DEF 14A

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

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¨   Preliminary Proxy Statement
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þ   Definitive Proxy Statement
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¨   Soliciting Material Under Rule 14a-12

POLYONE CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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LOGO

POLYONE CORPORATION

Notice of 2012

Annual Meeting of Shareholders

and Proxy Statement

 

 

 


 

LOGO

March 23, 2012

Dear Fellow Shareholder:

You are cordially invited to attend the PolyOne Corporation Annual Meeting of Shareholders, which will be held at 9:00 a.m. on Wednesday, May 9, 2012, at the LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio.

A Notice of the Annual Meeting and the Proxy Statement follow. Please review this material for information concerning the business to be conducted at the Annual Meeting and the nominees for election as Directors.

You will also find enclosed a proxy and/or voting instruction card and an envelope in which to return the card. Whether or not you plan to attend the Annual Meeting, please complete, sign, date and return your enclosed proxy and/or voting instruction card, or vote by telephone or over the Internet as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. Your vote is very important. You may, of course, withdraw your proxy and change your vote prior to or at the Annual Meeting, by following the steps described in the Proxy Statement.

I appreciate the strong support of our shareholders over the years and look forward to seeing you at the meeting.

 

Sincerely,
LOGO

Stephen D. Newlin

Chairman, President and Chief Executive Officer

PolyOne Corporation

Please refer to the accompanying materials for voting instructions.


POLYONE CORPORATION

NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS

The Annual Meeting of Shareholders of PolyOne Corporation will be held at the LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio at 9:00 a.m. on Wednesday, May 9, 2012. The purposes of the meeting are:

 

  1. To elect as Directors the ten nominees named in the proxy statement and recommended by the Board of Directors;

 

  2. To approve, on an advisory basis, our named executive officer compensation;

 

  3. To approve the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan;

 

  4. To ratify the appointment of Ernst & Young LLP as PolyOne Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2012; and

 

  5. To consider and transact any other business that may properly come before the meeting.

Shareholders of record at the close of business on March 14, 2012 are entitled to notice of and to vote at the meeting.

 

For the Board of Directors
LOGO
LISA K. KUNKLE

Vice President, General Counsel

and Secretary

March 23, 2012

Important Notice Regarding the Availability of Proxy Materials

for the Annual Meeting of Shareholders to be held on May 9, 2012:

The proxy statement, proxy card and annual report to shareholders for the fiscal year ended December 31, 2011 are available at our internet website, www.polyone.com, on the “Investors Relations” page.

 

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POLYONE CORPORATION

PolyOne Center

33587 Walker Road

Avon Lake, Ohio 44012

PROXY STATEMENT

Dated March 23, 2012

Our Board of Directors respectfully requests your proxy for use at the Annual Meeting of Shareholders to be held at the LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio at 9:00 a.m. on Wednesday, May 9, 2012, and at any adjournments of that meeting. This proxy statement is to inform you about the matters to be acted upon at the meeting.

If you attend the meeting, you may vote your shares by ballot. If you do not attend, your shares may still be voted at the meeting if you sign and return the enclosed proxy card. Common shares represented by a properly signed card will be voted in accordance with the choices marked on the card. If no choices are marked, the shares will be voted to elect the nominees listed on pages 4 through 8 of this proxy statement, to approve, by non-binding vote, our named executive officer compensation, to approve the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan and to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012. You may revoke your proxy before it is voted by giving notice to us in writing or orally at the meeting. Persons entitled to direct the vote of shares held by the following plans will receive a separate voting instruction card: The PolyOne Retirement Savings Plan and PolyOne Canada Inc. Retirement Savings Program. If you receive a separate voting instruction card for one of these plans, you must sign and return the card as indicated on the card in order to instruct the trustee on how to vote the shares held under the plan. You may revoke your voting instruction card before the trustee votes the shares held by it by giving notice in writing to the trustee.

Shareholders may also submit their proxies by telephone or over the Internet. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. These procedures allow shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. Instructions for voting by telephone and over the Internet are printed on the proxy cards.

We are mailing this proxy statement and the enclosed proxy card and, if applicable, the voting instruction card, to shareholders on or about March 23, 2012. Our headquarters are located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012 and our telephone number is (440) 930-1000.

 

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PROPOSAL 1 — ELECTION OF DIRECTORS

Our Board of Directors currently consists of eleven Directors. Mr. Mooney has recently indicated that he will retire from our Board of Directors at the 2012 Annual Meeting of Shareholders. Following Mr. Mooney’s retirement, our Board will consist of ten Directors. Each Director serves for a one-year term and until a successor is duly elected and qualified, subject to the Director’s earlier death, retirement or resignation. Our Corporate Governance Guidelines provide that all non-employee Directors will retire from the Board not later than the first day of the month following the date of the Director’s 72nd birthday, although the Board may waive this limitation if it determines that such a waiver is in the Company’s best interests.

A shareholder who wishes to nominate a person for election as a Director must provide written notice to our Secretary in accordance with the procedures specified in Regulation 12 of our Code of Regulations (“Regulations”). Generally, the Secretary must receive the notice not less than 60 nor more than 90 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting. The notice must set forth, as to each nominee, the name, age, principal occupations and employment during the past five years, name and principal business of any corporation or other organization in which such occupations and employment were carried on and a brief description of any arrangement or understanding between such person and any others pursuant to which such person was selected as a nominee. The notice must include the nominee’s signed consent to serve as a Director if elected. The notice must set forth the name and address of, and the number of our common shares owned by, the shareholder giving the notice and the beneficial owner on whose behalf the nomination is made and any other shareholders believed to be supporting such nominee.

Following are the nominees for election as Directors for terms expiring in 2013, a description of the business experience of each nominee and the names of other publicly-held companies for which he or she currently serves as a director or has served as a director during the past five years. Each nominee for election as Director was previously elected by our shareholders, with the exceptions of Gregory J. Goff and William A. Wulfsohn. As permitted by Regulations 10(a) and 13 of our Regulations, the Board increased its size to eleven members and elected Mr. Goff and Mr. Wulfsohn to fill the resulting vacancies in October 2011. Both Mr. Goff and Mr. Wulfsohn were recommended to our Nominating and Governance Committee for election to the Board by a third-party search firm, Russell Reynolds Associates, Inc.

In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that the nominee should serve as a Director, the Board also believes that all of our Director nominees are individuals of substantial accomplishment with demonstrated leadership capabilities. Each of our Directors also has the following personal characteristics, which are required attributes for all Board nominees: high ethical standards, integrity, judgment, and an ability to devote sufficient time to the affairs of our Company. Each of the nominees is a current member of the Board. The reference below each Director’s name to the term of service as a Director includes the period during which the Director served as a Director of The Geon Company (“Geon”) or M.A. Hanna Company (“M.A. Hanna”), each one of our predecessors. The information is current as of March 14, 2012.

 

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Our Board of Directors recommends a vote FOR the election to the Board of each of the following nominees:

 

J. Douglas Campbell

Director since 1993

Age — 70

   Retired Chairman and Chief Executive Officer of ArrMaz Custom Chemicals, Inc., a specialty mining and asphalt additives and reagents producer. Mr. Campbell served in this capacity from December 2003 until the company was sold in July 2006. Mr. Campbell served as President and Chief Executive Officer and was a Director of Arcadian Corporation, a nitrogen chemicals and fertilizer manufacturer, from December 1992 until the company was sold in 1997. We believe that Mr. Campbell is particularly qualified to serve as a member of our Board because of his in-depth knowledge of our industry and his experience in holding leadership roles at other manufacturing companies. Mr. Campbell has served as chief executive officer and has held other officer positions in the oil, chemical and plastics industries. We believe that the knowledge and skills that he gained in these roles provides him with an ideal background for serving as a Director of PolyOne.

Dr. Carol A. Cartwright

Director since 1994

Age — 70

   Retired President of Bowling Green State University, a public higher education institution. Dr. Cartwright served in this role from January 2009 until June 2011 and served as Interim President from July 2008 to January 2009. Dr. Cartwright served as President of Kent State University, a public higher education institution, from 1991 until her retirement in June 2006. Dr. Cartwright currently serves on the Boards of Directors of KeyCorp and FirstEnergy. From 2002 to 2008, Dr. Cartwright served on the Board of Directors of The Davey Tree Expert Company. We believe that Dr. Cartwright has gained many of the skills and attributes necessary to serve as an effective member of our Board in her 19 years of experience serving as a chief executive officer of large, complex, non-profit organizations. In her leadership role at these organizations, she has had responsibility for direct oversight for strategic planning, program development, financial management, capital construction, human resources, labor negotiations and investments. This specific experience, as well as her proven ability to lead, makes Dr. Cartwright an invaluable member of our Board.

Richard H. Fearon

Director since 2004

Age — 56

   Vice Chairman and Chief Financial and Planning Officer of Eaton Corporation, a global manufacturing company, since February 2009. Mr. Fearon served as Executive Vice President, Chief Financial and Planning Officer from April 2002 until February 2009. Mr. Fearon served as a Partner of Willow Place Partners LLC, a corporate advisory firm, from 2001 to 2002 and was the Senior Vice President Corporate Development for Transamerica Corporation, a financial services organization, from 1995 to 2000. We believe that Mr. Fearon’s financial expertise, experience and knowledge of international operations, knowledge of diversified companies and

 

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   corporate development expertise provide him with the qualifications and skills to serve as a valued member of our Board. Mr. Fearon’s advice with respect to financial issues affecting our company is specifically valued and utilized, especially in his role as Chair of our Audit Committee. As a sitting executive and leader at a multi-national corporation, Mr. Fearon is particularly equipped to advise our Board on current issues facing our company.

Gregory J. Goff

Director since 2011

Age — 55

   President and Chief Executive Officer of Tesoro Corporation, a leading company in the independent refining and marketing business since May 2010, and Chairman and Chief Executive Officer of Tesoro Logistics, a NYSE-listed master limited partnership that owns, operates and develops crude oil and refined products and logistics assets, since April 2011. Mr. Goff served as Senior Vice President, Commercial of ConocoPhillips Corporation, an integrated energy company, from 2008 to 2010. Mr. Goff also held various other positions at ConocoPhillips from 1981 to 2008. Mr. Goff serves as a director of the American Fuels and Petrochemical Manufacturers and on the National Advisory Board of the University of Utah Business School. From 2008 to 2010, Mr. Goff served on the Board of Directors of DCP Midstream GP, LLC. We believe that, as a new Board member with proven leadership capabilities, Mr. Goff will provide a fresh perspective on our strategy and operations. Mr. Goff’s deep understanding of the energy industry and specialty chemical businesses will provide valuable insight into PolyOne’s strategic planning. His experience as the Chief Executive Officer of a large, independent refining and petroleum products marketing company and his participation as a member of national trade associations provide him with invaluable experience that can enhance our Board.

Gordon D. Harnett

Director since 1997

Age — 69

   Lead Director of our Board of Directors since July 18, 2007. Retired Chairman, President and Chief Executive Officer of Materion Corp. (formerly known as Brush Engineered Materials Inc.), an international supplier and producer of high performance engineered materials. Mr. Harnett served in this capacity from 1991 until his retirement in May 2006. Mr. Harnett serves on the Boards of Directors of EnPro Industries, Inc. and Acuity Brands, Inc. From 1995 to 2011, he also served on the Board of Directors of The Lubrizol Corporation. We believe that Mr. Harnett’s extensive experience in the specialty chemicals industry provides him with unique skills in serving as a PolyOne Director. Mr. Harnett’s past experience includes leadership roles at a number of specialty chemical companies, including serving as a senior vice president of Goodrich Specialty Chemicals and president of Tremco, in addition to his role as chief executive officer at Brush Engineered Materials. Mr. Harnett is also uniquely qualified to assist our Board on international issues, as he previously resided in Canada and Japan

 

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   while actively involved in the international operations of his former employers. Mr. Harnett, Chair of our Compensation Committee, is especially knowledgeable in the area of executive compensation, due to his experiences serving on the compensation committees of other public companies.

Richard A. Lorraine

Director since 2008

Age — 66

   Retired Senior Vice President and Chief Financial Officer of Eastman Chemical Company, a specialty chemicals company. Mr. Lorraine served in this capacity from 2003 to 2008. Mr. Lorraine also served as Executive Vice President and Chief Financial Officer of Occidental Chemical Company, a chemical manufacturing company, from 1995 to 2003. Mr. Lorraine serves on the Board of Directors of Carus Corporation. Mr. Lorraine provides our Board with the broad business perspective that he gained in extensive leadership roles in varying industries. He is particularly equipped to advise our Board and Audit Committee on financial issues affecting our company due to his prior roles as chief financial officer. In addition, he has a significant international background and in-depth commercial experience. All of these attributes provide Mr. Lorraine with valuable skills that he shares with our Board.

Stephen D. Newlin

Director since 2006

Age — 59

   Chairman, President and Chief Executive Officer of PolyOne since February 2006. Mr. Newlin served as President — Industrial Sector of Ecolab, Inc., a global leader in cleaning and sanitizing specialty chemicals, products and services from 2003 to 2006. Mr. Newlin served as President and a director of Nalco Chemical Company, a manufacturer of specialty chemicals, services and systems, from 1998 to 2001 and was Chief Operating Officer and Vice Chairman from 2000 to 2001. Mr. Newlin serves on the Board of Directors of Black Hills Corporation. From 2007 to 2012, he also served on the Board of Directors of The Valspar Corporation. We believe that, as our chief executive officer, Mr. Newlin is particularly qualified to serve on our Board. He has gained significant experience in the specialty chemical industry, serving as a top executive officer in this industry for over 30 years. In addition, in his role as our Chief Executive Officer, he has proven that he is an effective leader. He is also able to contribute his knowledge and experience with respect to international issues as a result of his global work responsibilities and living abroad. Mr. Newlin’s depth of Board experience, having served on five public company boards, has allowed him to understand his role as Chairman versus Chief Executive Officer and has provided him with the skills necessary to serve as an effective leader of our Board.

 

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William H. Powell

Director since 2008

Age — 66

   Retired Chairman and Chief Executive Officer of National Starch and Chemical Company, a specialty chemicals company. Mr. Powell served in this capacity from 1999 until his retirement in 2006. Mr. Powell serves on the Boards of Directors of Granite Construction Incorporated and FMC Corporation. From 2007 to 2011, he also served on the Board of Directors of Arch Chemicals, Inc. We believe that Mr. Powell’s previous employment as a chief executive officer has provided him with the leadership skills that are important in serving as a Director of our company. His prior employment in the specialty chemicals industry is particularly relevant. This experience gives him the knowledge and insights to provide valuable advice and strategic direction in addressing the issues facing our company. Mr. Powell also serves as a Director of other public companies, which provides him with experiences he can utilize when serving as a member of our Board.

