DEF 14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

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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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 2013

Annual Meeting of Shareholders

and Proxy Statement

 

 

 


 

LOGO

April 2, 2013

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 15, 2013, at PolyOne Corporation’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012.

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 PolyOne Corporation’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012 at 9:00 a.m. on Wednesday, May 15, 2013. The purposes of the meeting are to:

 

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

 

  2. Conduct an advisory vote to approve named executive officer compensation;

 

  3. Ratify the appointment of Ernst & Young LLP as PolyOne Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2013; and

 

  4. Consider and transact any other business that may properly come before the meeting.

Shareholders of record at the close of business on March 18, 2013 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

April 2, 2013

Important Notice Regarding the Availability of Proxy Materials

for the Annual Meeting of Shareholders to be held on May 15, 2013:

The proxy statement, proxy card and annual report to shareholders for the fiscal year ended December 31, 2012 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 April 2, 2013

Our Board of Directors respectfully requests your proxy for use at the Annual Meeting of Shareholders to be held at PolyOne Corporation’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012 at 9:00 a.m. on Wednesday, May 15, 2013, 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 proxy card will be voted in accordance with the choices marked on the card. If no choices are marked, the shares will be voted (1) to elect the nominees listed on pages 4 through 8 of this proxy statement, (2) to approve, by non-binding vote, our named executive officers’ compensation for the fiscal year ended December 31, 2012 and (3) to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013. 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 respective 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 April 2, 2013. 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 nine 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 annual meeting of shareholders immediately following the Director’s 72nd birthday, although the Board may waive this limitation if it determines that such a waiver is in PolyOne Corporation’s (“PolyOne” or the “Company”) 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 occupation and employment during the past five years, name and principal business of any corporation or other organization in which such occupation 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 2014, 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 exception of Sandra Beach Lin. Ms. Beach Lin was recommended to our Nominating and Governance Committee for election to the Board by a third-party search firm, Nosal Partners LLC. Ms. Beach Lin was subsequently recommended by our Nominating and Governance Committee to the Board and nominated for election as a Director by the Board at the 2013 Annual Meeting of Shareholders. If Ms. Beach Lin is elected as a Director by our shareholders, the size of the Board will increase to ten members. The composition of the Board is intended to reflect an appropriate mix of skill sets, experience and qualifications that are relevant to PolyOne Corporation’s business and governance over time.

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 Director nominees 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. With the exception of Ms. Beach Lin, 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 18, 2013.

 

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

 

Sandra Beach Lin

New Director Nominee

Age — 55

   Retired President, Chief Executive Officer and Director of Calisolar, Inc. (now Silicor Materials Inc.), a solar silicon company. Ms. Beach Lin served in this role from August 2010 until December 2011. She was Corporate Executive Vice President, from February 2009 to July 2010, and Executive Vice President, from July 2007 to February 2009, of Celanese Corporation, a global hybrid chemical company. Ms. Beach Lin currently serves on the Boards of Directors of WESCO International, Inc. and American Electric Power Company, Inc. Ms. Beach Lin also serves on the Boards of Directors of the Committee of 200 and Junior Achievement USA. Ms. Beach Lin has extensive senior executive experience, including as a chief executive officer, managing global businesses in multiple industries. This experience, along with her experience as a director for two other public companies, makes Ms. Beach Lin a valuable member of our Board.

Dr. Carol A. Cartwright

Director since 1994

Age — 71

   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 Board of Directors of FirstEnergy Corp. From 2002 to 2008, Dr. Cartwright served on the Board of Directors of The Davey Tree Expert Company, and from 1997 to 2012, Dr. Cartwright served on the Board of Directors of KeyCorp. 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 20 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 — 57

   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 of Eaton 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

 

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   international operations, knowledge of diversified companies and 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 — 56

   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, an 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 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 — 70

   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

 

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   international issues, as he previously resided in Canada and Japan 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 experience serving on the compensation committees of other public companies.

Richard A. Lorraine

Director since 2008

Age — 67

   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 — 60

   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 President, Chief Operating Officer and Vice Chairman from 2000 to 2001. Mr. Newlin serves on the Boards of Directors of Black Hills Corporation and Oshkosh 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 of Directors experience, having served on six 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.

William H. Powell

Director since 2008

Age — 67

   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.

 

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   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 insight 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 — 68

   President and Chief Executive Officer of QualHealth, LLC, a health care consulting firm. 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 — 51

   President and Chief Executive Officer of Carpenter Technology Corporation, an 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 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 addition to our Board. He is a proven

 

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   leader, with deep and varied experience in technology and successful business operations. His background in managing operations in Europe and 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 Sandra Beach Lin, Dr. Carol A. Cartwright, Richard H. Fearon, Gregory J. Goff, Gordon D. Harnett, Richard A. Lorraine, William H. Powell, Farah M. Walters and William A. Wulfsohn are independent, and that J. Douglas Campbell and Edward J. Mooney were independent during their tenure on the Board 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 2012, the amount paid to PolyOne 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.

Board Leadership Structure

Mr. Newlin is the Chairman of our Board of Directors and our Chief Executive Officer (“CEO”). The Board of Directors believes that this leadership structure is appropriate for our Company given the

 

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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 2012, 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 2012, all 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 nine Directors and the following four committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Environmental, Health and Safety Committee.

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 2012. The current function of each committee is described below.

 

Director       Audit Committee           Compensation    
Committee
 

Environmental

Health and
    Safety Committee    

      Nominating  and    
Governance
Committee

C.A. Cartwright

  X           X*

R.H. Fearon

  X*           X

G.J. Goff

          X   X

G.D. Harnett

  X   X*        

R.A. Lorraine

  X           X

S.D. Newlin

          X    

W.H. Powell

      X   X*    

F.M. Walters

      X       X

W.A. Wulfsohn

      X        

Number of Meetings in 2012

  8   6   2   2

X — Member

* — Chairperson

If Ms. Beach Lin is elected as a Director, she is expected to serve on the Audit Committee and on the Environmental, Health and Safety Committee.

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 Audit Committee exercises oversight of our independent

 

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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 (referred to as “SEC”).

The Compensation Committee reviews and approves the compensation, benefits and other benefits afforded our executive officers and other highly-compensated personnel. The Compensation Committee has similar responsibilities with respect to non-employee Directors, except that the Compensation Committee’s actions and determinations are subject to the approval of the Board of Directors. The Compensation 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 Compensation Committee makes use of PolyOne resources, including members of senior management in our human resources, legal and finance departments. In addition, the Compensation Committee directly engages the resources of Towers Watson (the “Consultant”) as an independent outside compensation consultant to assist the Compensation Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. In 2012, the Compensation 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 Compensation Committee reviewed data from a peer group of similarly-sized United States chemical companies and reviewed data from the Consultant’s Compensation Data Bank and other published surveys. The Consultant then assisted the Compensation Committee in benchmarking base salaries and annual and long-term incentive targets. More detailed information about the compensation awarded to our executive officers in 2012 is provided in the “Compensation Discussion and Analysis” section of this proxy statement. The Consultant maintains regular contact with the Compensation Committee and interacts with management to gather the data needed to prepare reports for Compensation Committee review.

The Compensation Committee periodically reviews the relationship with the Consultant 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 the Consultant 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 considered all relevant factors, specifically including six consultant independence factors under Rule 10C-1(b)(4)(i) through (vi) under the Securities Exchange Act of 1934, (referred to as the “Exchange Act”) in evaluating the independence of the Consultant. The Compensation Committee reviewed each factor in depth, as well as information provided by the Consultant that related to and was responsive to each factor, which assisted in the assessment. Upon completing this assessment, the Compensation Committee determined that the Consultant serves as an independent advisor and that no “conflicts of interest have been raised by the work performed by the Consultant.”

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

 

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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.

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 Nominating and Governance 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 neither the Nominating and Governance Committee nor the Board has 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 Nominating and Governance Committee believes that having a diverse Board leads to more innovation, unique thinking and better governance. At the end of 2012, approximately 22% of our Board members were female. If Ms. Beach Lin is elected as a Director along with all other Director nominees presented in this proxy statement, 30% of our Board members will be female. 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 Nominating and Governance 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 Nominating and Governance 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 Nominating and Governance Committee in the same manner as any other nominee for election to the Board. Finally, if the Nominating and Governance Committee determines that a candidate should be nominated for election to the Board, the Nominating and Governance Committee will present its findings and recommendation to the full Board for approval.

 

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In 2012, the Nominating and Governance Committee used a third-party search firm, Nosal Partners LLC, 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 Nominating and Governance Committee and each candidate during the screening and evaluation process, and thereafter to be available for consultation as needed by the Nominating and Governance 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.

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 pages 8 and 9, supports the risk oversight function of the Board of Directors, but that the risk oversight function otherwise has no effect on the Board’s leadership structure.

 

12


Code of Ethics, Code of Conduct and Corporate Governance Guidelines

In accordance with applicable NYSE listing standards and SEC 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.

Our Corporate Governance Guidelines contain 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 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 who wish to communicate 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 2012, we paid our non-employee Directors an annual retainer of $165,000, in quarterly installments (in arrears), consisting of a cash retainer of $75,000 and an award of $90,000 in value of fully vested common shares. We pay individual meeting fees only as follows: $2,000 for each

 

13


unscheduled Board and committee meeting attended and $1,000 for participation in each unscheduled significant telephonic Board and committee meeting. In addition, the Lead Director and chairpersons of the following committees receive the additional fixed annual cash retainers (payable on a quarterly basis in arrears) listed below:

 

Role    Annual Cash Retainer

Lead Director

   $25,000

Chair, Audit Committee

   $15,000

Chair, Compensation Committee

   $10,000

Chair, Environmental, Health and Safety Committee

   $7,500

Chair, Nominating and Governance Committee

   $7,500

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 annual cash retainer under our Deferred Compensation Plan for Non-Employee Directors. Directors may also elect to have their cash retainer converted into our common shares. In 2012, we awarded shares to Directors under our 2010 Equity and Performance Incentive Plan, which shares may also be deferred under our Deferred Compensation Plan for Non Employee Directors. 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 deferred common shares accrue for the benefit of the participating Directors.

