KEI 2019 Proxy Project Combined Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A

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Exchange Act of 1934 (Amendment No.)
 
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Definitive Proxy Statement
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Soliciting Material Pursuant to §240.14a-12


 
KIMBALL ELECTRONICS, INC.
 
 
(Name of Registrant as Specified In Its Charter)
 
 
 
 
 
   
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 

    
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Notice of 2019 Annual Meeting

and Proxy Statement







Code of Conduct


The Kimball Electronics Code of Conduct demonstrates the high value we place on ethical standards related to the treatment of our people, the belief in and provision of safe and healthy working conditions, the treatment of our environment, and our overall business ethics.

The high standards set forth in our Code of Conduct guide us to make the right decisions enabling us to maintain our recognized standing as a good global citizen. At the core of our Code of Conduct are our Guiding Principles, which serve as our moral compass.

Kimball Electronics complies with laws and adheres to the highest standards in ALL of our locations around the world.

It’s simple: we do the right thing.


    Don Charron, Chairman of the Board / CEO




The Kimball Electronics Code of Conduct can be found on the Company’s website at:
http://www.kimballelectronics.com/code-of-conduct








CHAIRMAN’S OVERVIEW
Dear Share Owner:
Fiscal year 2019 was another record-breaking year. Here are some highlights:
Our Successes
Record - new high for net sales.
Sales Growth - double-digit increase for 4 of last 5 years.
Customer Loyalty - sales to customers that have been doing business with us for over 10 years increased from 61% to 78% of total consolidated net sales.
Service and Performance Excellence Recognition - CIRCUITS ASSEMBLY - one of best in industry for customer satisfaction.
Investments for Future Growth - deployed capital to support our new business awards, facility expansion, and new acquisition.
Strategy Execution - completed significant step in strategy to become a multifaceted manufacturing solutions provider with completion of acquisition of GES (Global Equipment Services).
Our Results
Net Sales - $1.2 billion, a 10% increase over fiscal year 2018.
Sales by market vertical:
Automotive - up 1%.
Medical - up 17%.
Industrial - up 18%.
Public Safety - up 8%.
Operating income margin of 3.6%.
Net income - $31.6 million.
Diluted earnings per share - $1.21.
Return on invested capital of 8.7%.
Capital expenditures - $25.8 million.
Share repurchases - $23.4 million.
Available liquidity at June 30, 2019 - $111 million.
Our People
We remain very active in the implementation of a new talent management framework that will help us further develop the talent we have and ensure that we have the vitality in our talent pipeline to successfully execute our strategic plans.
Our Culture
Living out these key Guiding Principles helps keep our global team aligned and focused on meeting and exceeding the expectations of all our stakeholders:
Our customer is our business.
Our people are the company.
The environment is our home.
Profits are the ultimate measure.
The commitment of our team is reflected in the high employee satisfaction scores from our surveys which measure how well we are living up to our Guiding Principles.
Our Future
Because of our total package of value that begins with our core competency and long history of manufacturing durable electronics, our Company is uniquely positioned and qualified to take full advantage of the strong secular growth opportunities in the Automotive, Medical, Industrial, and Public Safety end markets. We are making investments in automation, test, and inspection equipment capabilities that are increasing customer engagement to further develop ourselves as a multifaceted manufacturing solutions company.
We plan to publish our first Environmental, Social, and Governance (ESG) report by the end of this calendar year. Our employees around the world feel a strong sense of responsibility to protect the environment and to give back in meaningful ways to the communities where we live and work. Our Board has been active in the review and update of our Governance Principles. We hope that the report will provide you with insightful information and give you a greater appreciation for the goodness of our Company.

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For more detailed insights into the past year, I encourage you to read our Annual Report and Form 10-K, as well as follow us on our website at www.kimballelectronics.com.

 
 
I would also like to express my sincere appreciation and gratitude to two of our long-serving directors, Tina Vujovich and Tom Tischhauser, who will be retiring from our Board after years of dedicated service, not only to your company, but to our former parent, Kimball International. They will be sorely missed.

 
 
And I would like to extend a personal invitation for you to attend our annual meeting at our Kimball Electronics Headquarters, located at 1205 Kimball Blvd. in Jasper, Indiana, beginning at 9 a.m. EST on Thursday, November 7, 2019. I hope to see you there.
 
 
 
 
 
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Donald D. Charron
Chairman and Chief Executive Officer
Kimball Electronics, Inc.
 
 
 
 
 

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NOTICE OF ANNUAL MEETING OF SHARE OWNERS
KIMBALL ELECTRONICS, INC.
1205 Kimball Blvd.
Jasper, Indiana 47546
(812) 634-4000

To the Share Owners of Kimball Electronics, Inc.:
The annual meeting of the Share Owners of KIMBALL ELECTRONICS, INC., an Indiana corporation (the “Company”), will be held at the principal offices of the Company, 1205 Kimball Blvd., Jasper, Indiana, on Thursday, November 7, 2019, at 9:00 A.M., Eastern Standard Time (EST), for the following purposes:
1.
To elect two (2) directors of your Company (“Proposal 1”).
 
 
2.
To ratify the selection of the Company’s independent registered public accounting firm for fiscal year 2020 (“Proposal 2”).
 
 
3.
To approve, by a non-binding, advisory vote, the compensation paid to the Company’s Named Executive Officers (“Proposal 3”).
 
 
4.
To approve the Company’s 2014 Stock Option and Incentive Plan (“Proposal 4”).
 
 
5.
To approve the Company’s 2019 Profit Sharing Incentive Bonus Plan (“Proposal 5”).
 
 
6.
To approve the amendment of the Company’s Articles of Incorporation to provide for elimination of a supermajority voting requirement for the Articles of Incorporation amendment under certain circumstances. (“Proposal 6”).
 
 
7.
To approve the amendment of the Company’s Articles of Incorporation to provide for majority voting in uncontested director elections. (“Proposal 7”).
 
 
8.
To consider and transact such other business as may properly come before the meeting or any adjournments thereof.
By Order of the Board of Directors
John H. Kahle, Secretary
September 24, 2019
Annual Share Owners Meeting Information
DATE
November 7, 2019
TIME
9:00 a.m. EST
PLACE
Kimball Electronics, Inc. Headquarters
1205 Kimball Blvd.
Jasper, IN 47546
RECORD DATE
September 4, 2019
VOTING ELIGIBILITY
Registered Share Owners as of the Record Date are entitled to submit proxies or vote in person at the Annual Share Owners Meeting.



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Meeting Agenda Items
Proposal
Board Recommendation
Rationale
Proposal 1:
Elect two Directors for a three-year term:
• Holly A. Van Deursen
• Michele M. Holcomb, PhD
Vote FOR each of the candidates.
All are very qualified and capable directors and will serve the interests of our Share Owners well.
Proposal 2:
Ratify the selection of Deloitte & Touche
LLP as the Company’s Independent Registered Public Accounting Firm
Vote FOR ratification of the selection.
Deloitte & Touche is a major public accounting firm who is very well qualified to conduct an independent audit of your Company and has done so very capably for several years.
Proposal 3:
To approve, by a non-binding, advisory vote, the compensation paid to the Company’s Named Executive Officers
Vote FOR the advisory proposal
approving the compensation paid to
our Named Executive Officers.
The Company’s Named Executive Officers are qualified and capable executives with many years of industry experience and tenure with the Company. Their compensation has been benchmarked against relevant market data and is competitive. Market competitive compensation is critical to retain talented management for the Company.
Proposal 4:
To approve the Company’s 2014 Stock Option and Incentive Plan
Vote FOR approval of the Plan.
The Plan provides for several forms of incentive stock compensation which provides flexibility and competitive compensation to attract and retain talented executives and management personnel.
Proposal 5:
To approve the Company’s 2019 Profit Sharing Incentive Bonus Plan
Vote FOR approval of the Plan.
The Plan provides for incentive cash compensation based upon economic value added (profitability exceeding the cost of capital) which allows competitive compensation to attract and retain talented executives and management personnel.
Proposal 6:
To approve the amendment of the Company’s Articles of Incorporation to provide for elimination of a supermajority voting requirement for the Articles of Incorporation amendment under certain circumstances
Vote FOR approval of the Amendment.
The ability of Share Owners to have a more direct influence on the governance of the Company is in our Share Owners’ best interests.
Proposal 7:
To approve the amendment of the Company’s Articles of Incorporation to provide for majority voting in uncontested director elections
Vote FOR approval of the Amendment.
The ability of Share Owners to have a more direct influence on the governance of the Company is in our Share Owners’ best interests.

YOUR VOTE IS IMPORTANT!

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE PROMPTLY BY TELEPHONE OR THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE NOTICE OR THE PROXY CARD, OR IF YOU RECEIVED A PRINTED SET OF PROXY MATERIALS, YOU MAY VOTE BY SIGNING, DATING, AND MAILING THE ACCOMPANYING PROXY CARD. THE PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IF YOU ATTEND THE MEETING IN PERSON.

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TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS BY HOLDERS OF COMMON STOCK
The Board of Directors (the “Board”) is divided into three classes with approximately one-third of the directors up for election each year. The class of each director and the date of their election is noted in their qualification descriptions below. At the 2019 Annual Meeting of Share Owners, the Share Owners are to elect each of two (2) directors to serve a term of three years, or until their respective successors have been duly elected and qualified.
A director elected by the Board to fill a vacancy holds office until the end of the term for which such director’s predecessor was elected, or if the vacancy arises because of an increase in the size of the Board of Directors, at the end of the term specified at the time of such director’s election or selection, and until that director’s successor has been elected and qualified or until his or her earlier resignation, disqualification, disability, or removal.
Each nominee will begin service as a director of Kimball Electronics, Inc. (“we,” “us,” “our,” or the “Company”) if elected. Each nominee has consented to serve as a director. If for any reason any such nominee shall become unable or unwilling to serve, the proxies will be voted to fill any vacancy so arising in accordance with the discretionary authority of the persons named in the accompanying proxy. The Board has no reason to believe that any such nominee will be unable to serve.
The Class II nominees to be elected (serving a three-year term and then up for re-election in 2022):
Holly A. Van Deursen
Michele M. Holcomb, PhD
These nominees will be new directors on the Company’s Board, replacing retiring directors Christine M. Vujovich and Thomas J. Tischhauser.
Unique individual qualifications and skills of our nominees that led our Board to the conclusion that each should serve as a director are further described below and includes information each director has given us about his or her age, positions held, principal occupation, and business experience for the past five years, and the names of other publicly-held companies of which he or she currently serves (or during the past five years has served) as a director.
The nominees are:
 
Holly A. Van Deursen
Director
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Ms. Van Deursen currently serves as an independent director on public-company boards, Actuant Corporation (NYSE: ATU), Capstone Turbine Corporation (NASDAQ: CPST), Albemarle Corporation (NYSE: ALB) and Synthomer, plc (LON: SYNT). She joined BP Amoco in 1998, a $250 billion oil, gas and energy company operating in North America, Asia and Europe. She served in various senior executive management roles for BP, plc., retiring in 2005 as a member of the top-forty executive management team. Prior to 1989, she served in various engineering, manufacturing and product development roles for Dow Corning Corporation. Ms. Van Deursen received her Bachelor of Science degree in chemical engineering from the University of Kansas in 1981 and her MBA from the University of Michigan in 1989. Ms. Van Deursen’s experience in executive roles and as a public company director will provide the Board significant insights into board operations and governance, leadership, and international business.
New Director
Class II
 
 

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Michele M. Holcomb, PhD
Director
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Dr. Holcomb currently serves as Executive Vice President of Strategy and Corporate Development at Cardinal Health, a global integrated healthcare services and products company. She previously held positions as Chief Operating Officer of Global R&D and Senior Vice President of Strategy, Portfolio, Search and Partnerships at Teva Pharmaceuticals, a global manufacturer of generic medicines, and as a partner in the Global Pharmaceutical Practice at consulting firm McKinsey & Company. Dr. Holcomb received her Bachelor of Science degree in chemistry from Stanford University in 1989 and a Doctorate in Chemistry from the University of California at Berkeley in 1995. Dr. Holcomb’s experience and background will provide the Board with valuable insights in the areas of strategy, product development, and operations.
New Director
Class II
 
 
 
The Board of Directors recommends a vote “FOR” the election of each of the Class II director nominees.
 
Other Directors Not Standing for Re-election in 2019
 
Robert J. Phillippy
Director
 
 
 
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Mr. Phillippy is an independent consultant, following his retirement in 2016 from his position as President, Chief Executive Officer, and a Director of Newport Corporation, a publicly traded lasers, optics and photonics technology company with 15 manufacturing locations in 7 countries. He joined Newport in 1996 and served in various executive management roles prior to his appointment as Chief Executive Officer in 2007. Previously, he served for 12 years in various management roles for Square D Company, a division of Schneider Electric. He currently serves on the boards of directors of ESCO Technologies (NYSE: ESE) and Materion Corporation (NYSE: MTRN). Mr. Phillippy received a Bachelor of Science degree in electrical engineering from the University of Texas at Austin in 1983 and a Master of Science degree in management from Northwestern University in 1993. Mr. Phillippy’s experience as a chief executive officer of a publicly-traded technology and manufacturing company adds significant leadership, strategy, and operational experience to the Board.
Director since: 2018
Class III - re-election in 2020
 
 

 
Gregory A. Thaxton
Director
 
 
 
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Mr. Thaxton is Executive Vice President and Chief Financial Officer of Nordson Corporation (NASDAQ: NDSN), a $2.3 billion publicly traded industrial technology company focused on precision dispensing, fluid management, and related processes with operations in nearly forty countries. He has more than twenty-five years of experience serving in various domestic and international financial management and leadership roles with Nordson after beginning his career with a Big Four public accounting firm. Mr. Thaxton is a Certified Public Accountant (inactive). Mr. Thaxton received his Bachelor of Science degree in accounting from Miami University in 1983 and his MBA in international management from Baldwin Wallace University in 1995. Mr. Thaxton’s experience will add significant financial, accounting, capital structure, and SEC reporting expertise to the Board.

Director since: 2017
Class III - re-election in 2020
 


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Donald D. Charron
Chairman of The Board, Chief Executive Officer
 
 
 
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Mr. Charron serves as Kimball Electronics’ Chairman of the Board and Chief Executive Officer. He formerly served as an Executive Vice President of Kimball International, Inc. (“Kimball International” or “former Parent”), a member of the Board of Directors of Kimball International, and the President of Kimball Electronics Group. Mr. Charron had led the EMS segment of Kimball International since joining Kimball International in 1999. Prior to that, he spent six years with Rockwell International in various leadership roles. Mr. Charron earned a Bachelor of Science degree in electrical engineering from the South Dakota School of Mines and Technology in 1987. Mr. Charron’s extensive contract electronics industry experience prior to joining Kimball International, as well as his intimate knowledge of Kimball Electronics provides valuable operational, strategic, and global market insights.
Director since: 2014
Class I - re-election in 2021
 
 
 
Colleen C. Repplier
Director
 
 
 
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Director since: 2014
Class I - re-election in 2021

Ms. Repplier is a strong and respected leader in the industrial, energy and commercial building industries, with more than three decades of operational and P&L experience in diversified manufacturing companies.  Ms. Repplier began her career in the energy industry holding roles in engineering and marketing with Westinghouse Electric Company, construction design with Bechtel Corporation, and progressing roles in engineering, process improvement, product management, sales and general management at General Electric.  She also held senior leadership positions and was a company officer at Home Depot and HD Supply before joining Tyco in 2007.  At Tyco, she served as President of the Tyco Fire Protection business until the company was acquired by Johnson Controls. She retired from Johnson Controls (JCI) in her role as the Vice President and General Manager of a $4.5 billion global portfolio of HVAC product businesses with 20,000 employees in June 2018. Ms. Repplier received her Bachelor of Science degree in electrical engineering at the University of Pittsburgh. She later received her MBA from the University of Central Florida, where she also taught as an adjunct professor in the school of business. She is a certified Six Sigma Master Black Belt. In 2018, Ms. Repplier joined Stockholm-listed, bearing and seal manufacturing company, SKF as a director.  In November 2019 she will join Triumph Group (NYSE: TGI) as a director. Ms. Repplier’s engineering background and extensive experience in operations, supply chain management, and six-sigma methodologies will provide broad insights into operational planning and improvement opportunities.  