Farah M. Walters

Director since 1998

Age — 67

   President and Chief Executive Officer of QualHealth, LLC, a health care consulting firm since 2005. From 1992 until her retirement in June 2002, Ms. Walters was the President and Chief Executive Officer of University Hospitals Health System and University Hospitals of Cleveland. Ms. Walters currently serves on the Board of Directors of Celanese Corporation. From 1993 to 2006, Ms. Walters served on the Board of Directors of Kerr-McGee Corp. From 2003 to 2006, Ms. Walters served on the Board of Directors of Alpharma Inc. Ms. Walters’ extensive business experience provides her with the attributes and skills that uniquely qualify her to serve as a member of our Board of Directors. She has over ten years of experience as a chief executive officer of a $2 billion company and a proven track record of success in a leadership role. Further, she has served on the Board of Directors of other public companies, including those in the chemical industry. Ms. Walters’ business experience has provided her with the necessary background to allow her to provide practical and relevant advice on the issues facing our company.

William A. Wulfsohn

Director since 2011

Age — 50

   President and Chief Executive Officer of Carpenter Technology Corporation, a NYSE-listed leading provider of specialty metals to numerous industries, since July 2010. Mr. Wulfsohn has served as a director of Carpenter since April 2009. From 2005 to 2010, he served as Senior Vice President, Coatings of PPG Industries, a global supplier of coatings and specialty products and services, and from 2003 to 2005, as Vice President, Coatings and Managing Director, PPG Europe. Prior to joining PPG, Mr. Wulfsohn worked for Morton International, a diversified wholly-owned subsidiary of chemical company Rohm & Haas, as Vice President and General Manager, Automotive Coatings; for Rohm & Haas, a global specialty materials company, as Vice President, Automotive

 

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   Coatings Business Director; and for Honeywell, a diversified technology and manufacturing company, as Vice President and General Manager, Nylon System. He also worked as an Associate with McKinsey & Company, a global management consulting firm. We believe that Mr. Wulfsohn is a valuable new addition to our Board. He is a proven leader, with deep and varied experience in technology and successful business operations. His background in managing operations in Asia/Pacific provides him with international expertise that can be of value to PolyOne. Further, we believe his experience as a Chief Executive Officer of a publicly-traded specialty company has given him unique skills to assist in providing guidance on PolyOne’s continuing transformation.

CORPORATE GOVERNANCE AND BOARD MATTERS

Director Independence

Our Corporate Governance Guidelines require that a substantial majority of the members of our Board of Directors be “independent” under the listing standards of the New York Stock Exchange (“NYSE”). To be considered “independent,” the Board of Directors must make an affirmative determination that the Director has no material relationship with us other than as a Director, either directly or indirectly (such as an officer, partner or shareholder of another entity that has a relationship with us or any of our subsidiaries), and that the Director is free from any business, family or other relationship that would reasonably be expected to interfere with the exercise of independent judgment as a Director. In each case, the Board of Directors considers all relevant facts and circumstances in making an independence determination.

The Board of Directors determined that J. Douglas Campbell, Carol A. Cartwright, Richard H. Fearon, Gregory J. Goff, Gordon D. Harnett, Richard A. Lorraine, Edward J. Mooney, William H. Powell, Farah M. Walters and William A. Wulfsohn are independent under the NYSE “independent director” listing standards. In making this determination, the Board reviewed significant transactions, arrangements or relationships that a Director might have with our customers or suppliers. In making this determination with respect to Mr. Fearon, the Board determined that the sales of products by the Company to Eaton Corporation, of which Mr. Fearon serves as an executive officer, did not create a material relationship or impair the independence of Mr. Fearon because Mr. Fearon receives no material direct or indirect benefit from such transactions, which were undertaken in the ordinary course of business. For 2011, the amount paid to the Company from sales to Eaton Corporation was less than 0.3% of the Company’s consolidated revenues.

Lead Director

Our independent directors meet regularly in executive sessions. Our Corporate Governance Guidelines provide that the independent directors are to select a Lead Director to preside at executive sessions. The Lead Director acts as the key liaison between the independent directors and the Chief Executive Officer and is responsible for coordinating the activities of the other independent directors and for performing various other duties as may from time to time be determined by the independent directors. Mr. Harnett has served as our Lead Director since July 2007.

 

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Board Leadership Structure

Mr. Newlin is the Chairman of our Board of Directors and our Chief Executive Officer. The Board of Directors believes that this leadership structure is appropriate for our Company given the experience and active involvement of our independent directors, our corporate governance practices, and our Lead Director’s role. Having a Lead Director role helps to ensure greater communication between management and the independent directors, increases the independent directors’ understanding of management decisions and Company operations, and provides an additional layer of independent oversight of the Company. The Board of Directors believes that this approach serves to strike an effective balance between management and independent director participation in the board process. Combining the Chairman and Chief Executive Officer position gives the Company a clear leader and improves efficiencies in the decision-making process.

Board Attendance

The Board met seven times during 2011, the calendar year being our fiscal year. Each member of our Board attended at least 75% of the meetings held by our Board and the meetings held by the committees of our Board on which such member served during the period for which he served as a Director. Each Director is expected to attend the Annual Meeting of Shareholders. In 2011, eight of our Directors serving at that time attended the Annual Meeting of Shareholders.

Committees of the Board of Directors

As of the date of this proxy statement, our Board has eleven directors and the following four committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Environmental, Health and Safety Committee. Our Financial Policy Committee was dissolved on July 12, 2011, as the matters typically addressed by this committee were often reviewed by the full Board as well.

The following table sets forth the membership of the standing committees of our Board of Directors, as of the date of this proxy statement, and the number of times each committee met in 2011. The current function of each committee is described below.

 

Director     Audit Committee       Compensation  
Committee
  Environmental,
Health and
  Safety Committee  
    Nominating  and  
Governance
Committee

Mr. Campbell

      X   X    

Dr. Cartwright

  X             X*

Mr. Fearon

    X*           X

Mr. Goff

          X   X

Mr. Harnett

  X     X*        

Mr. Lorraine

  X           X

Mr. Mooney

      X     X*    

Mr. Newlin

          X    

Mr. Powell

      X   X    

Ms. Walters

      X       X

Mr. Wulfsohn

      X        

Number of Meetings in 2011

  8   6   2   2

 

X — Member

* — Chairperson

 

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The Audit Committee meets with appropriate financial and legal personnel and independent auditors to review our corporate accounting, internal controls, financial reporting and compliance with legal and regulatory requirements. The Committee exercises oversight of our independent auditors, internal auditors and financial management. The Audit Committee appoints the independent auditors to serve as auditors in examining our corporate accounts. Our common shares are listed on the NYSE and are governed by its listing standards. All members of the Audit Committee meet the financial literacy and independence requirements as set forth in the NYSE listing standards. The Board of Directors has determined that Mr. Fearon meets the requirements of an “audit committee financial expert” as defined by the Securities and Exchange Commission.

The Compensation Committee reviews and approves the compensation, benefits and perquisites afforded our executive officers and other highly-compensated personnel. The Committee has similar responsibilities with respect to non-employee Directors, except that the Committee’s actions and determinations are subject to the approval of the Board of Directors. The Committee also has oversight responsibilities for all of our broad-based compensation and benefit programs and provides policy guidance and oversight on selected human resource policies and practices. To help it perform its responsibilities, the Committee makes use of PolyOne resources, including members of senior management in our human resources, legal and finance departments. In addition, the Committee directly engages the resources of Towers Watson (the “Consultant”) as an independent outside compensation consultant to assist the Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. In 2011, the Committee, assisted by the Consultant, analyzed competitive market compensation data relating to salary, annual incentives and long-term incentives. In analyzing competitive market data, the Committee reviewed data from a peer group of similarly-sized U.S. chemical companies and reviewed data from the Consultant’s Compensation Data Bank and other published surveys. The Consultant then assisted the Committee in benchmarking base salaries and annual and long-term incentive targets to approximate the market median. The Consultant assisted our human resources department in preparing tally sheets to provide the Committee with information regarding our executive officers’ total annual compensation, termination benefits and wealth accumulation. More detailed information about the compensation awarded to our named executive officers in 2011 is provided in the “Compensation Discussion and Analysis” section of this proxy statement. The Consultant maintains regular contact with the Committee and interacts with management to gather the data needed to prepare reports for Committee review.

The Committee periodically reviews the relationship with our compensation consultant, Towers Watson, including the level and quality of services provided, as well as fees for those services. In addition, expenses for other consulting services provided to the Company by Towers Watson that are not related to executive compensation are monitored to ensure that executive compensation consultant independence is maintained. The Consultant did not provide us with services in excess of $120,000 that were in addition to the services provided in connection with its advice and recommendations on the amount or form of executive and director compensation.

The Compensation Committee oversees the process by which the Board annually evaluates the performance of the Chief Executive Officer. All members of the Compensation Committee have been determined to be independent as defined by the NYSE listing standards.

The Nominating and Governance Committee recommends to the Board of Directors candidates for nomination as Director and advises the Board with respect to governance issues and directorship practices. All members of the Nominating and Governance Committee have been determined to be independent as defined by the NYSE listing standards.

 

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The Nominating and Governance Committee will consider shareholder suggestions for nominees for election to our Board of Directors. A shareholder that wishes to suggest a Director candidate for consideration by the Nominating and Governance Committee should follow the same procedures described for shareholder nominations for Director on page 3. The Committee uses a variety of methods for identifying and evaluating nominees for Directors, including third-party search firms, recommendations from current Board members and recommendations from shareholders. Nominees for election to the Board of Directors are selected on the basis of the following criteria:

 

   

Business or professional experience;

 

   

Knowledge and skill in certain specialty areas such as accounting and finance, international markets, physical sciences and technology or the polymer or chemical industry;

 

   

Personal characteristics such as ethical standards, integrity, judgment, leadership and the ability to devote sufficient time to our affairs;

 

   

Substantial accomplishments with demonstrated leadership capabilities;

 

   

Freedom from outside interests that conflict with our best interests;

 

   

The diversity of backgrounds and experience each member will bring to the Board of Directors; and

 

   

Our needs from time to time.

While the Committee or the Board does not have a formal policy with respect to the consideration of diversity in identifying director nominees, they do consider diversity when evaluating potential Board nominees. We consider diversity to include race, gender and national origin, as well as differences in viewpoint, background, experience and skills. The Committee believes that having a diverse Board leads to more innovation, unique thinking and better governance. At the end of 2011, approximately 18% of our Board members were female and diversity is a key characteristic that we will consider, and instruct any third-party search firm we use to consider, in searches for future Board members.

The Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. The Committee has established these criteria that any Director nominee, whether suggested by a shareholder or otherwise, should satisfy. A nominee for election to the Board who is suggested by a shareholder will be evaluated by the Committee in the same manner as any other nominee for election to the Board. Finally, if the Committee determines that a candidate should be nominated for election to the Board, the Committee will present its findings and recommendation to the full Board for approval.

In 2011 and in past years, the Committee used a third-party search firm, Russell Reynolds Associates, Inc., to identify possible candidates who meet the minimum and desired qualifications, to interview and screen such candidates, to act as a liaison among the Board, the Committee and each candidate during the screening and evaluation process, and thereafter to be available for consultation as needed by the Committee.

The Environmental, Health and Safety Committee exercises oversight with respect to our environmental, health, safety, security and product stewardship policies and practices and our compliance with related laws and regulations.

 

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The Board of Directors has adopted a written charter for each of the standing committees of the Board of Directors. These charters are posted and available on our website at www.polyone.com under “Corporate Governance” on our investor relations page. The Board and each Committee conduct an annual self-evaluation.

Board’s Oversight of Risk

Our Board of Directors oversees a company-wide approach to risk management that is designed to support the achievement of our strategic objectives and improve long-term organizational performance, which we believe will ultimately enhance shareholder value. The Board of Directors believes that risk management is not only understanding the risks we face and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us as an organization.

Our Board of Directors administers its risk oversight function directly and through its Audit Committee and Environmental, Health and Safety Committee. The Audit Committee discusses with management our major financial risk exposures and the steps management has taken to monitor and control such exposures, including our risk assessment and risk management policies. The Audit Committee also receives an annual risk assessment report from our internal auditors. The Environmental, Health and Safety Committee periodically reviews with management the significant risks or exposures faced by the Company relating to safety, health, environmental, security and product stewardship standards and practices. Our Board oversees and monitors these committees in exercising their responsibilities relating to risk. Our Board also provides direct oversight on risk management as it relates to our capital structure, our borrowing and repayment of funds, financial policies, management of foreign exchange risk and other matters of financial risk management, including the utilization of financial derivative products, insurance coverage strategies, banking relationships and other financial matters.

Our Board of Directors sets the appropriate “tone at the top” when it comes to risk tolerance and management by fostering a culture of risk-adjusted decision-making throughout the company. Our Board ensures that the risk management processes designed and implemented by our management team are adapted to the Board’s corporate strategy and are functioning as directed. The Board of Directors also participates in an ongoing effort to assess and analyze the most likely areas of future risk for the company by asking our management team to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability.

The Board of Directors believes that its leadership structure, as discussed on page 9, supports the risk oversight function of the Board of Directors.

Code of Ethics, Code of Conduct and Corporate Governance Guidelines

In accordance with applicable NYSE listing standards and Securities and Exchange Commission regulations, the Board of Directors has adopted a Code of Ethics, Code of Conduct and Corporate Governance Guidelines. These are also posted and available on our website at www.polyone.com, under “Corporate Governance” on our investor relations page.

In October 2007, the Board amended our Corporate Governance Guidelines to adopt a policy relating to majority voting. Pursuant to the policy, any nominee for election as a Director of the Board who receives a greater number of votes “withheld” from his or her election than votes “for” his or her

 

12


election in an election of Directors that is not a contested election is expected to tender his or her resignation as a Director to the Board promptly following the certification of the election results. Neither abstentions nor broker non-votes will be deemed to be votes for or withheld from a Director’s election for purposes of the policy, regardless of the rules treating broker non-votes as withheld in uncontested elections of directors. The Nominating and Governance Committee (without the participation of the affected Director) will consider each resignation tendered under the policy and recommend to the Board whether to accept or reject it. The Board will then take appropriate action on each tendered resignation, taking into account the Nominating and Governance Committee’s recommendation. The Nominating and Governance Committee, in making its recommendation, and the Board, in making its decision, may consider any factors or other information that it considers appropriate, including the reasons (if any) given by shareholders as to why they withheld their votes, the qualifications of the tendering Director and his or her contributions to the Board and to PolyOne, and the results of the most recent evaluation of the tendering Director’s performance by the other members of the Board. The Board will promptly disclose its decision whether to accept or reject the Director’s tendered resignation and, if applicable, the reasons for rejecting the tendered resignation.