2012 DIRECTOR COMPENSATION

 

      Name

         (a)

       

Fees Earned or
Paid in Cash

(b)

($)

             

Stock

Awards

(c)

($)

             

Option
Awards

(d)

($)

             

Total

(e)

($)

     

J.D. Campbell

           58,492                   70,190                               128,682       

C.A. Cartwright

           82,500                   90,000                               172,500       

R.H. Fearon

           90,000                   90,000                               180,000       

G.J. Goff

           75,000                   90,000                               165,000       

G.D. Harnett

           110,000                   90,000                               200,000       

R.A. Lorraine

           75,000                   90,000                               165,000       

E.J. Mooney

           29,464                   32,143                               61,607       

W.H. Powell

           78,750                   90,000                               168,750       

F.M. Walters

           75,000                   90,000                               165,000       

W.A. Wulfsohn

           75,000                   90,000                               165,000       

Fees Earned or Paid in Cash (column (b))

Non-employee Directors may defer payment of all or a portion of their $75,000 annual cash retainer (payable on a quarterly basis in arrears) as well as meeting and committee chairperson fees.

Stock Awards (column (c))

Our non-employee Directors’ stock compensation consisted of an annual award (payable on a quarterly basis in arrears) of $90,000 in value of fully vested common shares, which the Directors may elect to defer. We determined the number of shares to be granted by dividing the dollar value by the arithmetic

 

14


average of the high and low stock price on the last trading day of each quarter. We used the following quarterly per share fair market values in calculating the number of shares: March 30, 2012 — $14.48 (1,553 shares); June 30, 2012 — $13.515 (1,664 shares); September 28, 2012 — $16.52 (1,361 shares); and December 31, 2012 — $20.175 (1,115 shares).

Option Awards (column (d))

We did not grant stock options to our non-employee Directors in 2012.

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 below. Stock option exercises conducted by our Directors in 2012 are set forth in the next following table below.

 

         Name    Option Awards:
Number of
Securities Underlying
Unexercised Options
(#)
        

Deferred Stock Awards:
Number of
Deferred Shares(1)

(#)

     

J.D. Campbell(2)

       0               244       

C.A. Cartwright

       6,000               30,263       

R.H. Fearon

       0               0       

G.J. Goff

       0               0       

G.D. Harnett

       6,000               95,361       

R.A. Lorraine

       0               46,241       

E.J. Mooney(2)

       0               0       

W.H. Powell

       0               46,028       

F.M. Walters

       6,000               19,551       

W.A. Wulfsohn

       0               7,458       

 

(1) 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 such Plan. The number of deferred shares reflects shares acquired through dividend reinvestment in 2011 and 2012 (including the fourth quarter dividend declared on October 11, 2012 to shareholders of record on December 12, 2012, which was paid on January 7, 2013).

 

(2) Messrs. Campbell and Mooney retired from service on the Board in 2012. A retirement distribution of 89,415 shares was made from the Deferred Compensation Plan for Non-Employee Directors to Mr. Mooney on May 15, 2012. A retirement distribution of 140,688 shares was made from the Deferred Compensation Plan for Non-Employee Directors to Mr. Campbell on October 12, 2012. Mr. Campbell’s remaining 244 shares were deferred into the Deferred Compensation Plan for Non-Employee Directors on December 31, 2012 as part of his fourth quarter 2012 compensation, and were distributed to him as part of his retirement distribution on January 11, 2013.

 

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2012 Option Exercises

 

Name   

Number of

Shares Acquired
on Exercise

(#)

    

Value Realized
on Exercise

($)

 

J.D. Campbell

     12,000       $ 164,370   

C.A. Cartwright

     12,000       $ 88,020   

R.H. Fearon

     15,000       $ 135,750   

G.J. Goff

     0       $ 0   

G.D. Harnett

     12,000       $ 92,220   

R.A. Lorraine

     0       $ 0   

E.J. Mooney

     0       $ 0   

W.H. Powell

     0       $ 0   

F.M. Walters

     6,000       $ 78,210   

W.A. Wulfsohn

     0       $ 0   

 

16


BENEFICIAL OWNERSHIP OF COMMON SHARES

The following table shows the number of our common shares beneficially owned on March 1, 2013 (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 40 (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

 

Sandra Beach Lin

     0                 0   

Carol A. Cartwright

     151,628 (2)       6,000 (3)       157,628   

Richard H. Fearon

     73,510                 73,510   

Gregory J. Goff

     7,420                 7,420   

Gordon D. Harnett

     162,547 (2)       6,000 (3)       168,547   

Richard A. Lorraine

     46,241 (2)               46,241   

William H. Powell

     111,945 (2)               111,945   

Farah M. Walters

     146,998 (2)       6,000 (3)       152,998   

William A. Wulfsohn

     7,458 (2)               7,458   

Stephen D. Newlin

     324,103         110,300 (4)       434,403   

Robert M. Patterson

     205,483         53,622 (4)       259,105   

Richard J. Diemer, Jr.

     50,000         4,230 (4)       54,230   

Robert M. Rosenau

     147,029         44,520 (4)       191,549   

Kenneth M. Smith

     114,020         11,625 (4)       125,645   

Thomas J. Kedrowski

     199,908         9,783 (4)       209,691   

18 Directors and executive officers
as a group

     2,016,417         315,100         2,331,517   

 

(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 from the Retirement Savings Plan is provided by the administrator in a statement for the period ending March 1, 2013, based on the market value of the applicable units held by the individual. Additional common shares may have been allocated to the accounts of participants in the Retirement Savings Plan since the date that the last statement was received from the administrator. No Director, nominee or executive officer beneficially owned, on March 1, 2013, more than 1% of our outstanding common shares. As of that date, the Directors and executive officers as a group beneficially owned approximately 2.6% 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: C.A. Cartwright, 30,263 shares; R.H. Fearon, 0 shares; G.J. Goff, 0 shares; G.D. Harnett, 95,361 shares; R.A. Lorraine, 46,241 shares; W.H. Powell, 46,028 shares; F.M. Walters, 19,551 shares; and W.A. Wulfsohn, 7,458 shares.

 

17


(3) Includes shares the individuals have a right to acquire upon the exercise of options on or before April 30, 2013.

 

(4) Includes the number of shares that would be acquired if the individuals’ outstanding and exercisable stock-settled stock appreciation rights were exercised at $22.55, the closing price of PolyOne’s common shares on March 1, 2013.

The following table shows information relating to all persons who, as of March 1, 2013, 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 SEC:

 

Name and Address    Number of
Shares
     % of
Shares
 
     

FMR LLC
82 Devonshire Street,
Boston, Massachusetts 02109
(1)

     9,434,511         10.592   
     

BlackRock, Inc.
40 East 52nd Street,
New York, New York 10022
(2)

     6,765,834         7.60   
     

The Vanguard Group, Inc.
100 Vanguard Boulevard,
Malvern, Pennsylvania 19355
(3)

     5,197,224         5.83   

 

(1) As of January 31, 2013, based upon information contained in a Schedule 13G/A filed with the SEC. FMR LLC has sole dispositive power with respect to all of these shares.

 

(2) As of December 31, 2012, based upon information contained in a Schedule 13G/A filed with the SEC. BlackRock, Inc. has sole voting power and sole dispositive power with respect to all of these shares.

 

(3) As of December 31, 2012, based upon information contained in a Schedule 13G/A filed with the SEC. The Vanguard Group, Inc. has sole voting power with respect to 127,236 of these shares, sole dispositive power with respect to 5,073,388 of these shares and shared dispositive power with respect to 123,836 of these shares.

Stock Ownership Guidelines for Directors

The purpose of our stock ownership guidelines (referred to as the “Guidelines”) is to better align our Directors’ financial interests with those of our shareholders by requiring them to own a minimum level of our shares. In December 2012, we amended our Guidelines to more accurately reflect the market median multiple of retainer. This change was necessary due to significant stock price appreciation that had occurred since the prior adoption of the Guidelines. In order to reflect the Board’s commitment to share ownership and align the interests of our Board members with our shareholders, the required share ownership level for non-employee Directors is a minimum of 22,000 shares.

The Directors are expected to make continuing progress towards compliance with the Guidelines and to comply fully within five years of becoming subject to the Guidelines. 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 and restricted stock units. All Directors are required to retain 100% of all shares obtained through us, as compensation for services provided to us, with 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 (if

 

18


applicable). This requirement to retain 100% of all shares obtained from us ceases once the Director has met the Guidelines as long as the Guidelines continue to be met. These policies, as they relate to our Named Executive Officers, are discussed in the “Compensation Discussion and Analysis” section of this proxy statement.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that certain of our officers, our 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 SEC. These officers, Directors and greater than 10% shareholders are required by SEC 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 2012 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to those officers, Directors and 10% shareholders were satisfied, except that a miscommunication regarding the timing of stock sales over a several day period led to the late filing of a Form 4 to report one transaction for William H. Powell and a misunderstanding regarding how to report transactions made with respect to a Grantor Retained Annuity Trust led to a late filing of a Form 4 to report one transaction for J. Douglas Campbell.

 

19


EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis (“CD&A”) describes the principles underlying our executive compensation policies as well as our most important executive compensation decisions and practices for 2012. 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 six individuals are our Named Executive Officers for 2012, as that term is defined by the SEC:

 

Name    Title
Stephen D. Newlin    Chairman, President and Chief Executive Officer
Robert M. Patterson(1)    Executive Vice President and Chief Operating Officer
Richard J. Diemer, Jr.(2)    Senior Vice President and Chief Financial Officer
Robert M. Rosenau    Senior Vice President and President, Performance Products and Solutions
Kenneth M. Smith    Senior Vice President and Chief Information and Human Resources Officer
Thomas J. Kedrowski    Executive Vice President, Global Operations and Process Improvement

 

(1) Mr. Patterson served as our Executive Vice President and Chief Financial Officer until he was promoted to serve as our Executive Vice President and Chief Operating Officer on March 7, 2012.

 

(2) Mr. Diemer was hired to serve as our Senior Vice President and Chief Financial Officer effective March 7, 2012.

Executive Summary

How Pay is tied to Company Performance

Our compensation programs are designed to: (1) reward employees for generating consistent improvement in Company performance; (2) attract and retain talented executives; and (3) align compensation with the long-term interests of our shareholders; with the ultimate goal of improving long-term shareholder value. We also believe that as an employee’s level of responsibility and performance increase, so should the proportion of performance-based compensation. As a result, and as described in greater detail throughout the CD&A, our executive compensation programs and practices are appropriately aligned with Company performance and link a significant portion of our Named Executive Officers’ pay to sustained business performance over a multi-year period without encouraging excessive risk-taking.