 
Gregory J. Lampert
Director
 
 
 
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Mr. Lampert has been President of Omni Cable Corporation, a distributor of specialty wire and cable, since February 2017. Prior to his executive position at Omni Cable Corporation, he was Chief Executive Officer of the Americas region of General Cable since January 2013 and held the same position for the North America region since 2008. Prior to that, he held various management positions at General Cable since joining the company in 1998. Prior to joining General Cable, he held engineering and commercial management positions with The Dow Chemical Company and Cintas Corporation. Mr. Lampert is a director of Omni Cable Corporation, as well as Xtek Corporation, a for-profit private company. Mr. Lampert has a Bachelor of Science degree in chemical engineering from the University of Cincinnati and his MBA from the University of Chicago with a concentration in Finance and Strategy. Mr. Lampert’s previous board experience and financial background as well as experience in managing sales organizations will provide broad insights into capital planning and sales operations.

Director since: 2014
Class I - re-election in 2021
 
COMMUNICATING WITH THE BOARD
Share Owners may communicate with a member of the Board by sending comments in care of the Secretary of the Company at 1205 Kimball Blvd., Jasper, Indiana 47546. The Secretary has the discretion to forward the correspondence to the director, or if circumstances dictate, to other departments within the Company to which such communication is more appropriately addressed. A log of correspondence received and copies of the correspondence are available to any director who wishes to review them.

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CORPORATE GOVERNANCE AT KIMBALL ELECTRONICS    
Director Qualifications
The rapidly changing business conditions and markets in which the Company operates require a high-performance and committed Board. Individual Board members should possess a broad variety of personal attributes, experience, and skills to give the Board the depth and breadth necessary to effectively oversee management on behalf of our Share Owners. Personal attributes include integrity, commitment to the Company’s Vision and Guiding Principles, practical judgment, broad complementary education, and willingness to commit the time and energy necessary to effectively contribute as a Board member. The matrix below illustrates the Board’s collective assessment of the major strengths, skills, and experience determined to be most critical to a well-balanced and effective Board, best able to understand the strategies and risks related to the Company’s operations:
DIRECTOR SKILLS AND EXPERIENCE
Director
Holly Van Deursen
Michele Holcomb
Bob Phillippy
Greg Lampert
Colleen Repplier
Greg Thaxton
Don Charron
Age
60
51
59
52
58
58
55
Independent Director
X
X
X
X
X
X
 
Committee:
AC - Audit, CGC - Compensation & Governance,
LID - Lead Independent Director
CGC
AC
AC
CGC Chair
CGC, LID
AC Chair
 
Strengths, Skills, and Experience
Public Company Experience
X
X
X
X
X
X
X
Active/Recently Retired Public Company CEO
 
 
X
 
 
 
X
Active/Recently Retired Public Company Executive
 
X
X
X
X
X
X
Electronics Industry or Related Experience
 
 
 
X
X
X
X
Medical Industry or Related Experience
 
X
 
 
 
X
X
Manufacturing Operations Experience
 
 
 
X
X
X
X
Cyber Security
X
 
 
 
X
X
 
International Business Experience
X
X
X
X
X
X
X
Mergers and Acquisition Experience
X
X
X
X
X
X
X
Strategy Development
X
X
X
X
X
X
X
Marketing Expertise
 
X
X
X
X
 
 
Supply Chain and Logistics Experience
X
 
 
X
X
 
X
Business Development/Growth
X
X
X
X
X
 
X
CFO Experience
 
 
 
 
 
X
 
Public Company Board Experience
X
 
X
X
X
X
X
Capital Structure (Finance/Banking) Expertise
X
 
X
 
 
X
 
Talent Development Experience
X
X
X
X
X
X
X
PR/Communication Experience
X
X
 
X
 
X
 
Government Relations Experience
X
X
X
 
 
 
 
Audit/Internal Control Experience
 
 
X
 
 
X
 
Public Financial Reporting Experience
 
 
X
X
X
X
 



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Director Independence
The Board consists of a majority of “independent directors,” as noted in the table above and as defined by the listing standards of The NASDAQ Stock Market LLC (“NASDAQ”), and the Board has determined that such independent directors have no relationship with the Company that would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director. The independent directors nominated for election are Ms. Van Deursen and Dr. Holcomb. The independent directors meet in regularly scheduled executive sessions and at other times as they deem appropriate.
How the Board Addresses Risk
The Board has an active role, as a whole, and also at the committee level, in overseeing management of the Company’s risks. The Board approaches the Company’s risk management process in an intelligent manner based upon the fundamental recognition that risk management in any business enterprise requires an appropriate balance of two distinct aspects of risk:
Value Preservation — recognizing and mitigating as much as possible the risk of potential for loss or harm to any element of our business.
Value Creation — embracing the risks inherent in any business endeavor in order to reap the rewards of growth and profitability.
The Company has a formalized Enterprise Risk Management (ERM) process. It is based upon a four-phase continuous approach consisting of program development, risk assessment and prioritization, risk treatment and risk validation, and monitoring. Risks are categorized as operational, strategic, compliance, and reporting. Risks in each of these categories were identified by key leadership interviews, surveys, and discussions. Those risks are then ranked and prioritized along the two continuums of “likelihood” and “impact.” A specific remediation strategy is then developed for the significant risks. All risks are continually monitored and validated.
The Board regularly reviews the ERM information and is also informed through Audit and Compensation and Governance committee reports about financial and governance risks and mitigation in areas unique to the matters overseen by those committees.
Key Governance Philosophies
The Company’s Board of Directors is committed to good corporate governance. The Compensation and Governance Committee of the Board periodically reviews the Company’s overall governance structure and makes recommendations on particular governance issues or practices as warranted.
Kimball considers it improper and inappropriate for any director or executive officer to engage in short-term or speculative transactions in Company stock or debt. Such activities may put the personal gain of the individual in conflict with the best interests of the Company and its Share Owners, may create the appearance that the individual is trading based on material non-public information, is focused on short-term performance at the expense of long-term objectives, and/or be a potential violation of the law. Therefore, Kimball has adopted a policy prohibiting such transactions by directors and executive officers including Short Sales, Hedging Transactions, Publicly Traded Options, Margin Accounts, and Pledges.
Chairman and CEO Roles
The Board currently combines the roles of Chairman of the Board and Chief Executive Officer. Generally, the Chairman of the Board (“Chairman”) and Chief Executive Officer (“CEO”) have separate roles, namely the Chairman is responsible for the leadership of the Board and presides at its meetings while the CEO is responsible for the day-to-day management of the Company’s business. The Board believes that these roles are best served by the same person at this time because it is critical to have alignment between the Board and management on Company strategy and board operations. Combining the roles provides that alignment. In addition, a combined Chairman/CEO has multiple and in-depth perspectives on and knowledge of the Company’s markets and operations, as well as the power to quickly enact corporate initiatives. A unified role ensures strong, central leadership, increases efficiency, and can provide superior knowledge to the Board and increase the information available to it, with in-depth knowledge about the Company’s strengths and weaknesses, along with what issues need to be addressed moving forward.


12





Board Classification
The Board has concluded that a three-tiered classified board is the appropriate governance structure for the Company and in the best interests of our Share Owners for the following reasons:
Independence - Outside Board members can be more direct and independent of Company management knowing they have at least a three-year term to serve.
Stability and Continuity - The Company’s Board can better perform its oversight responsibilities with seasoned Board members with perspective on the Company’s markets, operations, and long-term strategies that is provided by experience gained with a multi-year tenure. Annual elections risk the potential instability of election of a very inexperienced Board.
Long-Term Focus - As a public company, the Board’s primary focus is on the long-term best interests of our Share Owners. This includes oversight of the long-term strategic vision of the Company. Effective execution of that vision is enabled by a three-year term.
Share Owner Accountability - Our classified Board has at least two directors who stand for election each year, and the Board feels this promotes Share Owner accountability due to the fact that the Company’s Board has the primary fiduciary duty and is fully accountable to our Share Owners to oversee the Company in the best interests of all Share Owners. In addition, the Board believes the Company’s accountability to long-term Share Owners are well served by a number of governance principles already in effect in the Company, including highly-qualified, independent directors, board refreshment, tenure and retirement age policies, strong lead independent director, and diversity in addition to say on pay measures, and a robust commitment to direct engagement with our Share Owners.
Share Owner Value - The Board has reviewed and decided that there is well-reasoned academic research both for and against the proposition that the classification or declassification of a board has a correlation to increased Share Owner value. Therefore, the Board has judged this not to be a compelling reason for declassification.
Statutory Requirement - As an Indiana company, Indiana corporate statutes mandate a classified board structure. While the Board is aware that some Indiana companies have “opted-out” of this requirement, it does reflect the judgment of the elected legislators of our state of incorporation as to an appropriate board structure.
Board and Committee Meetings
During fiscal year 2019, the Board met five times and each director then in office attended 100% of the aggregate of the total number of meetings of the Board and the total number of meetings held by all Committees of the Board on which such director served during his or her tenure. The Company expects its directors to attend all Board and applicable Committee meetings, calls regarding specific initiatives or acquisitions, as well as the Annual Meeting of Share Owners. Your Board currently has two standing committees: The Audit Committee and the Compensation and Governance Committee.


13





AUDIT COMMITTEE
Members
Gregory A. Thaxton (Chairperson), Robert J. Phillippy, and Christine M. Vujovich
 
 
Meetings in Fiscal 2019
8
 
 
Committee Accomplishments in 2019
Reviewed Quarterly Earnings Releases and SEC Filings; Recommended the selection of Deloitte as auditors for fiscal 2019; Approved the fiscal 2019 audit scope and fees; Approved the fiscal 2019 internal audit plan; Conducted reviews of the Company’s cybersecurity program, revenue recognition rule implementation, GDPR readiness, and enterprise risk management process.
Responsibilities of the Committee
The Audit Committee operates under, and has the responsibilities set forth in, a written charter, which has been approved by the Board and is reviewed and reassessed annually or as circumstances dictate by the Audit Committee. The Audit Committee modifies the written charter, as necessary, to comply with all regulatory requirements as or before they become effective. A copy of the Audit Committee charter is available on the Company’s website at:


http://investors.kimballelectronics.com/static-files/0c5a90f0-edc7-4c38-8584-ab3cb03d1732


The Board has determined that Mr. Thaxton and Mr. Phillippy are each “Audit Committee financial experts” as defined by the rules of the Securities and Exchange Commission (“SEC”). None of the Audit Committee members, including the Audit Committee financial experts, are salaried employees of the Company and, in the opinion of the Board, all meet the NASDAQ and SEC requirements with respect to independence and accounting experience.

Comments from the Committee
The Committee meets quarterly. The Audit Committee is comfortable with the Company’s financial processes and controls. The Committee works effectively with the Company’s independent registered public accounting firm and meets regularly with them and management in executive sessions.

14






COMPENSATION AND GOVERNANCE
Members
Gregory J. Lampert (Chairperson), Colleen C. Repplier, and Thomas J. Tischhauser
 
 
Meetings in Fiscal 2019
5
 
 
Committee Accomplishments in 2019
Approved and set executive officers and CEO compensation; Approved performance share grants and awards, profit sharing incentive bonus plan economic profit targets, and retirement plan company contribution; Reviewed and recommended slate of directors for election at 2019 Annual Share Owners Meeting, Board member independence, and director age and term limits; Reviewed and recommended several governance provisions, including those as proposed in this Proxy Statement.
Responsibilities of the Committee
The Compensation and Governance Committee’s responsibilities include advising the Board in matters of corporate governance, identification of individuals qualified to be board members, board member evaluations, orientation, and succession planning. A copy of the Compensation and Governance Committee’s charter is available on the Company’s website at:

http://investors.kimballelectronics.com/static-files/0abc152b-426a-4788-a5c4-f6440213b242

The Compensation and Governance Committee identifies potential nominees for director based on specified objectives in terms of the Board composition, taking into account the need for broad and complementary experience and expertise. Nominees, whether recommended by the Compensation and Governance Committee or a Share Owner, will be evaluated on the basis of established Board member criteria, including, but not limited to those noted above in the “Director Qualifications” section of this Proxy Statement. Although it does not have a policy regarding diversity, the Compensation and Governance Committee does consider diversity of gender, race, national origin, education, and professional experience, which would enable a nominee to bring a varied set of skills and backgrounds to bear on the complicated issues which come before the Board.
 
The Compensation and Governance Committee also will consider candidates recommended by Share Owners. A Share Owner who wishes to recommend a director candidate for consideration by the Compensation and Governance Committee should send such recommendation to the Secretary of the Company at 1205 Kimball Blvd., Jasper, Indiana 47546, who will forward it to the Compensation and Governance Committee. Any such recommendation should include a description of the candidate’s qualifications for board service, the candidate’s written consent to be considered for nomination and to serve if nominated and elected, and addresses and telephone numbers for contacting the Share Owner and the candidate for more information. A Share Owner who wishes to nominate an individual as a director candidate at the Annual Meeting of Share Owners, rather than recommend the individual to the Compensation and Governance Committee as a nominee, must comply with the advance notice requirements mandated by the Company’s By-Laws and further explained in this Proxy Statement under “Submission of Nominations and Proposals.”

 
The Committee’s responsibilities also include making all determinations with respect to the compensation of the Chairman and CEO, reviewing and approving the compensation of all other executive officers in consultation with the CEO, approving awards under stock incentive plans, reviewing and approving the Company’s contribution to its defined contribution retirement plan, and approving targets, certification of target achievement, and authorization of payments under the Company’s Profit Sharing Incentive Bonus Plan. See “Compensation Discussion and Analysis — Compensation Process” for a description of the role of executive officers and compensation consultants in setting compensation for executive officers.

The Committee also regularly reviews corporate governance practices, evaluates their applicability to Company objectives, and strives to continuously improve the Company’s governance practices.

Each of the members of the Compensation and Governance Committee is “independent” as such term for compensation committee members is defined in the listing standards of NASDAQ, each is a “Non-Employee Director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and each is an “Outside Director” as defined by the regulations under Section 162(m) of the Internal Revenue Code.

Comments from the Committee
The Committee meets regularly in executive sessions. The Committee continues to evaluate and adjust as appropriate Board, CEO, and Executive Officer compensation programs. The Committee is active in review and evaluation of evolving good corporate governance practices as evidenced by its consideration and recommendation of the proposals for governance changes included in this proxy. The Committee was also extensively involved in the evaluation and nomination of Ms. Van Deursen and Dr. Holcomb as new Board members.