Communication with Board of Directors

Shareholders and other interested parties interested in communicating directly with the Board of Directors as a group, the non-management or independent Directors as a group, or with any individual Director may do so by writing to the Secretary, PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012. The mailing envelope and letter must contain a clear notation indicating that the enclosed letter is either a “Shareholder-Board of Directors Communication” or an “Interested Party-Board of Directors Communication,” as appropriate.

The Secretary will review all such correspondence and regularly forward to the Board of Directors a log and summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or committees of the Board or that she otherwise determines requires their attention. Directors may at any time review a log of all correspondence we receive that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of our internal audit department and handled in accordance with procedures established by the Audit Committee for such matters.

Director Compensation

In the first half of 2011, we paid our non-employee Directors an annual retainer of $135,000, quarterly in arrears, consisting of a cash retainer of $60,000 and an award of $75,000 in value of fully vested common shares. Following a review of our Board compensation practices by our independent compensation consultant, effective as of the third quarter of 2011, the Board increased the annual cash and equity compensation for non-employee directors (payable on a quarterly basis) to $75,000 and $90,000, respectively. We grant the shares payable to the Directors quarterly and determine the number of shares to be granted by dividing the dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter. We pay individual meeting fees only as follows: fees of $2,000 for each unscheduled Board and committee meeting attended and fees of $1,000 for participation in each unscheduled significant telephonic Board and committee meeting. In addition, the chairpersons of the following committees receive the fixed annual cash retainers (payable on a quarterly basis) that follow: $7,500 for the Environmental, Health and Safety and Nominating and Governance Committees and $15,000 for the Audit Committee. The Chairperson of the Compensation

 

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Committee received a fixed annual cash retainer of $5,000 through the first half of 2011, which was increased to $15,000, effective as of the third quarter. Furthermore, our Lead Director received a fixed annual cash retainer of $10,000 through the first half of 2011, which increased to $25,000, effective as of the third quarter. The Chairperson of the Finance Committee received a fixed annual cash retainer of $7,500 through the first half of 2011, which was discontinued after the dissolution of the Finance Committee. We reimburse Directors for their expenses associated with each meeting attended.

Directors who are not our employees may defer payment of all or a portion of their compensation as a Director under our Deferred Compensation Plan for Non-Employee Directors. A Director may defer the compensation as cash or elect to have it converted into our common shares.

In 2011, we awarded shares to Directors under our Deferred Compensation Plan for Non-Employee Directors and our 2010 Equity and Performance Incentive Plan. Deferred compensation, whether in the form of cash or common shares, is held in trust for the participating Directors. Interest is earned on the cash amounts and dividends, if any, on the common shares deferred accrue for the benefit of the participating Directors.

2011 DIRECTOR COMPENSATION

 

         Name    Fees Earned or
Paid in Cash(2)
($)
        Stock
Awards(3)
($)
        Option
Awards(4)
($)
            

Total

($)

    

J.D. Campbell

       $72,495            $ 82,500                       $ 154,995      

C.A. Cartwright

       76,000              82,500                         158,500      

R.H. Fearon

       83,500              82,500                         166,000      

G.J. Goff(1)

       16,712              20,054                         36,766      

G.D. Harnett

       96,000              82,500                         178,500      

R.A. Lorraine

       68,500              82,500                         151,000      

E.J. Mooney

       76,000              82,500                         158,500      

W.H. Powell

       68,500              82,500                         151,000      

F.M. Walters

       68,500              82,500                         151,000      

W.A. Wulfsohn(1)

       16,712              20,054                         36,766      

 

(1) Mr. Goff and Mr. Wulfsohn were elected to the board on October 10, 2011.

 

(2) Non-employee Directors may defer payment of all or a portion of their cash compensation as a Director (annual cash retainer (payable on a quarterly basis) of $60,000, which was increased to $75,000 in the third quarter of 2011, as well as meeting fees and chair fees).

 

(3) Our Director stock compensation consisted of an annual award (payable on a quarterly basis) of $75,000, which was increased to $90,000 in the third quarter of 2011, in value of fully vested common shares, which the Directors could elect to defer. We granted the shares quarterly and determined the number of shares to be granted by dividing the dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter. We used the following quarterly fair market values in calculating the number of shares: March 31, 2011 — $14.130 (1,326 shares); June 30, 2011 — $15.315 (1,224 shares); September 30, 2011 — $10.860 (2,071 shares); and December 31, 2011 — $11.610 (1,727 shares for Messrs. Goff and Wulfsohn and 1,937 shares for the other Directors).

 

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(4) In 2011, we did not grant any stock options to our non-employee Directors. The number of outstanding stock options held by each non-employee Director at the end of the fiscal year is set forth in the following table. All of these options are fully exercisable. In addition, the number of fully-vested deferred shares held in an account for each Director at the end of the fiscal year is set forth in the following table. Stock option exercises by our Directors are set forth in the table below.

 

      Option Awards         Stock Awards     
        Name   

Number of

Securities Underlying
Unexercised Options
(#)

        Number of
Deferred Shares(A)(B)
(#)
    

J.D. Campbell

   18,000        130,960    

C.A. Cartwright

   18,000          29,905    

R.H. Fearon

   15,000                   0    

G.J. Goff

            0                   0    

G.D. Harnett

   18,000          88,568    

R.A. Lorraine

            0          40,042    

E.J. Mooney

            0          89,100    

W.H. Powell

            0          45,479    

F.M. Walters

   18,000          13,672    

W.A. Wulfsohn

            0            1,727    

 

(A) Dividends paid on shares held in the Deferred Compensation Plan for Non-Employee Directors are reinvested in shares of PolyOne stock through a dividend reinvestment feature of the Plan. The number of deferred shares reflects shares acquired through dividend reinvestment in 2011 (including the fourth quarter dividend declared on December 14, 2011 to shareholders of record on December 27, 2011, which was paid on January 9, 2012).

 

(B) A distribution of 19,761 shares was made to Ms. Walters from the Deferred Compensation Plan for Non-Employee Directors on February 11, 2011.

2011 Option Exercises

 

      Option Awards
Name   

Number of

Shares

Acquired on

Exercise

(#)

        Value
Realized on
Exercise
($)
    

J.D. Campbell

   6,000        31,680    

C.A. Cartwright

   6,000        30,810    

R.H. Fearon

       —            —    

G.J. Goff

       —            —    

G.D. Harnett

   6,000        30,810    

R.A. Lorraine

       —            —    

E.J. Mooney

       —            —    

W.H. Powell

       —            —    

F.M. Walters

   6,000        34,800    

W.A. Wulfsohn

       —            —    

 

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BENEFICIAL OWNERSHIP OF COMMON SHARES

The following table shows the number of our common shares beneficially owned on March 6, 2012 (including shares the individuals have a right to acquire within 60 days of that date) by each of our Directors and nominees, each of the executive officers named in the Summary Compensation Table on page 38 (the “Named Executive Officers”) and by all Directors and executive officers as a group.

 

Name    Number of
Shares
Owned(1)
       Right to
Acquire
Shares
     Total
Beneficial
Ownership
 

J. Douglas Campbell

     235,458 (2)         18,000 (3)       253,458   

Carol A. Cartwright

     145,214 (2)         18,000 (3)       163,214   

Richard H. Fearon

     67,817           15,000 (3)       82,817   

Gregory J. Goff

     1,727                   1,727   

Gordon D. Harnett

     151,564 (2)         12,000 (3)       163,564   

Richard A. Lorraine

     40,042 (2)                 40,042   

Edward J. Mooney

     89,100 (2)                 89,100   

William H. Powell

     135,703 (2)                 135,703   

Farah M. Walters

     157,010 (2)         18,000 (3)       175,010   

William A. Wulfsohn

     1,727 (2)                 1,727   

Stephen D. Newlin

     436,004           361,788 (4)       797,792   

Robert M. Patterson

     187,609           107,091 (4)       294,700   

Kenneth M. Smith

     137,697           74,941 (3)(4)       212,638   

Bernard Baert

     56,204           14,368 (3)(4)       70,572   

Thomas J. Kedrowski

     129,166           86,789 (4)       215,955   

20 Directors and executive officers as a group

     2,443,234           1,033,601         3,476,835   

 

(1) Except as otherwise stated in the following notes, beneficial ownership of the shares held by each individual consists of sole voting power and sole investment power, or of voting power and investment power that is shared with the spouse or other family member of the individual. It includes an approximate number of shares credited to the Named Executive Officers’ accounts in our Retirement Savings Plan, a tax-qualified defined contribution plan. The number of common shares allocated to these individuals is provided by the savings plan administrator in a statement for the period ending March 2, 2012, based on the market value of the applicable plan units held by the individual. Additional common shares may have been allocated to the accounts of participants in the savings plan since the date of the last statements received from the plan administrator. No Director, nominee or executive officer beneficially owned, on March 6, 2012, more than 1% of our outstanding common shares. As of that date, the Directors and executive officers as a group beneficially owned approximately 3.9% of the outstanding common shares.

 

(2) With respect to the Directors, beneficial ownership includes shares held under the Deferred Compensation Plan for Non-Employee Directors as follows: J.D. Campbell, 130,960 shares; C.A. Cartwright, 29,905 shares; R.H. Fearon, 0 shares; G.J. Goff, 0 shares; G.D. Harnett, 88,568 shares; R.A. Lorraine, 40,042 shares; E.J. Mooney, 89,100 shares; W.H. Powell, 45,479 shares; F.M. Walters, 13,672 shares; and W.A. Wulfsohn, 1,727 shares.

 

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(3) Includes shares the individuals have a right to acquire upon the exercise of options on or before May 5, 2012.

 

(4) Includes the number of shares that would be acquired if the individuals’ outstanding and exercisable stock-settled stock appreciation rights were exercised at $12.68, the closing price of PolyOne’s common shares on March 6, 2012.

The following table shows information relating to all persons who, as of March 6, 2012, were known by us to beneficially own more than five percent of our outstanding common shares based on information provided in Schedule 13Gs and 13Ds filed with the Securities and Exchange Commission:

 

Name and Address         Number of
Shares
       

% of

Shares

    
       

BlackRock, Inc.
40 East 52nd Street
New York, NY 10022

       6,807,843(1)          7.5%    
                       
       

Alliance Bernstein LP
1345 Avenue of the Americas,
New York, New York 10105

       5,607,280(2)          6.2%    
                       
       

Fine Capital Partners, L.P.
590 Madison Avenue, 5th Floor,
New York, New York 10022

       5,460,450(3)          6.0%    
                       
       

The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, Pennsylvania 19355

       5,116,881(4)        5.63%    

 

(1) As of December 30, 2011, based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission. BlackRock, Inc. has sole voting power and sole dispositive power with respect to all of these shares.

 

(2) As of December 31, 2011, based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission. Alliance Bernstein LP has sole voting power with respect to 4,785,790 of these shares and sole dispositive power with respect to 5,535,560 of these shares.

 

(3) As of February 14, 2012, based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission. Fine Capital Partners has sole voting power with respect to none of these shares and has sole dispositive power with respect to none of these shares.

 

(4) As of December 31, 2011, based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission. The Vanguard Group, Inc., as an investment advisor, has sole voting power with respect to 133,234 of these shares and sole dispositive power with respect to 4,983,647 of these shares.

Share Ownership Guidelines

In July 2011, we revised our share ownership guidelines for our non-employee Directors, executive officers and other elected corporate officers. The purpose of our share ownership guidelines is to better align our directors’ and officers’ financial interests with those of our shareholders by requiring them to own a minimum level of our shares. These individuals are expected to make

 

17


continuing progress towards compliance with the guidelines and to comply fully within five years of becoming subject to the guidelines. These policies, as they relate to our Named Executive Officers, are discussed in the “Compensation Discussion and Analysis” section of this proxy statement. In order to reflect the Board’s commitment to share ownership and better align the interests of our Board members with our shareholders, the required share ownership level for directors is a minimum of 30,000 shares. For purposes of our guidelines, the following types of share ownership and equity awards are included as shares owned: shares directly held, shares and phantom shares held in our retirement plans and deferral plans, unvested restricted stock and restricted stock units, and earned performance shares. All Directors are required to retain 100% of all shares obtained through us, as compensation for services provided to us, such percentage to be calculated after any reduction in the number of shares to be delivered as a result of any taxes and exercise costs relating to the shares. This requirement to retain 100% of all shares obtained from us ceases once the Director has met the applicable ownership guideline as long as the guideline continues to be met.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires that our executive officers and Directors, and persons who own more than 10% of a registered class of our equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, Directors and greater than 10% shareholders are required by Securities and Exchange Commission rules to furnish us with copies of all forms they file. Based solely on our review of the copies of such forms received by us and written representation from certain reporting persons, we believe that, during 2011 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to our executive officers, Directors and 10% shareholders were satisfied.

 

18


EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

In this section of the proxy statement, we discuss in detail our executive compensation programs for 2011 for our Named Executive Officers. This discussion and analysis includes a description of the principles underlying our executive compensation policies and our most important executive compensation decisions for 2011, and provides our analysis of these policies and decisions. The following disclosure also gives context for the data we present in the compensation tables below and the narratives that accompany the compensation tables.

The following five individuals are our Named Executive Officers for 2011, as that term is defined by the Securities and Exchange Commission:

 

   

Mr. Stephen D. Newlin, our Chairman, President and Chief Executive Officer;

 

   

Mr. Robert M. Patterson, our Executive Vice President and Chief Financial Officer;

 

   

Mr. Kenneth M. Smith, our Senior Vice President, Chief Information and Human Resources Officer;

 

   

Mr. Bernard Baert, our Senior Vice President, President of Europe and South America; and

 

   

Mr. Thomas J. Kedrowski, our Senior Vice President, Supply Chain and Operations.

Executive Summary

Fiscal 2011 Performance

2011 was another strong year for PolyOne, and we had record-breaking performances in each of our three strategic platforms. Both the Specialty and Distribution platforms delivered record earnings, and our Performance Products and Solutions platform generated record return on sales. We believe 2011 was a critical inflection point in our transformation toward becoming a specialty chemical company. We divested our equity investment in SunBelt, a commodity manufacturer of chlorine and caustic soda, we completed strategic acquisitions of Uniplen in Brazil and ColorMatrix, and we formed a joint venture in Saudi Arabia, expanding our footprint into the Middle East. All of this was made possible by our setting of aggressive goals, our commitment to them, and our relentless work to achieve success.