2012 Business Highlights

In 2012, PolyOne delivered strong operating results. Although 2012 was a challenging year for both the domestic and global economies, as a result of the leadership of our Board of Directors and executive officers, and the dedication and hard work of our employees, we continued our trend of improving financial performance. During 2012, our significant accomplishments included:

 

   

Stock price increased from an $11.55 closing price on December 30, 2011 to a $20.42 closing price on December 31, 2012, which represents a 77% increase;

 

20


   

Record Adjusted Earnings Per Share of $1.20, which represents an 18% increase from 2011;

 

   

Adjusted Operating Margin of 7.4%, which represents a 22% increase from 2011;

 

   

Revenue increased to $3.0 billion, which represents a 4.5% increase from 2011;

 

   

Working Capital as a Percentage of Sales of 9.9%, which we consider to be world class performance; and

 

   

2012 merger and acquisition activity included integrating ColorMatrix into the PolyOne organization, acquiring Glasforms, Inc., and announcing an agreement to acquire Spartech Corporation.

All of this was made possible by our aggressive goal setting, and our relentless efforts to execute our well-defined strategy of specialization, globalization, commercial excellence and operational excellence. We are pleased with the accomplishments in 2012, which strengthen our position and continue our progress on executing this strategy. Our setting of well-defined, strategic goals and our pursuit of achievement of these goals is working, and we believe we are well-positioned to continue our transformation into a high performing global specialty company.

We believe our executive compensation programs described below and in the accompanying tables played a vital role in driving the strong financial results noted above, and appropriately align pay and performance. At the beginning of 2012, we set goals for our annual incentive plan that drove the 2012 increases in Adjusted Operating Income noted above, as well as our impressive Working Capital as a Percentage of Sales results. Due to these outstanding performance results for 2012, our Named Executive Officers (except Mr. Rosenau) earned 187.4% of their target 2012 Annual Plan opportunities based on surpassing our target performance goal. Mr. Rosenau is the only Named Executive Officer with responsibility for business unit specific results, and his Annual Plan opportunity and goal attainment of 200% is based directly on his business unit’s performance against specific performance goals set for 2012.

Our 2010 long-term performance unit award had a one-year performance period (ending on December 31, 2010) based upon Working Capital as a Percentage of Sales. By achieving a 2010 Working Capital as a Percentage of Sales result of 9.6%, in 2012, we paid out cash-settled performance units originally granted in 2010 based on attainment of 200% of target level performance.

In 2011, we changed the performance measure for our long-term performance unit awards from Working Capital as a Percentage of Sales to Adjusted Earnings Per Share in order to drive improvements in shareholder value, and moved to a three-year performance period. In 2012, we maintained Adjusted Earnings Per Share as the performance measure for our cash settled performance units, as well as a three-year performance period. Our Compensation Committee believed that these goals would position us for continued growth. Achieving these measures will allow us to fund operating expenses and pursue acquisition opportunities that we believe will further strengthen our earnings potential and growth. Even with the difficult global economy in 2012, we were able to achieve our pre-set goals and reward our employees for achieving those goals.

We believe the 2012 incentive plan design worked to fully link pay with performance and to drive a stock price increase of 77%, bringing significant value to our shareholders.

Note: Adjusted Earnings Per Share and Adjusted Operating Income for consolidated PolyOne differ from what is reported under United States generally accepted accounting principles (“GAAP”). See Appendix A for a reconciliation of non-GAAP financial measures to our results as reported under GAAP.

 

21


Executive Compensation Practices and Programs

The executive compensation practices and programs described below and in the accompanying tables played a vital role in driving strong financial results and aligning pay with performance, and are designed to attract and retain a highly experienced, successful team to manage our Company. Our practices and programs are directly linked to our key business objectives and designed to create value for our shareholders.

 

Highlights of our practices and programs include:

 

  ü  

Pay-for-Performance – The majority of executive pay is performance-driven and must be earned every year based on objective, challenging financial goals and individual performance.

 

 

  Ø  

Adjusted Operating Income improvement and Working Capital as a Percentage of Sales were the performance measures for our Senior Executive Annual Incentive Plan (referred to as the “Annual Plan”), which was our short-term cash incentive program for 2012.

 

 

  Ø  

Adjusted Earnings Per Share was the performance measure for our long-term performance unit cash awards granted in 2012 in order to drive improvements in shareholder value.

 

 

  Ø  

We incorporated stock price performance hurdle vesting requirements to the stock appreciation right (or “SAR”) awards granted in 2012 to further align executive compensation with shareholder interests. The hurdles were met in 2012.

 

 

  ü  

Shareholders Approve our Executive Compensation – In May, 2012, 96% of our shareholders approved our Named Executive Officer compensation pursuant to our second advisory “say-on-pay” vote.

 

 

  ü  

Mitigate Undue Risk – We mitigate undue risk associated with compensation, by utilizing maximums on potential payments, including retention provisions in our compensation programs, providing multiple performance targets and maintaining robust Board and management processes to identify risk. We do not believe any of our compensation programs create risks that are reasonably likely to have a material adverse impact on the Company, which we validate through a risk assessment of executive compensation that is performed each year.

 

 

  ü  

Meaningful Stock Ownership Guidelines – All Named Executive Officers are subject to stock ownership guidelines, and are either exceeding, or, for our newly-hired Named Executive Officers, are on target to achieve the Guidelines within five years of being subject to such Guidelines.

 

 

  ü  

Annual Review of Share Utilization – Prior to the annual equity award grants to Named Executive Officers, we evaluate annual and aggregate dilution from stock awards.

 

 

  ü  

No Tax Gross-Ups – We do not provide excise tax gross-up benefits for so-called “excess parachute payments” under Section 280G of the Internal Revenue Code in any new management continuity agreements. We also do not provide tax gross-up benefits for financial planning.

 

 

  ü  

No Excessive Executive Benefits – We provide limited executive benefits to our Named Executive Officers that have a sound benefit to the Company’s business. We revised our relocation policy as it relates to the loss on the sale of an executive’s residence. We limit the amount of the reimbursable loss provided to the Named Executive Officers to 80% of the loss, with a maximum total reimbursement of $85,000. In addition, no tax gross-ups on reimbursed losses are provided for this group.

 

 

  ü  

Good Corporate Governance – In addition to our existing policy prohibiting our Named Executive Officers from engaging in speculative transactions involving our securities, in 2013, we also instituted a policy that prohibits the pledging of Company stock.

 

 

22


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 (“TSR”) 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, 2007 to December 31, 2012, assuming in each case a fixed investment of $100 and reinvestment of all dividends. Starting in 2009, our performance has exceeded the S&P 500 Index as well as the S&P Mid Cap Chemicals Index.

 

LOGO

We believe that the returns to shareholders shown in the above 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.

 

23


We believe the compensation of our Named Executive Officers has been commensurate with our performance results. The following graph provides a historical perspective comparing our CEO’s earned compensation and our performance to the pay-for-performance of our peer group from 2009-2011 (data and timing limitations prohibit us from providing a 2012 analysis at this time). Our CEO’s earned compensation has been aligned with our recent performance, with his earned compensation approximating the 75th percentile of our peers while our performance as defined below, was in the 100th percentile.

 

LOGO

For purposes of this graph, pay is defined as the three-year (2009-2011) sum of base salary, earned annual incentives, the value of stock upon vesting, the value of option/SAR exercises, and earned long-term cash incentives. Three-year performance is based on three-year TSR (2009 – 2011). The peers used in this chart are the same as those listed on page 26 of this proxy statement, except for Ecolab, Inc., which was added to our peer group in December, 2012, and is not reflected in this graph.

Listening to Shareholders and Implementing Shareholder-Friendly Pay Practices

At the 2012 Annual Meeting of Shareholders, we held our second advisory vote on Named Executive Officer compensation. Over 96% of the votes cast were in favor of this advisory proposal. We considered this favorable outcome and believe it conveyed our shareholder’s strong support for the Compensation Committee’s decisions and the existing executive compensation programs and practices. As a result, the Compensation Committee made no material changes in the structure of our compensation programs or pay-for-performance philosophy based on the voting results for the proposal. At the 2013 Annual Meeting of Shareholders, we will again hold an advisory vote to approve the Named Executive Officer compensation. The Compensation Committee will continue to consider the results from this year’s and future advisory votes on Named Executive Officer compensation.

 

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Compensation Philosophy and Objectives

Our executive compensation programs pay for and reward our officers’ performance, are specifically linked to our achievement of strategic operating and financial goals and are designed to be competitive in the marketplace. Our executives are rewarded for performance that meets or exceeds our strategic goals, without encouraging excessive risk-taking that could have a detrimental 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(s) 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 2012 Executive Compensation Levels

Compensation Consultant

Our executive compensation programs are approved and overseen by the Compensation Committee, which is composed entirely of independent Directors. For 2012, the Compensation Committee retained an independent compensation consultant, Towers Watson (also referred to as the “Consultant”), to assist the Compensation Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. The Compensation Committee worked in conjunction with the Consultant and with input from members of senior management.

As described below, the Consultant (1) assisted the Compensation Committee by benchmarking compensation and aligning base salaries and annual and long-term incentive targets consistent with our competitive market pay philosophy discussed below, (2) provided guidance on incentive plan design, (3) monitored and communicated to the Compensation Committee trends in executive compensation, and (4) reviewed and provided guidance on the competitive market data on stock ownership guidelines.

Competitive Market Pay Information and Benchmarking

We designed our compensation programs to be competitive with companies of comparable size and industry with whom we compete for executive talent. We analyze competitive market compensation data relating to salary, annual incentives, and long-term incentives annually. The Compensation Committee generally manages individual components of compensation and initially targets total compensation relative to the median (50th percentile) of the competitive market data. However, the Compensation Committee considers other factors, consisting of the responsibilities, performance, contributions and experience of each Named Executive Officer and compensation in relation to other employees to determine final total compensation amounts. As a result, we do not set total direct compensation or the component parts at levels to achieve a mathematically precise market position. For 2012, Mr. Newlin’s compensation was set above the market median, which is aligned

 

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with Company performance. We also periodically analyze competitive market compensation data relating to retirement benefits and other benefits. The Compensation Committee obtains advice and recommendations from the Consultant in these and other areas of total compensation.

In analyzing competitive market data for the purpose of determining the market median for 2012, we drew from three independent sources. We first reviewed proxy statement disclosures of a peer group of similarly-sized United States chemical companies to establish an estimate of market compensation for our senior executives. This approach provided insight into specific practices at business competitors or companies facing similar operating challenges.