15





Compensation and Governance Committee Interlocks and Insider Participation
None of the Compensation and Governance Committee members has ever been employed as an officer or employee of your Company or any of its subsidiaries, and none of the Compensation and Governance Committee members during fiscal year 2019 was involved in a relationship requiring disclosure under Item 404 of Regulation S-K. None of our executive officers serves, or during fiscal year 2019 served, on a board of directors or compensation committee of a company that has an executive officer serving on our Board or the Compensation and Governance Committee.
Director Compensation
Fiscal Year 2019 Compensation to Non-Employee Directors
Directors’ compensation is set by the Board. The level of compensation is guided by the following goals: compensation should fairly pay directors for work required in a company of Kimball Electronics’ size and scope; and the structure of the compensation should be simple, transparent, market-competitive, and easy to understand.
All non-employee directors of your Company received an annual retainer fee of $75,000 plus a $65,000 equity retainer for service in fiscal year 2019. Additionally, the Lead Independent Director of the Board, the Chairperson of the Audit Committee of the Board, and the Chairperson of the Compensation and Governance Committee of the Board each received an additional $10,000 annual retainer fee.
Directors were able to elect to receive all or a portion of their annual, Lead Independent Director, or Chairperson retainers in Common Stock. The $65,000 of annual equity retainer fees are to be paid in shares of the Company’s Common Stock. The Board approved Non-Employee Directors Stock Compensation Deferral Plan (the “Deferral Plan”) allows non-employee directors to elect to defer all, or a portion of, their stock retainer fees until termination of service from the Board. Shares of Common Stock will be issued either under the Company’s 2014 Stock Option and Incentive Plan or the Non-Employee Directors Stock Compensation Deferral Plan. Directors are also reimbursed for reasonable travel, continuing education, and other expenses incurred in connection with Board and Committee meeting attendance.
The following Non-Employee Director Compensation Table shows the compensation paid to each non-employee director during fiscal year 2019. Donald D. Charron, Chairman and CEO, is a Director of the Company but does not receive compensation for his services as a Director.
Non-Employee Director Compensation in Fiscal Year 2019
 
Fees Earned or

Stock

Total

Name
Paid in Cash ($) (1)

Awards ($) (2)

($)

(a)
(b)

(c)

(h)

Gregory J. Lampert
$
85,000

$
65,000

$
150,000

Robert J. Phillippy
$
75,000

$
65,000

$
140,000

Colleen C. Repplier
$
85,000

$
65,000

$
150,000

Gregory A. Thaxton
$
85,000

$
65,000

$
150,000

Thomas J. Tischhauser
$
75,000

$
65,006

$
140,006

Christine M. Vujovich
$
75,000

$
65,000

$
140,000

(1)
Represents fees paid during fiscal year 2019 and includes the following amount of shares for which the director elected to receive Common Stock in lieu of cash: Mr. Lampert 4,885, Mr. Phillippy 4,310, and Ms. Repplier 4,885. These shares were valued using the per share price of $17.40, the market value for such shares on November 16, 2018, and each of these directors elected to defer receipt of all their above shares under the Deferral Plan.
(2)
Represents the value of the equity retainer awards granted during the year which amounted to 3,736 shares for each non-employee director using the per share price of $17.40, the market value for such shares on November 16, 2018. Mr. Lampert, Mr. Phillippy, Ms. Repplier, Mr. Thaxton, and Ms. Vujovich elected to have all their fiscal year 2019 equity retainer awards deferred under the Deferral Plan.
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS
On an annual basis, each director and executive officer is obligated to complete a Director and Officer Questionnaire which requires disclosure of any transactions (with an aggregate value of at least $120,000) with the Company in which the director or executive officer or any member of his or her immediate family has an interest. In addition, any transactions with related persons or other circumstances that present potential conflicts of interest are to be reported to the Company’s compliance officer either directly or through an anonymous reporting service. When reported, the transactions or other conflicts are reviewed and approved by the Compensation and Governance Committee, if in the best interests of our Share Owners to do so. None of the Audit Committee, the Compensation and Governance Committee, nor the Board has formal written policies regarding its review and approval of these types of transactions.
There were no such transactions or conflicts reported during fiscal year 2019.

16





REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is responsible for providing independent, objective oversight of the Company’s accounting functions, internal control over financial reporting, and financial reporting processes. During the fiscal year ended June 30, 2019, the Audit Committee was comprised of at least three directors as required per the Audit Committee Charter. All members of the Audit Committee meet the independence and experience requirements of The NASDAQ Stock Market LLC and the Securities and Exchange Commission.
Management is responsible for the Company’s accounting functions, internal control over financial reporting, and financial reporting processes. The Company’s independent registered public accounting firm, Deloitte & Touche LLP (“Deloitte”), is responsible for auditing and expressing an opinion in accordance with auditing standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) on the Company’s consolidated financial statements.
In connection with these responsibilities, the Audit Committee met with management and Deloitte to review and discuss the June 30, 2019 financial statements including a discussion of the acceptability and quality of the accounting principles, the reasonableness of critical accounting policies, the clarity of disclosures in the financial statements, and such other matters as are required to be discussed with the Audit Committee under standards established by the Securities and Exchange Commission and the PCAOB. The Audit Committee also has received the written disclosures and the letter from Deloitte in accordance with the applicable requirements of the PCAOB regarding Deloitte’s communications with the Audit Committee concerning independence, and has discussed with Deloitte its independence from the Company and management. In addition, the Audit Committee considered whether Deloitte’s independence would be jeopardized by providing non-audit services to the Company.
The Audit Committee reviewed the overall scope of the audits performed by the internal auditor and Deloitte. The Audit Committee met with the internal auditor and Deloitte, with and without management present, to discuss the results of the audits of the Company’s consolidated financial statements and the overall quality of the Company’s financial reporting.
It is not the duty of the Audit Committee to perform audits or to determine that the Company’s financial statements are complete and accurate and in accordance with generally accepted accounting principles; that is the responsibility of management and Deloitte. Members of the Audit Committee rely without independent verification on the information provided to them and on the representations made by management and Deloitte. Based upon the Audit Committee’s discussions with management and Deloitte, and the Audit Committee’s review of the representations of management and Deloitte, the Audit Committee recommended to the Board, and the Board has approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, filed with the Securities and Exchange Commission.

Respectfully submitted,
THE AUDIT COMMITTEE
Gregory A. Thaxton (Chairperson)
Christine M. Vujovich
Robert J. Phillippy


17





SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (collectively the “Deloitte Entities”) audited the Company’s financial statements for the fiscal year ended June 30, 2019.
Representatives of the Deloitte Entities will be present at the Annual Meeting and will have the opportunity to make a statement and will be available to respond to appropriate questions.
Independent Registered Public Accounting Firm Fees
 
Deloitte Entities
 
2019
 
2018
Audit Fees(a)
$
1,212,808

 
$
1,324,277

Audit-Related Fees(b)
6,891

 
55,965

Tax Fees(c)
94,001

 
53,267

All Other Fees(d)
13,277

 

Total
$
1,326,977

 
$
1,433,509

(a)
Audit fees include fees and out of pocket expenses paid or expected to be paid for the audit of the annual financial statements and for the statutory audits of international subsidiaries. 
(b)
Audit-related fees consist primarily of fees paid or expected to be paid for the audit of various benefit plans.
(c)
Tax Fees consist of fees paid or expected to be paid for tax compliance and related tax services.
(d)
Other Fees consist of fees paid or expected to be paid for various customs reporting.
Consideration of Services Provided by the Independent Registered Public Accounting Firm
The Audit Committee approves all audit and non-audit services provided by the independent registered public accounting firm. The Audit Committee has established an approval process for services provided by the independent registered public accounting firm which complies with the requirements of the Sarbanes-Oxley Act of 2002. A description of the approval process is attached to this Proxy Statement as Appendix A. The Audit Committee has considered whether all services provided are compatible with maintaining the independent registered public accounting firm’s independence in accordance with this approval process and has determined that such services are compatible.
Ratification of Selection of Independent Registered Public Accounting Firm
The Audit Committee has selected the Deloitte Entities to be the Company’s independent registered public accounting firm for the fiscal year ended June 30, 2020. They were selected based upon:
performance on past audits, including the expertise of the engagement team;
experience, client service, and responsiveness;
leadership, management structure, and ethical culture; and
the amount of fees charged in relation to scope of work performed.
Ratification is not required by law or the Company’s By-Laws. The Company is submitting the selection of the Deloitte Entities to the owners of our Common Stock for ratification as a matter of good corporate practice. If the selection is not ratified, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm. Even if the selection is ratified, 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 interests of the Company and our Share Owners.
The Board of Directors recommends a vote “FOR” ratification of the selection of the Deloitte Entities as the Company’s independent registered public accounting firm.


18





COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
The Compensation and Governance Committee (the “Committee”) of our Board, which is responsible for overseeing the compensation program for all executive officers, plays a key role in designing and administering the Company’s executive compensation program. All principal elements of compensation paid to our executive officers are subject to approval by the Committee. The report of the Committee follows this Compensation Discussion and Analysis.
This Compensation Discussion and Analysis provides detailed information regarding our compensation programs and decisions for our chief executive officer, chief financial officer, and the three other most highly compensated executive officers, based on their compensation for the fiscal year ended June 30, 2019. These officers are referred to herein as our “named executive officers,” or “NEOs.” Your Company’s NEOs for fiscal year 2019 are: Donald D. Charron, Chairman of the Board and Chief Executive Officer; John H. Kahle, Vice President, General Counsel, Chief Compliance Officer, Secretary; Steven T. Korn, Vice President, North American Operations; Michael K. Sergesketter, Vice President, Chief Financial Officer; and Christopher J. Thyen, Vice President, New Platforms.
This Compensation Discussion and Analysis is intended to supplement the more detailed information concerning executive compensation that appears in the “Executive Compensation” section below. Our goal is to provide our Share Owners and the investing public with a better understanding of your Company’s executive compensation practices and the decisions made concerning the compensation payable to our executive officers, including our NEOs.
Advisory Vote on Executive Compensation
At our 2018 Annual Meeting, non-binding, advisory Share Owner votes were held to approve the compensation paid to our NEOs, commonly referred to as a say on pay vote, and to decide on the frequency of future advisory votes on executive compensation. A substantial majority of votes cast voted in favor of the executive compensation program described in the Company’s 2018 proxy statement. As a result, the Committee and the Board determined that no changes needed to be made to our executive compensation policies and procedures as a result of the 2018 vote, and the Committee and the Board continued to apply the same general principles in determining the amounts and types of executive compensation. Additionally, a majority of our Share Owners voted in favor of the non-binding, advisory vote on our executive compensation being held every year. Taking into account the preference of our Share Owners, the Board determined that this frequency was appropriate and was consistent with our approach to executive compensation. Accordingly, we are holding a non-binding, advisory vote on executive compensation at our 2019 Annual Meeting and will continue to do so in subsequent years.
Compensation Philosophy
Your Company applies a consistent philosophy to compensation for all employees, including management. The goal is to create long-term Share Owner value by:
1.
Rewarding Performance.  All parts of compensation are designed to reward executive performance. Base salary is designed to reward annual achievements, demonstrated leadership abilities, and management experience and effectiveness. All other elements of compensation focus on motivating the executive to grow sales and achieve superior financial results.
2.
Aligning with Share Owners’ Interest.  Your Company’s objective is to align the interests of the executives with our Share Owners by strongly linking compensation to Company financial performance. Improved Company performance leads to improved stock prices and increased Share Owner value.
3.
Retaining Executive Talent.  Your Company’s objective is to retain our executives by using key elements of compensation that provide better opportunity for financial rewards when compared to other similar professional opportunities.
4.
Strengthening Collaboration. Your Company’s objective is to strengthen collaboration by allocating a portion of employees’ compensation as a variable incentive based on results achieved together as a team.

19






Components of Compensation
Your Company’s compensation program is comprised of the following primary components: (i) annual cash compensation, which includes base salary and performance-based cash incentive compensation, and (ii) long-term performance-based stock incentive compensation, each of which is described below.
Compensation Component
 
Purpose
 
Link to
Compensation Philosophy
Annual base salary
 
To provide an appropriate level of fixed compensation that will promote executive recruitment and retention based on business responsibilities, personal performance, and leadership qualities.
 
Rewards performance.

Retains executive talent.
Performance-based cash incentive compensation
 
Variable component used to incentivize, motivate, and link compensation with the Company’s financial success.
 
Rewards performance.

Aligns interests with Share Owners’ interests.

Retains executive talent.

Strengthens collaboration.
Long-term performance-based stock incentive compensation
 
To motivate officers and key managers to focus on long-term financial performance of the Company.
 
Rewards performance.

Aligns interests with Share Owners’ interests.

Retains executive talent.
Additional discretionary cash and/or stock compensation
 
To recognize individual achievement in special situations.
 
Rewards performance.

Retains executive talent.

Strengthens collaboration.


20





Total Direct Compensation
The following chart illustrates the allocation of fiscal year 2019 realized compensation for each NEO among each of the major compensation components.
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13119749&doc=2

The amounts in the above graph represent actual compensation realized in fiscal year 2019 as follows:
Performance-Based Stock is the actual value of long-term performance shares earned during fiscal year 2019, based on the number of shares earned as calculated under the Incentive Bonus Plan and achievement of sales growth goals multiplied by the average of the high and low price of the Company’s Common Stock of $14.63 on August 19, 2019.
Performance-Based Cash is the actual amount of cash incentive compensation earned during fiscal year 2019, pursuant to the Company’s Incentive Bonus Plan.
Non-Performance-Based Compensation consists of base salary received in fiscal year 2019 and all other components of compensation that are valued the same as reported in the Summary Compensation Table that appears on page 30.
In making executive compensation decisions, the Committee does not have a specific policy for allocating the amount of compensation among the compensation components, but seeks to target each NEO’s total compensation opportunity to the level the Committee considers market competitive and reflective of individual performance.

21





Compensation Decisions
The annual compensation of our NEOs is based upon the process described below in the “Compensation Process” section of this Compensation Discussion and Analysis and consists of components as delineated in the “Components of Compensation” section. The Committee does not utilize any specific target or formula for the NEOs’ total compensation.
The Committee took the following actions during fiscal year 2019 and early fiscal year 2020 in regards to NEO compensation.
Date
 
Action Taken
July 2018


 
• Awarded long-term performance share opportunities for fiscal year 2019.

• Certified fiscal year 2018 economic profit results and sales growth attainment, resulting in issuance of long-term performance shares and Incentive Bonus Plan payments.
February 2019
 
• Reviewed and approved compensation of NEOs.
July 2019
 
• Awarded long-term performance share opportunities for fiscal year 2020.

• Certified fiscal year 2019 economic profit results resulting in issuance of long-term performance shares and Incentive Bonus Plan payments.
Annual Cash Compensation
1. Base Salary.  Base salaries for our NEOs are based upon the scope of their responsibilities, their performance, the period over which they have performed those responsibilities, and other subjective factors as noted below in the “Compensation Process” section of this Compensation Discussion and Analysis. Decisions regarding salary increases or decreases take into account the executive’s effort, market, local demand, current salary, and market benchmarks. Base salaries of the Chief Executive Officer (“CEO”) and Chairman of the Board (“Chairman”) are reviewed as appropriate by the Committee, and the Committee makes adjustments as it deems necessary. Base salaries of our other executive officers are reviewed by the CEO on an annual basis. Adjustments to the base salaries of our other executive officers are initiated by the CEO and approved by the Committee. Fiscal year 2020 base salaries were increased modestly for most NEOs compared to fiscal year 2019. Annualized base salaries in effect as of the date of this Proxy Statement and the percentage change from annualized base salaries in effect as of the date of last year’s proxy statement, for each of our NEOs were as follows:
Named Executive Officer
 
Annualized
Base Salary
 
% Increase
Donald D. Charron
 
$
709,752

 
2.5
%
John H. Kahle
 
$
397,800

 
%
Steven T. Korn
 
$
323,179

 
2.5
%
Michael K. Sergesketter
 
$
322,264

 
3.0
%
Christopher J. Thyen
 
$
302,271

 
2.5
%
2. Cash Incentive Compensation.  Executive officers and full-time salaried employees are eligible to participate in the Incentive Bonus Plan which provides participants with an opportunity to receive a cash payment if certain profitability levels (tiers) for the fiscal year are achieved. The Incentive Bonus Plan measures economic profit at two levels within the Company: (1) worldwide for Company-wide performance (“Worldwide”); and (2) at a business unit level for the performance of designated operations within the Company (“Business Unit”).
The goal of the Incentive Bonus Plan is to link compensation with the long-term financial success of the Company and Share Owner return. A key aspect of the Plan to accomplish this goal includes the fact that substantially all full-time salaried employees participate in the same Incentive Bonus Plan which puts all management employees in the same position to encourage growth of economic profit. Substantially all full-time employees have some portion of their compensation “at-risk,” and the variable incentive portion of pay is linked to financial results. The total of base salary and variable incentive compensation approximates a market value for a role. The variable incentive represents a significant part of a Plan participant’s total compensation, thus putting more compensation at-risk and giving them greater incentive to improve economic profit and increase their total compensation.