At the beginning of 2011, we set goals for our annual incentive plan that drove increases in operating income and continued world-class working capital investment as a percentage of sales. Goals set in prior years also focused on operating income and working capital, and our outstanding equity awards continued to promote stock price appreciation. Our Compensation Committee believed that these goals would position us for continued growth, both in earnings and cash flow. Success on these measures allowed us to fund operating expenses and pursue acquisition opportunities that we believe will even further strengthen our earnings potential and growth.

Even with a slowdown in the global economy that began mid-year in 2011, we were able to achieve our incentive goals and reward our employees for achieving those goals. In 2011, our revenue increased 9.2% and our diluted earnings per share rose 8.3%. Overall operating income for 2011 was

 

19


33% higher than the prior year, and working capital as a percentage of sales (excluding our ColorMatrix acquisition, which was completed on December 21, 2011) was 9.6%, which we consider to be world-class performance. We ended the year with $192 million of cash on the balance sheet after the purchase of ColorMatrix and the related financing.

We are pleased with the accomplishments in 2011, which strengthen our position and continue our progress on executing our well-defined strategy of specialization, globalization, commercial excellence and operational excellence. Our setting of well-defined, strategic goals and our pursuit of achievement of these goals is working, and we are well-positioned to continue our transformation to a truly global specialty chemical company.

Fiscal 2011 Pay Decisions and Actions

Guided by our strong performance in 2010 and prior years, including record-breaking performance in terms of our operating income and working capital as a percentage of sales goals, we made the following key pay decisions heading into 2011 and took the following key pay actions:

 

   

Provided an average 4.2% annualized merit increase in base salary (other than for promotions) to our Named Executive Officers based on individual performance and to continue to approximate the market median for comparable positions, as described further below;

 

   

Maintained operating income improvement and working capital management as the performance measures for our Senior Executive Annual Incentive Plan (the “Annual Plan”), which was our short-term cash incentive program for 2011;

 

   

Changed the performance measure for our long-term performance units awards granted in 2011 from working capital as a percentage of sales to earnings per share in order to drive improvements in shareholder value, and moved back to a three-year performance period (rather than a one-year performance period) for the performance units awards to help maximize long-term performance;

 

   

Paid out performance units granted in 2009, based on attainment of 200% of target level performance for our achievement of working capital as a percentage of sales goals in 2009;

 

   

Granted stock-settled stock appreciation rights at a base price of $14.81 that will vest over a period of three years, but will generally not return value to the Named Executive Officers except to the extent that they help us increase our stock price above current levels, which awards provide both a performance and retention effect;

 

   

Granted restricted stock units that will vest in three years, which will align the interests of our Named Executive Officers with our shareholders and promote our retention objectives; and

 

   

Based on outstanding performance results for 2011, we paid our Named Executive Officers at 194.5% of their target 2011 Annual Plan opportunities based on achievement of our performance goals under that plan, except for Mr. Baert, who was paid at a level of 135.3% of his target based on performance in our European and South American regions.

In total, the Committee believes that the compensation actions and decisions for 2011 strongly reflect and reinforce the Company’s compensation philosophy, and, in particular, the emphasis on alignment between compensation and both performance and shareholder interests, as further discussed below.

 

20


Pay for Performance Analysis

As described more fully below, we believe that the majority of each Named Executive Officer’s compensation should be linked directly to our performance and the creation of shareholder value. The following chart compares cumulative total shareholder return on our common shares against the cumulative total return of the S&P 500 Index and the S&P Mid Cap Chemicals Index for the five-year period, December 31, 2006 to December 31, 2011, assuming in each case a fixed investment of $100 and reinvestment of all dividends. Starting in 2008, our performance has more often exceeded the S&P 500 Index and has generally kept pace with the S&P Mid Cap Chemicals Index.

 

LOGO

We believe that the returns to shareholders shown in this graph indicate that our pay-for-performance philosophy, compensation plan design and selected metrics are working and have resulted in performance that has provided increased value to our shareholders over both the short and long term.

 

21


We also believe that the compensation of our Named Executive Officers, specifically our CEO, has been commensurate with our performance results. The following chart shows our CEO’s 2010 earned total direct compensation (TDC) and our 2010 company performance versus our peers’ CEO compensation and company performance. As shown in the chart, our CEO’s pay has generally been aligned with recent performance. Specifically, our CEO earned compensation in the 63rd percentile of our peers and our Company performance, as defined below, was in the 91st percentile.

 

LOGO

For purposes of this chart, pay is defined as the sum of the following: base salary, annual incentive earned in 2010, the value of stock upon vesting in 2010, the value of option/SAR exercises in 2010, and long-term cash incentive earned over a period that concludes in 2010. Performance is weighted equally between the following: 2010 EBIT Growth— 33% weight; 2010 Working Capital as a Percent of Sales — 33% weight; and 2010 Total Shareholder Return — 33% weight. The peers used in this chart are the same as those listed on page 25 of this proxy statement, with the exception of The Lubrizol Corporation, for which no data was available due to its acquisition in early 2011.

Our recent pay decisions have also been linked to our performance in terms of key business metrics that drive long term shareholder value. For 2011, we achieved 191.5% of our company operating income goal and 200% of our consolidated working capital goal established under our short-term cash incentive program, as further discussed below. These results helped drive the cumulative total return to shareholder results reflected in the tables above, and our Named Executive Officers were rewarded for this performance by earning 194.5% of their short-term cash incentives for 2011 (except for Mr. Baert, who earned 135.3% of his short term cash incentive for 2011). We also achieved 200% of our working capital goals established under our long-term performance units awards for both the 2009 and 2010 performance periods, and our Named Executive Officers have received a cash award

 

22


for their 2009 performance units awards and will receive a cash award for their 2010 performance units awards if they remain employed with us through the vesting date. Finally, our time-based stock appreciation rights also help drive long term shareholder value. These awards deliver value to our named executive officers only to the extent our shareholders realize increased stock price value. Since our stock price has risen to $12.68 as of March 6, 2012 from $1.43 on March 5, 2009 and $7.99 on February 17, 2010, our Named Executive Officers have realized value for these awards to the same extent our shareholders have realized increased stock price value in their investment since those dates. Based on these demonstrated links between pay and performance, we believe we have successfully implemented a pay for performance culture at PolyOne.

Listening to Shareholders and Implementing Shareholder-Friendly Pay Practices

In 2011, we submitted a say-on-pay vote to our shareholders for the first time. We had conversations with nearly all of our top-20 shareholders regarding this proposal, as well as the other proposals submitted to shareholders for a vote last year. The results of our say-on-pay vote showed a level of support of 68% for our compensation practices. We believe that the level of support for our say-on-pay proposal was impacted by home loss reimbursement expenses and related tax reimbursements made in 2011.

Based on emerging market practices, we have revised our relocation policy as it relates to the loss on the sale of an executive’s residence, which we refer to as “loss-on-sale” expense. Beginning in 2011 and for future years, we will maintain a cap on reimbursable loss-on-sale expenses for the Named Executive Officers of 80% of the loss, capped at a total reimbursement of $85,000. In addition, we will no longer provide a tax gross-up on reimbursed loss-on-sale expenses for this group.

We also maintain stock ownership guidelines for our Named Executive Officers that are denominated in shares. Based on our March 6, 2012 closing stock price of $12.68 per share, these guidelines represent the following multiples of our Named Executive Officers’ 2011 base salaries: Mr. Newlin, 4.7x (he actually owns over 10 times his base salary); Mr. Patterson, 2.1x (he actually owns over 6 times his base salary); Mr. Smith, 2.1x (he actually owns over 6 times his base salary); Mr. Baert, 1.9x (he actually owns over 2 times his base salary); and Mr. Kedrowski, 2.2x (he actually owns almost 6 times his base salary). In 2011, we eliminated the sunset provision and the guidelines were modified to better reflect the market median as further explained in “Executive Compensation Governance—Stock Ownership and Retention Guidelines” below.

In 2011, our Compensation Committee eliminated the excise tax gross-up benefit for so-called “excess parachute payments” under Section 280G of the Internal Revenue Code from all management continuity agreements that we enter into with new executives in 2011 and in future years.

The following discussion should be read together with the information presented in the compensation tables, the footnotes and the narratives to those tables and the related disclosures appearing elsewhere in this proxy statement.

Compensation Philosophy and Objectives

Our executive compensation programs pay for our officers’ performance and are specifically linked to our achievement of strategic operating and financial goals and designed to be competitive in the marketplace. As described above, our executives are rewarded for performance that meets or exceeds our strategic goals, without encouraging excessive risk-taking that could have a detrimental

 

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impact on our long-term results and the interests of our shareholders. We believe the design of our compensation plans and the relative mix of compensation elements successfully motivate our executives to improve our overall corporate performance and the profitability of the specific business unit for which they are responsible, thus maximizing shareholder value. The main objectives of our executive compensation programs are to:

 

   

Attract, motivate and retain a highly qualified and successful management team to lead PolyOne in setting and effectively executing upon our strategic goals and objectives;

 

   

Foster a pay-for-performance culture by rewarding the achievement of specified strategic operating and financial objectives that maximize shareholder value; and

 

   

Ensure our goals and objectives are aligned with the interests of our shareholders by recognizing and rewarding business results and the growth of our share price through incentive programs.

Setting 2011 Executive Compensation Levels

Compensation Consultant

Our executive compensation programs are approved and overseen by the Committee, which is composed entirely of independent directors. For 2011, the Committee selected and retained an independent compensation consultant, Towers Watson, to assist the Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. The Committee worked in conjunction with Towers Watson and with input from members of senior management.

As described below, Towers Watson assisted the Committee in approximating base salaries and annual and long-term incentive targets in accordance with the market median, provided guidance on incentive plan design, monitored trends in executive compensation, reviewed the market on stock ownership guidelines and assisted our human resources department in preparing tally sheets to provide the Committee with information regarding our Named Executive Officers’ total annual compensation, termination benefits and wealth accumulation.

Competitive Market Pay Information and Benchmarking

We have designed our compensation programs to be competitive with companies of comparable size and industry with whom we compete for executive talent. We annually analyze competitive market compensation data relating to salary, annual incentives, and long term incentives. The Committee generally manages individual components of compensation and targets total compensation relative to the median (50th percentile) of the competitive market data. However, the Committee considers other factors, consisting of the responsibilities, performance, contributions and experience of each Named Executive Officer and compensation in relation to other employees. As a result, we do not set total direct compensation or the component parts at levels to achieve a mathematically precise market position. We also periodically analyze competitive market compensation data relating to retirement benefits and perquisites, most recently in 2009. The Committee obtains advice and recommendations from Towers Watson in these and other areas of total compensation.

In analyzing competitive market data for the purpose of determining the market median for 2011, we drew from two independent sources. We first reviewed proxy statement disclosures of a peer group of similarly-sized U.S. chemical companies to establish an estimate of market compensation for our senior executives. This approach provided insight into specific company practices at business competitors or companies facing similar operating challenges.

 

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In 2010, with the guidance of Towers Watson, we conducted a review of our peer group to ensure it consisted of appropriate companies to which we should be compared. That review resulted in a change in our peer group from 14 companies to 19 companies, which better reflects our transformation into a global and specialty chemical company. We conducted a similar review during 2011 in order to reconfirm the validity of companies in our peer group based on current data. The primary factors taken into consideration during the review included: company revenue between $1.41 billion and $5.64 billion, total asset size between $0.84 billion and $3.34 billion and number of employees between 2,600 and 10,400, as well as whether each potential peer company had a global presence and a specialty chemical focus. These ranges generally compare to our 2011 revenue ($2.9 billion), total assets ($2.1 billion) and number of employees (approximately 4,700). We also looked at the frequency with which these companies were used as peers by other companies in our industry, and which companies had identified us as a peer. In addition, we considered whether they were in the same SIC code as PolyOne and whether we compete with them for talent. Each of the companies recommended for the new peer group met a majority of the primary criteria that were established. Based on this review, no changes were recommended to our peer group in 2011. PolyOne’s peer group consists of the following 19 companies:

 

Albemarle Corporation   FMC Corporation   RPM International Inc.
Arch Chemicals, Inc.   Georgia Gulf Corporation   The Scotts Miracle-Gro Company
A. Schulman, Inc.   H.B. Fuller Company   Sigma-Aldrich Corporation
Cabot Corporation   International Flavors & Fragrances Inc.   Solutia Inc.
Cytec Industries Inc.   The Lubrizol Corporation   The Valspar Corporation
Eastman Chemical Company   Nalco Holding Company  
Ferro Corporation   Rockwood Holdings, Inc.  

The second independent source of data that we used to augment the peer proxy analysis and provide a better sense of market practices was an analysis performed by Towers Watson of competitive market data relating to the chemical industry and other applicable general industries using the following surveys: Towers Watson’s Executive Compensation Database, Towers Watson’s Top Management Compensation Survey and Mercer’s Executive Compensation Survey. To obtain comparability based on company size, Towers Watson’s analysis either referenced a specific sample of companies or calibrated the pay of a broad sample of companies against company size.

Review of Named Executive Officer Compensation

Management and the Committee annually review the specific pay disclosures of our peer group and the broad-based survey data provided by Towers Watson described above. Management uses this data to develop recommendations for the Committee’s review regarding eligibility, award opportunities, performance measures and goals for the plan periods commencing in the following year. The Committee discusses and considers this information when making compensation decisions and aligning each of the pay elements with our compensation objectives and relative market practices.

The Committee and management annually review and consider tally sheets, which are developed collaboratively by Towers Watson and our Human Resources department, to determine the reasonableness of the compensation of our Named Executive Officers. The tally sheets provide information regarding each Named Executive Officer’s base salary, annual incentives, long-term incentives, perquisites, retirement benefits and wealth accumulation.

 

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Based upon 2010 individual performance and results achieved in 2010, the Chief Executive Officer recommended for the Committee’s review and approval specific base salary adjustments for each of the other Named Executive Officers. The Chief Executive Officer made his recommendations in conjunction with the marketplace data and input provided by Towers Watson. He did not participate in any discussions with the Committee involving his own compensation. With guidance from Towers Watson and based on a rigorous review of 2010 performance, the Committee determined the appropriate base salary for the Chief Executive Officer for 2011.

For Annual Plan purposes, during the fourth quarter of 2011, the Committee reviewed plan performance and estimated the incentive payouts for the applicable plan period. In the first quarter of 2012, the Committee determined actual performance against pre-established goals and approved plan attainment levels. Our awards of cash-settled performance units, stock-settled stock appreciation rights (“SARs”), and full value awards (in the form of performance shares or restricted stock units (“RSUs”)) were determined in the first quarter based on competitive long-term incentive market practices, market data, and an evaluation of individual performance.

