drive, Mayfield Village, Ohio 44143, on or before November 29, 2019, for inclusion in the proxy statement and form of proxy relating to the 2020 annual meeting of shareholders.  In order for a shareholder’s proposal outside of Rule 14a-8 under the Exchange Act including submissions for director nominees to be considered timely within the meaning of Rule 14a-4(c) of the Exchange Act, such proposal must have been received by the Company at the address listed in the immediately preceding sentence no earlier than January 8, 2020 and not later than February 7, 2020 and must comply with all provisions of our Amended and Restated Code of Regulations.

Communication with the Board of Directors

The Board of Directors of the Company believes that it is important for shareholders to have a process to send communications to the Board of Directors.  Accordingly, shareholders who wish to communicate with the Board of Directors or a particular director may do so by sending a letter to:

 

 

The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Shareholder-Board Communication” or “Shareholder-Director Communication.”  All such letters must identify the author as a shareholder and clearly state whether the intended recipients are all members of the Board of Directors or certain specified individual directors.  The Secretary and Mr. Gibbons, as applicable, will make copies of all such letters and circulate them to the appropriate director or directors.  The directors are not spokespeople for the Company and shareholders should not expect a response or reply to any communication.

Shareholders Sharing the Same Address

If you and other residents at your mailing address own common shares in street name, your broker or bank may have sent you a notice that your household will receive only one annual report and proxy statement unless contrary to your instructions. This practice is known as “householding,” and is designed to reduce our printing and postage costs. Upon written or oral request, we will promptly deliver a separate set of proxy materials to any beneficial owner at a shared address to which a single copy of any of those documents was delivered. To receive a separate set of proxy materials, you may write or call our Investor Relations Contact at PLP Investor Contacts, 660 Beta Drive, Mayfield Village, Ohio 44143, telephone (440) 461-5200.

Form 10-K

We will mail without charge, upon written request, a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, including the consolidated financial statements, schedules and list of exhibits, and any particular exhibit specifically requested.  Requests should be sent to our Investor Relations Contact at PLP Investor Contacts, 660 Beta Drive. Mayfield Village, Ohio 44143, telephone (440) 461-5200. The Annual Report on Form 10-K is also available at www.preformed.com

 

 

 

 

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The undersigned hereby appoints Robert G. Ruhlman, Michael A. Weisbarth and Caroline S. Vaccariello, and each of them, attorneys and proxies of the undersigned, with full power of substitution, to attend the annual meeting of shareholders of Preformed Line Products Company to be held at 660 Beta Drive, Mayfield Village, Ohio, on Tuesday, May 7, 2019, at 9:30 a.m., local time, or any adjournment thereof, and to vote the number of common shares of Preformed Line Products Company which the undersigned would be entitled to vote, and with all the power the undersigned would possess if personally present as directed on the reverse.

 

 

 

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The Proxies will vote as specified below, or if a choice is not specified, they will vote FOR the nominees listed in Item 1 and FOR the proposal in Item 2.

INSTRUCTION:  To withhold authority to vote for any particular nominee, write that nominee’s name on the line provided below.______________________________________________________________________________________