22





The Incentive Bonus Plan establishes potential cash incentive amounts as a range of percentages of the participant’s salary, with the payout percentage increasing with higher levels of profitability. The Incentive Bonus Plan also establishes different payout percentage ranges across several participant categories, setting higher payout percentage ranges for participants who, by virtue of their responsibilities, are expected to have a greater effect on the Company’s profitability. The following matrix summarizes the cash incentive payout percentages at each economic profit tier for the various participant categories:
Economic Profit
 
Participant Categories
Tiers
 
1
 
2
 
3
 
4
 
5
 
6
 
7
 
8
1
 
100
%
 
80
%
 
60
%
 
50
%
 
40
%
 
30
%
 
20
%
 
10
%
2
 
80
%
 
60
%
 
45
%
 
35
%
 
30
%
 
22
%
 
15
%
 
7
%
3
 
60
%
 
40
%
 
30
%
 
25
%
 
20
%
 
15
%
 
10
%
 
5
%
4
 
40
%
 
20
%
 
15
%
 
12
%
 
10
%
 
7
%
 
5
%
 
3
%
5
 
20
%
 
10
%
 
8
%
 
6
%
 
5
%
 
4
%
 
3
%
 
2
%
6
 
0
%
 
0
%
 
0
%
 
0
%
 
0
%
 
0
%
 
0
%
 
0
%
For a particular fiscal year, the Committee sets each tier to a specific amount of economic profit. Economic profit is equal to the amount of net income less the cost of capital. The cost of capital represents the economic cost of a reasonable return on capital that is used in the business. New capital expenditures are excluded in computing the cost of capital for an appropriate period of time (currently 12 months) to encourage needed capital investments. Separate economic profit tiers are set for the Worldwide and Business Unit plans. The economic profit tiers are set by the Committee after considering many factors, including comparisons to economic performance of numerous public companies. Net income must be earned before bonus is earned. The economic profit tiers are established so that performance attained between the tier 4 and tier 3 levels approximates the median economic profitability performance of these public companies. Also, this payout approximates market value for an employee’s role. According to the Company’s compensation philosophy, the Company is comfortable paying below market when results are low, and over market when results exceed expected standards. Economic profit performance above tier 3 should result in a participant exceeding market value, and economic profit performance below tier 4 should result in total compensation being below market value. Achievement of a 100% cash incentive payout for executive officers is very difficult because the Incentive Bonus Plan is designed to pay maximum cash incentives only if the Company achieves economic profitability near the top quartile of these public companies. The Committee approves the economic profit tiers within 90 days after the commencement of each fiscal year, usually in late July or early August. The Committee may, within such 90-day time period, make adjustments for non-operating income and loss and other profit-computation elements as it deems appropriate to provide optimal incentives for eligible employees. While the Committee may make adjustments beyond the 90-day period, any such adjustments will not be applicable to our NEOs.
Our NEOs are in participant category 1 and thus may earn cash incentives anywhere from zero up to 100% of base salary. The Committee has set the target cash incentive for our NEOs at approximately 40% (tier 4 level) which is a cash incentive payout reflecting our desired level of compensation at risk. During fiscal year 2019, all NEOs participated at the Worldwide level. For the past three years, cash incentive payouts averaged 59% for the Worldwide plan. 
At the end of each fiscal year, but before cash incentives under the Incentive Bonus Plan may be paid, the Committee certifies the actual economic profit that was achieved and approves the payment of the cash incentive. The Committee does not have the discretion to increase, but can decrease, the amount of any cash incentive for NEOs under the Incentive Bonus Plan. There were no decreases in fiscal year 2019.
Cash incentives earned under the Incentive Bonus Plan for a particular fiscal year are accrued annually and paid in multiple installments over the succeeding fiscal year, unless local country requirements dictate otherwise. In the United States, 50% of the accrued bonus is payable in August and 12.5% is payable in each of the following months of September, January, April, and June. This schedule varies in the Company’s global locations based on local pay practices and regulations. Cash incentives totaling less than $2,000 are paid in a lump sum in August. Except for provisions relating to retirement, death, permanent disability, and certain other circumstances described in a participant’s employment agreement, participants must be actively employed on each payment date to be eligible to receive any unpaid installments. If a participant’s termination of employment is caused by retirement, death, disability, or certain other circumstances described in a participant’s employment agreement, the participant (or beneficiary, in the event of the participant’s death) will be entitled to receive all cash incentive payments for the previous fiscal year and a pro rata share for the current fiscal year, all to be paid in full within 2½ months after the end of the Company’s fiscal year.
Based upon the fiscal year 2019 economic profit results, our NEOs will each receive a payout of 42% of their fiscal year 2019 base salary under the Incentive Bonus Plan.

23





Stock Compensation
The Company’s 2014 Stock Option and Incentive Plan (the “2014 Plan”) permits a variety of stock incentive benefits consisting of restricted stock, restricted share units, unrestricted share grants, incentive stock options, non-qualified stock options, stock appreciation rights, performance shares, and performance units. The Committee granted performance shares during fiscal year 2019. The Committee’s view is that performance shares represent one of the more effective forms of stock incentive compensation available under the 2014 Plan by tying compensation directly to the economic profitability of the Company.
Performance Shares
Performance shares consist of a long-term award with one-third (1/3) of the award vesting annually over the succeeding three-year period. Prior to fiscal year 2019, these awards were approved by the Committee in June of each fiscal year. In June 2018, we changed our grant timing policy to grant performance shares in the July/August time frame. The new grant timing was intended to allow sufficient time to determine year-end financial results and determine both performance share awards and grants at the same time in order that participants can compare their awards for the upcoming fiscal year with those achieved in the prior fiscal year. The performance share awards set forth the maximum number of shares of your Company’s stock which the participant is eligible to receive if the applicable profitability levels and sales growth goals for the fiscal year have been achieved. The maximum number of shares awarded to each of our NEOs is determined by the Committee based upon the relative level of responsibilities of the NEOs and within an overall projected total cost of the awards based upon anticipated financial performance for the upcoming fiscal year, as well as the other subjective factors noted below in the “Compensation Process” section of this Compensation Discussion and Analysis.
Shares ultimately earned from long-term performance share awards, for all our NEOs, have been 100% of the shares awarded for the past three years.
The long-term performance share awards act as an incentive for longer term stock price appreciation by driving higher profits, which creates higher cash incentive percentages and greater payouts to the participants. The NEOs have no voting or dividend rights with respect to the performance shares until earned.
Based upon the fiscal year 2019 economic profit results, our NEOs were issued the following shares applicable to fiscal year 2019 performance under the 2014 Plan:
Named Executive Officer
 
FY 2019
LTPS Grant
(Shares Issued) (1)
Donald D. Charron
 
65,692
John H. Kahle
 
16,746
Steven T. Korn
 
13,181
Michael K. Sergesketter
 
12,934
Christopher J. Thyen
 
12,351
(1) Shares have not been reduced by the number of shares withheld to satisfy tax withholding obligations.
The “Stock Awards” column of the Summary Compensation Table on page 30 includes the targeted value of performance shares granted during fiscal year 2019, estimated based on an assumed payout at a target (Tier 4) level of our Incentive Bonus Plan, achievement of the sales growth attainment component, and using the share price as of the date granted, which was $20.05 as reported by NASDAQ on August 20, 2018. The performance share awards granted in August 2019 will be earned based on fiscal year 2020 performance and therefore are not included in the table below.

24





The table below compares that targeted value with the actual value of performance shares earned during fiscal year 2019 as set forth above, based on the number of shares earned as calculated under the Incentive Bonus Plan and the average of the high and low price of the Company’s Common Stock as reported by NASDAQ for the August 19, 2019 vesting date, which was $14.63.
We are providing this information to give additional context to the fiscal year 2019 compensation of our NEOs by showing the impact that our actual fiscal year 2019 financial performance and change in share price had on the value of realized compensation.
 
Performance Shares
Named Executive Officer
Targeted Value for August 2018 Awards
 
Realized (Earned and Vested Value)
 
Realized Value as a Percentage of Targeted Value
Donald D. Charron
$
1,317,125

 
$
961,353

 
73.0
%
John H. Kahle
$
335,757

 
$
245,065

 
73.0
%
Steven T. Korn
$
264,279

 
$
192,894

 
73.0
%
Michael K. Sergesketter
$
259,327

 
$
189,279

 
73.0
%
Christopher J. Thyen
$
247,638

 
$
180,748

 
73.0
%
The maximum number of performance shares granted in August 2019 for the fiscal year 2020 performance period to each of our NEOs under the 2014 Plan was as follows:
Named Executive Officer
 
FY 2020
LTPS Award
(Maximum # of Shares)
Donald D. Charron
 
53,288

John H. Kahle
 
8,930

Steven T. Korn
 
10,774

Michael K. Sergesketter
 
10,695

Christopher J. Thyen
 
10,077

Other Compensation and Employee Benefits
Retirement Plan
Our NEOs participate in a defined contribution, participant-directed retirement plan in which all domestic employees are eligible to participate (the “Retirement Plan”). The Retirement Plan is intended to attract employees and promote employee retention by providing a long-term savings opportunity. The Retirement Plan provides for voluntary employee contributions as well as a discretionary annual Company contribution as determined by the Committee. The Committee considers Company profitability among other factors when determining the contribution. The total Company contribution is allocated based upon the total eligible compensation of eligible participants. Each eligible participant’s Company contribution percentage is identical, including our NEOs. The Company’s contribution percentage for fiscal year 2019 was approximately 3% of eligible compensation, up to the annual compensation limit under Section 401(a) of the Internal Revenue Code. Participant contributions are fully vested immediately, and Company contributions are fully vested after five years of participation according to the following schedule. All NEOs are fully vested in the Retirement Plan as they have been participants for greater than five years.
Years of Vesting Service
 
Vested Percentage
Less than 1
 
0%
1
 
10%
2
 
20%
3
 
40%
4
 
60%
5
 
100%

25





The Retirement Plan is fully funded, and participants may choose to invest their balances among any combination of the following investment options shown in the table below. The annual return of each fund for the fiscal year ended June 30, 2019 is included in the table below.
Fund Name
Asset Class
AATR (1 year) 7/1/18 - 6/30/19
American Funds AMCAP R6
Domestic Stock - Large Growth
5.46%
Small-Cap Index Fund Adm
Domestic Stock Funds
2.26%
Kimball Electronics
Company Stock
-11.18%
International Growth Adm
International Stock Funds
-0.40%
Inst Index Fund Inst
Domestic Stock - Small Blend
10.39%
Retire Savings Trust III
Short Term Reserves
2.44%
Prime Money Mkt Fund
Short Term Reserves
2.33%
Inst Target Ret 2065 Fund
Balanced Funds (Stocks and Bonds)
5.92%
Inst Target Ret 2040 Fund
Balanced Funds (Stocks and Bonds)
6.03%
Inst Target Ret 2045 Fund
Balanced Funds (Stocks and Bonds)
5.89%
Inst Target Ret 2050 Fund
Balanced Funds (Stocks and Bonds)
5.87%
Inst Target Ret 2055 Fund
Balanced Funds (Stocks and Bonds)
5.95%
Inst Target Ret 2060 Fund
Balanced Funds (Stocks and Bonds)
5.95%
Inst Target Ret 2035 Fund
Balanced Funds (Stocks and Bonds)
6.28%
Inst Target Ret 2030 Fund
Balanced Funds (Stocks and Bonds)
6.46%
Inst Target Ret 2025 Fund
Balanced Funds (Stocks and Bonds)
6.68%
Inflation-Protect Sec Adm
Domestic Stock - Large Blend
4.70%
Inst Target Ret 2020 Fund
Balanced Funds (Stocks and Bonds)
6.59%
Inst Target Ret 2015 Fund
Balanced Funds (Stocks and Bonds)
6.50%
Inst Target Ret Inc Fund
Balanced Funds (Stocks and Bonds)
6.57%
Real Estate Index Admiral
Specialty Stock Funds - Real Estate
12.21%
Windsor II Fund Adm
Domestic Stock Funds
7.16%
Delaware Small Cap Core I
Domestic Stock - Small Blend
-2.99%
Met West Total Rt Bd Inst
Intermediate-Term Bond
8.17%
Total Bond Mkt Index Inst
Bond Funds
7.87%
Total Intl Stock Ix Admiral
International Stock Funds
0.57%
 
 
 
AATR: Average annual total returns
For those eligible employees who, under the 1986 Tax Reform Act, are deemed to be highly compensated, their individual Company contribution under the Retirement Plan is reduced. See the following “Nonqualified Deferred Compensation” section.
Nonqualified Deferred Compensation
For our NEOs, other executive officers, and other key employees who are deemed to be highly compensated under the 1986 Tax Reform Act, there is a fully-funded, nonqualified, Supplemental Employee Retirement Plan (“SERP”) under which your Company contributes to the account of each participant an amount equal to the reduction in their Company contribution under the Retirement Plan arising from the provisions of the 1986 Tax Reform Act. In addition, participants may voluntarily defer up to 50% of their eligible compensation under the SERP. A participant’s deferrals are fully vested. Company contributions are subject to the same vesting schedule as the Retirement Plan and are made within 2½ months after the end of the fiscal year. The Company’s contribution percentage for fiscal year 2019 was approximately 3% of eligible compensation in excess of the annual compensation limit under Section 401(a) of the Internal Revenue Code. Investment options are the same as those under the Retirement Plan except for the exclusion of the Stable Value and Company Stock Funds and the addition of a Money Market Fund. Payments of a participant’s elective deferrals and Company contributions are made as elected by the participant in lump sum or in installment payments over a period of 5 or 10 years commencing upon retirement or termination of employment, whichever occurs first. These amounts may be paid earlier in the event of death of the participant or an unforeseen emergency affecting the participant as determined by the committee appointed to administer the SERP. The SERP is intended to promote retention by providing a long-term savings opportunity on a tax-efficient basis. The assets of the SERP are held in a grantor trust in what is commonly referred to as a “rabbi trust” arrangement. This means that the assets of the SERP are subject to the claims of the Company’s general creditors in the event of the Company’s insolvency. For more information about amounts deferred by the NEOs, see the Nonqualified Deferred Compensation Table in the “Executive Compensation — Nonqualified Deferred Compensation” section in this Proxy Statement.