Pay Mix

Our executive compensation programs are also designed to recognize an executive’s scope of responsibilities, leadership ability, and effectiveness in achieving key performance goals and objectives. As an executive’s level of responsibility within PolyOne increases, so does the percentage of total compensation that is linked to performance in the form of variable compensation.

The following table summarizes the allocation of the compensation opportunity at target, or “pay mix,” that was granted in 2011 to the Named Executive Officers, based upon the primary elements of compensation (base salary, annual incentive opportunity, and long-term incentive opportunity). Both the annual incentive and long-term incentive opportunity represent the variable compensation portion of each Named Executive Officer’s total compensation opportunity, consistent with our overall pay-for-performance philosophy.

 

      Pay Mix Allocation
Element    Newlin         Patterson         Smith         Baert         Kedrowski
           

Base Salary

   16%        31%        37%        39%        37%
           

Annual Incentive Opportunity

   18%        20%        21%        20%        20%
           

Long-Term Incentive Opportunity

   66%        49%        42%        41%        43%

Our incentive programs focus on the critical performance measures that determine our overall success and reward executives for the attainment of sustainable, long-term success. For positions with significant business unit responsibilities, annual incentive programs also emphasize success at the business unit level, which may lead to Named Executive Officers at comparable levels being paid differently.

Our executive compensation programs play a material role in our ability to drive strong financial results that exceed expectations. We believe that providing incentive plan opportunities to our executives that are based upon achieving strategic goals and objectives are instrumental in driving desired results and fostering a pay for performance culture.

 

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2011 Executive Compensation Elements

The following table outlines the major elements of 2011 total compensation for our Named Executive Officers:

 

Compensation

Element

  Key Features   Objectives and Comments
Base Salary  

•    Fixed compensation

 

•    Intended to pay for the experience, skills and ongoing value the officer brings to the position

 

     
Annual Incentive  

•    Variable cash compensation that is earned if pre-established annual performance goals are achieved. For 2011, the goals were operating income and working capital as a percentage of sales

 

 

•    Builds accountability for important annual financial goals

 

•    Payment is made only upon achievement of specified goals

     

Long-Term Incentive

Cash-settled

Performance Units

 

•    Variable cash compensation that will be earned if pre-established financial goals are achieved. The 2011-2013 measure is earnings per share. Awards will be determined at the end of 2013 based on performance over the preceding 36-month period. Payment is generally subject to the officer’s continued employment

 

•    Emphasizes achievement of strategic goals and objectives

 

•    Payment is made only upon achievement of specified goals

 

•    Avoids stock dilution

 

•    Three-year measurement period emphasizes key long-term goals and supports our retention objective

     

Stock-settled

Stock Appreciation Rights

 

•    Variable compensation that increases in value as our share price rises. For the 2011 grants, SARs vest one-third per year over a three-year period, generally subject to the officer’s continued employment

 

•    Payable in PolyOne common shares

 

•    Aligns executives with shareholders by maximizing value through increased stock price

 

•    Requires growing stock price before any value is realized

 

•    Increases share ownership

 

•    Three-year vesting period supports our retention objective

 

•    Multi-year incentive is a common market practice

     
Restricted Stock Units  

•    Equity compensation that will vest and will be payable at the end of the three-year restriction period, subject to the officer’s continued employment

 

•    Payable in PolyOne common shares

 

•    Increases share ownership

 

•    Three-year vesting period supports our retention objective

 

•    Full-value grant is a common market practice

 

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Compensation

Element

  Key Features   Objectives and Comments
     
Retirement Plans        

U.S. Defined

Contribution Plans

 

•    Tax-qualified 401(k) defined contribution plan

 

•    Nonqualified excess 401(k) defined contribution plan

 

•    Standard tax-qualified benefit offered to all employees, subject to Internal Revenue Code limits

 

•    Restores benefits that are limited by the Internal Revenue Code in the qualified plan

 

Luxembourg Defined Contribution Plan  

•    Tax-efficient defined contribution plan

 

•    Mr. Baert participates in a standard tax-efficient defined contribution plan provided to Luxembourg employees

 

Defined Benefit Plans

(these plans have been closed to new participants since the formation of PolyOne and were frozen as of March 20, 2009)

 

•    Tax-qualified defined benefit pension plan

 

•    Nonqualified excess defined benefit plan

 

•    Mr. Smith, as a 22-year employee, participates in the frozen defined benefit pension plan

 

•    Prior to being frozen, this plan restored benefits that were limited by the Internal Revenue Code in the qualified plan

 

Supplemental Retirement Benefit for Mr. Newlin  

•    Nonqualified annual supplemental retirement payments, payable upon a “Qualifying Separation from Service,” payable in the form of a 15-year certain and continuous life annuity

 

•    Consistent with benefits offered at peer companies

 

•    Vesting condition supports our retention objective

     

Subsidized Post-Retirement Medical Plan

(this plan has been closed to new participants since the formation of PolyOne in 2000, and will be eliminated in 2013)

 

Post-Retirement Medical Plan (at Full Cost to Employee)

 

•    Subsidized retiree medical coverage (available to certain employees)

 

•    Retiree medical coverage provided at full cost to the retiree from ages 55 to 65. This is available to all employees who meet specified age and service requirements

 

•    Mr. Smith, as a 22-year employee, is eligible to participate in this plan

 

•    Messrs. Newlin, Patterson and Kedrowski are eligible to participate in this plan upon reaching specified age and service requirements

 

•    Mr. Baert is a non-U.S. based employee and therefore is not eligible to participate in the retiree medical plan

     
Perquisites  

•    Benefit allowance

 

•    Financial planning and tax preparation

 

•    Relocation benefits

 

•    Executive physical

 

•    Perquisites and relocation benefits assist in attracting and retaining executive talent

 

•    Executive physicals help to ensure continuity of our management team

 

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Analysis of 2011 Compensation Decisions and Actions

The following discussion analyzes the main elements of compensation for the Named Executive Officers.

Base Salary

PolyOne employees were eligible for merit increases in 2011, including our Named Executive Officers. In recognition of the significant role Mr. Newlin continues to play in transforming PolyOne into a high-performing company, the Committee approved an adjustment to Mr. Newlin’s annual base salary, effective January 1, 2011, from $860,000 to $950,000. Prior to this adjustment, Mr. Newlin’s base salary had not changed since March 2008. In the Committee’s judgment, the total compensation package provided to Mr. Newlin, as described under the heading “Employment Agreements with Named Executive Officers – Mr. Newlin” is appropriate in order to fairly compensate and retain Mr. Newlin.

In January 2011, Mr. Patterson was promoted to Executive Vice President and Chief Financial Officer, taking on additional responsibility of providing direction for the growth of our global businesses in Asia. As a result, the Committee approved an adjustment to his annual base salary, from $430,000 to $475,000 in order to recognize his increased responsibilities.

The Committee considered the recommendation of the Chief Executive Officer in determining the salary adjustments for each of the other Named Executive Officers. The primary factors used in determining the adjustment amounts were each executive’s individual performance and the relative position of their salary to the market median for their role. Salary changes for the other Named Executive Officers were effective in May 2011. The Committee approved the following base salaries for the Named Executive Officers:

 

Named Executive Officer           2010  Base Salary                   2011  Base Salary                Adjustment %    

Stephen D. Newlin

  $860,000   $950,000   10.5%(1)

Robert M. Patterson

  $430,000   $475,000   10.5%(2)

Kenneth M. Smith

  $344,000   $355,000     3.2%    

Bernard Baert(3)

  $392,499   $402,017     2.4%    

Thomas J. Kedrowski

  $333,000   $346,000     3.9%    

 

(1) Mr. Newlin’s base salary had not changed since 2008.

 

(2) Mr. Patterson received a salary increase in connection with his promotion to Executive Vice President.

 

(3) In order to reflect more accurately Mr. Baert’s base salary adjustment, the conversion rate used for converting into dollars the Euros that Mr. Baert earned in both 2010 and 2011 was €1.00 = $ 1.29495, the rate in effect on December 31, 2011.

Based on the data provided by Towers Watson, we determined that the 2011 salaries of the Named Executive Officers range from 90% to 110% of the market median for comparable positions, with an average of 102% for all Named Executive Officers.

 

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Annual Incentive

The Annual Plan was approved by shareholders in 2010 and includes a defined set of performance measures that can be used in determining awards under the plan. Annual awards for 2011 were made under the Annual Plan.

In light of Mr. Patterson’s promotion at the beginning of 2011, an increase in his target incentive opportunity under the Annual Plan from 60% to 65% as a percent of base salary was approved. This change was made to keep Mr. Patterson’s annual incentive target in line with the market median in recognition of his new level of responsibilities.

Consistent with our approach to use the market median as a reference point and reward our Named Executive Officers for achievement of specific performance objectives that would advance our profitability, target annual incentive levels for the Named Executive Officers for 2011 were as follows:

 

   
Named Executive Officer           2011 Annual  Plan Target        

Stephen D. Newlin

  110%

Robert M. Patterson

    65%

Kenneth M. Smith

    55%

Bernard Baert

    50%

Thomas J. Kedrowski

    55%

For 2011, the Committee determined that we would fundamentally maintain the same design as used for the 2010 Annual Plan. We continued to use the following performance measures for the Annual Plan: operating income and working capital as a percentage of sales. The Committee chose to use the same performance measures as those used in 2010 in order to continue to drive profitability, promote working capital management, improve cash flow and drive efficiency in our operations, all of which we believe lead to the continued maximizing of shareholder value. We selected these performance measures for the Annual Plan as they were the most critical elements of PolyOne’s performance for 2011. In the Annual Plan, these measures are defined as:

 

   

Operating income: operating income less Sunbelt (our joint venture) income and less any specified special items (which consist of non-recurring items as set forth in our quarterly earnings release).

 

   

Working capital as a percentage of sales is calculated using the following formula: (Average 13 months of Working Capital) divided by (the sum of 12 months of sales), where Working Capital equals (1) Trade Accounts Receivable plus (2) Inventory on a First In First Out basis minus (3) Trade Accounts Payable.

 

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For 2011, we maintained the weighting on operating income of 65% and the weighting on working capital as a percentage of sales of 35%. Mr. Baert is the only Named Executive Officer with responsibility for business unit specific results within the regions of Europe and South America, and his incentive opportunity under the Annual Plan is based on operating income for those regions. The performance measures and weightings used for the Named Executive Officers in the 2011 Annual Plan were as follows:

 

Performance Measure   Newlin        Patterson        Smith        Baert        Kedrowski     

Company Operating Income

      65 %           65 %           65 %                       65 %    

Operating Income for Europe and South America

                                          65 %                

Consolidated Working Capital as a Percentage of Sales

      35 %           35 %           35 %           35 %           35 %    

Even when faced with continuing uncertainty in economic conditions at the beginning of 2011, we set aggressive goals that focused our efforts on those factors that we believe were critical to our on-going success, including profitable growth, earnings improvement, cash generation from working capital, efficiencies in our operations and the continued implementation of our overall strategy. In 2011, we were able to maintain our strong performance from the previous year by achieving maximum performance on our working capital as a percentage of sales metric of 9.6%, which we consider world-class performance. In addition, on a consolidated basis, our performance and results under the total company operating income metric were strong, achieving 191.5% of the target performance level. We viewed the targeted level of performance for this metric as very challenging to achieve, and the actual level of performance reflects superlative results. The performance of our business units varied greatly due to market conditions such as an uncertain economy and increased raw material costs with resulting attainment levels that ranged from 0% to 200% of target.

The performance measures and targets, and the respective levels of achievement for each performance measure under the Annual Plan for 2011 for our Named Executive Officers are set forth below. Payouts are capped at 200% of a participant’s award amount at target.

 

    

2010

Actual

Result

    2011 Goals    

2011

Actual

Result

   

2011

Payout as
% of

Target

 
Performance Measure ($ in millions)     Threshold
(50%)
    Target
(100%)
    Maximum
(200%)
     

Company Operating Income

  $ 148.2      $ 155.4      $ 164.3      $ 181.9      $ 180.4        191.5

Consolidated Working Capital as a Percentage of Sales

    9.6%        10.5%        10.3%        9.7%        9.6%        200.0

Operating Income for Europe and South America (Baert)

         $ 43.1      $ 45.4      $ 49.7      $ 45.4        100.5

The actual amounts earned by the Named Executive Officers under the Annual Plan for 2011 are set forth in the Non-Equity Incentive Plan Compensation column of the 2011 Summary Compensation Table.

The Annual Plan, as it applies to the Named Executive Officers, is structured to comply with Section 162(m) of the Internal Revenue Code. A more detailed discussion of Section 162(m) of the Internal Revenue Code appears in the “Tax Considerations” section below.

 

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Long-Term Incentive

At the Annual Meeting in May 2010, our shareholders approved the 2010 Equity and Performance Incentive Plan (the “2010 Plan”), which was used to make equity incentive awards in 2011. Our 2012 long-term incentive grants have also been made under the 2010 Plan. On March 9, 2012, our Board of Directors unanimously approved and adopted, subject to the approval of the shareholders at the 2012 annual meeting, the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan (the “2010 Amended Plan”). If approved by the shareholders, future Long-Term Incentive Plan grants will be made under the 2010 Amended Plan.

Long-Term Incentive Plan targets as a percent of base salary are established with consideration of market median levels for each Named Executive Officer’s position (or above-market median levels in the case of our CEO to recognize his recent leadership efforts) and are intended to reward them for achievement of specific performance objectives. In order to align compensation more closely with the market and to focus participants on the long-term performance goals critical to our success and that of our shareholders, the Committee approved an adjustment to the target Long-Term Incentive Plan opportunity for the Named Executive Officers during the first quarter of 2011, as follows:

 

Long-Term Incentive Plan
Named Executive Officer    2010 Target
(as a percentage of
Base Salary)
        2011 Target
(as a percentage of
Base Salary)
    

Stephen D. Newlin

   300%        350%    

Robert M. Patterson

   120%        135%    

Kenneth M. Smith

     90%        100%    

Bernard Baert

     90%        100%    

Thomas J. Kedrowski

     90%        100%    

Awards Granted in 2011

In February 2011, we granted long-term incentive awards under the 2010 Plan using three vehicles, with the allocation of the award values roughly as follows: 34% of the award’s value was allocated to performance units for the 2011 performance period, 33% was allocated to stock-settled SARs and 33% was allocated to RSUs. We chose this mix in order to provide balance between the relative values of the three components and efficiently use the shares available under the 2010 Plan.