In recent years we refined our peer group to reflect our progress toward becoming a global specialty company. In 2012, we evaluated our current peers and other potential peers, giving specific consideration to the following factors:

 

Factor   Peer Group Comparator        PolyOne 2012 Results     
Company Revenue   1.8 billion to 10.6 billion       3.0 billion    
Total Asset Size   1.3 billion to 16.7 billion       2.1 billion    
Employee Numbers   3,000 to 40,000       5,000    

We also looked at the frequency with which these companies were used as peers by other companies in our industry, which companies had identified PolyOne as a peer, and whether each potential peer company had a global presence and a specialty chemical focus. In addition, we considered whether each company was in the same Standard Industrial Classification code as PolyOne and whether we compete with them for talent. Each of the companies recommended for our peer group met a majority of the primary criteria that were established. Based on this review, the following companies were removed due to corporate acquisitions: Lubrizol Corporation was removed due to its acquisition by Berkshire Hathaway in 2011; Solutia, Inc. was acquired by Eastman Chemical Company in 2012; Arch Chemicals, Inc. was acquired by Lonza Group Ltd in 2011; and Nalco Holding Company acquired by Ecolab, Inc. in 2011. Effective January 2013, Georgia Gulf Corporation merged with PPG Industries to form Axiall Corporation, which we will evaluate in 2013 for continued inclusion in our peer group. In addition, we included Ecolab, Inc. in our peer group as this company is frequently cited as a premier specialty chemical company, is often used for comparison purposes by investors and others, and is a company with which we compete for resources. As a result, PolyOne’s new peer group consists of the following 16 companies:

 

PolyOne Peer Group
Albemarle Corporation   Ferro Corporation   RPM International Inc.
A. Schulman, Inc.   FMC Corporation   The Scotts Miracle-Gro Company
Cabot Corporation   Georgia Gulf Corporation

(now known as Axiall Corporation)

  Sigma-Aldrich Corporation
Cytec Industries Inc.   H.B. Fuller Company   The Valspar Corporation
Eastman Chemical Company   International Flavors & Fragrances Inc.    
Ecolab, Inc.   Rockwood Holdings, Inc.    

The second and third independent sources of data that we used to augment the peer proxy analysis and provide a better sense of market practices was an analysis performed by the Consultant of competitive market data relating to (1) the chemical industry and (2) other applicable general industries using the following surveys: The Consultant’s Executive Compensation Database, the Consultant’s Top Management Compensation Survey and Mercer’s Executive Compensation Survey. To obtain

 

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comparability based on company size, the Consultant’s analysis either referenced a specific sample of companies or calibrated the pay of a broad sample of companies against company size. The specific identity of the companies in these surveys was not material to our use of the comparability data based on this process used by the Consultant.

Review of Named Executive Officer Compensation

Management and the Compensation Committee annually review the specific pay disclosures of our peer group and the broad-based survey data provided by the Consultant. Management uses this data to develop recommendations for the Compensation Committee’s review regarding eligibility, award opportunities, performance measures and goals for the plan periods commencing in the following year. The Compensation 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 Compensation Committee and management annually review and consider tally sheets, which are developed by 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, other benefits, retirement benefits and wealth accumulation.

Annually, the CEO recommends for the Compensation Committee’s review and approval specific base salary and target incentive adjustments for each of the other Named Executive Officers. The CEO makes his recommendations in conjunction with marketplace data and input provided by the Consultant. He did not participate in any discussions with the Compensation Committee involving his own compensation. With guidance from the Consultant regarding market pay levels and based on a rigorous review of 2011 performance and our compensation philosophy, the Compensation Committee determined the appropriate pay levels for the CEO for 2012.

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.

 

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We provide three elements of direct compensation that are discussed in detail below: base salary, annual incentive and long-term incentive compensation. The following table summarizes the allocation of the compensation opportunity at target, or “pay mix,” that was granted in 2012 to the Named Executive Officers, based upon the primary elements of compensation. 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.

 

      Target Pay Mix Allocation
Named Executive Officer    Base Salary %         Annual Incentive %        

Long-Term

  Incentive %  

     
             

S.D. Newlin

   18%        20%        62%     
             

R.M. Patterson

   32%        23%        45%     
             

R.J. Diemer, Jr.

   38%        23%        39%     
             

R.M. Rosenau

   39%        22%        39%     
             

K.M. Smith

   39%        22%        39%     
             

T.J. Kedrowski

   39%        22%        39%     

Analysis of 2012 Compensation Decisions and Actions

Base Salary

We pay base salaries to attract talented executives and to provide a fixed base of cash compensation. Base salaries for the Named Executive Officers were individually determined by the Compensation Committee after consideration of:

 

   

Breadth, scope and complexity of the executive’s role;

 

   

Internal equity (i.e., employees with similar responsibilities, experience and historical performance are rewarded comparably);

 

   

Current compensation;

 

   

Tenure in position;

 

   

Market pay levels and trends around merit increases;

 

   

Relative position of their salary to the market median for their role;

 

   

The CEO’s recommendations (for all Named Executive Officers other than the CEO); and

 

   

Individual performance.

There are three situations that may warrant an adjustment to base salary:

Annual Merit Increase. All employees’ base salaries are reviewed annually for possible merit increases taking into account the above listed factors, but merit increases are not automatic or guaranteed. In recognition of the significant role Mr. Newlin continues to play in transforming PolyOne into a high-performing organization, as well as his strong leadership, and a review of competitive market data, the Compensation Committee approved a three percent adjustment to his annual base salary, as outlined in the below table. In the Compensation Committee’s judgment, this

 

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base salary is appropriate in order to fairly compensate and retain Mr. Newlin. The Compensation Committee also increased the annual base salaries of each of the other Named Executive Officers by three percent (excluding Mr. Patterson) in accordance with market pay levels and trends around merit increases, as outlined in the below table.

Promotion or Change in Role. Base salary may be increased to recognize additional responsibilities resulting from a change in an employee’s role or a promotion to a new position however, increases are not guaranteed. In March 2012, Mr. Patterson was promoted to Executive Vice President and Chief Operating Officer, taking on responsibility for all four business segments at PolyOne, and providing strategic direction across all areas of the Company. To ensure his base salary would be aligned with competitive market data for similar positions, the Compensation Committee approved an eight percent increase to his annual base salary, to recognize his increased responsibilities.

Market Adjustment. A market adjustment may be awarded to an individual who is performing successfully when we recognize a significant gap between the market data and the individual’s base salary. No Named Executive Officer received a market adjustment in 2012.

The below table lists the 2012 base salaries that were approved by the Compensation Committee for the Named Executive Officers.

 

Named Executive Officer    2011 Base Salary          2012 Base Salary            2012 Base Pay  
Adjustment %
     

S.D. Newlin

     $ 950,000             $ 980,000               3%        

R.M. Patterson

     $ 475,000             $ 515,000               8%        

R.J. Diemer, Jr.(1)

       N/A             $ 435,000               N/A        

R.M. Rosenau

     $ 355,000             $ 365,000               3%        

K.M. Smith

     $ 355,000             $ 365,000               3%        

T.J. Kedrowski

     $ 346,000             $ 356,000               3%        

 

(1) Mr. Diemer was hired in March, 2012 and did not have a PolyOne base salary in 2011. Mr. Diemer’s original base salary was benchmarked against competitive market data for similar roles.

Based on the competitive market data provided by the Consultant, we determined that the 2012 salaries of the Named Executive Officers were within a range of 10% above and 10% below the 2012 market medians for comparable positions, which is consistent with our competitive market pay philosophy discussed in the “Competitive Market Pay Information and Benchmarking” section above.

 

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Annual Incentive

To reward our Named Executive Officers for achieving specific performance objectives that would advance our profitability, 2012 target annual incentive opportunities for the Named Executive Officers (as a percentage of base salary) were established as follows:

 

     
Named Executive Officer           2012 Annual Incentive Target              

S.D. Newlin

      110 %    

R.M. Patterson

        70 %    

R.J. Diemer, Jr.

        60 %    

R.M. Rosenau

        55 %    

K.M. Smith

        55 %    

T.J. Kedrowski

        55 %    

Based on the competitive market data provided by the Consultant, we determined that these Annual Plan opportunities for the Named Executive Officers were again within a range of 10% below to 10% above the 2012 market median for comparable positions, which is consistent with our competitive market pay philosophy discussed in the “Competitive Market Pay Information and Benchmarking” section above.

The Compensation Committee determined, after a thorough evaluation of possible plan designs and performance measures, that we would fundamentally maintain the same Annual Plan design in 2012 as used in 2011, including the same performance measures listed below:

 

   

Adjusted Operating Income. Adjusted Operating Income is defined as Operating Income less any special items (which consist of non-recurring items as set forth in our quarterly earnings releases) and Sunbelt equity earnings.

 

   

Operating Income. Operating Income refers to operating income in accordance with GAAP.

 

   

Working Capital as a Percentage of Sales. Working Capital as a Percentage of Sales is calculated by taking the average 13 months of working capital divided by the sum of 12 months of 2012 sales, where working capital equals (1) trade accounts receivable plus (2) inventory minus, (3) trade accounts payable.

The Compensation Committee’s review indicated that, given the successful alignment between pay and performance in 2011, we would utilize the same performance measures in 2012 as used in 2011. We maintained these performance measures as they were the most critical elements of PolyOne’s performance for both 2011 and 2012.

 

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The weightings of the performance measures used for all the Named Executive Officers in the 2012 Annual Plan were as follows:

 

LOGO

 

(1) Mr. Rosenau has responsibility for business unit specific results (namely our Performance Products and Solutions business unit), and his Annual Plan opportunity is based on 65% Operating Income for such business unit and 35% Working Capital as a Percentage of Sales for such business unit. For all other Named Executive Officers, the measure is Company Adjusted Operating Income and Company Consolidated Working Capital as a Percentage of Sales.

We set aggressive goals in 2012 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 2012, we were able to sustain our strong performance from the previous year by maintaining a world-class performance Working Capital as a Percentage of Sales with a result of 9.9%. As a result of this performance, the Company Working Capital as a Percentage of Sales incentive goal attainment and the Performance Products and Solutions Working Capital as a Percentage of Sales incentive goal attainment was 200% of our target performance level.

In addition, on a consolidated basis, our performance and results under the total Company Adjusted Operating Income metric were strong; Adjusted Operating Income increased 22% from 2011 to $221 million in 2012. Thus, Company Adjusted Operating Income achieved 180.7% of the target performance level and our performance and results for our Performance Products and Solutions Operating Income metric exceeded the upper end of the performance range and paid at 200% of 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 exceptional results. The Operating Income performance of our business units varied greatly due to the uncertain global economy with resulting attainment levels that ranged from 57% to 200% of target.