26





Other Compensation
The Company provides our NEOs with other benefits, which the Committee believes are reasonable, competitive, and consistent with the Company’s overall compensation program directives. They are designed to promote the executives’ physical and mental well-being in order to help them function more effectively in their respective positions.
These benefits and the rationale for providing each are as follows:
Benefit
 
Rationale
Financial Counseling
 
Aid personal financial planning through expert advice to properly manage financial affairs.
Tax Preparation
 
Assist in accurate preparation of personal income tax filings.
Executive Preventive Healthcare Program
 
Maintain health of executive and primary personal support person to permit peak performance.
Medical Reimbursement
 
Promote seeking of proper medical care by reducing potential financial barriers.
No loans of Company funds have ever been made to any executive officer for any purpose. The exact amounts received from these benefits are not predetermined.
Employment and Severance Agreements
The Company has entered into written employment agreements with each of the NEOs. These employment agreements were intended to bring the Company more in line with competitive practices within the industries in which it operates and were designed to enhance the retention of executives and protect the interests of the Company by way of covenants not to compete. The agreements do provide for acceleration of certain benefits and payment of severance in certain circumstances, as described in the section entitled “Executive Compensation — Employment Agreements with NEOs and Potential Payments Upon Termination or Change-In-Control” section of this Proxy Statement.
Compensation Process
The Committee sets the Chairman and CEO’s compensation and approves the compensation of the other executive officers in consultation with the Chairman and CEO who directly supervises those executive officers throughout the year. The Committee gives significant consideration to the recommendation of the Chairman and CEO, but the final compensation decisions affecting our executive officers are within the Committee’s discretion. No other roles are taken by the executive officers in setting their compensation, except for discussion of their individual performance with the Chairman and CEO.
Judgment is used in making compensation decisions. Flexibility is critical in the assessment process to allow for adjustments due to new business conditions and to adjust for the evolving business environment. There is no predetermined formula for allocating compensation between cash and non-cash, current and long-term, or fixed and variable elements.
Key considerations affecting the determination of executive compensation include:

1.
Responsibilities — the scope and breadth of the duties and level of responsibility undertaken.
2.
Leadership — demonstrated ability to lead an organization.
3.
Performance — with an emphasis on consistent, sustained performance.
4.
Potential — demonstrated capacity to grow into more responsible leadership positions.
5.
Execution of Strategy — record of getting things done according to plans.
6.
Personal Development — demonstrated willingness to learn and grow professional and leadership skills.
7.
Promotion of Company Culture and Values — demonstrated commitment to modeling of Company Mission and Guiding Principles and ethical behavior.
8.
Company Results — demonstrated teamwork and support of Company goals and performance.
9.
Benchmarking — comparison of executive compensation to industry or other relevant compensation benchmarks.
10.
Retention — compensation at sufficient levels to retain talented executives.

27





During fiscal year 2019, the Committee utilized third-party compensation data in setting executive compensation. The data included information on base pay, stock awards, and other forms of compensation awarded at the following comparable benchmarked companies:
1.
TTM Technologies, Inc.
6.
Littlefuse, Inc.
11.
Key Tronic Corp.
2.
Plexus Corp.
7.
OSI Systems, Inc.
12.
Bel Fuse, Inc.
3.
Trimble, Inc.
8.
Knowles Corp.
13.
Novanta, Inc.
4.
Benchmark Electronics, Inc.
9.
Kemet Corp.
14.
CTS Corp.
5.
IPG Photonics Corp.
10.
Methode Electronics, Inc.
 
 
This information was used only as a reference by the Committee when making compensation decisions to ensure that the types and amounts of executive compensation were reasonable and competitive.
Tax and Accounting Considerations 
Section 162(m)
The Committee takes into account the tax and accounting treatment of executive compensation arrangements when structuring our executive compensation program.  One of those considerations is Section 162(m) of the Internal Revenue Code, which sets a limit of $1 million on the amount the Company can deduct for compensation paid to our “covered employees.”  Historically, compensation meeting the requirements of “qualified performance-based compensation” under Section 162(m) did not count toward the $1 million limit.  However, the Tax Cuts and Jobs Act (“Tax Reform”), which was enacted on December 22, 2017, made a number of changes to Section 162(m), generally effective for taxable (fiscal) years beginning after December 31, 2017, including the repeal of the “qualified performance-based compensation” exemption, subject to certain transition rules (which apply to remuneration provided pursuant to written binding contracts which were in effect on November 2, 2017 and which are not subsequently modified in any material respect).  Tax Reform also expanded the definition of “covered employees” by including both the chief financial officer and certain former named executive officers as “covered employees.”
Our general philosophy has been to attempt to qualify compensation for tax deductibility under Section 162(m) of the Internal Revenue Code, wherever we deem appropriate, recognizing that, under certain circumstances, the limitations may be exceeded.  Historically, treatment as “qualified performance-based compensation” has been sought to the extent practicable and only to the extent that it is consistent with our overall compensation objectives.  However, due to uncertainties regarding the scope of relief under Tax Reform, there can be no guarantee that any compensation paid to our “covered employees” in excess of $1 million will be or remain exempt from Section 162(m).  In any event, the Committee retains full discretion to construct compensation packages that will best attract, retain, and reward successful executive officers.  Therefore, the Committee may award compensation that is not fully deductible under Section 162(m) if the Committee believes it will contribute to the achievement of our business objectives.
Section 409A
Section 409A of the Internal Revenue Code affects the payments of certain types of deferred compensation to key employees and includes requirements relating to when payments under such arrangements can be made, acceleration of benefits, and timing of elections under such arrangements. Failure to satisfy these requirements will generally lead to an acceleration of the timing for including deferred compensation in an employee’s income, as well as certain additional taxes, penalties, and interest. The Company intends for, but does not currently require, its nonqualified deferred compensation arrangement to meet the effective requirements of Section 409A.
Recovery of Compensation from Executive Misconduct
The Company has adopted a “Claw Back” policy providing that if the Company determines that an executive officer has engaged in fraudulent or intentional misconduct, resulting in a restatement of the Company’s financial results, the executive would be obligated and the Company would take all possible actions to recover any portion of performance-based or incentive compensation paid or awarded to the executive that is greater than the amount that would have been paid or awarded if calculated based on the restated financial results.
REPORT OF THE COMPENSATION AND GOVERNANCE COMMITTEE
The Compensation and Governance Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Committee recommended to our Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for fiscal year 2019 and this Proxy Statement. This report is provided by the following independent directors who comprise the Committee: Gregory J. Lampert (Chairperson), Colleen C. Repplier, and Thomas J. Tischhauser.


28





COMPENSATION RELATED RISK ASSESSMENT
The Board believes that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company. In addition, the Compensation and Governance Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks.
The Compensation and Governance Committee extensively reviewed the elements of executive compensation to determine whether any portion of executive compensation encouraged excessive risk taking and concluded:
the Incentive Bonus Plan’s focus on the long-term financial success of the Company, as well as the payout over the subsequent fiscal year, discourages short-term risk taking;
Incentive Bonus Plan profitability tiers are appropriately set to calibrate variable incentive payouts at the targeted cash incentive level to the median levels of peer group performance and bonus payouts calibrated to superior results;
performance share awards are appropriately linked to profitability; and
equity ownership guidelines discourage excessive risk taking.
Furthermore, as described under “Compensation Discussion and Analysis — Compensation Process,” compensation decisions include judgment by the Committee, which mitigates the influence of purely objective calculations on excessive risk taking. The Compensation and Governance Committee reviews the Company’s compensation policies and practices on an annual basis to consider how effectively the policies and practices are providing incentives at an appropriate level of risk to executive employees.
EXECUTIVE COMPENSATION
The Company believes in an incentive compensation system that applies to all employees, including management, based upon the fundamental philosophies of rewarding performance, aligning with Share Owners’ interests by directly linking compensation to financial performance, and talent retention and strengthening collaboration. For management, the system includes three components: a base salary, performance-based cash compensation, and performance-based stock incentive compensation. The incentive components are pegged to attainment of economic profit, which includes a cost of capital component, and subsequent to fiscal year 2016, the stock compensation incentive also includes a sales growth component, both as compared to specific goals.


29





Summary Compensation Table
The Summary Compensation Table appearing below sets forth information regarding the compensation paid and/or awarded to our chairman of the Board and chief executive officer, chief financial officer, and the three other most highly compensated executive officers, for or during the years ended June 30, 2019, 2018, and 2017. These officers are referred to herein as our “named executive officers,” or “NEOs.”
The Summary Compensation Table appearing below contains values calculated and disclosed according to SEC reporting requirements. The “Stock Awards” column reflects awards with a grant date during each fiscal year. No awards were granted in fiscal year 2017 as the Company changed its timing of granting awards from the fourth quarter of the previous fiscal year to the first quarter of the fiscal year in which the service period begins to align the granting of the shares earned in the prior fiscal year with the stock awards for the current fiscal year.
Name and Principal Position
Year
 
Salary

 
Stock Awards

 
Non-Equity
Incentive Plan
Compensation

 
All Other
Compensation

 
Total

 
 
 
($)

 
($) (1)

 
($) (2)

 
($) (3)

 
($)

Donald D. Charron
2019
 
$
695,770

 
$
1,317,125

 
$
292,223

 
$
33,143

 
$
2,338,261

Chairman of the Board and Chief Executive Officer
2018
 
$
678,800

 
$
1,360,623

 
$
461,584

 
$
40,406

 
$
2,541,413

 
2017
 
$
662,264

 
$

 
$
443,717

 
$
40,382

 
$
1,146,363

John H. Kahle
2019
 
$
397,800

 
$
335,757

 
$
167,076

 
$
45,268

 
$
945,901

Vice President, General Counsel, Chief Compliance Officer, Secretary
2018
 
$
397,800

 
$
490,477

 
$
270,504

 
$
46,747

 
$
1,205,528

 
2017
 
$
397,800

 
$

 
$
266,526

 
$
41,784

 
$
706,110

Steven T. Korn
2019
 
$
316,813

 
$
264,279

 
$
133,061

 
$
26,274

 
$
740,427

Vice President, North American Operations
2018
 
$
309,234

 
$
283,522

 
$
210,279

 
$
16,440

 
$
819,475

 
2017
 
$
301,075

 
$

 
$
201,720

 
$
15,259

 
$
518,054

Michael K. Sergesketter
2019
 
$
314,683

 
$
259,327

 
$
132,167

 
$
41,277

 
$
747,454

Vice President, Chief Financial Officer
2018
 
$
305,693

 
$
273,548

 
$
207,871

 
$
31,332

 
$
818,444

 
2017
 
$
292,104

 
$

 
$
195,710

 
$
22,670

 
$
510,484

Christopher J. Thyen
2019
 
$
296,317

 
$
247,638

 
$
124,453

 
$
32,624

 
$
701,032

Vice President, New Platforms
2018
 
$
289,228

 
$
266,997

 
$
196,675

 
$
24,686

 
$
777,586

 
2017
 
$
278,768

 
$

 
$
186,775

 
$
31,266

 
$
496,809

(1)
Stock awards consist of performance shares:
The compensation reported in the above table represents targeted performance share compensation for each of our NEOs, which does not reflect compensation actually received or earned by the NEOs in the respective years. The amounts included above represent the value at the grant date based upon the probable outcome of the performance conditions, which is estimated based on a payout at the target (Tier 4) level and sales growth attainment or 100% of the maximum award opportunity for Long-Term Performance Shares (“LTPS”).
The performance shares awarded that will be reported for fiscal year 2020 as valued on the August 19, 2019 grant date based upon the probable outcome of the performance conditions were for Mr. Charron $766,814, for Mr. Kahle $128,503, for Mr. Korn $155,038, for Mr. Sergesketter $153,901, and for Mr. Thyen $145,008.
In June 2017, the Company changed its award timing policy to award performance shares in August to align the granting of the shares earned in the prior fiscal year with the stock awards for the new fiscal year. The prior policy awarded performance shares in June. This transition eliminated the amounts reported in the “Stock Awards” column for 2017 as these awards are reported as fiscal year 2018 awards. The grant date fair value of the maximum number of performance shares awarded in June 2016 that could have been earned in fiscal year 2017 was $811,466 for Mr. Charron, $403,307 for Mr. Kahle, $169,994 for Mr. Korn, $163,886 for Mr. Sergesketter, and $161,654 for Mr. Thyen.
The assumptions used to calculate the grant date fair values are set forth in Note 10 - Stock Compensation Plans to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019.
(2)
Amounts consist of cash incentive compensation earned for services rendered in the applicable fiscal year. The amounts are paid in five installments over the succeeding fiscal year, pursuant to the Incentive Bonus Plan, with 50% payable in August and 12.5% payable in each of the following months of September, January, April, and June.
(3)
Includes benefits received by the NEOs from executive financial services programs, supplemental medical reimbursement, the value of the services and related benefits provided pursuant to the Executive Preventive Healthcare Program, Company contributions earned for the Retirement Plans and SERP plans, and de minimus Christmas bonus and life insurance premiums paid by the Company. SERP and Retirement Plan Company contribution amounts earned for fiscal year 2019 and paid in fiscal year 2020 for Messrs. Charron, Kahle, Korn, Sergesketter, and Thyen were $29,640, $16,946, $13,496, $13,405, and $12,623, respectively.
See the “Compensation Discussion and Analysis” section in this Proxy Statement for further information about the material terms of the NEOs’ compensation plans.

30





Grants of Plan-Based Awards in Fiscal Year 2019
 
 
 
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)
 
Estimated Future Payouts Under Equity Incentive Plan Awards (2)
Grant Date Fair Value of Stock and Option Awards (3)
 
 
Grant
 
Threshold
 
Target
 
Maximum
 
Threshold
 
Target
 
Maximum
 
Name
 
Date
 
($)
 
($)
 
($)
 
(#)
 
(#)
 
(#)
 
($)
Donald D. Charron
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Incentive Bonus Plan
 
 
 
$

 
$
278,308

 
$
695,770

 
 
 
 
 
 
 
 
LTPS(4)
 
08/20/18
 
 
 
 
 
 
 

 
65,692

 
65,692

 
$
1,317,125

John H. Kahle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Incentive Bonus Plan
 
 
 
$

 
$
159,120

 
$
397,800

 
 
 
 
 
 
 
 
LTPS(4)
 
08/20/18
 
 
 
 
 
 
 

 
16,746

 
16,746

 
$
335,757

Steven T. Korn
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Incentive Bonus Plan
 
 
 
$

 
$
126,725

 
$
316,813

 
 
 
 
 
 
 
 
LTPS(4)
 
08/20/18
 
 
 
 
 
 
 

 
13,181

 
13,181

 
$
264,279

Michael K. Sergesketter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Incentive Bonus Plan
 
 
 
$

 
$
125,873

 
$
314,683

 
 
 
 
 
 
 
 
LTPS(4)
 
08/20/18
 
 
 
 
 
 
 

 
12,934

 
12,934

 
$
259,327

Christopher J. Thyen
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Incentive Bonus Plan
 
 
 
$

 
$
118,527

 
$
296,317

 
 
 
 
 
 
 
 
LTPS(4)
 
08/20/18
 
 
 
 
 
 
 

 
12,351

 
12,351

 
$
247,638

(1)
Represents potential cash incentive payments under the Incentive Bonus Plan with respect to fiscal year 2019 performance. The awards do not contain minimum thresholds. The target amount is determined based on a payout at the Tier 4 level (40%) of base salary. See the column captioned “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table for the actual payout amounts under the Incentive Bonus Plan for fiscal year 2019 performance. See “Compensation Discussion and Analysis — Components of Compensation — Compensation Decisions — Annual Cash Compensation — Cash Incentive Compensation” for additional information regarding the terms of the Incentive Bonus Plan.
(2)
Represents LTPS awards issued pursuant to the 2014 Stock Option and Incentive Plan. The awards do not contain minimum thresholds. The target amount is determined based on a payout at the Tier 4 level and sales growth attainment which is 100% of the maximum award opportunity. See “Compensation Discussion and Analysis — Components of Compensation — Compensation Decisions — Stock Compensation — Performance Shares” for additional information regarding the terms of performance share awards.
(3)
Amounts represent the grant date fair value of the target number of performance shares granted calculated using the closing price of the Company’s Common Stock of $20.05 as reported by NASDAQ on the grant date of August 20, 2018.
(4)
LTPS awards represent the tranches of performance shares awarded during fiscal years 2014, 2016, 2018 and 2019, which could be earned for the fiscal year 2019 performance period. Based on fiscal year 2019 performance, each of the NEO’s earned the maximum amount of shares awarded for fiscal year 2019.