Cash-Settled Performance Units

The performance units granted in February 2011 will be paid in cash, consistent with past practice, and are based on achievement of performance goals relating to our earnings per share during the three-year period 2011-2013. The Committee selected earnings per share as the performance measure in order to focus our efforts on long term earnings improvement. In 2011, we returned to a three-year measurement period for performance units after two plan years with one-year measurement periods in 2009 and 2010, in order to reinforce our focus on long-term growth. The attainment level for the performance units is determined at the end of the measurement period. The performance units generally do not vest until the end of the three-year measurement period, in order to serve as a retention vehicle.

 

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Upon achievement of the target performance level, a participant would earn the target amount of performance units; attainment of only the threshold performance level would earn 50% of the target award; and attainment of the maximum performance level or greater earns the participant 200% of the target award. If final performance falls between the threshold and target or between target and maximum, earned award amounts under the plan would be interpolated. If threshold performance is not achieved, no award would be paid to the participants.

Given that we do not provide earnings guidance, we believe that disclosure of our actual earnings per share targets for the performance units would cause competitive harm. In setting the applicable target level, the Committee considers how achievement of the performance criteria could be impacted by events expected to occur in the coming years. When establishing the specific goals for the earnings per share performance metric, we considered how likely it will be for us to achieve the goals. We believe that these goals should be appropriately difficult to attain, and will require considerable collective effort on the part of our employees, including our Named Executive Officers, to achieve the target goal. Achievement of the maximum goal is not considered likely, and will require effort beyond that recently demonstrated by our employees if it is to be achieved.

The performance unit amounts for the Named Executive Officers under the Long-Term Incentive Plan are set forth in the 2011 Grants of Plan-Based Awards table.

Stock-Settled SARs

To continually reinforce our ongoing commitment to enhancing shareholder value, the Named Executive Officers received an award of SARs that, when exercised by the holder, are settled in our common shares. Each SAR granted to our Named Executive Officers in February 2011 has a base price of $14.81, the closing market price of our common stock on the date of grant. All SARs granted in 2011 vest in equal installments over three years and have an exercise term of ten years. Beginning with the 2011 grant, the exercise term was changed from seven years to ten years to better align with market practice.

Restricted Stock Units

To promote share ownership and enhance the retention of our executives, we granted RSUs in February 2011 to all Named Executive Officers. The RSUs vest on the third anniversary of the grant date.

Awards Granted in Prior Years

The Committee approved the attainment level of performance units granted at the start of 2009 for performance during the period January 1, 2009 — December 31, 2009 for future payout in 2012 at the end of the three-year plan period. These performance units were based on achievement of performance goals related to our working capital as a percentage of sales over the one-year period. The Named Executive Officers received a cash award based on an attainment of 200% of the target level performance for this goal, as reflected below:

 

     2009 Goals                
Performance Measure   Threshold
(30%)
    Target
(100%)
    Maximum
(200%)
    Actual Result     %Attainment  

Working Capital as a Percentage of Sales

    15.15%        14.9%        13.9%        12.1%        200%   

 

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Payouts for the performance units originally granted in 2009 to the Named Executive Officers under the Long-Term Incentive Plan are reflected in the Non-Equity Incentive Plan Compensation column of the 2011 Summary Compensation Table. All equity awards outstanding as of December 31, 2011 are set forth in the Outstanding Equity Awards at 2011 Fiscal Year-End Table in this proxy statement.

Retirement Benefits

We offer the following retirement benefits to eligible employees and certain Named Executive Officers as specified. Additional details about these plans, as they apply to the Named Executive Officers, are included in the narrative to the 2011 Pension Benefits Table and 2011 Deferred Compensation Table.

 

   

A defined contribution retirement benefit available to all U.S. employees through an Internal Revenue Code tax-qualified profit sharing/401(k) plan (the “Qualified Savings Plan”);

 

   

An unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan (the “Nonqualified Savings Plan”), but without the Internal Revenue Code contribution and earnings limitations;

 

   

A standard defined contribution retirement benefit plan provided to all Luxembourg employees, in which Mr. Baert is a participant;

 

   

A company-funded Internal Revenue Code-qualified defined benefit pension plan (the “Qualified Pension Plan”), as well as an unfunded, nonqualified defined benefit pension plan (the “Benefit Restoration Plan”), under which Mr. Smith is eligible, along with certain other employees, to receive frozen benefits. In addition, since becoming retirement eligible (55 years of age with 10 years of service), Mr. Smith is eligible to receive certain retiree medical benefits for which he will be required to pay a substantial portion of the cost; and

 

   

A supplemental retirement benefit for Mr. Newlin that provides annual supplemental retirement payments, payable in the form of a 15-year certain and continuous life annuity, conditioned upon his execution of a release and waiver and upon a “qualifying separation from service.”

Perquisites

We provide minimal perquisites to the Named Executive Officers, which we believe are necessary to compete for executive talent. These perquisites for the Named Executive Officers based in the United States consist of a monthly benefit allowance, limited reimbursement of expenses for financial planning and tax preparation, and an annual physical examination. The perquisites for Mr. Baert, which are typical and competitive with companies in Europe, include a PolyOne-provided automobile, meal and entertainment allowance, and reimbursement of expenses for financial planning and tax preparation. The specific amounts attributable to perquisites for 2011 for the Named Executive Officers are disclosed in the 2011 Summary Compensation Table.

We intend that benefit allowances will not be provided to new executives. The benefit allowance and reimbursement of expenses for financial planning and tax preparation are treated as taxable income to the Named Executive Officers.

We also provide other benefits such as medical, dental and life insurance and disability coverage to each U.S.-based Named Executive Officer, which are identical to the benefits provided to all other eligible U.S.-based employees. Medical, dental and life insurance coverage provided to Mr. Baert is

 

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identical to the benefits provided to all other Luxembourg-based employees. We provide vacation and paid holidays to all employees, including the Named Executive Officers. The Named Executive Officers were eligible for the following vacation in 2011: Mr. Newlin — five weeks, Mr. Patterson — four weeks, Mr. Smith — five weeks, Mr. Kedrowski — four weeks and Mr. Baert — 26 days.

Changes to our Relocation Policy

For information on recent changes to our Relocation Policy, see “Compensation Discussion and Analysis — Listening to Shareholders and Implementing Shareholder-Friendly Pay Practices.”

Employment Agreements with Named Executive Officers

Messrs. Newlin and Baert are parties to employment agreements with us, as described below. We do not maintain employment agreements with any of the other Named Executive Officers, although each of our Named Executive Officers is a party to a Continuity Agreement, as described in “Potential Payments Upon Termination or Change-in-Control” below.

Mr. Newlin

On February 6, 2006, we entered into an agreement with Mr. Newlin, under which he serves as our Chairman, President and Chief Executive Officer. We entered into this agreement in order to attract Mr. Newlin to PolyOne and set the terms of his employment. The agreement provided for specified equity awards, intended to serve as an inducement to join PolyOne, for Mr. Newlin’s initial base salary and for his participation in our various long-term incentive and benefit plans in effect during the term of his employment. In addition, the agreement provides for certain payments upon termination of Mr. Newlin’s employment, as described more fully in “Potential Payments Upon Termination or Change-in-Control” below. In July 2008, Mr. Newlin’s agreement was amended to provide for a supplemental retirement benefit, as described above and more fully in the narrative for the 2011 Pension Benefits Table.

Mr. Baert

In connection with the change in location for our European headquarters, PolyOne Luxembourg s.à r.l., our wholly owned subsidiary located in Luxembourg, entered into an employment agreement with Mr. Baert, effective September 1, 2009. It is customary in Luxembourg that we maintain an agreement with each of our employees, including Mr. Baert. Among other things, the agreement provides that Mr. Baert will be entitled to a monthly base salary, daily meal vouchers and the use of a company car. Under the agreement, Mr. Baert may also be eligible to participate in our Annual Plan and will be included in a defined contribution benefits cafeteria plan established by PolyOne Luxembourg. Pursuant to the terms of the agreement, Mr. Baert has agreed not to compete with us for a period of twelve months after termination of the agreement. Mr. Baert’s agreement provides for certain payments upon termination of Mr. Baert’s employment, as described more fully in the “Potential Payments Upon Termination or Change-in-Control” section of this proxy statement.

Tax Considerations

Cash compensation, such as base salary or annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsored deferral plan.

 

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Deferrals under tax-qualified plans, such as a 401(k) plan, do not affect our current tax deduction. Deferrals under supplemental executive deferral plans delay our tax deduction until the deferred amount (and any accumulation thereon) is paid. Stock-settled SARs are generally taxable as ordinary income when exercised and performance shares, RSUs and performance units are generally taxable when paid. We realize a tax deduction at that time. The Committee reviews potential tax implications before making decisions regarding compensation.

Management and the Committee are aware of Section 162(m) of the Internal Revenue Code, which generally limits the deductibility of executive pay in excess of one million dollars for certain Named Executive Officers, and which specifies the requirements for the “performance-based” exemption from this limit. The Committee generally manages our incentive programs to qualify for the performance-based exemption. It also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives.

Accounting Considerations

When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan period, management and the Committee review and consider the accounting implications of a given award, including the estimated expense and/or dilutive considerations. Depending upon the type of accounting treatment associated with an incentive plan design, management and the Committee may alter or modify the incentive award due to the accounting treatment if the award (and the related accounting consequences) were to adversely affect our financial performance.

Executive Compensation Governance

Stock Ownership and Retention Guidelines

In order to better align the financial interests of our executives with those of our shareholders, we believe our executives should own a meaningful number of shares of PolyOne stock. We have adopted share ownership and retention guidelines specifying a minimum level of share ownership for all executives, including all Named Executive Officers.

Levels were originally established in 2009 when, given the sustained impact of volatile stock prices on ownership guidelines, we changed from a value that was a multiple of an executive’s salary to a fixed number of shares. A retention requirement was also added at this time. In 2011, the Committee approved revisions to the share requirements for each level when, with the help of Towers Watson, it was determined that the existing requirements were above the market median. At the same time, our retention requirements were also revised. The current retention requirements state that all officers are required to retain 100% of all net shares obtained through the company as compensation for services provided. The requirement to retain 100% will cease when the share ownership guideline has been met provided that an officer can only divest of a number of shares such that the guideline continues to be met. In addition, the current retention requirements are no longer reduced for executives that attain age 55, as was mandated in the previous guidelines. In general, shares counted toward required ownership include shares directly held and shares held in our benefit or deferral plans

 

36


(including RSUs, performance shares that have met the applicable performance criteria, and phantom shares under our nonqualified deferral plan). The specific levels of share ownership for the Named Executive Officers are noted in the following table. Executives are expected to accumulate the specified shares within five years of their becoming subject to the guidelines.

 

      Newlin      Patterson      Smith      Baert      Kedrowski  

Share Ownership Target (in shares)

     350,000         80,000         60,000         60,000         60,000   

Total Share Ownership as of 3/6/12

     750,482         250,613         178,028         78,881         162,243   

Attainment Status

     214%         313%         297%         131%         270%   

Mr. Patterson has been with PolyOne less than five years and is not yet required to reach 100% of the full share ownership guideline (100,000 shares). The share ownership target for Mr. Patterson has been reduced to reflect that he has been with PolyOne for four years.

Timing with Respect to Equity Award Grants

We have adopted a policy with respect to the timing of the grant of equity awards, which provides that equity awards are granted pursuant to approval by the Board or the Committee or, pursuant to authority delegated by the Board or the Committee to the Chief Executive Officer. Such grants generally should be made at times when the Company is not in a “blackout period,” which is the period of time that is in close proximity to the release of financial or material non-public information or at other times when the Company is not in possession of material non-public information. The policy further provides that, to the extent practicable, annual grants to existing employees should be approved at regularly scheduled meetings and that the grant price for any stock option or stock appreciation right shall not be less than the fair market value of the Company’s common shares on the date of grant (which is defined as the closing price of our common shares on the date of grant).

Clawback Policy

We have adopted a policy that is consistent with the requirements of the Sarbanes-Oxley Act of 2002, which requires the Chief Executive Officer and Chief Financial Officer to reimburse us for any awards received during the twelve-month period following the release of financial results that subsequently require an accounting restatement due to material noncompliance with any financial reporting requirement if they are subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act. If necessary, we plan to modify our policy to comply with the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), when the SEC or NYSE promulgates implementing rules and regulations.

Hedging Policy

Our Securities Trading Policy currently provides that, consistent with our philosophy to encourage long-term investments, directors, officers and certain other employees of PolyOne are prohibited from engaging in any speculative transactions involving our securities, including buying or selling puts or calls, short sales, or margin purchases of our securities. If necessary, we plan to modify our policy to comply with the provisions of the Dodd-Frank Act when they are finalized.

 

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2011 SUMMARY COMPENSATION TABLE

The following table sets forth the compensation earned by, and the compensation opportunity granted to, our principal executive officer, our principal financial officer, and our other three most highly compensated executive officers, during the fiscal years ended December 31, 2011, December 31, 2010 and December 31, 2009.

 

Name and

Principal Position

  Year    

Salary

($)

   

Bonus

($)

    Stock
Awards(2)
($)
    Option
Awards(3)
($)
   

Non-

Equity
Incentive

Plan
Compensation(4)
($)

   

Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings

($)

    All Other
Compensation
($)
   

Total

($)

 

Stephen D. Newlin,
Chairman, President &
Chief Executive Officer

    2011        $946,538               $1,285,508        $1,282,148        $4,088,859        $520,514 (5)      $309,759 (7)      $8,433,326   
    2010        860,000               967,589        850,590        3,030,236        538,990        1,263,730        7,511,135   
    2009        860,000               312,547        275,559        1,720,000        516,552        138,847        3,823,505   

Robert M. Patterson,
Executive Vice President and Chief Financial Officer

    2011        473,269               247,327        247,660        996,654               97,152 (8)      2,062,062   
    2010        424,231               191,760        167,700        509,077               71,168        1,363,936   
    2009        415,000               60,325        53,223        415,000               198,924        1,142,472   

Kenneth M. Smith,
Senior Vice President,
Chief Information and Chief Human Resources Officer

    2011        350,769               131,809        130,732        617,187        158,619 (6)      83,045 (9)      1,472,161   
    2010        340,923               107,865        94,380        504,501        130,531        70,308        1,248,508   
    2009        336,000               35,179        31,042        336,000        121,177        61,563        920,961   

Bernard Baert,
Senior Vice President, President of Europe and
South America(1)

    2011        398,612               131,809        130,732        570,711               70,728 (10)       1,302,592   
    2010        398,507               107,865        94,380        566,927               59,377        1,227,056   
    2009        424,953               28,194        24,898        283,974               78,259        840,278   

Thomas J. Kedrowski,
Senior Vice President,
Supply Chain and Operations

    2011        341,000               131,809        130,732        596,738               75,073 (11)       1,275,352   
    2010        328,769               107,865        94,380        484,735               221,966        1,237,715   

 

(1) Mr. Baert’s compensation is based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Baert into dollars for purposes of this table was €1.00 = $1.29495, which is the conversion rate used in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, $1.32525 for the fiscal year ended December 31, 2010, and $1.43325 for the fiscal year ended December 31, 2009.