 

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The performance measures and targets, and the respective levels of achievement for each performance measure under the 2012 Annual Plan for our Named Executive Officers are set forth below. Payouts are capped at 200% of a participant’s award amount at target.

 

     

2011
Actual
Result

     2012 Goals             

2012
Payout as
% of
Target

 
  Performance Measure ($ in millions)       Threshold
50%
     Target
100%
     Maximum
200%
     2012
Actual
Result
    

  Company Adjusted Operating Income

   $ 180.6       $ 180.9       $ 201.2       $ 226.0       $ 221.0         180.7%   

  Company Consolidated Working Capital as a Percentage of Sales(1)

     9.6%         11.1%         10.5%         10.0%         9.9%         200%   

  Performance Products and Solutions Company Operating Income

   $ 62.4       $ 54.9       $ 60.5       $ 70.3       $ 74.9         200%   

  Performance Products and Solutions Consolidated Working Capital as a Percentage of Sales

     5.4%         5.5%         5.2%         5%         4.6%         200%   

 

(1) Actual 2011 Company Consolidated Working Capital as a Percentage of Sales of 9.6% excluded ColorMatrix. As a result of our acquisition of ColorMatrix, our Company Consolidated Working Capital as a Percentage of Sales was increased slightly in 2012.

The actual amounts earned by the Named Executive Officers under the Annual Plan for 2012 are set forth in the Non-Equity Incentive Plan Compensation column of the 2012 Summary Compensation Table. The Annual Plan, as it applies to the Named Executive Officers, is intended 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.

Long-Term Incentive

We also provide performance-based long-term incentive compensation to our senior executives, including the Named Executive Officers, to directly tie the interests of these individuals to the interests of our shareholders. We believe that long-term incentive compensation is an important retention tool. At the Annual Meeting in May 2010, our shareholders approved the 2010 Equity and Performance Incentive Plan (referred to as the “2010 Plan” or the “Long-Term Incentive Plan”), which was used to make long-term equity incentive awards in 2012. At the Annual Meeting in May, 2012, our shareholders approved the First Amendment to the 2010 Plan (referred to as the “2010 Amended Plan”). Future Long-Term Incentive Plan grants, including the 2013 grants, are expected to be made under the 2010 Amended Plan.

Individual Long-Term Incentive Plan targets, which are reflected as a percentage of base salary, are established with consideration of our competitive market pay philosophy discussed in the “Competitive Market Pay Information and Benchmarking” section above and are intended to reward the Named Executive Officers for achieving specific performance objectives. The Long-Term Incentive Plan grants for 2012 are based upon our closing stock price on December 31, 2011. The accounting value of the grant is determined using the grant date of the award. The value of the grant varies as the stock price increases or decreases in the interim. In order to focus participants on the

 

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long-term performance goals critical to our success and investment success for our shareholders, the Compensation Committee approved the following individual target Long-Term Incentive Plan opportunities for the Named Executive Officers during the first quarter of 2012:

 

     

Long-Term Incentive Opportunity

    
Named Executive Officer   

2011 Target

(as a percentage of

base salary)

        

2012 Target

(as a percentage of
base salary)

    

S.D. Newlin

   350%       350%    

R.M. Patterson

   135%         140%    

R.J. Diemer, Jr.(1)

   N/A       100%    

R.M. Rosenau

   100%         100%    

K.M. Smith

   100%         100%    

T.J. Kedrowski

   100%         100%    

 

(1) Mr. Diemer was hired in March, 2012 and did not have a PolyOne Long-Term Incentive Plan opportunity in 2011.

Based on 2012 competitive market data provided by the Consultant, we determined that the individual Long-Term Incentive Plan opportunities granted to the Named Executive Officers in 2012 ranged from 17% below to 25% above the 2012 market median for comparable positions, and individual opportunities varied based on time with the Company, individual performance and leadership efforts.

Awards Granted in 2012

In February 2012, we granted Long-Term Incentive Plan awards under the 2010 Plan. After a thorough evaluation of other possible equity vehicles, the Compensation Committee decided to retain the same three equity vehicles we used in 2011, which are listed below, to continue to provide balance between the relative values of the three components and to efficiently use the shares available under the 2010 Plan. However, we shifted 5% of the value previously allocated to cash-settled performance units to SARs in order to align the Long-Term Incentive Plan opportunity more closely with shareholder interests by emphasizing stock price appreciation. Of these three equity vehicles, the cash-settled performance units and the SARs were established with requisite performance conditions. The amount of performance units earned by the Named Executive Officers is determined based on our achievement of Adjusted Earnings Per Share performance goals, and the SARs were designed to vest based on our achievement of certain stock price hurdles described below, and additionally vest in annual time-based tranches over a three-year period from the date of the grant. The restricted stock units are time-based awards that vest in their entirety on the third anniversary of the grant date.

 

 Award   2011
        Weighting        
  2012
        Weighting         

 Cash-Settled Performance Units

  34%   29%

 Stock Appreciation Rights (SARs)

  33%   38%

 Restricted Stock Units (RSUs)

  33%   33%

 

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Cash-Settled Performance Units

The cash-settled performance units granted in February 2012 will be earned based on achieving performance goals relating to our Adjusted Earnings Per Share during the three-year period 2012-2014. The Compensation Committee maintained Adjusted Earnings Per Share as the performance measure in order to drive improvements in shareholder value. In 2012, we instituted the following four performance periods and relative weightings to drive annual performance as well as cumulative performance (requiring yearly, as well as cumulative, performance goals ensures that Adjusted Earnings Per Share growth is a constant and visible incentive goal for our Named Executive Officers to achieve each year).

 

   
Performance Period                Weighting            

January 1, 2012 through December 31, 2012

  25%

January 1, 2013 through December 31, 2013

  25%

January 1, 2014 through December 31, 2014

  25%

January 1, 2012 through December 31, 2014

  25%

The attainment level for the cash-settled performance units will be determined at the end of each applicable performance period. We established threshold, target and maximum Adjusted Earnings Per Share goals for each of the above listed performance periods. Participants will earn, for the applicable performance period: (1) 100% of the target award of cash-settled performance units upon attainment of the target performance level; (2) 50% of the target award upon attainment of the threshold performance level or (3) 200% of the target award upon attainment of the maximum (or greater) performance level. If final performance falls between the threshold and target or between target and maximum, earned award amounts will be interpolated. If threshold performance is not achieved, no award will be paid to the participants for the applicable performance period. The cash-settled performance units generally do not vest and pay out until December 31, 2014, in order to serve as a retention vehicle.

We do not disclose the specific Adjusted Earnings Per Share goals that we have established for the cash-settled performance units granted in 2012 in this proxy statement because (1) these goals relate to executive compensation to be earned and/or paid in future years and do not effect a fair understanding of the Named Executive Officers’ compensation for 2012 and (2) we believe that disclosure of such goals while the applicable performance period is on-going would cause us competitive harm. However, we expect to disclose such goals in future proxy statements once the applicable performance periods have ended as part of our discussion and analysis about the amounts earned by the Named Executive Officers under these awards. In setting the applicable target levels, the Compensation Committee considered how achievement of the performance goals could be impacted by events expected to occur in the coming years. When establishing the specific goals for the Adjusted Earnings Per Share performance metric, we specifically considered how likely it will be for us to achieve the goals. We believe that the threshold goals have been established at levels that should be appropriately difficult to attain, and that the target goals will require considerable and increasing collective effort on the part of our employees, including our Named Executive Officers, to achieve. Achievement of the maximum goal is considered to be a stretch goal given current market conditions.

The performance unit grants made in 2012 for the Named Executive Officers under the 2010 Plan are set forth in the 2012 Grants of Plan-Based Awards table.

 

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Stock-Settled SARs

To continually reinforce our ongoing commitment to enhancing shareholder value, the Named Executive Officers received an award of performance-based SARs that, when exercised by the holder, are settled in our common shares. Each SAR granted to our Named Executive Officers in 2012 has a base price equal to the closing market price of our common shares on the date of grant. For the 2012 grants, SARs initially vest one-third upon attaining each of the following stock price hurdles for thirty consecutive trading days: 10%, 15% and 20% increase respectively over the initial grant date closing stock price of $14.61. These hurdles were achieved in 2012. The SARs are then subject to additional time-based vesting requirements that lapse one-third on each of the first three anniversaries of the date of the grant, generally subject to the officer’s continued employment. They have an exercise term of ten years.

The performance-based SARs granted in 2012 to the Named Executive Officers under the 2010 Plan are set forth in the 2012 Grants of Plan-Based Awards table.

Restricted Stock Units (RSUs)

To promote share ownership and enhance the retention of our executives, we also granted time-based RSUs in 2012 to all Named Executive Officers. The RSUs vest on the third anniversary of the grant date. The time-based RSUs granted in 2012 to the Named Executive Officers under the 2010 Plan are set forth in the 2012 Grants of Plan-Based Awards table.

Awards Granted in Prior Years

In 2011, the Compensation Committee approved the attainment level of cash-settled performance units granted at the start of 2010 for performance during the period January 1, 2010 through December 31, 2010. The performance units were not to be paid until the end of the three-year vesting period, which began in 2010, for retention purposes. These cash-settled performance units were earned by achieving performance goals related to our Working Capital as a Percentage of Sales over the one-year performance period. In 2012, the Named Executive Officers received a cash payout based on an attainment of 200% of the target level performance for this goal, as reflected below:

 

     2010 Goals     
Performance Measure  

   Threshold   

(50%)

 

   Target   

(100%)

 

   Maximum   

  (200%)

     Actual Result         % Attainment   

Working Capital as a Percentage of Sales

  12.0%   11.5%   10.6%   9.6%   200%

Payouts for the cash-settled performance units originally granted in 2010 to the Named Executive Officers under the Long-Term Incentive Plan are reflected in the Non-Equity Incentive Plan Compensation column of the 2012 Summary Compensation Table in this proxy statement. Due to the uncertainty in the tax environment, the payment was made in December, 2012 instead of January, 2013.

All equity awards outstanding as of December 31, 2012 are set forth in the Outstanding Equity Awards at 2012 Fiscal Year-End table in this proxy statement.

 

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Retirement Benefits

We offer the following retirement benefits to eligible employees and certain Named Executive Officers as specified below. Additional details about these plans, as they apply to the Named Executive Officers, are included in the narrative to the 2012 Pension Benefits Table and 2012 Deferred Compensation Table in this proxy statement.

 

   

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

 

   

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

 

   

An employer-funded Internal Revenue Code-qualified defined benefit pension plan (referred to as the “Qualified Pension Plan”), as well as an unfunded, nonqualified defined benefit pension plan (referred to as the “Benefit Restoration Plan”), under which Messrs. Rosenau and Smith are 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), Messrs. Rosenau and Smith are eligible to receive certain retiree medical benefits for which they will be required to pay 100% of the notional annual premium; 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” (as such term is defined in his employment agreement).

Other Benefits

We provide minimal benefits to the Named Executive Officers, which we believe are necessary to compete for executive talent. The additional benefits for the Named Executive Officers generally consist of a benefit allowance, limited reimbursement of expenses for financial planning and tax preparation, a moving allowance (where applicable), and an annual physical examination. The specific amounts attributable to other benefits for 2012 for the Named Executive Officers are disclosed in the 2012 Summary Compensation Table in this proxy statement.

The benefit allowance, and reimbursement of expenses for financial planning and tax preparation are treated as taxable income to the Named Executive Officers and are not grossed up by the Company. The moving allowance is also treated as taxable income to the Named Executive Officers. Tax gross-ups are provided for taxable moving allowances and imputed income for spouse/guest travel.

We also provide other benefits such as medical, dental, life insurance and disability coverage to each United States based Named Executive Officer, which are benefits identical to the benefits provided to all other eligible United States 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 periods in 2012: Mr. Newlin — five weeks; Mr. Patterson — four weeks; Mr. Diemer – 4 weeks; Mr. Rosenau — five weeks; Mr. Smith — five weeks; and Mr. Kedrowski — four weeks.

 

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Employment Agreements with Named Executive Officers

Mr. Newlin is a party to an employment agreement 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 of 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 that were intended to serve as an inducement to join PolyOne, set an initial base salary and provided 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 employment, as described more fully in “Potential Payments Upon Termination or Change of Control” below. Mr. Newlin’s agreement also provides for a supplemental retirement benefit, as described above and more fully in the narrative for the 2012 Pension Benefits Table in this proxy statement.

Tax Considerations

Cash compensation, such as base salary and annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsored deferral plan. Deferrals under Internal Revenue Code 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, RSUs are taxable as ordinary income when they vest, and cash-settled performance units are generally taxable when paid. We realize a tax deduction at those specified times. The Compensation Committee reviews potential tax implications before making decisions regarding compensation.

Management and the Compensation 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 Compensation Committee generally intends for 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 Compensation 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 Compensation 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.

 

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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 Guidelines specifying a minimum level of stock ownership for all executives, including all Named Executive Officers. In December 2012, we amended our Guidelines to more accurately reflect the market median multiple of salary for all of our executive officers, including our Named Executive Officers. This change was necessary due to significant stock price appreciation that had occurred since the prior adoption of the Guidelines.

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 Guidelines have been met provided that an officer can only divest of a number of shares such that the Guidelines continue to be met. In general, shares counted toward required ownership include shares directly held, shares and phantom shares held in our retirement or deferral plans, and RSUs. The specific levels of stock 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. These policies, as they relate to our Directors, are discussed in the “Stock Ownership Guidelines for Directors” section of this proxy statement.

Stock Ownership Guidelines

 

     Newlin     Patterson     Diemer     Rosenau     Smith     Kedrowski  

Stock Ownership Target (in shares)

    275,000          120,000          75,000          45,000          45,000          45,000     

Prorated Stock Ownership Target (in shares)(1)

           
96,000  
  
    15,000                             

Multiple of Salary (based on 3/1/13 closing stock price of $22.55)

    5.9          3.9          0.8          2.8          2.8          2.5     

Total Share Ownership as of 3/1/13

    581,304          258,859          97,917          168,674          139,965          226,453     

Value of Total Share Ownership as of 3/1/13

  $ 13,108,413        $ 5,837,276        $ 2,208,033        $ 3,803,599        $ 3,156,211        $ 5,106,515     

Value of Share Ownership as a Multiple of Salary

    12.48          10.59          5.08          10.42          8.65          12.77     

 

(1) Mr. Patterson and Mr. Diemer have been with PolyOne less than five years and are not yet required to reach 100% of the full Guidelines (120,000 shares for Mr. Patterson and 75,000 shares for Mr. Diemer). The stock ownership targets for Messrs. Patterson and Diemer have been reduced to reflect that each have been with PolyOne for less than five 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 Compensation Committee or, pursuant to authority delegated by the Board or the Compensation Committee to the Chief Executive Officer. Such grants generally should be made at times when the Company is not in possession of material non-public information; and not made during a “blackout period,” which is the period of time that is in close proximity to the release of financial or material non-public information. The policy further provides that, to the extent practicable, annual grants to existing employees should be approved

 

38


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 implements rules and regulations.

Prohibition on Hedging and Pledging

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. Directors, Officers and certain other employees are also prohibited from pledging 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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Executive Compensation

The following tables, narrative and footnotes discuss the compensation of our Named Executive Officers.

2012 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 officers that served in such capacity in 2012, and our other three most highly compensated executive officers for 2012, during the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010, as applicable.

 

Name and

Principal Position

(a)

  Year
(b)
 

Salary

($)

(c)

 

  Bonus  
($)

(d)

 

Stock

Awards

($)

(e)

 

Option

Awards

($)

(f)

 

Non-

Equity

Incentive

Plan

 Compensation 
($)

(g)

 

Change in
Pension

Value and
Nonqualified
Deferred

 Compensation 

Earnings

($)

(h)

 

All Other

 Compensation 
($)

(i)

 

Total

($)

(j)

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

    2012       978,846         1,519,440       1,611,627     4,081,699   1,273,625      336,808     9,802,045  
  2011   946,538     1,285,508   1,282,148   4,088,859      520,514    309,7591   8,433,326
  2010   860,000        967,589      850,590   3,030,236      538,990   1,263,730   7,511,135

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

  2012   513,461        318,498      338,997   1,071,941               —      107,419   2,350,317
  2011   473,269        247,327      247,660      996,654               —        97,152   2,062,062
  2010   424,231        191,760      167,700      509,077               —        71,168   1,363,936

Richard J. Diemer, Jr.,
Senior Vice President and Chief Financial Officer

  2012   339,635        537,100      185,500      381,885               —      109,706   1,553,826

Robert M. Rosenau,
Senior Vice President, President of Performance Products and Solutions

  2012   359,615        151,944      161,857      636,766      283,024        63,024   1,656,231

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

  2012   359,615        151,944      161,857      612,645      249,773        84,186   1,620,021
  2011   350,769        131,809      130,732      617,187      158,619        83,045   1,472,161
  2010   340,923        107,865        94,380      504,501      130,531        70,308   1,248,508

Thomas J. Kedrowski,
Executive Vice President, Global Operations and Process Improvement

  2012   350,615        151,944      161,857      593,368               —        64,329   1,322,114
  2011   341,000        131,809      130,732      596,738               —        75,073   1,275,352
  2010   328,769        107,865        94,380      484,735               —      221,966   1,237,715

 

(1) Compensation for Mr. Diemer is provided only for 2012 as he was hired as our Senior Vice President and Chief Financial Officer in March 2012. Compensation for Mr. Rosenau is provided only for 2012 because he was not a Named Executive Officer in 2010 and 2011.

Bonus (column (d))

No amounts are reported in this column because the Company paid annual incentives to the Named Executive Officers based upon pre-determined performance metrics. These payments, which were made under the Company’s Annual Plan, are reported in the Non-Equity Incentive Plan Compensation column (column (g)).

 

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Stock Awards (column (e))

The amounts reported in the stock awards column include, for 2012, time-vested stock settled RSUs granted in 2012 to the Named Executive Officers under our 2010 Plan. The amounts reported for 2012 represent the grant date fair value of those stock awards determined pursuant to 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 14, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. These grants are described more fully in the narrative following the 2012 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2012 — Restricted Stock Units” section of this proxy statement.

The Company cautions that the amounts reported for these awards may not represent the amounts that the Named Executive Officers will actually realize from these awards. To what extent a Named Executive Officer realizes value will depend on our stock price and continued employment.

Option Awards (column (f))

The amounts reported in the Option Awards column include, for 2012, stock-settled SARs with time and performance based vesting requirements that were granted in 2012 to the Named Executive Officers under our 2010 Plan. The amounts reported for 2012 represent the grant date fair value of those SARs granted to each of the Named Executive Officers, calculated 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 14, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. These grants are described more fully in the narrative following the 2012 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2012 — Stock-Settled SARs” section of this proxy statement.

The Company cautions that the amounts reported for these awards may not represent the amounts that the Named Executive Officers will actually realize from the awards. To what extent a Named Executive Officer realizes value will depend on our stock price and continued employment.

To see the value actually received upon exercise of SARs by the Named Executive Officers in 2012, refer to the Option Exercises and Stock Vested table section of this proxy statement.

Non-Equity Incentive Plan Compensation (column (g))

The amounts reported in the Non-Equity Incentive Plan Compensation column for 2012 reflect the amounts earned by each Named Executive Officer under the 2012 Annual Plan (and received in February, 2013), and under the 2010 — 2012 Long-Term Incentive Plan awards (and received in December, 2012). The terms of the Annual Plan are described more fully in the narrative following the 2012 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Annual Incentive” section of this proxy statement.

 

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The terms of the 2010 — 2012 Long-Term Incentive Plan cash-settled performance units are described more fully in the narrative following the “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Awards Granted in Prior Years” section of this proxy statement. The amounts earned by the named Executive Officers under each award are listed below.

 

 Name  

        Annual Plan        

($)

 

Cash-Settled
        Performance Units        

($)

 S.D. Newlin

  2,017,794   2,063,905

 R.M. Patterson

     673,559      398,382

 R.J. Diemer, Jr.

     381,885   N/A

 R.M. Rosenau

     395,577      241,189

 K.M. Smith

     370,656      241,989

 T.J. Kedrowski

     361,379      231,989

Change in Pension Value and Nonqualified Deferred Compensation Earnings (column (h))

The amounts reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column for 2012 are comprised entirely of changes between December 31, 2011 and December 31, 2012.

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 2012 Compensation Decisions and Actions — Retirement Benefits” section of this proxy statement. The amount listed for him for 2012 represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2011 actuarial present value from the December 31, 2012 actuarial present value) of the annual benefit payment that will be payable as a 15-year certain and continuous life annuity beginning at age 59.9 and assumes that Mr. Newlin has a “Qualifying Separation from Service” as that term is defined in his employment agreement.