31





Outstanding Equity Awards at Fiscal Year End 2019
 
 
Stock Awards
 
 
Equity Incentive Plan Awards:
Number of Unearned Shares,
Units or Other Rights That
Have Not Vested

Equity Incentive Plan Awards:
Market or Payout Value of
Unearned Shares, Units or Other
Rights That Have Not Vested
 
Name
 
(#)(1)

 
($)(2)

Donald D. Charron
 
114,470

 
$
1,858,993

John H. Kahle
 
25,000

 
$
406,000

Steven T. Korn
 
23,039

 
$
374,153

Michael K. Sergesketter
 
22,699

 
$
368,632

Christopher J. Thyen
 
21,572

 
$
350,329

(1) Unearned and unvested equity incentive plan awards consist of the following:
 
 
 
Stock Award and Initial Grant Date
Name
 
 
LTPS
8/20/2018

 
LTPS
8/21/2017

 
LTPS
6/29/2016

 
LTPS
6/26/2014

 
Donald D. Charron
 
 
 

 
 
 
 
 
 

 
Shares (#)
 
 
48,342

 
33,101

 
26,431

 
6,596

 
Vesting Date(s)
 
 
(a)

 
(b)

 
8/19/2019

 
8/19/2019

 
John H. Kahle
 
 
 

 
 
 
 
 
 

 
Shares (#)
 
 
8,153

 
5,637

 
4,614

 
6,596

 
Vesting Date(s)
 
 
(a)

 
(b)

 
8/19/2019

 
8/19/2019

 
Steven T. Korn
 
 
 
 
 
 
 
 
 

 
Shares (#)
 
 
9,819

 
6,623

 
5,278

 
1,319

 
Vesting Date(s)
 
 
(a)

 
(b)

 
8/19/2019

 
8/19/2019

 
Michael K. Sergesketter
 
 
 
 
 
 
 
 
 

 
Shares (#)
 
 
9,743

 
6,540

 
5,097

 
1,319

 
Vesting Date(s)
 
 
(a)

 
(b)

 
8/19/2019

 
8/19/2019

 
Christopher J. Thyen
 
 
 
 
 
 
 
 
 

 
Shares (#)
 
 
9,184

 
6,195

 
4,874

 
1,319

 
Vesting Date(s)
 
 
(a)

 
(b)

 
8/19/2019

 
8/19/2019

 
(a)
Three remaining annual vesting dates beginning 8/19/2019
(b)
Two remaining annual vesting dates beginning 8/19/2019
LTPS awards represent the number of shares available for issuance pursuant to performance share awards assuming the targeted performance. At the targeted performance level, 100% of the shares eligible to be received under the LTPS award would be issued. The initial grant date shown is the grant date of the initial annual tranche of the award. The 8/20/2018, 8/21/2017, and 6/29/2016, LTPS awards are three-year awards and the 6/29/2014 LTPS awards are five-year awards. The remaining tranches for each LTPS award listed above will have grant dates occurring annually at the beginning of each performance period at approximately the same date each year.
(2) Calculated using the $16.24 closing price of KE Common Stock as reported by NASDAQ on June 30, 2019.


32





Option Exercises and Stock Vested in Fiscal Year 2019
 
 
Stock Awards
 
 
Number of Shares Acquired on Vesting
(#)(1)
 
Value Realized on Vesting
($)(2)
 
 
 
Name
 
 
Donald D. Charron
 
74,351

 
$
1,475,789

John H. Kahle
 
26,802

 
$
531,992

Steven T. Korn
 
15,493

 
$
307,520

Michael K. Sergesketter
 
14,948

 
$
296,702

Christopher J. Thyen
 
14,590

 
$
289,596

(1)
Shares acquired upon vesting during fiscal year 2019 include tranches of prior years LTPS awards granted on August 21, 2017 and issued on August 20, 2018. Shares have not been reduced by the following shares withheld to satisfy tax withholding obligations: Mr. Charron 27,700 shares; Mr. Kahle 7,660 shares; Mr. Korn 4,428 shares; Mr. Sergesketter 4,273 shares; and Mr. Thyen 4,170 shares.
(2)
The value realized is calculated by multiplying the average of the high and low price of our Common Stock as reported by NASDAQ on the August 20, 2018 vesting date of $19.85 by the number of shares that vested.
Nonqualified Deferred Compensation in Fiscal Year 2019
 
 
Executive
Contributions in
Last FY
 
Registrant
Contributions in
Last FY
 
Aggregate Earnings
in Last FY
 
Aggregate
Withdrawals/
Distributions
 
Aggregate Balance
at Last FYE
Name
 
($)(1)
 
($)(2)
 
($)(3)
 
($)
 
($)(4)
Donald D. Charron
 
$

 
$
25,431

 
$
75,563

 
$

 
$
3,243,597

John H. Kahle
 
$
66,850

 
$
11,686

 
$
69,340

 
$

 
$
1,804,761

Steven T. Korn
 
$
31,636

 
$
7,084

 
$
21,725

 
$

 
$
730,229

Michael K. Sergesketter
 
$

 
$
6,798

 
$
15,310

 
$

 
$
692,929

Christopher J. Thyen
 
$
83,843

 
$
6,036

 
$
48,420

 
$

 
$
1,401,911


(1)
These amounts are included in the fiscal year 2019 amounts in the “Salary” column of the Summary Compensation Table.
(2)
Represents Company contributions paid in September 2018, which are included in the fiscal year 2018 amounts in the “All Other Compensation” column of the Summary Compensation Table.
(3)
Earnings do not represent above-market or preferential rates and are not included in the Summary Compensation Table for fiscal year 2019 or prior years.
(4)
The Aggregate Balance is the balance in the NEO’s SERP account as of June 30, 2019. The balance includes executive contributions in fiscal year 2019 and prior fiscal years, which are included in the “Salary” column of the Summary Compensation Table. The balance also includes Company contributions in fiscal year 2019 and prior fiscal years, which are included in the “All Other Compensation” column of the Summary Compensation Table.
Activity disclosed in the table above relates solely to the Company’s SERP which is its only nonqualified deferred compensation arrangement for executive officers. See the “Components of Compensation — Other Compensation and Employee Benefits — Nonqualified Deferred Compensation” section of the Compensation Discussion and Analysis for further information about the material terms of the SERP.


33





Employment Agreements with NEOs and Potential Payments Upon Termination or Change-In-Control
Your Company has outstanding Employment Agreements with Messrs. Charron, Kahle, Korn, Sergesketter, and Thyen, which remained effective on June 30, 2019. Each of the Employment Agreements with our executive officers is in the same form. Pursuant to the Employment Agreements, if the executive’s employment is terminated by the Company without Cause (as defined below) or by the executive for Good Reason (as defined below), the Company will provide compensation and benefits to the executive as follows:
(i)
base salary through the date of termination of employment;
(ii)
(a) unless the executive’s termination occurs during the one-year period before a Change in Control (as defined below) of the Company or during the two-year period following a Change in Control, severance pay equal to the sum of the executive’s annual base salary at the highest rate in effect during the three years immediately preceding the last day of employment and the higher of either the executive’s target cash incentive for the period in which the last day of employment occurs or the executive’s average annual cash incentive award for the three annual cash incentive periods immediately preceding the last day of employment, plus a reimbursement payment of $50,000 (subject to cost-of-living adjustment) in lieu of continued welfare and fringe benefits; or
(b) if the executive’s termination occurs during the one-year period preceding a Change in Control or the two-year period following a Change in Control, severance pay equal to two times the amount determined in (ii)(a) above;
(iii)
reimbursement for up to $25,000 of the costs of outplacement services during the first twelve months following the termination date;
(iv)
Service-Based Incentive Plan Rights. As of the Termination Date,
(a) Executive’s Options and related Stock Appreciation Rights awarded under the 2014 Stock Option and Incentive Plan will become fully vested and exercisable; and
(b) The restricted period will end for executive’s Restricted Shares awarded under the Equity Plan; as soon as practicable within sixty (60) days following the termination date, the Company will make a single payment to executive, equal to the aggregate value of all benefits under the plans identified in this subsection (iv), in the form of cash, shares, or a combination of cash and shares, as determined by the compensation committee of the Board of Directors, in its sole discretion. That single payment will constitute payment in full and complete satisfaction of executive’s rights and benefits under all of executive’s award agreements and the applicable plans.
(v)
Performance-Based Incentive Plan Rights.
(a) After the termination date, executive will continue to have the same rights to the Performance Shares or Performance Units awarded under the 2014 Stock Option and Incentive Plan to the same extent as immediately before the termination date. Executive will become vested in and receive payment of benefits under the plan in the same amounts and at the same times as if executive had continued in active employment through the end of the applicable performance periods and vesting dates.
(b) After the termination date, the Company will pay the executive any unpaid bonus amounts under the Profit Sharing Incentive Bonus Plan, or any subsequent replacement plan, due for the fiscal year immediately preceding the termination date and a prorated amount of the bonus for bonus period in which the termination date occurs. The prorated bonus payment will be in an amount equal to the product of (i) the bonus otherwise payable for the bonus period and (ii) a fraction, the numerator of which is the number of days from the first day of the bonus period to the last day of employment, and the denominator of which is the number of days in the bonus period. Executive will receive payments under the plan at the same times as if the executive had continued in active employment through the end of the applicable performance periods.
(vi)
payment of all SERP benefit amounts, which will become fully vested.
“Cause” means a determination, by at least three-quarters of the members of the Board, that one or more of the following has occurred:
the executive’s willful and continued failure to perform substantially the duties of executive’s position or to follow lawful instructions of a senior executive or the Board that continues for five days after the executive receives written notice identifying such failure;
the executive’s conviction of a felony or of another crime that reflects adversely on the Company;
the executive’s engaging in fraudulent or dishonest conduct, gross misconduct that is injurious to the Company, or any misconduct that involves moral turpitude; or
the executive’s material breach of his obligations under the employment agreement.

34





“Good reason” means one or more of the following has occurred:
a material adverse change in the nature or scope of the executive’s responsibilities;
a reduction in the executive’s salary rate or target cash incentive amount;
a reduction of 5% or more in the aggregate benefits provided to the executive and his dependents under the Company’s employee benefit plans;
a significant diminution in the executive’s position, authority, duties, or responsibilities;
a relocation of the executive’s principal site of employment to a location more than fifty (50) miles from the principal site of employment; or
failure by the Company to obtain an assumption agreement regarding the executive’s employment agreement from any successor of the Company.
In the event of termination of employment for a reason other than by the Company for Cause or by the executive for Good Reason, the executive will receive his base salary through the date of termination and will be entitled to any benefits under the regular terms of the welfare, retirement, Incentive Bonus, SERP, and equity and incentive plans.
“Change in Control” generally means the consummation of any of the following:
the acquisition, by any one person or more than one person acting as a group, of ownership interests representing more than 50% of the total fair market value or of the total voting power of all ownership interests (the “Majority Ownership”) of the Company, any affiliate of the Company that employs the executive, any entity that has a Majority Ownership of either the Company or such affiliate, or any entity in an uninterrupted chain of Majority Ownership culminating in the ownership of the Company or such affiliate (each, a “Relevant Company”) through merger, consolidation, or stock transfer;
the acquisition during any 12-month period, by any one person or more than one person acting as a group, of ownership interests in a Relevant Company possessing 35% or more of the total voting power of all ownership interests in the Relevant Company;
the acquisition of ownership during any 12-month period, by any one person or more than one person acting as a group, of 40% or more of the total gross fair market value of the assets of a Relevant Company; or
the replacement of a majority of members of the Board during any 12-month period, by members whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.
Any occurrence that does not constitute a change in the ownership or effective control, or in the ownership of a substantial portion of the assets, of a Relevant Entity within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code and its interpretive regulations does not constitute a “Change in Control.”
Upon a Change in Control of the Company, the Company will pay to the executives an amount in cash, shares, or a combination thereof at the Company’s discretion equal to the value at the effective date of the Change in Control of all options, stock appreciation rights, restricted stock, performance shares, performance units, and Incentive Bonus Plan payments, all of which will become fully vested. In addition, the executive will become fully vested in the SERP and will receive all benefit amounts under that plan. Further, upon a Change in Control, as an incentive for the executive to remain available to assist with transition matters, the Company will offer the executive a retention bonus equal to 40% of the executive’s annual salary, payable in two equal installments, the first after three months following the Change in Control and the second after an additional three months, in each case as long as the executive remains an employee during such time (or if the executive’s employment is terminated by the Company without Cause or by the executive for Good Reason).
The Employment Agreements also provide that in the event the executive incurs any gross income inclusion, interest or additional tax pursuant to Section 409A of the Internal Revenue Code on any payments from the Company, then the Company will make a supplemental payment to the executive in an amount sufficient to pay the resulting tax liability as well as the tax liability on the supplemental payment. In addition, under the Employment Agreements, if any of the Company’s payments to the executive are subject to excise tax (or any interest or penalties incurred due to excise tax) imposed by Section 4999 of the Internal Revenue Code, the executive will be entitled to reimbursement for the amount of the excise tax (plus interest and penalties). The Committee may, however, decide to reduce or eliminate that reimbursement or to reduce the executive’s compensation to the extent necessary to avoid Section 4999 taxation, if the aggregate compensation payable because of a Change in Control would exceed 5% of the net proceeds of the transaction.
In addition, the Employment Agreements impose non-competition and non-solicitation obligations on the executives during the term of their employment and for a period of 12 months (or a shorter period not less than 6 months, for an executive employed for fewer than 12 months) following termination of employment for any reason.