 

(2) This column includes for 2011 time-vested, stock-settled RSUs granted in 2011 to the Named Executive Officers under our 2010 Plan. The amounts reported represent the grant date fair value of the awards computed in accordance with FASB Accounting Standards Codification (ASC) Topic 718. For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. For 2011, these grants are described more fully in the narrative following the 2011 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Restricted Stock Units” section of this proxy statement.

 

(3) This column includes for 2011 time-vested, stock-settled SARs granted in 2011 to the Named Executive Officers under our 2010 Plan. The amounts reported represent the grant date fair value of the awards computed in accordance with FASB ASC Topic 718. For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. For 2011, these grants are described more fully in the narrative following the 2011 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Stock-Settled SARs” section of this proxy statement.

 

(4)

This column reflects for 2011 amounts earned by the Named Executive Officers under the Annual Plan and the 2009 — 2011 Long Term Incentive Plan. The terms of the Annual Plan are described more fully in the narrative

 

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  following the 2011 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Annual Incentive” section of this proxy statement. The terms of the 2009 — 2011 Long Term Incentive Plan Cash-Settled Performance Units are described more fully in the narrative following the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Awards Granted in Prior Years” section of this proxy statement. The amounts earned by the named Executive Officers under each plan are listed below.

 

Name  

Annual Plan

($)

   

Cash-Settled
Performance Units

($)

 

S.D. Newlin

    $2,024,859        $2,064,000     

R.M. Patterson

    598,254        398,400     

K.M. Smith

    375,187        242,000     

B. Baert

    269,711        301,000     

T.J. Kedrowski

    364,738        232,000     

 

(5) Mr. Newlin is entitled to a supplemental retirement benefit under his employment agreement, as described more fully in the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Retirement Benefits” section of this proxy statement. The amount for 2011 represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2010 actuarial present value from the December 31, 2011 actuarial present value) of the annual benefit payment that will be payable as a 15-year certain and continuous life annuity beginning at age 58.6 and assumes that Mr. Newlin has a “Qualifying Separation from Service.”

 

(6) Mr. Smith participates in the Qualified Pension Plan and the Benefit Restoration Plan that existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna. The amount represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2010 actuarial present value from the December 31, 2011 actuarial present value) of Mr. Smith’s accumulated benefits under the Qualified Pension Plan and the Benefit Restoration Plan.

 

(7) Amount for 2011 consists of company contributions to our Qualified Savings Plan in the amount of $15,925, company contributions under our nonqualified retirement plan in the amount of $168,580, reinvested dividend equivalents on outstanding restricted stock units valued at $72,640 and tax reimbursements for moving expenses in the amount of $3,400 carried over from the prior year before the change to our relocation policy as described on page 23. Mr. Newlin also received the following amounts in 2011, as reflected in the table: reimbursement of moving expenses ($10,715), benefit allowance ($24,000), financial planning and tax preparation expenses ($13,000), imputed income of guest travel ($1,324), and an executive physical ($175).

 

(8) Amount for 2011 consists of company contributions to our Qualified Savings Plan in the amount of $15,925, company contributions under our nonqualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $47,928 and reinvested dividend equivalents on outstanding restricted stock units valued at $14,112. Mr. Patterson also received the following amounts in 2011, as reflected in the table: benefit allowance ($7,200), financial planning and tax preparation expenses ($10,000), and an executive physical ($1,987).

 

(9) Amount for 2011 consists of company contributions to our Qualified Savings Plan in the amount of $15,925, company contributions under our nonqualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $31,251 and reinvested dividend equivalents on outstanding stock units valued at $8,015. Mr. Smith also received the following amounts in 2011, as reflected in the table: benefit allowance ($19,200), financial planning and tax preparation expenses ($7,394), and an executive physical ($1,260).

 

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(10) Amount for 2011 consists of company contributions to a tax-efficient savings plan, generally provided to all Luxembourg employees, in the amount of $52,275 and reinvested dividend equivalents on outstanding stock units valued at $7,135. Mr. Baert also received the following amounts in 2011, as reflected in the table: company provided automobile ($8,969), and meal vouchers ($2,349). These amounts have been converted from Euros to dollars as set forth in footnote 1 to the 2011 Summary Compensation Table.

 

(11) Amount for 2011 consists of company contributions to our Qualified Savings Plan in the amount of $15,925, company contributions under our nonqualified retirement plan providing in the amount of $26,233 and reinvested dividend equivalents on outstanding restricted stock units valued at $8,015. Mr. Kedrowski also received the following amounts in 2011, as reflected in the table: benefit allowance ($19,200), and financial planning and tax preparation expenses ($5,700).

 

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2011 GRANTS OF PLAN-BASED AWARDS

 

Name   Grant Date   Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(2)
   

All Other Stock
Awards:

Number of
Shares of Stock
or Units(4)

(#)

   

All Other Options
Awards: Number of
Securities
Underlying
Options(5)

(#)

   

Exercise or
Base Price  of
Option
Awards(6)

($/Sh)

   

Grant Date
Fair Value
of Stock
and Option
Awards(7)

($)

 
   

 

 

 

Threshold(3)
($)

   

Target

($)

    Maximum
($)
         

S.D. Newlin

  (1)     $520,596        $1,041,192        $2,082,384                               
  2/16/2011       665,000        1,330,000        2,660,000                               
  2/16/2011                                   157,900        $14.81        $1,282,148   
  2/16/2011                            86,800                      1,285,508   

R.M. Patterson

  (1)     153,812        307,625        615,250                               
  2/16/2011       128,250        256,500        513,000                               
  2/16/2011                                   30,500        14.81        247,660   
  2/16/2011                            16,700                      247,327   

K.M. Smith

  (1)     96,461        192,923        385,846                               
  2/16/2011       68,800        137,600        275,200                               
  2/16/2011                                   16,100        14.81        130,732   
  2/16/2011                            8,900                      131,809   

B. Baert

  (1)     99,653        199,306        398,612                               
  2/16/2011       80,337        160,673        321,346                               
  2/16/2011                                   16,100        14.81        130,732   
  2/16/2011                            8,900                      131,809   

T.J. Kedrowski

  (1)     93,775        187,550        375,100                               
  2/16/2011       66,600        133,200        266,400                               
  2/16/2011                                   16,100        14.81        130,732   
  2/16/2011                            8,900                      131,809   

 

(1) There is no grant date for these awards. This row relates to awards made under our cash-based Annual Plan.

 

(2) The first row of this column for each Named Executive Officer represents the annual cash incentive opportunity for the Named Executive Officer under the Annual Plan. The actual amount earned for 2011 under the Annual Plan is included in the “Non-Equity Incentive Plan Compensation” column of the 2011 Summary Compensation Table. The second row of this column for each Named Executive Officer represents the performance units awarded to the Named Executive Officer under the 2010 Plan. Each performance unit is equal in value to $1.00. These performance units are subject to achievement of specified performance goals over the performance period from January 1, 2011 to December 31, 2013. The performance units will be paid in cash, if earned, contingent upon the Named Executive Officer remaining in continuous employment through the payment date, which shall be in 2014 and shall occur no later than March 15, 2014.

 

(3) Threshold refers to the minimum amount payable upon reaching the threshold level of performance. If threshold performance is not attained, the participant will receive $0 for this award.

 

(4) The numbers in this column represent stock-settled Restricted Stock Units granted to the Named Executive Officers under the 2010 Plan, which vest on the third anniversary of the grant date. The RSUs have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock.

 

(5) The numbers in this column represent stock-settled SARs granted to the Named Executive Officers under the 2010 Plan, which become exercisable one-third on each anniversary of the date of the grant.

 

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(6) In setting the base price of SARs, we have followed the practice of using the closing price on the grant date. This practice is in compliance with the 2010 Plan. The award of stock-settled SARs that was granted on February 16, 2011 to the Named Executive Officers was priced using the grant date closing price of $14.81.

 

(7) The amounts in the column represent the grant date fair value of each equity-based award, computed in accordance with FASB ASC Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Set forth below is narrative disclosure relating to the 2011 Summary Compensation Table and the 2011 Grants of Plan-Based Awards table.

Senior Executive Annual Incentive Plan

Annual cash incentives were awarded for 2011 under our Annual Plan and are based on achievement of performance goals relating to company operating income and consolidated working capital as a percentage of sales (for the corporate staff participants) and business unit operating income and consolidated working capital as a percentage of sales (for Mr. Baert). For a more detailed discussion of our Annual Plan, see “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Annual Incentive.”

Cash-Settled Performance Units

Cash-settled performance units were granted in 2011 to all of our Named Executive Officers under our 2010 Plan and are based on achievement of the performance goal, earnings per share, over a three-year period. If performance goals are achieved, these awards will vest and pay out in early 2014, generally subject to continued employment. For a more detailed discussion of the performance units granted in 2011, see “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Cash-Settled Performance Units.”

Stock-Settled SARs

In 2011, the Committee granted stock-settled SARs to the Named Executive Officers. These SARs have a term of ten years and vest one-third per year over three years. For a more detailed discussion of the stock-settled SARs granted in 2011, see “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Stock-Settled SARs.”

Restricted Stock Units

In 2011, the Committee granted RSUs to the Named Executive Officers. The RSUs vest 100% and are payable at the end of a three-year period. The RSUs are provided dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The dividend equivalent rights are subject to the same restrictions as the underlying RSUs. For a more detailed discussion of the RSUs granted in 2011, see “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Restricted Stock Units.”

 

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Employment Agreements

We do not have employment agreements with any of our Named Executive Officers except for Messrs. Newlin and Baert. Mr. Newlin’s and Mr. Baert’s employment agreements are described in detail in the “Compensation Discussion and Analysis — Employment Agreements with Named Executive Officers” and the “Potential Payments Upon Termination or Change-in-Control” sections of this proxy statement.

 

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OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END

 

Name   Option Awards   Stock Awards
 

Number of
Securities
Underlying
Unexercised
Options
Exercisable(1) 

(#)

 

Number of
Securities
Underlying
Unexercised
Options
Unexercisable 

(#)

 

Equity

Incentive Plan
Awards: Number of 
Securities
Underlying
Unexercised
Unearned

Options

(#)

 

Option
Exercise
Price

($)

  Option
Expiration
Date
 

Number of Shares 
or Units of Stock
That Have Not
Vested(2)

(#)

 

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(3)

($)

S.D. Newlin

                                              249,152 (4)     $ 2,877,706  
                                              122,601 (5)       1,416,042  
                                              87,876 (6)       1,014,968  
      174,900                       $ 9.1850         2/20/2013                  
      286,800                         6.7650         3/5/2015                  
              142,033 (7)               1.4300         3/4/2016                  
      72,700         145,400 (8)               7.9900         2/16/2017                  
              157,900 (9)               14.8100         2/16/2021                  

R.M. Patterson

                                              48,089 (4)       555,428  
                                              24,297 (5)       280,630  
                                              16,907 (6)       195,276  
      60,000                         7.7200         5/14/2015                  
      54,867         27,433 (7)               1.4300         3/4/2016                  
      14,333         28,667 (8)               7.9900         2/16/2017                  
              30,500 (9)               14.8100         2/16/2021                  

K.M. Smith

                                              28,043 (4)       323,897  
                                              13,667 (5)       157,854  
                                              9,010 (6)       104,066  
      31,200                         6.7650         3/5/2015                  
      16,000         16,000 (7)               1.4300         3/4/2016                  
      8,067         16,133 (8)               7.9900         2/16/2017                  
      49,500                         12.2200         3/25/2012                  
      5,000                         6.0000         3/31/2013                  
              16,100 (9)               14.8100         2/16/2021                  

B. Baert

                                              22,475 (4)       259,586  
                                              13,667 (5)       157,854  
                                              9,010 (6)       104,066  
              12,833 (7)               1.4300         3/4/2016                  
              16,133 (8)               7.9900         2/16/2017                  
      47,500                         12.2200         3/25/2012                  
              16,100 (9)               14.8100         2/16/2021                  

T.J. Kedrowski

                                              28,043 (4)       323,897  
                                              13,667 (5)       157,854  
                                              9,010 (6)       104,066  
      60,000                         7.6750         9/9/2014                  
      31,200                         6.7650         3/5/2015                  
      32,000         16,000 (7)               1.4300         3/4/2016                  
      8,067         16,133 (8)               7.9900         2/16/2017                  
              16,100 (9)               14.8100         2/16/2021                  

 

(1) This column shows the fully vested and exercisable stock options and SARs held by the Named Executive Officers as of December 31, 2011.

 

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(2)

The RSUs and performance shares have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. This column includes all dividend equivalents declared in 2011 attributable to the awards (including the 4th quarter dividend declared on December 14, 2011, which was paid on January 9, 2012).

 

(3) The market value is determined based on the closing market price of our common shares on the last trading day of the 2011 fiscal year, December 30, 2011 ($11.55).

 

(4) Represents stock-settled performance shares that were granted on March 5, 2009 and vest upon the attainment of target prices (sustained for three consecutive trading dates) for our common shares as follows: 1/3 @ $1.57; 1/3 @ $1.72; and 1/3 @ $1.86. Vested Performance Shares will be released 3 years from the date of grant. The performance shares include shares deemed purchased with reinvested dividend equivalents that become subject to the same forfeiture conditions as the shares to which the dividends relate.

 

(5) Represents stock-settled RSUs that were granted on February 17, 2010 and vest in full on the third anniversary of the grant date. The RSUs include shares deemed purchased with reinvested dividend equivalents that become subject to the same forfeiture conditions as the shares to which the dividends relate.

 

(6) Represents stock-settled RSUs that were granted on February 16, 2011 and vest in full on the third anniversary of the grant date. The RSUs include shares deemed purchased with reinvested dividend equivalents that become subject to the same forfeiture conditions as the shares to which the dividends relate.

 

(7) Represents stock-settled SARs granted on March 5, 2009 and vest upon the attainment of target prices (sustained for three consecutive trading dates) for our common shares as follows: 1/3 @ $1.57; 1/3 @ $1.72; and 1/3 @ $1.86.