Messrs. Rosenau and Smith participate 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 amounts listed for them represent the aggregate change in actuarial present value (determined by subtracting the December 31, 2011 actuarial present value from the December 31, 2012 actuarial present value) of Messrs. Rosenau and Smith’s accumulated benefits under the Qualified Pension Plan and the Benefit Restoration Plan.

All Other Compensation (column (i))

The amounts reported in the All Other Compensation column for 2012 reflect, for each Named Executive Officer, the sum of (1) the incremental cost to the Company of all other executive benefits, (2) dividend equivalents on outstanding RSUs and (3) the amounts contributed by the Company to the Qualified Savings Plan and the Nonqualified Retirement Plan. Amounts contributed to either the Qualified Savings Plan and the Nonqualified Retirement Plan are calculated on the same basis for all participants, including the Named Executive Officers. The material provisions of the Qualified Savings Plan and the Nonqualified Retirement Plan are described in the narrative following the “2012 Pension Benefits” section of this proxy statement.

 

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The following table outlines those other executive benefits and additional all other compensation required by SEC rules to be separately quantified. The narrative following the table describes all categories of other benefits and other personal benefits provided by the Company in 2012.

 

 Name

    (a)

 

Benefit
Allowance
($)

(b)

 

Financial
Planning &
Tax

Preparation
($)

(c)

 

Dividend
Equivalents
on
Outstanding

RSUs

($)

(d)

 

Executive
Physical

($)

(e)

 

Company
Contributions

to Qualified
Savings Plan

($)

(f)

 

Company
Contributions
to

Nonqualified
Retirement
Plan

($)

(g)

 

Moving
Allowance

($)

(h)

   

Spouse/
Guest
Travel
($)

(i)

   

Tax
Gross-ups

($)

(j)

   

Total

($)

(k)

 

 S.D. Newlin

  24,000   13,000   62,380   3,575   16,250   178,991     0        22,675        15,938        336,808   

 R.M. Patterson

    7,200   10,000   12,500   2,036   16,250   56,012     0        2,009        1,412        107,419   

 R.J. Diemer, Jr.

          0     3,500   7,000   3,300   16,250   5,826     44,356        0        29,474        109,706   

 R.M. Rosenau

  19,200   10,000   6,560          0   16,250   7,835     0        1,867        1,312        63,024   

 K.M. Smith

  19,200     8,464   6,560   2,200   16,250   31,512     0        0        0        84,186   

 T.J. Kedrowski

  19,200   10,000   6,560          0   16,250   12,319     0        0        0        64,329   

Benefit Allowance (column (b))

The Company provides nominal benefit allowances to certain executives, including the Named Executive Officers.

Financial Planning and Tax Preparation (column (c))

The Company provides a taxable reimbursement to the Named Executive Officers for financial planning, which may include tax preparation and estate planning services. No tax reimbursement is provided to the Named Executive Officers for this benefit.

Dividend Equivalents on Outstanding RSUs (column (d))

The 2010 Plan provides for dividend equivalents on outstanding RSUs for all eligible participants, including the Named Executive Officers, which are deferred and contingent upon meeting the vesting requirements of the underlying RSUs. The amounts in this column represent dividend equivalents attributable to outstanding RSUs in 2012, including dividends declared on October 11, 2012 to shareholders of record on December 12, 2012 and paid on January 7, 2013. As the dividends were not considered in the grant date fair value computation for those awards under FASB ASC Topic 718, they are reported as “All Other Compensation.”

Executive Physicals (column (e))

The Company makes executive physicals available to all executive officers, including the Named Executive Officers.

Company Contributions to Qualified Savings Plan (column (f))

The Company makes matching contributions on behalf of all employees, including the Named Executive Officers in accordance with the Qualified Savings Plan.

Company Contributions to Nonqualified Retirement Plan (column (g))

The Company makes matching contributions on behalf of all eligible participants, including the Named Executive Officers, under the Nonqualified Savings Plan.

 

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Moving Allowance (column (h))

The Company provided a moving allowance to Mr. Diemer to assist with the expense attributable to relocation, including, temporary housing and house hunting trips.

Spouse/Guest Travel (column (i))

The Company imputes income to our Named Executive Officers for spouse/guest travel, which was incurred by Messrs. Newlin, Patterson and Rosenau in connection with the Company’s achievement award meeting. Attendees at this achievement award meeting are encouraged to bring a guest to celebrate the achievements of the Company’s best performers. Spouse/guest travel was also incurred by Mr. Newlin in conjunction with attending certain business and customer events, where guests were expected to attend as participants in the meetings.

Tax Gross-ups (column (j))

The Company provides a tax gross-up on moving allowances and imputed spouse/guest travel expenses incurred in conjunction with Company business travel.

 

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2012 GRANTS OF PLAN-BASED AWARDS

 

Name

(a)

 

Grant Date  
(b)

  Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
    Estimated Future
Payouts Under Equity
Incentive Plan
Awards
   

All Other Stock
Awards:
Number of
Shares of Stock
or Units

(#)

(h)

   

Exercise or
Base Price of
Option
Awards

($/Sh)

(i)

        

Grant Date
Fair Value
of Stock
and Option
Awards

($)

(j)

 
   

 

 

 

Threshold
($)

(c)

   

Target

($)

(d)

   

Maximum
($)

(e)

   

Threshold
($)

(f)

   

Target
($)

(g)

         

S.D. Newlin

        538,365          1,076,731          2,153,462                                                 
  2/14/2012       514,500          1,029,000          2,058,000                                                 
  2/14/2012                               77,333          232,000                  14.61              1,611,627     
  2/14/2012                                               104,000                      1,519,440     

R.M. Patterson

        179,712          359,423          718,846                                                 
  2/14/2012       108,150          216,300          432,600                                                 
  2/14/2012                               16,267          48,800                  14.61              338,997     
  2/14/2012                                               21,800                      318,498     

R.J. Diemer, Jr.

        101,890          203,781          407,562                                                 
  3/8/2012       65,000          130,000          260,000                                                 
  3/8/2012                               10,000          30,000                  13.01              185,500     
  3/8/2012                                               30,000                      390,300     
  7/16/2012                                               10,000                      146,800     

R.M. Rosenau

        98,894          197,788          395,577                                                 
  2/14/2012       53,250          106,500          213,000                                                 
  2/14/2012                               7,767          23,300                  14.61              161,857     
  2/14/2012                                               10,400                      151,944     

K.M. Smith

        98,894          197,788          395,577                                                 
  2/14/2012       53,250          106,500          213,000                                                 
  2/14/2012                               7,767          23,300                  14.61              161,857     
  2/14/2012                                               10,400                      151,944     

T.J. Kedrowski

        96,419          192,838          385,677                                                 
  2/14/2012       51,900          103,800          207,600                                                 
  2/14/2012                               7,767          23,300                  14.61              161,857     
  2/14/2012                                               10,400                      151,944     

Estimated Future Payouts Under Non-Equity Incentive Plan Awards (columns (c), (d) and (e))

The amounts located in the first row for each Named Executive Officer represent the cash-based award granted to the Named Executive Officer in 2012 under the Annual Plan. There is no grant date for the awards made under the Annual Plan. The actual amount earned for 2012 is included in the “Non-Equity Incentive Plan Compensation” column (column (g)) of the 2012 Summary Compensation Table of this proxy statement.

The amounts located in the second row for each Named Executive Officer represent the cash-settled performance units awarded in 2012 to the Named Executive Officer. Each performance unit is equal in value to $1.00. These cash-settled performance units are initially subject to achieving specified performance goals over the performance period from January 1, 2012 to December 31, 2014. The cash-settled 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 2015 and shall occur no later than March 15, 2015.

 

45


“Threshold” refers to the minimum amount payable upon reaching the threshold level of performance under the Annual Plan and the 2010 Plan. If threshold performance is not attained, then the participant will receive $0 for the 2012 awards granted under each applicable plan.

Estimated Future Payouts Under Equity Incentive Plan Awards (columns (f) and (g))

Columns (f) and (g) represent stock-settled SARs granted to the Named Executive Officers, which initially vest in one-third increments upon attaining each of the following stock price hurdles for thirty consecutive trading days: 10%, 15% and 20% respective increase over the initial grant date closing stock price of $14.61. The stock price hurdles were achieved in 2012. These SARs are also subject to time-based vesting, which lapse one-third on each of the first three anniversaries of the date of grant, generally subject to the officer’s continued employment. They have an exercise term of ten years.

“Threshold” refers to the minimum number of shares underlying the SAR award that will vest upon reaching the threshold level of performance, which is satisfaction of the first stock price hurdle. Threshold equates to vesting in one-third of the SAR award. If threshold performance is not attained, then the participant will not vest in any of the SARs for the 2012 award. “Target” refers to the number of shares underlying the SARs that will vest upon satisfaction of all of the stock price hurdles under the 2012 grant. The SARs do not have a “maximum” level of attainment as a participant cannot receive SARs in excess of the initial award.

All Other Stock Awards: Number of Shares of Stock or Units (RSUs) (column (h))

This column represents stock-settled RSUs granted to the Named Executive Officers in 2012 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. The dividend equivalent rights are subject to the same restrictions as the underlying RSUs.

Exercise or Base Price of Option Awards (column (i))

In setting the base price of these SARs, we 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 in 2012 to the Named Executive Officers was established with a base price equal to PolyOne’s closing stock price on the date of the grant.

Grant Date Fair Value of Stock and Option/SAR Awards (columns (j))

The amounts in this 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 14, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Narrative disclosure relating to the 2012 Summary Compensation Table and the 2012 Grants of Plan-Based Awards Table

Annual Plan

Annual cash incentives were awarded for 2012 under our Annual Plan and are based on achieving performance goals relating to Company Adjusted Operating Income and consolidated Working Capital

 

46


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. Rosenau). For a more detailed discussion of our Annual Plan, see “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Annual Incentive.”

Cash-Settled Performance Units

Cash-settled performance units were granted in 2012 to all of our Named Executive Officers under our 2010 Plan and are based upon achieving four distinct performance goals related to four distinct performance periods that are weighted 25% each. There are three one-year performance periods and one three-year cumulative performance period, each of which requires performance at a range specified between January 1, 2012 and December 31, 2014. The performance goals are based upon Adjusted Earnings Per Share. For each performance goal that is achieved, the applicable award will vest and be distributed in early 2015, generally subject to continued employment. For a more detailed discussion of the cash-settled performance units granted in 2012, see “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2012 — Cash-Settled Performance Units.”