35





The table below reflects the amount of compensation payable to each of the NEOs in the event of termination of such NEO’s employment or, in certain circumstances described above, upon the consummation of a Change in Control. The amounts shown assume that such termination was effective as of June 30, 2019, and thus includes amounts earned through such time and are estimates of the amounts that would be paid to the NEOs upon their termination. The actual amounts to be paid can only be determined at the time of such NEO’s separation from the Company and could therefore be more or less than the amounts set forth below.
Name
Change in Control
 
Without Cause or with Good Reason
 
Death or Disability
 
Other Termination(5)
Donald D. Charron
 

 
 

 
 

 
 

Lump Sum(1)
$
2,891,514

 
$
1,189,348

 
$

 
$

Accelerated Benefits(2)
$
2,151,216

 
$
2,151,216

 
$
1,359,051

 
$

Retention Bonus(3)
$
283,901

 
$

 
$

 
$

SERP(4)
$
3,243,597

 
$
3,243,597

 
$
3,243,597

 
$
3,243,597

TOTAL
$
8,570,228

 
$
6,584,161

 
$
4,602,648

 
$
3,243,597

John H. Kahle
 

 
 

 
 

 
 

Lump Sum(1)
$
1,577,422

 
$
712,923

 
$

 
$

Accelerated Benefits(2)
$
573,076

 
$
573,076

 
$
439,034

 
$
439,034

Retention Bonus(3)
$
159,120

 
$

 
$

 
$

SERP(4)
$
1,804,761

 
$
1,804,761

 
$
1,804,761

 
$
1,804,761

TOTAL
$
4,114,379

 
$
3,090,760

 
$
2,243,795

 
$
2,243,795

Steven T. Korn
 

 
 

 
 

 
 

Lump Sum(1)
$
1,337,025

 
$
585,287

 
$

 
$

Accelerated Benefits(2)
$
507,215

 
$
507,215

 
$
347,129

 
$

Retention Bonus(3)
$
129,272

 
$

 
$

 
$

SERP(4)
$
730,229

 
$
730,229

 
$
730,229

 
$
730,229

TOTAL
$
2,703,741

 
$
1,822,731

 
$
1,077,358

 
$
730,229

Michael K. Sergesketter
 

 
 

 
 

 
 

Lump Sum(1)
$
1,331,165

 
$
581,268

 
$

 
$

Accelerated Benefits(2)
$
500,799

 
$
500,799

 
$
342,210

 
$

Retention Bonus(3)
$
128,906

 
$

 
$

 
$

SERP(4)
$
692,929

 
$
692,929

 
$
692,929

 
$
692,929

TOTAL
$
2,653,799

 
$
1,774,996

 
$
1,035,139

 
$
692,929

Christopher J. Thyen
 

 
 

 
 

 
 

Lump Sum(1)
$
1,262,201

 
$
551,993

 
$

 
$

Accelerated Benefits(2)
$
474,782

 
$
474,782

 
$
325,047

 
$

Retention Bonus(3)
$
120,909

 
$

 
 
 
$

SERP(4)
$
1,401,911

 
$
1,401,911

 
$
1,401,911

 
$
1,401,911

TOTAL
$
3,259,803

 
$
2,428,686

 
$
1,726,958

 
$
1,401,911


(1)
Payment is calculated based on executive’s annual base salary as of June 30, 2019 plus cash incentive compensation at the target level. The amounts include severance, benefits allowance, outplacement reimbursement, and, for a termination upon a Change in Control, the amount estimated to be payable to the NEO for reimbursement of the federal excise tax on excess parachute payments (Section 4999 of the Internal Revenue Code). This excise tax is payable if the value of certain payments that are contingent upon a Change in Control, referred to as parachute payments, exceeds a safe harbor amount. The computation of the excise tax is complex and is subject to various questions of interpretation. The amount of reimbursement included for excise tax reflects the Company’s best estimate at this time. In addition, there is estimated to be no tax liability pursuant to Section 409A of the Internal Revenue Code and accordingly no amounts are included for reimbursement of this tax.
(2)
Represents the value of unvested LTPS awards, the vesting of which would accelerate as a result of the specified event of termination. LTPS awards are valued by multiplying $16.24, the closing price of the Company’s Common Stock as reported by NASDAQ on June 30, 2019, by the number of unvested shares that would vest upon the specified event of termination. The amount also includes the accrued but unpaid cash incentive compensation due under the Incentive Bonus Plan for fiscal year 2019. These amounts will be paid in a lump sum upon the specified event of termination.

36





(3)
Amount payable in two installments: 50% — 3 months after a Change in Control; and 50% — 6 months after a Change in Control.
(4)
Represents the fully vested SERP balance reflected in the Nonqualified Deferred Compensation Table included in this Proxy Statement, as each NEO has more than five years of service with the Company. This amount will be paid in a lump sum after a Change in Control, termination without Cause or with Good Reason, or death. In the case of disability or voluntary termination, the amount will be paid pursuant to the election of the NEO.
(5)
Includes termination by the Company for Cause and voluntary resignation by the NEO, including retirement prior to attaining the minimum retirement age of 62 in the U.S. In the event of a termination of Mr. Kahle by the Company for cause, he would receive no accelerated benefits. If Mr. Kahle leaves the Company voluntarily, his departure would be considered a retirement and he would receive the indicated accelerated benefits.
The amounts shown in the table above do not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include accrued salary, health benefits, and distribution of account balances under the Retirement Plan.
CEO Pay Ratio
In accordance with Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and Item 402(u) of Regulation S-K (“Item 402(u)”), we are providing the ratio of the annual total compensation of our CEO to the annual total compensation of our median employee. This pay ratio is a reasonable estimate calculated based on the SEC rules and our payroll and employment records using the methodology described below. In calculating the pay ratio, SEC rules allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions reflecting their unique employee populations. Therefore, our reported pay ratio may not be comparable to that reported by other companies due to differences in industries, scope of international operations, business models and scale, as well as the different estimates, assumptions, and methodologies applied by other companies in calculating their respective pay ratios.
As of June 30, 2019, we employed approximately 6,320 employees worldwide that meet the definition of employee under Item 402(u), other than our CEO. As permitted by SEC rules, we excluded employees of our GES facilities which were acquired during fiscal year 2019 and excluded approximately 400 employees. Therefore, an aggregate employee population of approximately 5,920 was considered (the “considered population”) in determining our median employee.
We determined our median employee by reviewing the annualized base salaries as of June 30, 2019 of our considered population, which excludes our CEO, plus their target incentive compensation for the fiscal year ended June 30, 2019. For employees located outside the U.S., their compensation was converted to U.S. dollars using the spot exchange rate as of June 30, 2019. The median employee was determined to be a production operator located outside the U.S. The total compensation of the median employee for fiscal year 2019, which was determined using the same methodology as used to determine our CEO total compensation in the Summary Compensation table, was $13,598. The average foreign exchange rate for fiscal year 2019 was used to convert the median employee’s actual fiscal year 2019 compensation into U.S. dollars.
The total compensation of our CEO was $2,338,261 for fiscal year 2019, as set forth in the Summary Compensation Table. The ratio of our CEO’s total compensation to our median employee’s total compensation for fiscal year 2019 was 172:1.
The CEO Pay Ratio was based on the fiscal year 2019 total compensation of our median employee, determined in the same manner and using the same methodology used to determine the “Total Compensation” shown for our CEO in the Summary Compensation Table. The elements included in the CEO’s total compensation are fully discussed above in the footnotes to the Summary Compensation Table.
To set some context for the above CEO pay ratio, as a large global manufacturing company, the nature of our operations relies significantly on employees outside the United States. Of the 5,920 employees included in our analysis, more than 75% are located outside the United States. The compensation elements and pay levels of our employees differ from country to country based on market trends as well as fluctuations in currency exchange rates. We regularly conduct competitive market pay analysis in all of our countries we operate in to ensure we are competitive with local market practices.

37






EQUITY COMPENSATION PLANS INFORMATION    
The following table provides certain information with respect to our equity compensation plans in effect as of June 30, 2019.
Name
 
Number of Securities
to be Issued upon
Exercise of Outstanding
Options, Warrants, and
Rights

 
Weighted Average
Exercise Price of
Outstanding Options (3)

 
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans

Equity Compensation Plans
 
 

 
 

 
 

Approved by Share Owners (1)
 
447,260

 

 
3,260,385

Not approved by Share Owners (2)
 
64,124

 

 
935,876

Total
 
511,384

 

 
4,196,261


(1)
Consists of performance share awards under the Kimball Electronics, Inc. 2014 Stock Option and Incentive Plan. The number of performance shares assumes the maximum number of shares which the participant is eligible to receive if applicable profitability levels are achieved.
(2)
Consists of phantom stock units granted to non-employee directors under the Kimball Electronics, Inc. Non-Employee Directors Stock Compensation Deferral Plan (the “Deferral Plan”), which are participating securities and are payable in common stock upon a director’s retirement or termination from the Board or death. The Deferral Plan is a nonqualified plan approved by the Board of Directors on October 20, 2016, which allows non-employee directors to defer all, or a portion of, their retainer fees in stock until retirement or termination from the Board or death. The Deferral Plan allows for issuance of up to 1.0 million shares of the Company’s common stock.
(3)
There is no exercise price for performance share awards or phantom stock units.
PROPOSAL TO APPROVE, IN A NON-BINDING, ADVISORY VOTE, THE COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS    
As required by Section 14A of the Exchange Act, we are asking the owners of our Common Stock to approve the compensation paid to our NEOs, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion in this Proxy Statement. This proposal, commonly known as a say on pay proposal, gives our Share Owners the opportunity to express their views on our executive compensation.
The goals of our compensation programs are to create long-term Share Owner value by rewarding executive performance, to retain our executives by using key elements of compensation that provide substantial opportunity for financial rewards in comparison to other professional opportunities, and to align the interests of our executives with our Share Owners by linking compensation to financial performance. We compensate our executive officers using a combination of salary, performance-based cash incentive compensation, and performance share awards. Our compensation programs are designed to align our executives’ contributions to ultimately achieve our goal of maximizing Share Owner value. We believe that our executive compensation programs accomplish this goal.
The Compensation Discussion and Analysis in this Proxy Statement describes our executive compensation program and the decisions made by the Compensation and Governance Committee for fiscal year 2019 in more detail.
We are asking our Share Owners to indicate their support for our NEOs’ compensation as described in this Proxy Statement. This vote is not intended to address any specific item of compensation but rather the overall compensation of our NEOs and the philosophy, policies, and practices described in this Proxy Statement. Accordingly, we recommend that our Share Owners vote “FOR” the following resolution at the annual meeting:
“RESOLVED, that Share Owners of the Company’s Common Stock approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2019 Annual Meeting of Share Owners pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table, and the other related tables and disclosure.”
As an advisory vote, this proposal will not be binding upon us or our Board of Directors or Compensation and Governance Committee. However, we expect that the Compensation and Governance Committee, which is responsible for designing and administering your Company’s executive compensation program, will consider the outcome of the vote when making future compensation decisions for our NEOs.
The Board of Directors recommends that Share Owners vote “FOR” the advisory proposal approving the compensation paid to our NEOs as disclosed in this Proxy Statement.

38






PROPOSAL TO APPROVE THE COMPANY’S 2014 STOCK OPTION AND INCENTIVE PLAN
Preface
The Kimball Electronics, Inc. 2014 Stock Option and Incentive Plan (for the purposes of this section, the “Plan”) was adopted and approved by the Company’s former parent, Kimball International, Inc. in October 2014. Section 162(m) of the Internal Revenue Code requires performance measures to be re-approved by Share Owners every five years in order for the payments to qualify as performance-based compensation. On September 5, 2019, the Board of Directors of your Company, upon the recommendation of the Compensation and Governance Committee, directed that the Plan be submitted to the Share Owners for consideration at the Annual Meeting. There have been no changes to the Plan since its approval in 2014.
Background
Your Board of Directors believes that the long-term success of the Company depends in part on its ability to recruit and retain outstanding individuals as employees and to furnish maximum incentive to these employees to improve operations and increase profits by providing such individuals with the opportunity to acquire shares of your Company (the “Common Stock”) or to receive monetary payments based on the value of our Common Stock. Your Board also believes it is important to align the personal interests of officers and key employees to the common interests of Share Owners through a stock incentive program.
The Plan provides for the broadest variety of awards that could be flexibly administered to carry out the purposes of the Plan. This authority permits the Company to keep pace with changing developments in management compensation and makes the Company competitive with those companies that offer creative incentives to attract and keep key management employees. The flexibility of the Plan allows the Company to respond to changing circumstances such as changes in tax laws, accounting rules, securities regulations, and other rules regarding benefit plans. The Plan grants the Committee (as defined below) discretion in establishing the terms and restrictions deemed appropriate for particular awards as circumstances warrant.
The following summary of the Plan is qualified by and subject to the more complete information set forth in the Plan, a copy of which is attached as Appendix B to this Proxy Statement.
Shares Available
The Plan makes available for awards 4,500,000 shares of Common Stock. All of the 4,500,000 shares may, but need not, be issued pursuant to the Plan. The maximum number of shares which may be granted under the Plan to any one participant during any year is 400,000 shares. If there is a lapse, expiration, termination, forfeiture, or cancellation of any award prior to the issuance of shares or the payment of the cash equivalent therefor, or if shares are issued and thereafter are reacquired by the Company pursuant to rights reserved upon issuance thereof, those shares may again be used for new awards under the Plan. Additionally, shares that are withheld by the Company in order to satisfy payment of the exercise price or any tax withholding obligation, and shares granted pursuant to an award agreement which is subsequently settled in cash rather than shares of Common Stock, may be subject to new awards under the Plan. Shares issued under the Plan may be from authorized but unissued shares or from treasury shares. As of June 30, 2019, 3,260,385 shares of Common Stock remain available for issuance under the Plan. The closing price of the Company’s Common Stock on that date was $16.24.
Administration
The Plan provides for administration by a committee (the “Committee”) of the Board, whose members must meet certain legal qualifications. The Compensation and Governance Committee of the Board currently acts as the Committee under the Plan. Unless specifically limited by the Plan, the Committee will have complete authority to administer the Plan, including making grants, selecting recipients, setting grant terms, establishing administrative rules and procedures, interpreting the plan, and making any other determinations deemed necessary or advisable to properly administer the Plan.
Eligibility of Participation
Employees, Directors, or consultants of the Company or any of its subsidiaries are eligible to participate in the Plan. The selection of participants is within the discretion of the Committee. The Committee will select participants who, in the opinion of the Committee, have a capacity for contributing in a substantial measure to the performance of the Company or its subsidiaries. At this time, the approximate number of persons who participate in the Plan is 60.
Types of Awards
The Plan provides for the grant of any or all of the following types of awards: (1) stock options, including incentive stock options and non-qualified stock options; (2) stock appreciation rights; (3) performance shares or performance units; (4) restricted shares or deferred share units; (5) unrestricted shares and (6) exchange rights. Awards may be granted singly or in combination as determined by the Committee.

39





Stock Options.  A stock option is the right to acquire shares at a fixed exercise price for a fixed period of time. Under the Plan, the Committee may grant awards in the form of options (either incentive or non-qualified stock options) to purchase shares of the Common Stock. The Committee will, with regard to each stock option, determine the number of shares subject to the option, the manner and time of the option’s exercise and vesting, and the exercise price per share of stock subject to the option. No incentive stock option granted under the Plan may be exercised more than ten (10) years after the date of grant (or, in the case of a holder of 10% or more of the Company’s voting stock, five years). Non-qualified stock options may be exercised during such period as the Committee determines at the time of grant; provided, however, that in no event may such options be exercised more than ten years after the date of grant. The exercise price of an incentive stock option will not be less than 100% (or in the case of a holder of 10% or more of the Company’s voting stock, 110%) of the fair market value of the Common Stock on the date the option is granted. No incentive stock option will be granted that would permit a participant to acquire, through the exercise of incentive stock options in any calendar year, under all plans of the Company and its subsidiaries, shares having an aggregate fair market value (determined as of the time any incentive stock option is granted) in excess of $100,000. Subject to anti-dilution adjustments, the maximum aggregate number of shares that may be granted to participants pursuant to incentive stock options is 4,500,000 shares. The Committee will establish the exercise price of options that do not qualify as incentive stock options (non-qualified stock options) at the time the options are granted.
To exercise an option, the participant must provide written notice to the Company. The option price may, at the sole discretion of the Committee, be paid by a participant in cash, shares of Common Stock owned by the participant for at least six months, delivery of a certificate of ownership in which the participant certifies ownership of shares owned by the participant for at least six months, or other appropriate means determined by the Committee.
Stock options granted under the Plan become exercisable in one or more installments in the manner and at the time or times specified by the Committee. Generally, and unless provided otherwise in an award, or plan, if a participant’s continuous service with the Company or a subsidiary is terminated by the Company for any reason whatsoever, or is terminated by the participant for any reason other than death, disability, or retirement, such participant’s options will terminate immediately. Unless the terms of an award provide otherwise, in the event of death or disability, the participant’s outstanding options may be exercised to the extent that the participant was entitled to exercise the options at the date of cessation of continuous service, but only within the one-year period immediately succeeding such participant’s cessation of continuous service by reason of death or disability, and in no event after the applicable expiration date of the options. In the event of the participant’s retirement, all of the participant’s outstanding options will vest immediately and become exercisable, but only within the two-year period immediately succeeding the date of retirement, and in no event after the expiration date of the options. Notwithstanding the foregoing, no incentive stock option may be exercised more than three months after the participant’s cessation of continuous service for any reason other than death or disability.
Stock Appreciation Rights (SARs).  The Plan authorizes the Committee to grant a SAR in tandem with a stock option. A SAR is a right to receive payment equal to 100% of the excess of: (1) the fair market value per share of Common Stock on the date of exercise of such right multiplied by the number of shares with respect to which the right is being exercised, over (2) the aggregate exercise price for such number of shares. Proceeds from SAR exercises may be paid in cash or shares, as determined by the Committee.
A SAR may be granted either at the time of the grant of the related stock option or at any time thereafter during the term of the stock option. Upon the exercise of a stock option, any related SAR will be cancelled automatically to the extent of the number of shares acquired through the stock option exercise.
Performance Shares and Performance Units.  The Committee may grant awards of performance shares or performance units which may be earned by a participant, in whole or in part, if certain goals established by the Committee (including economic profit, net income, operating income, return on equity or assets, earnings per share, cash flow, cost control, share price, revenues, market share, earnings before interest, taxes, depreciation and amortization, and total return to Share Owners) are achieved over a designated period of time. The Committee shall have the discretion to satisfy a Participant’s performance shares or performance units by delivery of cash or stock or any combination thereof.
Restricted Shares/Deferred Share Units.  The Committee may grant awards of restricted shares, in which case the grantee would be granted shares of Common Stock, subject to such forfeiture provisions and transfer restrictions as the Committee determines. Pending the lapse of such forfeiture provisions and transfer restrictions, certificates representing the restricted shares would be held by the Company, but the grantee generally would have all the rights of a Share Owner, including the right to vote the shares and the right to receive all dividends thereon.
While restricted shares would be subject to forfeiture provisions and transfer restrictions for a period of time, the Plan does not set forth any minimum or maximum duration for such provisions and restrictions. The Committee would have the authority to accelerate or remove any or all of the forfeiture provisions and transfer restrictions on the restricted shares prior to the expiration of the restricted period. If the grantee ceases to be employed by the Company for any reason other than death, disability or retirement prior to the lapse of the forfeiture provisions and transfer restrictions, the unvested portion of the restricted shares will be returned to the Company. In the event of death, disability or retirement prior to the expiration of the forfeiture provisions and transfer restrictions, the restricted shares will become fully vested.