 

(8) These stock-settled SARs were granted on February 17, 2010 and vest one-third on each of the first three anniversaries of the date of grant.

 

(9) These stock-settled SARs were granted on February 16, 2011 and vest one-third on each of the first three anniversaries of the date of grant.

2011 OPTION EXERCISES AND STOCK VESTED

 

Name   Option Awards        Stock Awards
 

Number of Shares
Acquired on
Exercise(1)

(#)

      

Value Realized on
Exercise(2)

($)

       Number of Shares
Acquired on Vesting
(#)
      

Value Realized
on Vesting

($)

S.D. Newlin

  450,434       $4,071,341       114,700       $1,628,740

R.M. Patterson

              40,000       576,800

K.M. Smith

  18,600       47,151       12,600       178,920

B. Baert

  31,301       313,374       12,600       178,920

T.J. Kedrowski

              12,600       178,920

 

(1) Mr. Newlin exercised 450,434 SARs and received 170,418 shares, as the remaining shares were withheld to cover the cost of taxes and the exercise price. Mr. Baert exercised 31,301 SARs, and received 21,032 shares, as the remaining shares were withheld to cover the cost of taxes and the exercise price. Mr. Smith exercised 18,600 SARs and received 2,817 shares, as the remaining shares were withheld to cover the cost of taxes and the exercise price.

 

(2) Represents the difference between the market price of our common shares at exercise and the base price of the SARs exercised.

 

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2011 PENSION BENEFITS

 

Name        Plan Name        Number of Years
Credited Service
(#)
       Present Value of
Accumulated Benefit
($)
      

Payments During Last
Fiscal Year

($)

S.D. Newlin

     

Supplemental retirement benefit under employment agreement

                $5,917,311 (1)       $0

R.M. Patterson

     

N/A

                —               

K.M. Smith

     

PolyOne Merged Pension Plan

      17.4           552,088 (2)(3)         0
       

The Geon Company Section 401(a)(17) Benefit Restoration Plan

      17.4           703,568 (2)(4)         0

B. Baert

     

N/A

                —               

T.J. Kedrowski

     

N/A

                —               

 

(1) The Present Value of Accumulated Benefit shown above for Mr. Newlin is the lump-sum value as of December 31, 2011 of the annual benefit payment earned as of December 31, 2011 that will be payable under Mr. Newlin’s Amended and Restated Letter Agreement, dated as of July 16, 2008, providing for a 15-year certain and continuous life annuity beginning at age 58.9. Lump sum payments are not allowed under the arrangement. The assumptions used to determine the lump-sum value are a discount rate of 5.12% and a post-retirement mortality using the 2012 static annuitant table described in Internal Revenue Service Regulation §1.430(h)(3).

 

(2) The Present Value of Accumulated Benefit shown above for each plan for Mr. Smith is the lump-sum value as of December 31, 2011 of the monthly pension benefit earned as of December 31, 2011 that would be payable under that plan for Mr. Smith’s life beginning at age 62 (the earliest age prior to the normal retirement age of 65 when benefits can commence unreduced for early retirement). Lump sum payments are not allowed under either plan. The assumptions used to determine the lump-sum value are a discount rate of 5.12% and a post-retirement mortality using the RP2012 static annuitant table described in Internal Revenue Service Regulation §1.430(h)(3). No pre-retirement decrements are assumed.

 

(3) Mr. Smith’s Number of Years Credited Service includes four additional years of pension service discussed in the narrative following the 2011 Pension Benefits Table. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $425,331 instead of the $552,088 shown in the table. Subsequent earnings under the qualified and nonqualified plan were frozen effective March 20, 2009.

 

(4) Mr. Smith’s Number of Years Credited Service includes four additional years of pension service discussed in the narrative following the 2011 Pension Benefits Table. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $542,032 instead of the $703,568 in the table. Subsequent earnings under the qualified and nonqualified plan were frozen effective March 20, 2009.

We offer a defined contribution retirement benefit to all U.S. employees through the Qualified Savings Plan. The Qualified Savings Plan provides employees with individual retirement accounts funded by (1) an automatic PolyOne-paid contribution of 2% of employee eligible earnings, and (2) a company-paid match on employee 401(k) contributions equal to dollar-for-dollar on the first 3% of earnings the employee contributes plus $0.50 per dollar on the next 3% of earnings the employee contributes. The Internal Revenue Code limits employee contributions to the Qualified Savings Plan to $16,500 and earnings upon which employee/company contributions are based to $245,000 in 2011.

The Nonqualified Savings Plan is an unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan, but without the Internal Revenue Code contribution and earnings limitations. Together these plans are intended to provide the Named Executive Officers with retirement income equivalent to that provided to all other employees who are not impacted by the Internal Revenue Code limitations under the Qualified Savings Plan. As a result, the Named Executive Officers

 

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can expect a retirement income that replaces a portion of their income while employed, similar to that received by all other employees participating in the Qualified Savings Plan who are not impacted by the Internal Revenue Code limitations.

Mr. Baert is based outside the United States and does not participate in the Qualified Savings Plan or the Nonqualified Savings Plan. Mr. Baert relocated from our Belgium office to our Luxembourg office on September 1, 2009. Prior to that date, he participated in a standard defined contribution retirement benefit plan generally provided to all Belgium employees. Mr. Baert’s benefit in the Belgium pension plan is frozen and no further contributions will be made by us to this plan on his behalf. Due to the fact that he is over age 60 and has transferred to Luxembourg, the assets in this plan are now fully owned by Mr. Baert. Beginning September 1, 2009, Mr. Baert became a participant in the standard defined contribution retirement benefit plan provided to all Luxembourg employees. The plan provides employees with individual retirement accounts funded by (1) an automatic Company-paid contribution of 5% of base pay up to a salary limit ($136,558 for 2011), plus 15% of base pay in excess of the salary limit and (2) employee contributions up to the limit of $1,554 annually.

Mr. Smith is eligible, along with certain other employees, to receive pension payments under the Qualified Pension Plan, as well as the Benefit Restoration Plan. In addition, since becoming retirement eligible (55 years of age with 10 years of service), Mr. Smith is eligible to receive certain retiree medical benefits for which he will be required to pay a substantial portion of the cost. This plan will be phased out until its elimination in 2013. These plans existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna and generally benefited all nonunion employees of Geon.

The Benefit Restoration Plan provides benefits that are in addition to those offered under the Qualified Pension Plan. Benefits are calculated under a formula similar to that of the Qualified Pension Plan, but without the compensation and benefit limits imposed by the Internal Revenue Code. The benefits under the Benefit Restoration Plan are offset by benefits provided under the Qualified Pension Plan. The Qualified Pension Plan makes available a pension that is paid from funds in trust provided through contributions by us. Any pension benefit provided under the Benefit Restoration Plan is paid from our general assets.

The amount of Mr. Smith’s pension depends on a number of factors including monthly Final Average Earnings (“FAE”) and years of benefit service to us (“Benefit Service”). FAE is determined based on the highest four consecutive calendar years of an employee’s earnings. Earnings include salary, overtime pay, holiday pay, vacation pay, and certain incentive payments including annual cash bonuses, but exclude awards under long-term incentive programs and the match by us in the qualified savings plans. The Qualified Pension Plan provides a monthly lifetime benefit equal to 1.15% times FAE times Benefit Service plus 0.45% times FAE in excess of 2002 Covered Compensation (as defined by the Internal Revenue Code) times Benefit Service limited to 35 years.

A retirement-eligible employee can elect to commence vested benefit payments as early as age 55 in lieu of waiting to age 65. However, the benefit described above is subject to reduction in recognition of the additional payments that are received because of early commencement. The reduction for early retirement is determined differently depending on whether the employee terminated employment before or after attaining age 55. If an employee terminates employment on or after age 55 and commences his or her benefit before age 62, the benefit payments would be reduced by 0.5% per month. If an employee terminates employment before age 55 and commences his or her benefit before age 65, the reduction is more severe and is determined on an actuarially equivalent basis. No reduction

 

47


will occur if an employee (1) terminates employment on or after age 55 and commences his or her benefit on or after age 62 or (2) terminates employment before age 55 and commences his or her benefit at age 65.

The normal form of payment provides that an employee will receive his or her benefit in a lifetime payment with a minimum of 60 monthly payments guaranteed. Married participants receive payments in an actuarially equivalent 50% joint and survivor form. Other actuarially equivalent monthly lifetime forms of payments are available if elected by the participant with spousal agreement if married. Lump sum payments are not available.

In general, if a married, vested participant dies prior to commencing his pension benefit then the spouse is eligible to receive the benefit that would have otherwise been payable had the participant terminated employment on the day he died, survived to his normal retirement date and elected a 50% joint and survivor form of payment and then immediately died. The 50% joint and survivor form provides the surviving spouse with monthly lifetime payments at the participant’s normal retirement age equal to 50% of the benefit that otherwise would have been payable. Payments can commence prior to the participant’s normal retirement age but may be reduced for early commencement.

The Qualified Pension Plan and Benefit Restoration Plan were frozen to new entrants effective December 31, 1999. Benefit Service was frozen effective December 31, 2002 in both plans and, effective March 20, 2009, earnings under both plans were frozen for all participants. We decided to freeze these plans following a comprehensive retirement benefits review, during which the Committee examined whether our retirement programs were consistent with PolyOne goals, including fairness to all associates and competitiveness in the marketplace. With this change, we have a single and competitive retirement plan for our U.S.-based employees.

Messrs. Patterson, Baert and Kedrowski do not participate in a defined benefit plan.

During 2008, the Committee reviewed Mr. Newlin’s total compensation package among the peer companies and across the broader general industry. The Committee determined that it was in the best interests of PolyOne and our shareholders to provide a supplemental retirement benefit for him that would be competitive with industry practices and serve as an additional retention vehicle. Thus, Mr. Newlin’s employment agreement (which provides for the terms of Mr. Newlin’s employment) was amended on July 16, 2008 to include certain retirement benefits. Specifically, the employment agreement was amended to provide that upon a Qualifying Separation from Service, Mr. Newlin will be entitled to annual supplemental retirement payments, payable in the form of a 15-year certain and continuous life annuity, conditioned upon Mr. Newlin’s execution of a release and waiver. If Mr. Newlin dies or incurs a disability prior to a Qualifying Separation from Service, he or his designated beneficiary will be entitled to certain supplemental retirement payments. Generally, Mr. Newlin will be considered to have a Qualifying Separation from Service if (1) he attains the age of 55 and has at least five years of service with us, is serving as Chairman and Chief Executive Officer at the time of his retirement (provided that if the Board, in its sole discretion, has identified a suitable successor for the position of Chief Executive Officer, he only needs to be serving as Chairman at the time of his retirement) and the Board, in its sole discretion, has identified a suitable successor to the position of Chief Executive Officer; or (2) Mr. Newlin’s employment is involuntarily terminated other than for serious cause or Mr. Newlin terminates employment for good reason following a change of control of PolyOne. Under the terms of the amended employment agreement, he will also be treated as a retiree for purposes of any SARs, RSUs, performance shares and performance units awarded to him

 

48


as long-term incentive awards. In addition, he and his eligible dependents will have access to the same retiree medical benefits made available to all retirement eligible employees under our standard retiree medical benefit program, to the extent we continue to maintain such programs for the benefit of our retirees and their eligible dependents. Mr. Newlin will forfeit his rights to receive the supplemental retirement payments and retiree medical benefits if he engages in any conduct prohibited by his non-competition agreement or any acts that constitute fraud, embezzlement, or disclosure of confidential information or deliberate dishonesty.

2011 NONQUALIFIED DEFERRED COMPENSATION

 

Name  

Executive
Contributions in
Last FY(1)

($)

      

Registrant
Contributions in
Last FY(2)

($)

      

Aggregate
Earnings
in Last
FY(3)

($)

       Aggregate
 Withdrawals/ 
Distributions
($)
      

Aggregate Balance

at Last FYE(4)(5)

($)

    

S.D. Newlin

  $153,812       $168,580       $26,448             $1,238,277    

R.M. Patterson

    205,423           47,928       (10,300)                  748,043    

K.M. Smith

      27,047           31,251           4,173                  453,154    

B. Baert

                             

T.J. Kedrowski

      18,632           26,233       (9,747)                  137,189    

 

(1) These amounts reflect actual amounts earned by the Named Executive Officers in 2011 that have been deferred on a voluntary basis. The amounts reflected in this column are included in the 2011 Summary Compensation Table as follows:

 

Name   

2011 “Salary”
Column

($)

       

2011 “Non-Equity
Incentive Plan
Compensation”
Column

($)

    

S.D. Newlin

   $48,230        $105,582    

R.M. Patterson

     80,385          125,038    

K.M. Smith

     17,871              9,176    

B. Baert

             

T.J. Kedrowski

     14,488              4,144    

 

(2) This column contains contributions by us in the last fiscal year under our nonqualified retirement plan, the PolyOne Supplemental Retirement Benefit Plan, which provides for benefits in excess of amounts permitted to be contributed under our qualified retirement plan, as follows: (a) our cash contributions in amounts equal to 100% on the first 3% of employee contributions plus 50% on the next 3% of employee contributions (the “Company Match”) limited to 4.5% of eligible earnings, and (b) a retirement contribution by us in an amount equal to 2% of eligible earnings (the “Retirement Contribution”). Mr. Baert does not currently participate in this plan or any other nonqualified deferred compensation plan. The following table breaks out the contributions made by us in 2011 under each of the types of contributions described above:

 

Company Contribution   Newlin     Patterson     Smith     Baert     Kedrowski  

Company Match

  $ 116,709      $ 33,181      $ 21,635        $ 17,081   

Retirement Contribution

  $ 51,871      $ 14,747      $ 9,616        $ 9,153   

All of these amounts are included in the “All Other Compensation” column of the 2011 Summary Compensation Table.

 

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(3) Because amounts included in this column do not include above-market or preferential earnings, none of these amounts are included in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the 2011 Summary Compensation Table.

 

(4) A portion of the balance reflected in the table represents amounts earned by the executives, which they have elected to defer on a voluntary basis. Mr. Smith also has a balance in a frozen nonqualified deferred compensation plan sponsored by our predecessor company, Geon. The Geon Company Section 401(a)(17) Benefit Restoration Plan amounts are reflected in the table.

 

(5) Includes amounts reported as compensation for the Named Executive Officers in the Summary Compensation Table for previous years. The following aggregate amounts of executive and company contributions were included in the Summary Compensation Table for fiscal years 2006 — 2010.

 

Name    Executive
Contribu