Stock-Settled SARs

In 2012, the Compensation Committee granted stock-settled SARs to the Named Executive Officers. These SARs initially vest in one-third increments upon attaining each of the following stock price hurdles for thirty consecutive trading days: 10%, 15% and 20% respective increase over the initial grant date closing stock price of $14.61. The stock price hurdles were achieved in 2012. These SARs are also subject to time-based vesting, which lapse one-third on each of the first three anniversaries of the date of grant, generally subject to the officer’s continued employment. They have an exercise term of ten years. For a more detailed discussion of the stock-settled SARs granted in 2012, see “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2012 — Stock-Settled SARs.”

Restricted Stock Units

The Compensation Committee granted RSUs to the Named Executive Officers in 2012. The RSUs vest 100% and are payable in full on the third anniversary of the grant date. The RSUs are accompanied by 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 2012, see “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2012 — Restricted Stock Units.”

Employment Agreements

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

 

47


OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END

 

Name

(a)

  Option Awards     Stock Awards  
 

Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable

(b)

   

Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable

(c)

   

Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned

Options

(#)

(d)

   

Option
Exercise Price
($)

(e)

   

Option
Expiration
Date

(f)

   

Number of
Shares
or Units
of Stock

That Have
Not
Vested

(#)

(g)

        

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested

($)

(h)

 

S.D. Newlin

                                       124,077 (1)           2,533,652   
                                       88,934 (2)           1,816,032   
                                       105,267 (3)           2,149,552   
           72,700 (8)              7.99        2/16/2017                     
    52,633 (9)       105,267 (9)              14.81        2/16/2021                     
           232,000 (10)              14.61        2/14/2022                     

R.M. Patterson

                                       24,590 (1)           502,128   
                                       17,110 (2)           349,386   
                                       22,065 (3)           450,567   
    20,000 (6)                     7.72        5/14/2015                     
    28,667 (8)       14,333 (8)              7.99        2/16/2017                     
    10,167 (9)       20,333 (9)              14.81        2/16/2021                     
           48,800 (10)              14.61        2/14/2022                     

R.J. Diemer, Jr.

                                       30,365 (4)           620,053   
                                       10,051 (5)           205,241   
           30,000 (11)              13.01        3/8/2022                     

R.M. Rosenau

                                       13,831 (1)           282,429   
                                       9,118 (2)           186,190   
                                       10,526 (3)           214,941   
    24,000 (7)                     1.43        3/4/2016                     
    16,133 (8)       8,067 (8)              7.99        2/16/2017                     
    5,367 (9)       10,733 (9)              14.81        2/16/2021                     
           23,300 (10)              14.61        2/14/2022                     

K.M. Smith

                                       13,831 (1)           282,429   
                                       9,118 (2)           186,190   
                                       10,526 (3)           214,941   
           8,067 (8)              7.99        2/16/2017                     
    5,367 (9)       10,733 (9)              14.81        2/16/2021                     
           23,300 (10)              14.61        2/14/2022                     

T.J. Kedrowski

                                       13,831 (1)           282,429   
                                       9,118 (2)           186,190   
                                       10,526 (3)           214,941   
           8,067 (8)              7.99        2/16/2017                     
           10,733 (9)              14.81        2/16/2021                     
           23,300 (10)              14.61        2/14/2022                     

 

48


(1) 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.

 

(2) 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.

 

(3) Represents stock-settled RSUs that were granted on February 14, 2012 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.

 

(4) Represents stock-settled RSUs that were granted on March 8, 2012 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.

 

(5) Represents stock-settled RSUs that were granted on July 16, 2012 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) These stock-settled SARs were granted on May 15, 2008 and vested in one-third increments on each of the first three anniversaries of the date of grant.

 

(7) These stock-settled SARs were granted on March 5, 2009 and vested upon (1) the attainment of the following target prices sustained for three consecutive trading days for our common shares: one-third at $1.57; one-third at $1.72; and one-third at $1.86 and (2) time based vesting in one-third increments on each of the first three anniversaries of the date of grant.

 

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

 

(10) These stock-settled SARs were granted on February 14, 2012 and vest in increments upon the attainment of target prices (sustained for thirty consecutive trading days) for our common shares as follows: one-third at $16.07; one-third at $16.80; and one-third at $17.53. The stock price hurdles were achieved in 2012. The SARs are now subject to time-based vesting that lapse one-third on each of the first three anniversaries of the date of grant.

 

(11) These stock-settled SARs were granted on March 8, 2012 and vest upon the attainment of target prices (sustained for thirty consecutive trading days) for our common shares as follows: one-third at $16.07; one-third at $16.80; and one-third at $17.53. The stock price hurdles were achieved in 2012. The SARs are now subject to time-based vesting that lapse one-third on each of the first three anniversaries of the date of grant.

Number of Securities Underlying Unexercised Options Exercisable (column (b))

This column shows the fully vested and exercisable SARs held by the Named Executive Officers as of December 31, 2012.

Number of Securities Underlying Unexercised Options Unexercisable (column (c))

This column shows the unvested SARs held by the Named Executive Officers as of December 31, 2012.

 

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Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (column (d))

There are no shares underlying unexercised SARs awarded under any equity incentive plan that have not been earned.

Option Exercise Price (column (e))

This column shows the exercise (or base) price for each SAR instrument reported in column (b), (c) and (d).

Option Expiration Date (column (f))

This column shows the expiration dates for each SAR instrument reported in column (b), (c) and (d).

Number of Shares or Units of Stock That Have not Vested (column (g))

This column shows the unvested RSUs held by the Named Executive Officers as of December 31, 2012. 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. The amounts in this column include all dividend equivalents declared in 2011 and 2012 attributable to the awards (including the 4th quarter dividend declared on October 11, 2012, to shareholders of record on December 12, 2012, which was paid on January 7, 2013).

Market Value of Shares or Units of Stock That Have not Vested (column (h))

The market value is determined based on the closing market price of our common shares on December 31, 2012 ($20.42).

2012 OPTION EXERCISES AND STOCK VESTED

 

Name  (a)   Option Awards   Stock Awards
 

  Number of Shares  
Acquired on
Exercise

(#)

(b)

 

  Value Realized on  
Exercise

($)

(c)

 

Number of Shares
  Acquired on Vesting  
(#)

(d)

 

  Value Realized  
on Vesting

($)

(e)

S.D. Newlin

  749,133   $7,486,830   249,152   $3,273,857

R.M. Patterson

  122,300     2,034,633     48,089        631,889

R.J. Diemer, Jr.

           —                —            —                 —

R.M. Rosenau

    55,200       501,048     28,043        368,485

K.M. Smith

  133,833       968,215     28,043        368,485

T.J. Kedrowski

  160,700     1,612,918     28,043        368,485

Option Awards (columns (b) and (c))

Column (b) reports exercises of stock options and SARs during 2012 on aggregate basis. The value realized on exercise (column (c)) was computed by determining the difference between the market price of the underlying securities at exercise and the exercise price of the options/SARs. All of Mr. Newlin’s SARs were exercised pursuant to a trading plan established under Rule 10b5-1 of the Exchange Act.

 

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Stock Awards (columns (d) and (e))

Column (d) reports the vesting and release of RSUs during 2012 on an aggregate basis. All of the stock awards that vested and were released in 2012 were granted on March 5, 2009 and released on March 5, 2012. The amounts in this column include shares awarded through the dividend equivalent right feature of the 2010 Plan, which have also been reported in the 2012 Summary Compensation Table under the “All Other Compensation” column of this proxy statement. The value realized on release (column (e)) was computed by multiplying the number of vested RSUs, including the corresponding dividend equivalent rights, by the market price of the underlying securities on the vesting date, in accordance with the 2010 Plan.

2012 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

         7,190,936(1)  

R.M. Patterson

 

N/A

     

R.J. Diemer, Jr.

 

N/A

     

R.M. Rosenau

 

PolyOne Merged Pension Plan

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

 

26.0

26.0

 

    1,016,405(2)

       764,895(2)

 

K.M. Smith

 

PolyOne Merged Pension Plan

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

 

17.4

17.4

 

           661,909(2)(3)

            843,520(2)(4)

 

T.J. Kedrowski

 

N/A

     

 

(1) Although lump-sum payments are not allowed under the terms of the arrangement, the Present Value of Accumulated Benefit shown above for Mr. Newlin is the lump-sum value as of December 31, 2012 of the annual benefit payment earned as of December 31, 2012 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 59.9. The assumptions used to determine the lump-sum value are a discount rate of 4.13% and a post-retirement mortality using the 2013 static annuitant table described in Internal Revenue Service Regulation §1.430(h)(3). No pre-retirement decrements are assumed.

 

(2) Although lump-sum payments are not allowed under either plan, the Present Value of Accumulated Benefit shown above for each plan for Messrs. Rosenau and Smith are the lump-sum values as of December 31, 2012 of the monthly pension benefit earned as of December 31, 2012 that would be payable under that plan for Messrs. Rosenau’s and Smith’s respective lives beginning at age 62 (the earliest age prior to the normal retirement age of 65 when benefits can commence unreduced for early retirement). The assumptions used to determine the lump-sum value are a discount rate of 4.13% and a post-retirement mortality using the 2013 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 2012 Pension Benefits Table. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $509,937 instead of the $661,909 shown in the table. Subsequent earnings under the qualified and nonqualified plan were frozen effective March 20, 2009.

 

(4)

Mr. Smith’s Present Value of Accumulated Benefit includes four additional years of pension service discussed in the narrative following the 2012 Pension Benefits Table. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $649,853 instead of the

 

51


  $843,520 in the table. Subsequent earnings under the qualified and nonqualified plan were frozen effective March 20, 2009.

Messrs. Rosenau and Smith are 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), Messrs. Rosenau and Smith are eligible to receive certain retiree medical benefits for which they 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 Messrs. Rosenau’s and 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 contributed 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 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.

 

52


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 Compensation 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 United States-based employees.

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

We offer a defined contribution retirement benefit to all United States 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) an employer-paid match on employee 401(k) contributions 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 $17,000 and earnings upon which employee/employer contributions are based to $250,000 in 2012.

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 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.

During 2008, the Compensation Committee reviewed Mr. Newlin’s total compensation package among the peer companies and across the broader general industry. The Compensation 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, the definition of a Qualifying Separation from Service is (1) Mr. Newlin attains the age of 55 (he is now 60) and has at least five years of service with us (he now has seven), is serving as

 

53


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 (as defined below) 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 cash-settled performance units awarded to him 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. Notwithstanding the foregoing, 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.

2012 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)

   

Aggregate
Balance at
12/31/2011
($)