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Deferred share units entitle the participant to a payment in cash, Common Stock, or a combination of the two, based on the number of deferred share units payable, multiplied by (i) the fair market value of a share of Common Stock at the time of vesting, plus (ii) credit for dividends paid between the granting and vesting date. Deferred share units may be subject to the same terms and restrictions as a restricted stock award, in the discretion of the Committee.
Unrestricted Shares.  The Committee may award shares of Common Stock to participants without restrictions or payment therefor as consideration for service to the Company or other reasons as the Committee determines to be appropriate.
Other Terms of Awards
The Committee may, by way of an award notice or otherwise, establish such other terms, conditions, restrictions and/or limitations covering the grant of the award as are not inconsistent with the Plan.
Amendment
The Board of Directors reserves the right to amend, modify, suspend, or discontinue the Plan at any time, subject to the rights of participants with respect to any outstanding awards.
Adjustments
The Plan contains provisions for equitable adjustment of awards by the Committee in the event of a merger, consolidation, reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, or issuance of shares by the Company without new consideration. The Committee’s determination with respect to any adjustment will be conclusive.
Termination
The Board of Directors may terminate the Plan at any time. No award may be granted under the Plan after ten (10) years from the effective date of the Plan.
Repricing of Options
Except as permitted under the Plan in connection with a change in capitalization or reorganization, no outstanding options may be amended to reduce the exercise price without the prior approval of the Company’s Share Owners.
Income Tax Consequences
The Company generally will be entitled to a tax deduction for awards under the Plan only to the extent that the participants recognize ordinary income from the award. Section 162(m) of the Internal Revenue Code sets a limit of $1 million on the amount the Company can deduct for compensation paid to our “covered employees.” Historically, compensation meeting the requirements of “qualified performance-based compensation” under Section 162(m) did not count toward the $1 million limit. However, the Tax Cuts and Jobs Act (“Tax Reform”), which was enacted on December 22, 2017, made a number of changes to Section 162(m) including the repeal of the “qualified performance-based compensation” exemption, subject to certain transition rules. Tax Reform also expanded the definition of “covered employees” by including both the chief financial officer and certain former named executive officers as “covered employees.” Our general philosophy has been to attempt to qualify compensation for tax deductibility under Section 162(m) of the Internal Revenue Service Code, wherever we deem appropriate, recognizing that, under certain circumstances, the limitations may be exceeded. Historically, treatment as “qualified performance-based compensation” has been sought to the extent practicable and only to the extent that it is consistent with our overall compensation objectives. However, due to uncertainties regarding the scope of relief under Tax Reform, there can be no guarantee that any compensation paid to our “covered employees” in excess of $1 million will be or remain exempt from Section 162(m).
Other Information
The Plan will be approved and affirmed if the number of shares of Common Stock voted in favor of the proposal represents a majority of the shares cast at the meeting.
The Board of Directors recommends a vote “FOR” approval and affirmation of the Kimball Electronics, Inc. 2014 Stock Option and Incentive Plan.

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PROPOSAL TO APPROVE THE COMPANY’S 2019 PROFIT SHARING INCENTIVE BONUS PLAN
Background.  Your Board believes that the long-term success of your Company depends, in part, on its ability to recruit and retain outstanding individuals as employees and to furnish these employees maximum incentive to improve operations and increase profits. Your Board also believes it is important to align compensation of officers and employees with the interests of Share Owners. In accordance with this belief, your Board, upon recommendation of the Compensation and Governance Committee (“Committee”) of the Board (comprised of independent outside directors within the meaning of Section 162(m) of the Internal Revenue Code), has unanimously adopted and recommends for Share Owner approval, the Kimball Electronics, Inc. 2019 Profit Sharing Incentive Bonus Plan (the “Plan”). See Appendix C to this Proxy Statement for a description of the Plan.
The Company’s former parent, Kimball International, Inc., approved the Plan on October 3, 2014. Two amendments were made to the Plan to provide for a CEO-only bonus category and local bonus payment requirements pertaining to the Company’s global operations.
The Plan includes profit determinations at two levels within the Company: (1) Worldwide for Company-wide performance (“Worldwide”); and (2) at a Business Unit level for the performance of designated operations within the Company (“Business Unit”). All executive officers and other eligible employees participate at the Worldwide or Business Unit level, or a combination thereof. 
Share Owner approval of the Plan is now sought to qualify the awards under the Plan as “performance-based compensation” under Section 162(m) of the Internal Revenue Code. Section 162(m) disallows a deduction for certain compensation paid in excess of $1 million to “covered employees.” Historically, compensation meeting the requirements of “qualified performance-based compensation” under Section 162(m) did not count toward the $1 million limit. However, Tax Reform made a number of changes to Section 162(m) including the repeal of the “qualified performance-based compensation” exemption, subject to certain transition rules. Our general philosophy has been to attempt to qualify compensation for tax deductibility under Section 162(m) of the Internal Revenue Service Code, wherever we deem appropriate, recognizing that, under certain circumstances, the limitations may be exceeded. Historically, treatment as “qualified performance-based compensation” has been sought to the extent practicable and only to the extent that it is consistent with our overall compensation objectives. However, due to uncertainties regarding the scope of relief under Tax Reform, there can be no guarantee that any compensation paid to our “covered employees” in excess of $1 million will be or remain exempt from Section 162(m).
Goal.  The goal of the Plan is to link an employee’s compensation with the long-term financial success of the Company. The intent is to encourage participants to think, act, and be rewarded like owners, and to seek out and undertake initiatives that continuously improve the long-term performance of the Company.
Eligibility.  Executive officers and substantially all full-time salaried employees of the Company, except those covered under commission compensation programs, are eligible to participate in the Plan (“Participants”).
Bonus Criteria.  The Plan measures profitability in terms of “economic profit”, generally equal to net income less the cost of capital. New capital expenditures are not included in computing the cost of capital for an appropriate period of time to encourage needed capital investments. The Committee must approve the profitability tiers (“Targets”) within the first 25% of the period of service to which the Targets relate, but not later than 90 days after the commencement of that period (“Relevant Time Period”). The Committee, within the Relevant Time Period, may make adjustments for non-operating income and loss and other profit-computation elements as it deems appropriate to provide optimal incentives for eligible employees. If other adjustments are necessary beyond the Relevant Time Period, the NEOs will not be eligible to receive any bonus resulting from such adjustments.
Bonus Amounts.  The Plan establishes potential bonus amounts as a range of percentages of the Participant’s salary, with the bonus percentage increasing with higher levels of profitability. The Plan also establishes different bonus percentage ranges across several Participant categories, setting higher bonus-percentage ranges for Participants who, by virtue of their responsibilities, are expected to have a greater effect on the Company’s profitability. The CEO’s payout will be ten percentage points higher than the other executive officers in the Worldwide Plan with a cap of 110 percent. Other than the CEO, at the highest responsibility levels, Participants may earn bonuses of up to 100 percent of base salary. The Plan is designed so that Participants will achieve maximum bonuses only if the Company achieves economic profitability near the top quartile of leading public companies and/or its competitors. A Participant’s total bonus under the Plan may not exceed $1 million for any fiscal year. Awards under the Plan will be determined based on actual future performance. Therefore, the amounts that will be paid pursuant to the Plan in future years are not currently determinable.

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The amounts payable pursuant to the Plan (prior to its amendment and restatement) relating to performance in the fiscal year ended June 30, 2019, for the following individuals and groups were as follows: 
Name and Position
Amount of Fiscal Year 2019 Award
Donald D. Charron
     Chairman of the Board, Chief Executive Officer
$
292,223

John H. Kahle
    Vice President, General Counsel, Chief Compliance Officer, Secretary
$
167,076

Steven T. Korn
    Vice President, North American Operations
$
133,061

Michael K. Sergesketter
     Vice President, Chief Financial Officer
$
132,167

Christopher J. Thyen
    Vice President, New Platforms
$
124,453

All Current Executive Officers
$
1,135,999

Non-Executive Director Group
None

Non-Executive Officer Employee Group
$
5,655,526

Administration.  For a particular fiscal year, the Committee must approve the Targets, profit-computation adjustments, and any other conditions at the worldwide profitability level within the Relevant Time Period. Company management will determine the comparable features for each Business Unit profitability level. At the end of each fiscal year, but before Plan bonuses may be paid, the Committee must certify in writing that Targets and other conditions have been satisfied. The Committee does not have the discretion to increase the amount of any bonus for the NEOs. The Board may amend or terminate the Plan effective for future fiscal years. The Board will not, however, amend the Plan without Share Owner approval if such approval is required to comply with Section 162(m) of the Internal Revenue Code or other applicable law or to comply with applicable stock exchange requirements. 
Bonus Payments.  If a Participant’s bonus for the fiscal year does not exceed $2,000, the bonus will be paid in a single sum during the following August. Bonuses exceeding that amount will be paid during the following fiscal year in five cash installments — 50% in the following August and 12.5% in each of the following September, January, April, and June, unless local legal requirements pertaining to the Company’s global operations dictate otherwise.  If a Participant’s employment is terminated before a scheduled payment date, the former employee will not be entitled to receive that bonus payment or any subsequent bonus payment, unless the Participant’s termination was caused by retirement after attaining the country-specific retirement age (62 in the United States), death, or permanent disability, in which case, that Participant (or beneficiary, in the event of the participant’s death) will be entitled to receive all bonus payments for the previous fiscal year and a pro-rata share for the current fiscal year, all to be paid in full within 2½ months after the end of the Company’s fiscal year in which the Participant’s termination occurs.
The Board of Directors recommends a vote “FOR” approval of the Plan, as amended and restated.

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PROPOSAL TO APPROVE AMENDMENT OF THE COMPANY’S ARTICLES OF INCORPORATION TO PROVIDE FOR ELIMINATION OF A SUPERMAJORITY VOTING REQUIREMENT FOR THE ARTICLES OF INCORPORATION AMENDMENT UNDER CERTAIN CIRCUMSTANCES

Background. The Company’s Board of Directors is committed to good corporate governance. The Compensation and Governance Committee of the Board periodically reviews the Company’s overall governance structure and makes recommendations on particular governance issues or practices as warranted.
The Committee and Board have carefully reviewed and considered the merits, rationales, and numerous arguments for and against supermajority voting requirements for any changes in the Company’s Articles of Incorporation (“Articles”).
Based upon that review and full and due consideration, the Board, based upon the recommendation of the Compensation and Governance Committee, has concluded that the following modifications to the Company’s Articles are most appropriate for the Company and in the best interests of our Share Owners:
Supermajority Voting - Elimination of a supermajority voting requirement for amendment of the Articles is most appropriate for the following reasons:
Share Owner Accountability - Share Owner voting rights are important and the primary way in which Share Owners can make their voices heard. If a majority of the shareholders approve of a change to the Articles, that should be sufficient to take action.
Evolution Post-Spin - many provisions of the Company’s governance structure were adopted and appropriate for a newly-spun company. Since the Company has now operated for over four years as a standalone public company with a Board that has remained relatively intact during that time, there exists little reason to restrict the Company’s shareholder rights relating to Article amendments.
Benchmarking - majority voting for Article amendments is consistent with the practices of most public companies.
The following summary of the changes is qualified by and subject to the more complete information set forth in the amended and restated Articles, a copy of which is attached as Appendix D to this Proxy Statement.
Supermajority Voting. The Company currently has a requirement for a supermajority (2/3) Share Owner vote to change the Company’s Articles in these limited circumstances:
a.
Removal of Directors for other than Cause
b.
Special Meeting of Shareholders - which can only be called by the Board
c.
Indemnification of Directors
Therefore, the Board hereby proposes that the Share Owners approve the following amendment to Section 7.1 of our Articles of Incorporation:

“7.1 Amendment or Repeal. Except as otherwise expressly provided for in these Articles of Incorporation, the Corporation shall be deemed, for all purposes, to have reserved the right to amend, alter, change, or repeal any provision contained in these Articles of Incorporation to the extent and in the manner now or hereafter permitted or prescribed by statute, and all rights herein conferred upon shareholders are granted subject to such reservation; provided, however, that any amendment to Section 5.4 of Article V, or Section 6.2 or Section 6.9 of Article VI, of these Articles of Incorporation shall require the approval of the holders of at least two-thirds (2/3) of the outstanding shares of the Common Stock.”

The amendments to the Articles as proposed would simply eliminate this supermajority requirement and any amendment for the circumstances above would only need to be approved by a majority (greater than 50%) of the Share Owners.
The Board of Directors recommends a vote “FOR” approval of this proposal to amend the Articles of Incorporation of the Company.

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PROPOSAL TO APPROVE AMENDMENT OF THE COMPANY’S ARTICLES OF INCORPORATION TO PROVIDE FOR MAJORITY VOTING IN UNCONTESTED DIRECTOR ELECTIONS
Background. The Company’s Board of Directors is committed to good corporate governance. The Compensation and Governance Committee of the Board periodically reviews the Company’s overall governance structure and makes recommendations on particular governance issues or practices as warranted.
The Committee and Board have carefully reviewed and considered the merits, rationales, and numerous arguments for and against plurality and/or majority voting in director elections.
Based upon that review and full and due consideration, the Board, based upon the recommendation of the Compensation and Governance Committee, has concluded that the following modifications to the Company’s Articles and By-Laws are most appropriate for the Company and in the best interests of our Share Owners: