DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

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Securities Exchange Act of 1934

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Table of Contents

LOGO

Proxy Statement
and notice of annual meeting of stockholders
2017
ATI


Table of Contents

LOGO

Creating long-term value thru
Relentless Innovation
Our Vision
Building the World’s Best Specialty Materials and Components Company™
Focus on differentiated products with significant technical barriers to entry
Focus on global markets that have long-term growth expectations and require ATI’s technical and manufacturing leadership
This focus creates superior growth in shareholder value over the long term and enhances opportunities for our strategic customers and employees.


Table of Contents
   LOGO
  
LOGO  

 

Dear Stockholders:

 

I am pleased to invite you to attend Allegheny Technologies Incorporated’s 2017 Annual Meeting of Stockholders. As in prior years, we will consider matters that are important to our company.

 

ATI is a different company today than it was at the beginning of 2016. In 2016, we took a series of restructuring and other actions that we believe position our business for sustainable profitable growth. We grew our revenue generated from the aerospace and defense market to 51% of our total revenue. Our combination of innovative technologies, differentiated products and long-term agreements with key strategic customers uniquely positions us to continue benefitting from the transition to next-generation jet engines and aircraft that is already underway.

 

During 2016, we took a number of key actions, including the indefinite idling of our Rowley, UT titanium sponge production facility, to improve the cost structure of our HPMC segment. As a result of these actions and continued growth in demand for our differentiated specialty materials products from the aerospace market, in the fourth quarter of 2016, HPMC segment operating profit reached more than 11% of segment sales, marking six consecutive quarters of sequential improvement in operating profit for the segment.

 

Also during 2016, we undertook a series of restructuring efforts designed to improve the cost structure of our Flat Rolled Products business and return that business to sustainable profitability. Our objective is to create a smaller, more agile, efficient and profitable FRP business that is more focused on differentiated products with significant barriers to entry, rather than products that have been heavily commoditized. To that end, we reduced our exposure to commodity stainless steel sheet products, which comprised just 11% of our sales in 2016, and completed our exit from the unprofitable grain-oriented electrical steel business. We also obtained a new labor agreement in our FRP business with important changes to retirement benefits and other changes to plant operations, ending the seven month work stoppage that impacted our business in both 2015 and 2016. As a result, FRP segment operating losses were reduced over the course of 2016 to a near breakeven position in the fourth quarter of 2016.

 

We believe that these actions are working to reposition our business for sustainable success. Today, we are fundamentally an aerospace and industrials company with a small, but important, exposure to commodity products. Looking to 2017 and beyond, we remain focused on the relentless innovation necessary to consistently create value for our customers and stockholders over the long term. We continue to employ the most advanced materials technologies and unsurpassed manufacturing capabilities. Investments such as in our Hot-Rolling and Processing Facility and our new nickel-based powder alloys facility, which successfully began operations early this year, remain critical to our long-term success.

 

The views of our stockholders are important to us. We conducted extensive stockholder outreach again in 2016, and relied on stockholder feedback in connection with the complete redesign of our executive compensation program, which was fully implemented in 2016. We believe our current program provides the transparency and emphasis on pay for performance that are important to our stockholders and, coupled with our other significant efforts to enhance our corporate governance in recent years, including our adoption of proxy access bylaw provisions in 2016, demonstrates our ongoing commitment to best practices and, ultimately, to our stockholders.

 

Thank you for your support in our ongoing commitment to Creating Long-Term Value Thru Relentless Innovation®.

 

Sincerely,

 

LOGO

 

RICHARD J. HARSHMAN

Chairman, President and Chief Executive Officer

March 30, 2017

 


 

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Notice of annual meeting of stockholders

 

 

YOUR VOTE IS
IMPORTANT

 

Please vote as soon as possible.

 

You can help the Company reduce expenses by voting your shares by telephone or Internet; your proxy card or voting instruction card contains the instructions. Or complete, sign and date your proxy card or voting instruction card and return it as soon as possible in the enclosed postage-paid envelope.

 

How to vote

    

 

ANNUAL MEETING INFORMATION

 

Date: Thursday, May 11, 2017

 

Time: 11:00 a.m. Central Time

 

Place: Hilton Milwaukee City Center, 509 W. Wisconsin Avenue,
Milwaukee, WI 53203

 

Record Date: March 15, 2017

 

AGENDA

 

1.  Election of three directors;

 

2.  Approval of the Company’s 2017 Incentive Plan;

 

3.  Advisory vote to recommend shareholders be entitled to an annual advisory vote on executive compensation;

 

4.  Advisory vote to approve the compensation of our named executive officers; and

 

5.  Ratification of the selection of Ernst & Young LLP as our independent auditors for 2017.

 

ADMISSION TO THE MEETING

 

Only holders of ATI common stock or their authorized representatives by proxy may attend the meeting.

 

If you are a stockholder of record and plan to attend the meeting, please mark the appropriate box on the proxy card, or enter the appropriate information when voting by telephone or Internet.

 

If your shares are held through an intermediary such as a broker or a bank, you will need to present proof of your ownership as of the record date, March 15, 2017, for admission to the meeting. Proof of ownership could include a proxy card from your bank or broker or a copy of your account statement.

 

All attendees will need to present valid photo identification for admission to the meeting.

 

The approximate date of the mailing of this proxy statement, proxy card, and ATI’s 2016 Annual Report is March 30, 2017. For further information about ATI, please visit our website at www.atimetals.com.

 

On behalf of the Board of Directors:

 

LOGO

ELLIOT S. DAVIS

Corporate Secretary

March 30, 2017

 

 

 

LOGO

  

 

Via the internet Visit the website listed on our proxy card

    

 

LOGO

  

 

By mail Sign, date and return your proxy card in the enclosed envelope

    

 

LOGO

  

 

By telephone Call the telephone number on your proxy card

    

 

LOGO

  

 

In person Attend the Annual Meeting in person

    

 

Important notice regarding the availability of proxy materials for the ATI annual meeting of stockholders to be held on Thursday, May 11, 2017.

The proxy statement, proxy card and 2016 annual report of Allegheny Technologies Incorporated are available for review at: www.envisionreports. com/ATI

 

    

 


 

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Table of contents

 

Proxy Statement Summary

     4  

Item 1 — Election of Directors

     9  
Director Terms      9  
Our Director Nomination Process      9  
Our 2017 Director Nominees and Continuing Directors      11  

Our Corporate Governance

     16  

Our Commitment to Integrity

     16  

ATI Corporate Governance at a Glance

     17  

Corporate Governance Guidelines

     18  

Corporate Guidelines for Business Conduct and Ethics

     18  

Investor Outreach and Stockholder Engagement

     19  

Board Information

     20  

Board Composition and Independence

     20  

Board Leadership Structure

     21  

Board and Committee Membership—Director Attendance at Meetings

     22  

Board Committees

     22  

Board’s Role in Risk Oversight

     25  

Process for Communicating with Directors

     26  

Director Compensation

     26  
Related Party Transactions      28  
Compensation Committee Interlocks and Insider Participation      28  

Stock Ownership Information

     28  

Section 16(a) Beneficial Ownership Reporting Compliance

     28  

Five Percent Owners of Common Stock

     29  

Stock Ownership of Directors, Board Nominees and Executive Management

     30  

Members of ATI’s Executive Management

     31  
Item 2 — Approval of the Allegheny Technologies Incorporated 2017 Incentive Plan      32  
Item 3 — Say on Pay Frequency      41  
Item 4 — Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers      42  

Executive Compensation

     44  

Compensation Discussion and Analysis

(See separate Table of Contents)

     44  

Investor Outreach and the Executive Compensation Program

     55  

Compensation Committee Report

     69  

Summary Compensation Table for 2016

     70  

Grants of Plan-Based Awards for 2016

     72  

Outstanding Equity Awards at Fiscal Year-End for 2016

     73  

Option Exercises and Stock Vested for 2016

     74  

Pension Benefits for 2016

     74  

Non-Qualified Deferred Compensation for 2016

     75  

Employment and Change in Control Agreements

     76  

Potential Payments upon Termination or Change in Control

     77  
Item 5 — Ratification of the Selection of Independent Auditors      82  

Audit Committee Report

     83  

Annual Meeting Information

     84  

2017 Annual Meeting of Stockholders—Questions & Answers

     84  

2018 Annual Meeting and Stockholder Proposals

     88  

Other Business and Information

     88  
Appendix A: Allegheny Technologies 2017 Incentive Plan      A-1  
 

 


 

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Proxy Statement Summary

 

Annual meeting of stockholders

 

This summary highlights

information that is

contained elsewhere in

this Proxy Statement.

You should carefully read

this Proxy Statement in

its entirety before voting,

as this summary does

not contain all of the

information that you should

consider.

     

 

Meeting date:

 

 

Thursday, May 11, 2017

 
      Time:   11:00 a.m. Central Time  
      Place:  

Hilton Milwaukee City Center

509 W. Wisconsin Avenue

Milwaukee, WI 53203

 
     

Record date

and Voting:

 

March 15, 2017

ATI stockholders as of the record date are entitled to vote on the matters presented at the meeting. Each share of common stock of the Company is entitled to one vote for each director nominee and one vote on each other matter presented.

 

 

Agenda for annual meeting and voting

 

Proposal     

Board’s

recommendation

    

Page

reference

1. Election of three directors

     FOR        9

2. Approval of the Allegheny Technologies Incorporated 2017 Incentive Plan

     FOR      32

3. Advisory vote regarding the frequency of advisory vote on executive compensation

    

FOR

 

    

41

 

4. Advisory vote to approve the compensation of our named executive officers

    

FOR

 

    

42

 

5. Ratification of the selection of Ernst & Young LLP as our independent auditors for 2017

    

FOR

 

    

82

 

Director nominees – Class III – Term to expire in 2020

 

Name   

Director

Since

 

Experience and

Qualifications

   Board Committees
James C. Diggs    2001  

   Industry

   Finance

   Legal

  

   Audit

   Finance (Chair)

   Nominating and Governance

J. Brett Harvey    2007  

   Leadership

   Industry

   Technical

   Finance

  

   Nominating and Governance

   Personnel and Compensation

David J. Morehouse    2015  

   Leadership

   Technical

   Communications

   Finance

  

   Audit

   Technology

 


 

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PROXY STATEMENT SUMMARY | HIGHLIGHTS

 

 

 

Corporate Governance Highlights

Our commitment to good corporate governance is illustrated by the following practices:

 

  Board independence (10 out of 11 directors are independent)

 

  Board diversity (female and minority directors comprise over 35% of our Board)

 

  Majority voting/director resignation policy for uncontested elections

 

  Our adoption, in 2016, of Proxy Access and limits on future severance arrangements

 

  Robust stock ownership guidelines for directors and executive management

 

  Greater than 99% director attendance at Board and Board Committee meetings in 2016
  100% independent Audit, Personnel & Compensation, Finance and Nominating & Governance Committees

 

  Lead Independent Director with strong and clear responsibilities

 

  Independent directors regularly meet in executive sessions without management present

 

  Succession planning for our Board and executive leadership

 

  Board risk oversight

 

  Strong corporate governance guidelines and policies
 

 

Stockholder Engagement

We value the input we receive from our stockholders. As part of our investor relations program, we regularly communicate with our investors and actively engage with them throughout the year. We solicit their feedback on corporate governance topics and ATI’s executive compensation program.

Our goal is to be responsive to our stockholders and to ensure that we understand and address our stockholders’ concerns and observations. As a result of our stockholder engagement, we have made significant changes to our corporate governance practices and executive compensation program during the past two years.

 


 

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PROXY STATEMENT SUMMARY | HIGHLIGHTS

 

 

 

 

 

 

OUR EXECUTIVE COMPENSATION PROGRAM—STRENGTHENING PAY FOR PERFORMANCE

 

As an outgrowth to the company’s transformation and significant strategic investments over the past several years, and as result of prior say on pay votes, we overhauled our executive compensation program and took a “clean sheet” approach to its redesign in 2016. ATI conducted stockholder outreach and engaged external compensation consultants and advisors to provide research and review peer company practices and the practices of other manufacturing companies. We also considered the business challenges, goals, and motivation and retention issues that we face. As a result of this extensive process, we developed a new executive compensation program that is more aligned with stockholders’ interests, easier to understand, retentive, and focused on ATI’s business objectives.

 

 
     

Redesigned our

short-term incentive

program (annual

cash performance-based incentives)

       

Redesigned our

long-term incentive

program (3-year

equity performance-based incentives)

       

Simplified our

Executive Compensation

Program

 

       

Decreased our Long-term Incentive

Awards to Reflect

Targets at or Below

Competitive and

Market-Based Levels

 

   
 

 

These changes became effective for awards beginning in 2016, and our 2017 compensation program is consistent with the new design. Please read the “Executive Compensation” section in this Proxy Statement to learn more.

 

 

 

 

Business Overview

 

ATI is a global manufacturer of technically advanced specialty materials and complex components. Over 50% of our sales are to the aerospace and defense market, particularly jet engines, and we have a strong presence in the oil and gas, electrical energy, medical, automotive and other industrial markets. We are a market leader in manufacturing differentiated specialty alloys and forgings that require our unique manufacturing and precision machining capabilities and our innovative new product development competence. We produce nickel-based alloys and superalloys, titanium and titanium-based alloys, specialty alloys, stainless steels, and zirconium and other related alloys in many mill product forms. We operate in two segments, our High Performance Materials and Components, or “HPMC,” segment and our Flat Rolled Products, or “FRP” segment, and our capabilities range from alloy development, to melting and hot-working, through highly-engineered finished components. We are also a leader in producing nickel-based alloy and titanium-based alloy powders for use in next-generation jet engine forgings and 3D-printed products.

 

The full year 2016 has been a period of transition for ATI as we made hard decisions and took important restructuring actions across both of our business segments to improve our cost structure and lay the groundwork for future long-term profitable growth. Net loss attributable to ATI was $641 million for the year, including $544 million (after tax) of restructuring and other non-recurring charges, and income tax valuation charges. However, business segment operating profit, which excludes these restructuring charges, was $6 million in 2016, a $91 million improvement over 2015, with stronger operating performance in our HPMC segment and a smaller operating loss in our FRP segment, particularly in the second half of 2016. While sales in 2016 decreased 16% to $3.1 billion, our cost of sales decreased 19%, compared to 2015, resulting in a 170% increase in gross profit margin, to $162.5 million, primarily as a result of our restructuring actions. Sales to our largest end market, aerospace and defense, increased more than 5% compared to 2015, and we succeeded in increasing sales to that market to over 50% of sales. Our next-generation, differentiated jet engine product mix continued to grow, and our airframe titanium product shipments remained strong. Our FRP segment made progress toward achieving sustainable profitability, primarily as a result of our cost reduction and restructuring actions.

 

The actions that we took in 2016 are the result of a disciplined management review process, taking into account current and expected future market conditions. This disciplined process is a key part of our commitment to make the tough decisions that are required to strengthen and enhance ATI’s ability to deliver sustainable, profitable growth and create value for our customers and our stockholders over the long term. For a more detailed analysis of our 2016 performance, see Compensation Discussion and Analysis—Executive Summary, or read our 2016 Annual Report included with this Proxy Statement.

 

 


 

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PROXY STATEMENT SUMMARY | PAY FOR PERFORMANCE

 

 

 

Our Compensation Philosophy—Pay for Performance

The overriding principle in designing ATI’s executive compensation program is to drive our long-term strategic vision, and to ensure that the program is aligned with our pay-for-performance philosophy. Our program is designed to compensate executive management based on our performance, create long-term stockholder value and attract and retain key employees. Paying for performance is a key attribute of ATI’s compensation philosophy. As such, a significant portion of the compensation of each named executive officer (“NEO”) is subject to the achievement of rigorous performance goals and, therefore, is “at risk.”

 

LOGO

 

 

For both 2015 and 2016, our Personnel and Compensation Committee determined that our CEO should forfeit his earned annual cash incentive due to overall Company financial performance. The following shows target and realizable pay to the CEO over the past three-years in terms of total compensation, annual cash incentive, and long-term incentives. Realizable pay is well below targeted amounts.

 

 

 

LOGO

 


 

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PROXY STATEMENT SUMMARY | TOTAL REALIZED COMPENSATION

 

 

 

Total Realized Compensation

The Personnel and Compensation Committee of our Board views the amounts in the Summary Compensation Table as the target compensation opportunity for each NEO under our executive compensation program. When making determinations and awards under our incentive plans, the Committee looks to the actual dollar value of awards to be delivered to the NEOs in any given year, as illustrated by the Total Realized Compensation figures below.

 

Named Executive Officer   

2016 Target

Compensation

    

2016 Total Realized

Compensation

          % of Target
Realized
 

Harshman

     $4,992,600      $ 2,575,179     LOGO      51.6%  

DeCourcy

     $1,632,000      $ 1,082,848     LOGO      66.3%  

Kramer

     $1,402,500      $ 1,125,682     LOGO      80.3%  

Sims

     $1,734,000      $ 1,429,344     LOGO      82.4%  

Wetherbee

     $1,716,000      $ 721,309    

LOGO

     42.0%  

Total Realized Compensation is calculated as follows:

 

                           

 

Total Compensation as determined by SEC rules in the “Total” column of the Summary Compensation Table

 

   -   

 

the aggregate grant date fair value of equity awards (as reflected in the Stock Awards column of the 2016 Summary Compensation Table)

 

   -   

 

the year-over-year change in pension value and non-qualified deferred compensation (as reflected in the Change in Pension Value and Non-Qualified Deferred Compensation Earnings column of the 2016 Summary Compensation Table)

 

   +   

 

the value realized in 2016 from shares earned under the 2014-2016 TSR and LTSV award programs (as reflected in the Options Exercised and Stock Vested Table; no shares vested under the 2014-2016 PSRP)

 

                           

The following comparison of target compensation to realized compensation for our NEO’s demonstrates our 2016 reduction in target compensation levels to better align with market median in connection with the redesign of our executive compensation program, as well as our ongoing commitment to compensating our leadership based on the Company’s performance and placing a significant proportion of senior executive compensation “at risk”:

 

Named Executive Officer    2014 Target      2015 Target      2016 Target      2016 Realized  

Harshman

   $ 6,150,000      $ 6,519,000      $ 4,992,600      $ 2,575,179  

DeCourcy

   $ 2,021,000      $ 2,256,000      $ 1,632,000      $ 1,082,848  

Kramer

   $ 1,880,000      $ 1,997,500      $ 1,402,500      $ 1,125,682  

Sims

   $ 2,326,500      $ 2,397,000      $ 1,734,000      $ 1,429,344  

Wetherbee

     N/A      $ 2,115,000      $ 1,716,000      $ 721,309  

 


 

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Item 1 – Election of Directors

The Board of Directors has nominated three directors for election. James C. Diggs, J. Brett Harvey and David J. Morehouse are standing for election to the Board as Class III directors for three-year terms expiring in 2020. Louis J. Thomas, who has served as a Class III director since 2004, will retire from the Board at the conclusion of his current term and therefore will not stand for reelection.

Plurality Voting: Directors are elected by a plurality of the votes cast. This means that the three individuals nominated for election to the Board of Directors who receive the most “FOR” votes (among votes properly cast in person, electronically, telephonically or by proxy) will be elected.

Director Resignation Policy: While directors are elected by a plurality of the votes cast, our Bylaws include a director resignation policy. This policy states that in an uncontested election, if any director nominee receives a greater number of votes “WITHHELD” from his or her election, as compared to votes “FOR” such election, the director nominee must tender his or her resignation. The Nominating and Governance Committee of the Board is required to make recommendations to the Board of Directors regarding any such tendered resignation. The Board of Directors will act on the tendered resignation within 90 days from the certification of the vote and will publicly disclose its decision, including its rationale.

Only votes “FOR” or “WITHHELD” are counted in determining whether a plurality has been cast in favor of a director nominee; abstentions are not counted for purposes of the election of directors. If you withhold authority to vote with respect to the election of some or all of the nominees, your shares will not be voted with respect to those nominees indicated. For a “WITHHOLD” vote, your shares will be counted for purposes of determining whether there is a quorum and will have a similar effect as a vote against that director nominee for purposes of our director resignation policy.

If a nominee becomes unable to serve, the proxies will vote for a Board-designated substitute or the Board may reduce the number of directors. The Company has no reason to believe that any of the nominees for election will be unable to serve.

Director Terms

The directors currently are divided into three classes, and the directors in each class generally serve for three-year terms unless unable to serve due to death, retirement or disability. The term of one class of directors currently expires each year at the annual meeting of stockholders. The Board may fill a vacancy by electing a new director to the same class as the director being replaced or by effectively reassigning a director from another class. The Board may also create a new director position in any class and elect a director to hold the newly created position. It is expected that new directors elected by the Board will stand for election by the stockholders at the next annual meeting.

Our Director Nomination Process

The Board is responsible for recommending director nominees to the stockholders and for selecting directors to fill vacancies between stockholder meetings. The Nominating and Governance Committee recommends candidates to

the Board.

The Committee considers director candidates suggested by members of the Committee, other directors, senior management and stockholders. For information on how to submit a candidate for consideration, please see “2018 Annual Meeting and Stockholder Proposals.”

 


 

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ITEM 1 – ELECTION OF DIRECTORS | OUR DIRECTOR NOMINATION PROCESS

 

 

 

Preliminary interviews of director candidates may be conducted by the Chair of the Nominating and Governance Committee or, at her request, any other member of the Committee or the Chairman of the Board. Background material pertaining to director candidates is distributed to the Committee for review. The Chair of the Committee and other Committee members, directors and key members of our senior management interview director candidates who merit further consideration. The Nominating and Governance Committee considers the results of these interviews in its deliberations.

 

 

 

Director Criteria For Nominees

 

Director candidates are generally selected on the basis of the following criteria:

 

 
 

    their business or professional experience;

 

    recognized achievement in their respective fields;

 

    integrity and judgment;

 

    ability to devote sufficient time to the affairs of the Company;

  

   the diversity of their backgrounds;

 

   ability to represent the interests of all stockholders;

 

   the skills and experience that their membership adds to the overall competencies of the Board; and

 

    the current needs of the Company.

 

 

Board Diversity is one of many criteria considered by the Board when evaluating candidates, though the Board does not have a formal policy regarding diversity. A key factor in determining director nominees is building a cognitively diverse board representing a wide breadth of experience and perspectives.

 

LOGO

Mandatory Retirement Policy. Our Corporate Governance Guidelines include a mandatory retirement requirement that applies to our directors. Under this policy, ATI directors retire from the Board at the end of the term of office that follows their 72nd birthday. If a director will reach his or her 72nd birthday during the director’s subsequent term, the Nominating and Governance Committee should take this fact into account in determining whether to recommend the nomination of the director. New directors added to the Board or to fill vacancies are expected to stand for re-election at the next annual meeting of stockholders.

 


 

ATI has been recognized for five consecutive years for having over 20% of the Board comprised of women. Board Tenure Diversity is another important criteria, ensuring that we have a balanced mix of directors with deep knowledge of ATI and those with fresh perspectives. Experience and background 6 Current or Former CEOs 9 Industry Experience 4 Women/Minority 4 Finance Expertise Board Tenure 3 Directors 1 – 4 Years 3 Directors 5 – 9 Years 5 Directors 10+ Years

 


 

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ITEM 1 – ELECTION OF DIRECTORS | OUR DIRECTOR NOMINATION PROCESS

 

 

 

The board of directors recommends that you vote FOR the election of the director nominees.

 


 

In evaluating the needs of the Board, the Nominating and Governance Committee considers the qualifications of sitting directors and consults with other members of the Board (including as part of the Board’s annual self-evaluation), the Chairman, President and Chief Executive Officer, and other members of executive management. At a minimum, all recommended candidates must exemplify the highest standards of personal and professional integrity, meet any required independence standards, and be willing and able to constructively participate in and contribute to Board and committee meetings. Additionally, the Committee conducts individual reviews of current directors whose terms are nearing expiration, but who may be proposed for re-election, in light of the considerations described above and their past contributions to the Board.

Director Skills Summary

 

Director Name

 

 

 

CEO Experience

 

 

 

Industry/
Manufacturing
Knowledge

 

 

 

Operations/
Production

 

 

 

Financial
Expertise

 

 

 

Technical or
Legal

 

 

 

Labor/ Human
Resources

 

 

 

Marketing/
Communications

 

 

 

Government/
Environmental

 

 

 

International or
Mergers &
Acquisitions

 

 

Carolyn Corvi

 

 

     

 

 

 

 

 

 

 

 

 

 

 

             

 

 

Diane C. Creel

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James C. Diggs

 

 

     

 

 

     

 

 

 

 

 

 

 

 

     

 

 

 

 

 

Richard J. Harshman

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

J. Brett Harvey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barbara S. Jeremiah

 

 

     

 

 

         

 

 

     

 

 

     

 

 

David J. Morehouse

 

 

 

 

 

 

     

 

 

 

 

 

     

 

 

 

 

 

 

 

 

   

John R. Pipski

 

 

     

 

 

     

 

 

                 

 

 

James E. Rohr

 

 

 

 

 

         

 

 

         

 

 

     

 

 

Louis J. Thomas

 

 

     

 

 

 

 

 

     

 

 

 

 

 

           

John D. Turner

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our 2017 Director Nominees and Continuing Directors

Our Board of Directors determined that each of the three director nominees qualifies for election under the criteria for evaluation of directors. The Board determined that Messrs. Diggs, Harvey and Morehouse qualify as independent directors under applicable rules and regulations and our categorical Board independence standards.

All of our directors bring to our Board a wealth of leadership experience derived from their service in executive and managerial roles, as well as extensive board experience. Background information about the nominees and the continuing directors, including their business experience and directorships held during the past five years, and certain individual qualifications and skills of our directors that contribute to the Board’s effectiveness as a whole, are described in the following pages.

 

LOGO

 


 

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ITEM 1 – ELECTION OF DIRECTORS |  2017 DIRECTOR NOMINEES

 

 

 

Nominees – Class III – Term to Expire at the 2020 Annual Meeting

 

  James C. Diggs
 

LOGO      

Director since 2001

Age 68

    

 

Prior to his retirement in 2010, Mr. Diggs was Senior Vice President and General Counsel of PPG Industries, Inc., a producer of coatings, glass and chemicals, since 1997. He held the position of Secretary from 2004 to 2009.

 

Mr. Diggs is Chair of the Finance Committee and also serves on the Audit Committee and the Nominating and Governance Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Mr. Diggs’s qualifications include his experience with industry and legal matters, his senior leadership at a global public company, and his experience with domestic and international operations.

 

CURRENT DIRECTORSHIPS:

 

    Brandywine Realty Trust

 

  J. Brett Harvey
 

LOGO      

Director since 2007

Age 66

 

Mr. Harvey is Chairman Emeritus of CONSOL Energy Inc., a leading diversified energy company in the United States. He previously served as Chairman of CONSOL from 2010 until his retirement in May 2016 and was Executive Chairman from May 2014 to January 2015. Mr. Harvey was Chief Executive Officer of CONSOL Energy Inc. from 1998 until May 2014. He also served as President from 1998 until 2011. Mr. Harvey was Chairman of CNX Gas Corporation, a subsidiary of CONSOL Energy, Inc., from 2009 to 2014 and was a Director of CNX from 2005 to 2014.

 

Mr. Harvey currently serves on the Nominating and Governance Committee and the Personnel and Compensation Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Mr. Harvey’s qualifications include his significant oversight experience from serving as chief executive officer of public companies, his industry experience in the oil and gas market (a large end market for ATI), and his operational expertise.

 

 

CURRENT DIRECTORSHIPS:

 

    Barrick Gold Corporation

 

PAST DIRECTORSHIPS:

 

    CONSOL Energy Inc. (Chairman from 2010 to 2016) and CNX Gas Corporation (Chairman from 2009 to 2010)

 

  David J. Morehouse
 

 

LOGO      

New Director in 2015

Age 56

    

Mr. Morehouse is Chief Executive Officer and President of Pittsburgh Penguins LLC, which owns and operates the Pittsburgh Penguins National Hockey League team. He was named President of the Pittsburgh Penguins in 2007 and has also served as Chief Executive Officer since 2010. He joined the Pittsburgh Penguins in 2004 as a consultant for special projects, including the team’s new arena.

 

Mr. Morehouse is a member of the Audit Committee and the Technology Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Mr. Morehouse’s qualifications include his leadership, strategic planning and development, operations, branding and marketing, and government experience.

 


 

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ITEM 1 – ELECTION OF DIRECTORS | CONTINUING DIRECTORS

 

 

 

Continuing Directors – Class I – Term to Expire at the 2018 Annual Meeting

 

  Diane C. Creel
 

LOGO      

Director since 1996

Age 68

Lead Independent

Director

 

Prior to her retirement in 2008, Ms. Creel served as Chairman, Chief Executive Officer and President of Ecovation, Inc., a subsidiary of Ecolab Inc. and a waste stream technology company using patented technologies, beginning in 2003. Ecovation, Inc. became a subsidiary of Ecolab Inc. in 2008. Previously, Ms. Creel served as Chief Executive Officer and President of Earth Tech, an international consulting engineering firm, from 1992 to 2003.

 

Ms. Creel has served as Lead Independent Director since the position was established in 2011. Ms. Creel is Chair of the Nominating and Governance Committee and a member of the Personnel and Compensation Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Ms. Creel’s qualifications include her experience as a chief executive officer of various companies and her entrepreneurial, management and technical experience.

 

 

CURRENT DIRECTORSHIPS:

 

    Timken Steel Corporation and Enpro Industries, Inc.

 

PAST DIRECTORSHIPS:

 

    URS Corporation and Goodrich Corporation

 

  John R. Pipski

 

LOGO

Director since 2011

Age 69

Audit Committee

Financial Expert

 

 

Mr. Pipski was a tax partner of Ernst & Young LLP, a public accounting firm, until his retirement in 2001. Thereafter, he provided business advisory and financial and tax accounting services through his own firm until 2013.

 

Mr. Pipski is Chair of the Audit Committee and a member of the Finance Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Mr. Pipski’s qualifications include his expertise in financial and tax accounting for public companies, including those in the metals and mining industries, and his general business experience.

 

PAST DIRECTORSHIPS:

 

    CNX Gas Corporation (Chairman of its Audit Committee)

 

  James E. Rohr
 

 

LOGO      

Director since 1996

Age 68

 

Mr. Rohr served as Executive Chairman of The PNC Financial Services Group, Inc., a diversified financial services organization, from May 2013 until his retirement in April 2014. Previously, he was Chairman from 2001 until April 2013 and Chief Executive Officer from 2000 until April 2013. He served as President of The PNC Financial Services Group from 1990 to 2002.

 

Mr. Rohr is Chair of the Personnel and Compensation Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Mr. Rohr’s qualifications include his significant leadership and management experience from his years of serving as a chief executive officer of a large, publicly traded company and his expertise in capital markets and financial matters.

 

 

CURRENT DIRECTORSHIPS:

 

    EQT Corporation, Marathon Petroleum Corporation and General Electric Company

 

PAST DIRECTORSHIPS:

 

    The PNC Financial Services Group, Inc., and BlackRock Inc.

 


 

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ITEM 1 – ELECTION OF DIRECTORS | CONTINUING DIRECTORS

 

 

 

Continuing Directors – Class II – Term to Expire at the 2019 Annual Meeting

 

  Richard J. Harshman

 

LOGO

Director since 2011

Age 60

 

 

Mr. Harshman became Chairman, President and Chief Executive Officer in May 2011. He was President and Chief Operating Officer from 2010 until May 2011. Prior to that, he served as Executive Vice President, Finance and Chief Financial Officer from 2003 to 2010. Mr. Harshman joined the Company in 1978 and served in several financial management roles for the Company.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Mr. Harshman’s qualifications include his experience in senior leadership positions, his intimate knowledge of the industry and ATI’s business given his tenure with the Company, and his financial expertise. Furthermore, the Board believes that Mr. Harshman’s current position as Chairman, President and Chief Executive Officer provides a unified vision for ATI.

 

CURRENT DIRECTORSHIPS:

 

    Ameren Corporation

 

  Carolyn Corvi
 

 

LOGO      

Director since 2012

Age 65

 

 

Upon her retirement in 2008, Ms. Corvi concluded a 34-year career with The Boeing Company, a diversified aerospace company, where she most recently served as Vice President, General Manager of Airplane Programs, Boeing Commercial Airplanes, a position she held from 2005 until her retirement.

 

Ms. Corvi is a member of the Finance Committee, the Personnel and Compensation Committee, and the Technology Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Ms. Corvi’s qualifications include her extensive experience in the aerospace industry (ATI’s largest end market) and her knowledge of and experience in manufacturing.

 

 

CURRENT DIRECTORSHIPS:

 

    Hyster-Yale Materials Handling, Inc. and United Continental Holdings, Inc.

 

PAST DIRECTORSHIPS:

 

    Goodrich Corporation and Continental Airlines, Inc.

 

  Barbara S. Jeremiah  
 
LOGO      

Director since 2008

Age 65

 

Prior to her retirement in 2009, Ms. Jeremiah served as Executive Vice President of Alcoa, Inc., a leading aluminum producer, from 2002 until 2008, when she also assumed the position of Chairman’s Counsel.

 

Ms. Jeremiah currently serves on the Finance Committee and the Technology Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Ms. Jeremiah’s qualifications include her strong background in the metals industry and significant strategic development and international experience.

 

 

CURRENT DIRECTORSHIPS:

 

    Russel Metals, Inc.

 

    Aggreko plc

 

PAST DIRECTORSHIPS:

 

    Boart Longyear Limited (Chair from 2013 to 2015), EQT Corporation and First Niagara Financial Group, Inc.

 


 

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ITEM 1 – ELECTION OF DIRECTORS | CONTINUING DIRECTORS

 

 

 

 

  John D. Turner

 

LOGO

Director since 2004

Age 71

 

 

Mr. Turner served as Chairman and Chief Executive Officer of Copperweld Corporation, a manufacturer of tubular and bimetallic wire products, from 2001 until his retirement in 2003.

 

Mr. Turner serves as the Chair of the Technology Committee and is a member of the Finance Committee and the Nominating and Governance Committee.

 

SKILLS AND QUALIFICATIONS:

 

The Board believes that Mr. Turner’s qualifications include his experience in executive oversight and senior leadership positions, background in the manufacturing sector, and familiarity with industrial and technical matters.

 

CURRENT DIRECTORSHIPS:

 

    Matthews International Corporation (Chairman since 2010)

 


 

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Our Corporate Governance

We at ATI are committed to a strong self-governance program. Our corporate governance practices are designed to maintain high standards of oversight, compliance, integrity and ethics, while promoting growth in long-term stockholder value. The role of our Board of Directors is to ensure that ATI is managed for the long-term benefit of our stockholders and other stakeholders.

Each year we review our corporate governance and compensation policies and practices and engage with our stockholders. We compare our policies and practices to best practice models suggested by governance authorities, stockholders, or as demonstrated by other public companies. In this way, we affirm our commitment to RELENTLESS INNOVATION™ by continually evolving our programs to benefit all of our stakeholders.

Our Commitment to Integrity

ATI is committed to conducting its business in an honest, ethical and lawful manner. Our employees strive to satisfy the spirit and intent, as well as the technical requirements, of the contracts we enter into and the laws, regulations and rules that govern us.

We are committed to protecting the health and safety of our employees, the environment, and our communities. We support sustainable development and work to constantly improve our operations to the benefit of our stockholders, employees, customers and local communities.

We are committed to providing a workplace where employees are treated with dignity and respect, free of discrimination, and where all employees can fulfill their potential based on merit and ability.

We value our reputation. We pledge to promptly address issues in a lawful and proper manner. We strive to create value for our stakeholders while continually improving our performance as a good corporate citizen.

We are also committed to providing information in our financial reporting that is accurate, complete, objective, relevant, timely and transparent, and we have a robust system of internal controls.

We take these commitments seriously. Our management and Board of Directors have instilled a culture, throughout our organization, that supports and honors these commitments. We expect that the actions of our employees, officers and directors comply with these principles and all polices undertaken to further these objectives.

 

 

 

Corporate Governance Information on our Website

 

The following governance documents are available on our website, www.atimetals.com, at “About ATI—Corporate Governance”:

 

   Corporate Governance Guidelines

 

   Corporate Guidelines for Business Conduct and Ethics (including Financial Code of Ethics)

 

   Board Committee Charters

 

   Certificate of Incorporation and Bylaws

 

Paper copies can be obtained by writing to the Corporate Secretary, Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222-5479.

 

 

 


 

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OUR CORPORATE GOVERNANCE | ATI CORPORATE GOVERNANCE AT A GLANCE

 

 

 

ATI Corporate Governance at a Glance

Presented below are some highlights of the ATI corporate governance program. You can find details about these and other corporate governance policies and practices within this Proxy Statement.

 

Board
Independence
 

   10 of our 11 directors are independent.

 

   Our CEO is the only management director.

 

Board
Composition
 

   Currently the Board has fixed the number of directors at 11. In connection with the retirement of Lou Thomas, the size of the Board will be reduced to 10 directors.

 

   We regularly assess our Board performance and can adjust the number of directors according to our needs.

 

   As shown under Item 1 – Election of Directors, our Board has a diverse mix of skills, experience and background.

 

Accountability to
Stockholders
 

   Engagement with Stockholders: We actively reach out to our stockholders through our engagement program and communicate with them on important compensation and governance issues. Also, stockholders can contact our Board, lead director or management by email or regular mail.

 

   Proxy Access. In 2016, we implemented proxy access, allowing a stockholder or group of up to 20 stockholders owning an aggregate of 3% or more of our outstanding common stock for at least three years to nominate and include in our proxy materials director nominees constituting up to 20% of the number of directors then in office or two nominees, whichever is greater, provided the stockholders and nominees otherwise satisfy the requirements of our Bylaws.

 

   Majority Voting/Director Resignation Policy. Our director resignation policy provides that any nominee for director in an uncontested election who receives a greater number of votes “withheld” than votes “for” such nominee’s election shall promptly tender his or her resignation to the Board for the Board’s consideration.

 

Independent Board
Committees
 

   We have five Board committees – Audit, Finance, Nominating and Governance, Personnel and Compensation, and Technology.

 

   All of the Board committees are composed entirely of independent directors, and each has a written charter that is reviewed and reassessed annually and is posted on our website.

 

Strong Lead
Independent
Director
 

   Diane C. Creel serves as the Lead Independent Director. We encourage open communication and strong working relationships among the lead director, chairman and other directors.

 

   Independent directors meet in regularly scheduled executive sessions, led by the Lead Independent Director, without the presence of management.

 

   Stockholders can communicate with the independent directors through the Lead Independent Director.

 

Risk Oversight  

   Our full Board is responsible for risk oversight, and has designated committees to have particular oversight of certain key risks. Our Board oversees management as it fulfills its responsibilities for the assessment and mitigation of risks and for taking appropriate risks.

 

Succession

Planning

 

   The Board actively monitors our management succession plans and receives regular updates on employee engagement, diversity and retention matters. At least annually, the Board reviews senior management succession and development plans.

 

   The Board is in the early stages of reevaluating Board succession and the processes by which additional directors with strong and diverse experience can be attracted and selected for future Board seats.

 

Board/ Committee
Self-evaluation
 

   We have an annual self-evaluation process for the Board.

 

   We have an annual self-evaluation process for each standing Committee of the Board.

Director and NEO
Stock Ownership
 

   Each director is required to own at least 10,000 shares of our common stock.

 

   Executives are required to own ATI common stock with a value equivalent to:

 

   CEO: 6 times base salary;

 

   Executive Vice Presidents and the Chief Financial Officer: 3 times base salary; and

 

   Senior Vice Presidents: 2 times base salary.

 

Ethics/Corporate
Responsibility
 

   Our Corporate Guidelines for Business Conduct and Ethics, as well as the Company’s attention to environmental, social and governance issues, are disclosed on our website.

 

   The Company has an active ethics and compliance program, which includes regular employee training.

 

 


 

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OUR CORPORATE GOVERNANCE | CORPORATE GOVERNANCE GUIDELINES

 

 

 

Corporate Governance Guidelines

ATI’s Board of Directors has adopted Corporate Governance Guidelines, which are designed to assist the Board in the exercise of its duties and responsibilities to the Company. The Guidelines reflect the Board’s commitment to monitor the effectiveness of decision making at the Board and management levels, with a view to achieving ATI’s strategic objectives. The Guidelines are subject to modification by the Board at any time.

Corporate Guidelines for Business Conduct and Ethics

Our Corporate Guidelines for Business Conduct and Ethics applies to all directors, officers and employees, including our principal executive officer, our principal financial officer, and our controller and principal accounting officer. We require all directors, officers and employees to adhere to our Code of Ethics in addressing legal and ethical issues encountered in their work.

Our Code of Ethics requires that our directors, officers and employees avoid conflicts of interest, comply with applicable laws, conduct business in an honest and ethical manner, and otherwise act with integrity and honesty in all of their actions by or on behalf of the Company. It includes a financial code of ethics specifically for our Chief Executive Officer, our Chief Financial Officer, and all other financial officers and employees, which supplements the general principles in the Code of Ethics and is intended to promote honest and ethical conduct, full and accurate reporting, and compliance with laws, as well as other matters.

Only the Audit Committee of the Board can amend or grant waivers from the provisions of the Code of Ethics relating to the Company’s executive officers and directors, and any such amendments or waivers will be promptly posted on our website at www.atimetals.com. To date, no such amendments have been made or waivers granted.

MANDATORY EMPLOYEE TRAINING

All employees are provided with a copy of the Code of Ethics. Each year, we require all officers and managers to certify as to their understanding of and compliance with the Code of Ethics. In addition, all directors, officers and other employees must annually complete an interactive online ethics course addressing the Code of Ethics. This course is part of ATI’s broader ethics and compliance program, which includes online ethics training that is administered by a third party. In 2016, ATI’s online ethics courses addressed the prevention of workplace violence, protection of confidential information, careful use of social media, protection of product quality and workplace respect.

We encourage employees to communicate concerns before they become problems. We believe that building and maintaining trust, respect and communications between employees and management and between fellow employees is critical to the overriding goal of efficiently producing high quality products, providing the maximum level of customer satisfaction, and ultimately fueling profitability and growth.

The ATI Ethics Helpline provides confidential, secure, and anonymous reporting available 24 hours a day. Additionally, our Chief Compliance Officer and ethics officers at our operating companies also provide confidential resources for employees to surface their concerns without fear of reprisal.

 

 

 

Corporate Responsibility

 

At ATI, we recognize the importance of being a good corporate citizen. We encourage integrity from the boardroom to the work floor, and continually review and refine our efforts to enrich our communities, improve employee health and safety, and lessen our environmental impact. Building the World’s Best Specialty Materials & Components CompanyTM requires nothing less than the highest standards of ethical business conduct and corporate responsibility.

 

 

 


 

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OUR CORPORATE GOVERNANCE | INVESTOR OUTREACH AND STOCKHOLDER ENGAGEMENT

 

 

 

Investor Outreach and Stockholder Engagement

We value the input we receive from our stockholders. As part of our investor relations program, we engage in a structured and regular communication program with our investors, actively engaging with them throughout the year. We solicit their feedback on corporate governance topics and ATI’s executive compensation program. Our goal is to be responsive to our stockholders and to ensure that we understand and address our stockholders’ concerns and observations. As a result of stockholder engagement, we have made significant changes to our corporate governance practices and executive compensation program in recent years.

STOCKHOLDER ENGAGEMENT CYCLE

 

 

LOGO

Our stockholder engagement usually begins following the Annual Meeting, when the Board considers the feedback received during the solicitation of proxies for the Annual Meeting. Management and the Board discuss topics of focus in the months that follow, which has included governance trends, regulatory developments, and our own policies and practices. During the fall, the Committee considers potential corporate governance or executive compensation changes in the context of further discussions with and feedback from stockholders. In the spring, we publish our annual communications to stockholders (our annual report and proxy statement) and solicit feedback from our investors about the significant topics to be addressed at our Annual Meeting. Following the Annual Meeting, the Board discusses vote outcomes and recommends follow-up actions. Throughout the year, management conducts regular meetings and discussions with investors.

 


 

SPRING We publish our annual communications to stockholders (our annual report and proxy statement) and solicit feedback from our investors about the significant topics to be addressed at our Annual Meeting. SUMMER Following the Annual Meeting, the Board discusses vote outcomes and recommends follow-up actions. Management and the Board discuss topics of focus and review governance trends, regulatory developments, and our own policies and practices. WINTER The Board reviews feedback and uses it to improve our proxy disclosure and make any changes to our governance practices, stockholder outreach and executive compensation programs for the upcoming year. FALL We consider potential corporate governance or executive compensation changes based on further discussions with and feedback from stockholders.

 


 

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OUR CORPORATE GOVERNANCE | BOARD INFORMATION

 

 

 

Board Information

BOARD COMPOSITION

The Board of Directors determines the number of directors. The Board currently consists of eleven members:

 

Richard J. Harshman

(Chairman, President and CEO)

   Diane C. Creel    Barbara S. Jeremiah    James E. Rohr
  

 

James C. Diggs

  

 

David J. Morehouse

  

 

Louis J. Thomas

 

Carolyn Corvi

  

 

J. Brett Harvey

  

 

John R. Pipski

  

 

John D. Turner

Louis J. Thomas, who has served as a Class III director since 2004, will retire from the Board at the conclusion of his current term in May 2017, in connection with which the size of the Board will be reduced to ten members.

BOARD INDEPENDENCE

The Board does not consider Richard J. Harshman, Chairman, President and Chief Executive Officer of ATI, to be independent. The Board, at its February 23, 2017 meeting, determined that the remaining ten current directors are independent in accordance with the NYSE listing standards, our own Board Independence Standards and the rules of the Securities and Exchange Commission (“SEC”).

In determining that these directors have no relationships with ATI other than as directors and stockholders of the Company, the Board examined certain business affiliations of Mr. Rohr and Mr. Morehouse.

James E. Rohr currently serves on the board of directors of General Electric Company (“General Electric”). During 2016, the Company supplied General Electric with nickel-based superalloys and jet engine disc-quality mill products under an ongoing commercial relationship between the Company and General Electric. The amounts paid to the Company by General Electric in 2016 represent a de minimis portion of the revenues of General Electric, and the compensation received by Mr. Rohr from General Electric for his service as a director is not affected by the ongoing commercial relationship between the Company and General Electric. The Board has determined that the transactions between the Company and General Electric:

 

  are commercial transactions carried out at arm’s length in the ordinary course of business;

 

  are not material to General Electric or Mr. Rohr;

 

  do not and would not potentially influence Mr. Rohr’s objectivity as a member of the Company’s Board in a manner that would have a meaningful impact on his ability to satisfy requisite fiduciary standards on behalf of the Company and its stockholders; and

 

  do not preclude a determination that the relationship of Mr. Rohr with General Electric as a member of its board of directors is immaterial.

The Board determined that Mr. Rohr is an independent director under the existing guidelines of the New York Stock Exchange (“NYSE”) and the Company’s categorical Board independence standards.

David J. Morehouse is the Chief Executive Officer and President of Pittsburgh Penguins LLC, which owns and operates the Pittsburgh Penguins National Hockey League team, Pittsburgh Arena Operating LLC and other affiliated entities. ATI previously was a party to a sponsorship agreement with Pittsburgh Penguins LLC, under which it paid an annual fee to Pittsburgh Penguins LLC in exchange for sponsorship opportunities associated with the Pittsburgh Penguins National Hockey League franchise. The sponsorship agreement expired in June 2016. ATI remains a party to an arena executive suite license agreement that expires in June 2017 with an entity that is affiliated with Pittsburgh Arena Operating LLC, which ATI does not intend to renew. The annual fees paid by ATI under these agreements have represented a de minimis portion of each party’s revenues, and, therefore, all amounts were substantially less than the thresholds set in the NYSE’s listing standards which disqualify a director from being independent.

Mr. Morehouse’s compensation from Pittsburgh Penguins LLC and any related entities is not affected by the fees that the Company paid under the sponsorship agreement or the license agreement. The Board has determined that the transactions:

 

  are commercial transactions carried out at arm’s length in the ordinary course of business;

 


 

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OUR CORPORATE GOVERNANCE | BOARD INFORMATION

 

 

 

 

  are not material to Pittsburgh Penguins LLC, Pittsburgh Arena Operating LLC or Mr. Morehouse;

 

  do not and would not potentially influence Mr. Morehouse’s objectivity as a member of our Board of Directors in a manner that would have a meaningful impact on his ability to satisfy requisite fiduciary standards on behalf of the Company and its stockholders; and

 

  do not preclude a determination that the relationship of Mr. Morehouse’s with Pittsburgh Penguins LLC or any related entity as Chief Executive Officer and President of Pittsburgh Penguins LLC is immaterial.

The Board determined that Mr. Morehouse is qualified as an independent director under NYSE existing guidelines and the Company’s categorical Board independence standards.

BOARD LEADERSHIP STRUCTURE

The Board of Directors has the flexibility to determine whether it is in the best interests of ATI and its stockholders to separate or combine the roles of Chairman and Chief Executive Officer at any given time. Whenever a Chairman and/or Chief Executive Officer is appointed, or at such other times as it deems appropriate, the Board of Directors assesses whether the roles should be separated or combined based upon its evaluation of, among other things, the existing composition of the Board of Directors and the circumstances at the time. The Board has considered the roles and responsibilities of the Chairman and the Chief Executive Officer, and, while it retains the discretion to separate the roles in the future as it deems appropriate and acknowledges that there is no single best organizational model that is most effective in all circumstances, the Board currently believes that the Company and its stockholders are best served by having Mr. Harshman serve concurrently as Chairman and Chief Executive Officer.

Why a combined Chairman/CEO leadership structure is best for ATI and our stockholders

The Board of Directors believes that Mr. Harshman’s service in both capacities promotes unified leadership and direction for the Company and allows for a single, clear focus on the efficient implementation of ATI’s strategies to maximize stockholder value over the long-term. In addition, the Board of Directors believes that Mr. Harshman, serving in both capacities, has been an effective bridge between the Board and ATI’s management.

 

 

 

Lead Independent Director

 

Ms. Creel, one of our independent directors, was elected to serve as our Lead Independent Director. The Lead Independent Director is the principal liaison between the independent directors and the Chairman on Board-wide issues.

 

Responsibilities:

 

 
 

   Authority to preside, in the absence of the Chairman, at meetings of the Board, including executive sessions of the independent directors;

 

   Ability to call meetings of the independent directors when necessary and appropriate;

 

   Communication with, and appropriately facilitating communication among, independent directors between meetings, when appropriate;

 

   Advising the Chairman regarding schedules, agendas and the quantity, quality and timeliness of information for Board and Committee meetings;

 

 

   Serving as a contact for stockholders wishing to communicate with the Board other than through the Chairman, when appropriate, and communicating with other external constituencies, as needed; and

 

   Advising and consulting with the Chairman on matters related to corporate governance and Board performance and generally serving as a resource for, and counsel to, the Chairman.

 

 


 

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OUR CORPORATE GOVERNANCE | BOARD INFORMATION

 

 

 

The Board of Directors believes that this leadership structure is appropriate for ATI and in the best interests of our stockholders at this time. Through governance features such as the establishment of a Lead Independent Director position, the appointment of only independent directors to the standing committees of the Board of Directors, and regular use of executive sessions of the independent directors, the Board is able to maintain appropriate independent oversight of our business strategies and activities.

These governance features have been effective in promoting a full and free discussion and analysis at the Board level of issues important to the Company. At the same time, the Board of Directors is able to take advantage of the blend of leadership, experience and extensive knowledge of ATI, our industry and the markets in which we compete that Mr. Harshman brings to the combined roles of Chairman and Chief Executive Officer.

BOARD AND COMMITTEE MEMBERSHIP—DIRECTOR ATTENDANCE AT MEETINGS

During 2016, the Board of Directors held nine meetings, including one strategy retreat. In 2016, directors attended over 99% of all Board meetings and meetings of Board committees of which they were members.

The independent, non-management directors meet separately in regularly scheduled executive sessions without members of management (except to the extent that the non-management directors request the attendance of a member of management). The Lead Independent Director presides over meetings of the independent directors.

A Board meeting is typically scheduled in conjunction with our annual meeting of stockholders, and it is expected that our directors will attend absent good reason. In 2016, all directors attended our annual meeting of stockholders.

The table below provides information with respect to current Board committee memberships of the non-employee directors. The table also sets forth the number of meetings held by each Board committee in 2016.

 

Director(1)

 

 

        Audit             

 

 

        Finance              

 

 

Nominating     

    and Governance         

 

 

Personnel and     

    Compensation         

 

 

        Technology         

 

C. Corvi

 

           

 

           

 

       

 

D. C. Creel(2)

 

          Chair     

 

       

 

   

J. C. Diggs

 

       

 

  Chair     

 

       

 

       

J. B. Harvey

 

               

 

       

 

   

B. S. Jeremiah

 

           

 

               

 

D. J. Morehouse

 

       

 

                   

 

J. R. Pipski

 

  Chair     

 

       

 

           

J. E. Rohr

 

              Chair     

 

   

L. J. Thomas

 

       

 

                   

 

J. D. Turner

 

           

 

       

 

      Chair     

 

Number of Meetings held in 2016

 

  10     

 

  7     

 

  5     

 

  6     

 

  3     

 

 

(1)  As Chairman, Mr. Harshman may attend each Committee meeting, except to the extent that a Committee requests to meet without Mr. Harshman present.

 

(2)  Ms. Creel serves as Lead Independent Director and presides over meetings of the independent directors, and may attend meetings of Committees of which she is not a member.

BOARD COMMITTEES

The Board of Directors has five standing committees: Audit Committee, Finance Committee, Nominating and Governance Committee, Personnel and Compensation Committee, and Technology Committee. All of the standing committees of the Board of Directors are comprised entirely of independent directors.

Each committee has a written charter that describes its responsibilities. Each of the Audit Committee, the Nominating and Governance Committee and the Personnel and Compensation Committee has the authority, as it deems appropriate, to independently engage outside legal, accounting or other advisors or consultants. In addition, each committee annually conducts a review and evaluation of its performance and reviews and reassesses its charter.

 


 

22 \    ATI 2017 Proxy Statement


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OUR CORPORATE GOVERNANCE | BOARD INFORMATION

 

 

 

 

   

Board Committee

  

Role and Primary Responsibilities

   
   

 

Audit Committee

 

      
          
   

 

Chair:

 

John R. Pipski

Financial Expert*

 

Members:

 

James C. Diggs

 

David J. Morehouse

 

Louis J. Thomas

 

*  Mr. Pipski qualifies an “audit committee financial expert” under applicable SEC criteria and meets the NYSE standard of having accounting or related financial management expertise.

 

  

 

Assists the Board in its oversight of the integrity of the Company’s financial statements, compliance with legal and regulatory requirements, the qualifications and independence of the Company’s independent auditors, and the performance of the Company’s internal audit function and independent auditors.

 

   Has authority and responsibility for the appointment, retention, compensation and oversight of ATI’s independent auditors, including pre-approval of all audit and non-audit services to be performed by the independent auditors. Both the independent auditors and the internal auditors have full access to the Committee and meet on a routine basis without management being present.

 

   Responsible for review of the Company’s major financial risk exposures and mitigating actions and for reviewing, approving and ratifying any related party transaction.

   

LOGO

            
      
   

 

Finance Committee

 

      
          
   

 

Chair:

 

James C. Diggs

 

Members:

 

Carolyn Corvi

 

Barbara S. Jeremiah

 

John R. Pipski

 

John D. Turner

 

 

  

 

Primarily responsible for making recommendations and providing guidance to the Board regarding major financial policies and actions of the Company.

 

   Reviews and evaluates the Company’s debt and equity structure, dividends, authorized capital stock, and credit agreements.

 

   Serves as named fiduciary of the employee benefit plans maintained by the Company, which includes (i) appointment, evaluation, and removal of employee benefit plan trustees and investment managers, (ii) establishment of funding methods and policies, (iii) review of funded status and investment policies and practices, and (iv) appointment of plan administrators.

   

LOGO

            
      
   

 

Nominating and Governance Committee

 

   
       
   

 

Chair:

 

Diane C. Creel

 

Members:

 

James C. Diggs

 

J. Brett Harvey

 

John D. Turner

  

 

Responsible for overseeing corporate governance matters. This includes,

 

   Overseeing the annual evaluation of the Board and its committees.

 

   Recommending to the Board individuals to be nominated as directors, including evaluation of new candidates as well as of current directors who are being considered for re-election.

 

   Making recommendations to the Board concerning committee membership and Board composition.

 

   Administering ATI’s director compensation program.

   

LOGO

            

 


 

ATI 2017 Proxy Statement    / 23


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OUR CORPORATE GOVERNANCE | BOARD INFORMATION

 

 

 

    Board Committee    Role and Primary Responsibilities    
   

 

Personnel and Compensation Committee

 

   
       
   

 

Chair:

 

James E. Rohr

 

Members:

 

Carolyn Corvi

 

Diane C. Creel

 

J. Brett Harvey

 

Each member of the Personnel and Compensation Committee is a “non-employee director” of the Company as defined under Rule 16b-3 of the Securities Exchange Act of 1934, and each member is also an “outside director” for the purposes of the corporate compensation provisions contained in Section 162(m) of the Internal Revenue Code.

  

 

Primarily responsible for establishing and annually reassessing the Company’s executive compensation program and executive compensation philosophy.

 

   Reviews, with outside compensation and other advisors, the compensation policies and practices at peer companies.

 

   Oversees CEO and other executive officer compensation.

 

   Reviews and approves corporate goals and objectives relevant to CEO and other executive officer compensation, evaluates the CEO’s performance in light of those goals and objectives, and determines and approves the CEO’s compensation level (either as a Committee or together with the other independent directors) based on this evaluation.

 

   Reviews and approves non-CEO executive officer compensation and makes recommendations to the Board regarding incentive compensation plans and equity-based plans that require Board approval.

 

   Reviews and approves recommendations from management within plan parameters regarding the compensation of other executives. The Committee may not delegate any authority under those plans for matters affecting the compensation and benefits of the Company’s executive officers.

 

   Administers ATI’s incentive compensation plans.

 

   Monitors and encourages the development of intellectual capital.

 

   Reviews management succession planning and makes recommendations to the Board concerning executive management organization matters generally.

 

The Personnel and Compensation Committee has the sole authority to retain, approve fees and other terms for, and terminate any compensation consultant used to assist the committee in the evaluation of CEO or other executive compensation. The Committee also may obtain advice and assistance from internal or external legal, accounting or other advisors.

 

   The Committee has retained an independent compensation consultant, Meridian Compensation Partners, LLC.

 

   The Committee also utilizes external legal advisors and assesses the independence of its advisors.

 

Please see the “Executive Compensation — Compensation Discussion and Analysis” section of this Proxy Statement for more discussion about the Committee’s role in executive officer compensation.

   

LOGO

            

 


 

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OUR CORPORATE GOVERNANCE | BOARD INFORMATION

 

 

 

 

   

Board Committee

 

  

Role and Primary Responsibilities

 

         
   

 

Technology Committee

 

         
             
   

 

Chair:

 

John D. Turner

 

Members:

 

Carolyn Corvi

 

Barbara S. Jeremiah

 

David J. Morehouse

 

Louis J. Thomas

  

 

Primarily responsible for reviewing changing technologies and evaluating how they affect ATI and its technical capabilities and competitive position.

 

   Considers the impact of technologies on the well-being of the Company.

 

   Assesses ATI’s technical capabilities in relation to corporate strategies and plans.

 

   Makes recommendations to the Board concerning priorities, asset deployment, and other matters relating to the Company’s technical activities.

    

LOGO

             

 

    

BOARD’S ROLE IN RISK OVERSIGHT

The Board, as a whole, actively oversees the risk management of the Company. Enterprise risks—the specific financial, operational, business and strategic risks that the Company faces, whether internal or external—are identified and prioritized by the Board and management together, and then each specific risk is assigned to the full Board or a Board committee for oversight.

Board/Committee Primary Areas of Risk Oversight

 

 

Full Board

 

Strategic and business risks, such as those relating to our products, markets, and capital investments, are overseen by the entire Board.

 
 

 

Strategic, financial, operational and execution risk associated with the annual and long-term business plans, including capital investments, asset allocation, acquisitions or divestitures, regulatory and environmental compliance.

 

 

 

External risks associated with cybersecurity and other major safety and security matters, supply chain, and global markets.

 

 

 
 

 

Audit

Committee

       

 

Finance

Committee

       

 

Nominating

and Governance

       

 

Personnel and

Compensation

       

 

Technology

Committee

 
 

 

The Audit Committee and the Finance Committee oversee management of market and operational risks that could have a financial impact, such as those relating to internal controls, liquidity or raw material availability.

 

 Risks associatedwith financial matters, particularly financial reporting, taxes, accounting, disclosure and internal control.

 

 Risks associatedwith legal matters and the ethics compliance program.

 

       

 

The Audit Committee and the Finance Committee oversee management of market and operational risks that could have a financial impact, such as those relating to internal controls, liquidity or raw material availability.

 

 Risks associatedwith liquidity, financial markets, pension plans (including investment performance, asset allocation and funded status), currency and interest rate exposures, and insurance strategies.

       

Committee

 

Manages the risks associated with governance issues, such as the independence of the Board. The Committee also periodically evaluates whether the identified risks are assigned to the appropriate Board committee (or to the Board) for oversight.

 

 Risks associatedwith Board effectiveness and organization, corporate governance matters, director compensation, and director succession planning.

 

       

Committee

 

Manages the risks associated with personnel and compensation issues, such as the Company’s executive compensation plans and practices.

 

 Risks associatedwith employee relations, benefit plans, management development and training, and executive compensation matters.

 

 In conjunctionwith the Board, risks associated key executive succession.

 

       

 

Manages the risks associated with changing technologies and their impact on ATI’s technical capabilities and competitive position.

 

 Risks associatedwith technology development, changes and disruption, product development, and competitor changes.

 

Management regularly reports to the Board or the relevant Committee on actions that the Company is taking to manage these risks. The Board and management periodically review, evaluate and assess the risks relevant to the Company.

 


 

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OUR CORPORATE GOVERNANCE | BOARD INFORMATION

 

 

 

 

 

 

 

PROCESS FOR COMMUNICATING WITH DIRECTORS

 
 

We maintain a process for stockholders and interested parties to communicate with the Board, the Lead Independent Director, or any individual director. ATI stockholders or interested parties who want to communicate with the Board, the Lead Independent Director, or any individual director can write to:

 

Lead Independent Director

c/o Corporate Secretary

Allegheny Technologies Incorporated

1000 Six PPG Place

Pittsburgh, PA 15222-5479

 

or call 1-877-787-9761 (toll free).

 

Your letter or message should indicate whether you are an ATI stockholder.

 

Depending on the subject matter, the Lead Independent Director and/or the Corporate Secretary will:

 

  forward the communication to the director or directors to whom it is addressed;

 

  attempt to handle the inquiry directly when, for example, it is a request for information about the Company or it is a stock-related matter; or

 

  not forward the communication if it is primarily commercial in nature or it relates to an improper or irrelevant topic.

 

At each Board meeting, the Corporate Secretary presents a summary of all communications received since the last meeting that were not forwarded and makes those communications available to the directors on request.

 

 

Director Compensation

BOARD OF DIRECTORS’ ROLE AND COMPENSATION

Non-employee directors receive compensation for their service that is designed to fairly compensate them for their board responsibilities and align their interests with our stockholders. The Nominating and Governance Committee periodically reviews and evaluates our non-employee director compensation program to ensure that it is competitive with ATI’s industry peers and best practices and serves the purposes of attracting and retaining high quality directors. The Nominating and Governance Committee uses an independent consultant, Meridian Compensation Partners LLC, which is the same consultant retained by the Personnel and Compensation Committee, to provide market and comparison data and information on current developments and practices in director compensation. ATI’s non-employee director compensation program is competitive and market-based.

DIRECTOR STOCK OWNERSHIP GUIDELINES

The Board encourages directors to obtain a meaningful stock ownership interest in ATI. Under the stock ownership guidelines applicable to all non-employee directors, each non-employee director is expected to own at least 10,000 shares of ATI Common Stock within five years of his or her initial election to the Board. Furthermore, directors are required to retain one-third of any awarded stock until compliance with the guidelines is achieved. Each of the directors was in compliance with the guidelines as of December 31, 2016 or is reasonably proceeding with compliance as of the applicable five-year anniversary of his or her initial election to the Board.

 


 

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OUR CORPORATE GOVERNANCE | DIRECTOR COMPENSATION

 

 

 

Elements of Director Compensation

 

Pay Component    2016 Compensation

Annual Retainer

  

$225,000

– $125,000 Cash

– $100,000 Restricted Stock Value

Lead Director Annual Retainer

   $30,000

Committee Chair Retainers

  

Audit and Personnel and Compensation Committees $15,000

Finance, Nominating and Governance and Technology Committees $10,000

Board service travel expenses are also paid by the Company

In 2004, the Board froze and discontinued the Company’s Fee Continuation Plan for Non-Employee Directors. Under the frozen plan, an amount equal to the annual retainer fee in effect for 2004 (which was $28,000) will be paid annually to each member of the Board as of December 31, 2004, following the termination of his or her service as a Board member. In each case, the fee will be paid for each year of the director’s credited service as a director (as defined in the Plan) up to a maximum of ten years.

2016 Non-Employee Director Compensation

 

Name(1)

 

  

Fees Earned
Or Paid

In Cash

($)(2)

 

    

Stock

Awards

($)(3)

 

    

All Other

Compensation

($)(4)

 

    

Total

($)

 

 

C. Corvi

 

    

 

125,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

221,585

 

 

 

D. C. Creel

 

    

 

165,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

261,585

 

 

 

J. C. Diggs

 

    

 

135,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

231,585

 

 

 

J. B. Harvey

 

    

 

125,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

221,585

 

 

 

B. S. Jeremiah

 

    

 

125,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

221,585

 

 

 

D. J. Morehouse

 

    

 

125,000

 

 

 

    

 

93,911

 

 

 

    

 

1,669

 

 

 

    

 

220,580

 

 

 

J. R. Pipski

 

    

 

140,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

236,585

 

 

 

J. E. Rohr

 

    

 

140,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

236,585

 

 

 

L. J. Thomas

 

    

 

125,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

221,585

 

 

 

J. D. Turner

 

    

 

135,000

 

 

 

    

 

93,911

 

 

 

    

 

2,674

 

 

 

    

 

231,585

 

 

 

Non-employee directors are not granted option awards or non-equity incentive plan compensation awards, and do not have company pensions or non-qualified deferred compensation earnings.

 

(1) Richard J. Harshman, Chairman, President and Chief Executive Officer, does not receive any compensation for his service on the Board.

 

(2) This column reflects annual retainer fees, including committee chair and Lead Independent Director fees, as well as Board and committee meeting fees paid to the directors.

 

(3) This column reflects the aggregate grant date fair value, determined in accordance with FASB ASC Topic 718, of the restricted stock awards granted to directors under the Company’s Non-Employee Director Restricted Stock Program. Shares vest on the third anniversary of the date of grant, or earlier upon retirement, death or change of control, and expense is recognized over the vesting period. A discussion of the relevant assumptions made in the valuations may be found in Note 14 to the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

 

(4) Amounts in the column consist of dividends paid on directors’ restricted stock. Grants of restricted stock to non-employee directors accumulate stock dividends during the restriction period, and directors are entitled to receive dividends paid on the restricted shares only when the restrictions lapse.

 


 

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OUR CORPORATE GOVERNANCE | RELATED PARTIES AND STOCK OWNERSHIP MATTERS

 

 

 

Related Party Transactions

The Board of Directors has adopted a written Statement of Policy with respect to Related Party Transactions. The Policy applies to transactions or arrangements between ATI and a related person (namely directors, executive officers, and their immediate family members, and 5% stockholders) with a direct or indirect material interest in the transaction, including transactions requiring disclosure under Item 404(a) of Regulation S-K.

Under the Policy, no related party transaction may occur unless it is approved or ratified by the Audit Committee or approved by the disinterested members of the Board of Directors. The Audit Committee is primarily responsible for approving and ratifying related party transactions, and in doing so, will consider all matters it deems appropriate, including the dollar value of the proposed transaction, the relative benefits to be obtained and obligations to be incurred by the Company, and whether the terms of the transaction are comparable to those available to third parties.

Compensation Committee Interlocks and Insider Participation

No member of the Personnel and Compensation Committee is an officer or employee of the Company. No member of the Committee has a current or prior relationship, and none of our executive officers have a relationship, to any other company that is required to be described under the SEC rules relating to disclosure of executive compensation.

Stock Ownership Information

Section 16(a) Beneficial Ownership Reporting Compliance

The rules of the SEC require the Company to disclose late filings of reports of stock ownership (and changes in stock ownership) by its directors and executive officers and by persons who beneficially own more than ten percent of a registered class of the Company’s equity securities. Based upon a review of filings with the SEC and written representations, the Company believes that, in 2016, all such persons complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 on a timely basis.

 


 

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STOCK OWNERSHIP INFORMATION | STOCK OWNERSHIP OF FIVE PERCENT OWNERS

 

 

 

 

Five Percent Owners of Common Stock

The entities listed in the following table are beneficial owners of five percent or more of ATI Common Stock as of December 31, 2016, based on information filed with the SEC. In general, “beneficial ownership” includes those shares a person has the power to vote or transfer currently, and shares such person has the right to acquire within 60 days.

 

Name and Address of Beneficial Owner   

Amount and Nature of

Beneficial Ownership

    

Percentage

Of Class(1)

 

BlackRock, Inc.

55 East 52nd Street

New York, NY 10055

 

     10,952,832 (2)       10.06%  

The Vanguard Group

100 Vanguard Boulevard

Malvern, PA 19355

 

     8,617,797 (3)       7.92%  

Franklin Resources, Inc.

One Franklin Parkway

San Mateo, CA 94403

 

     5,908,976 (4)       5.43%  

WS Management, LLLP

4306 Pablo Oaks Court

Jacksonville, FL 32224

 

     5,576,048 (5)       5.12%  

State Street Corporation

State Street Financial Center

One Lincoln Street

Boston, MA 02111

 

     5,561,288 (6)       5.11%  

 

(1) Percentages are based on shares of Company Common Stock outstanding as of March 15, 2017, as of which date there were 108,824,992 shares of Company Common Stock outstanding.

 

(2) Based on a Schedule 13G/A filing under the Securities Exchange Act (the “Exchange Act”), made on January 9, 2017 by BlackRock, Inc., reporting sole voting power with respect 10,697,771 shares and sole dispositive power with respect to 10,952,832 shares at December 31, 2016.

 

(3) Based on a Schedule 13G/A filing under the Exchange Act made on February 9, 2017 by The Vanguard Group (“Vanguard”), Vanguard had sole voting power with respect to 129,276 shares, shared voting power with respect to 11,600 shares, sole dispositive power with respect to 8,482,421 shares, and shared dispositive power with respect to 135,376 shares at December 31, 2016.

 

(4) Based on a Schedule 13G/A filing under the Exchange Act made on February 9, 2017 by Franklin Resources, Inc., Charles B. Johnson and Rupert H. Johnson, Jr., the shares are beneficially owned at December 31, 2016 by one or more open- or closed-end investment companies or other managed accounts that are investment management clients of investment managers that are direct or indirect subsidiaries of Franklin Resources. Charles B. Johnson and Rupert H. Johnson, Jr. each own in excess of 10% of the outstanding common stock of Franklin Resources and are its principal stockholders.

 

(5) Based on a Schedule 13G/A filing under the Exchange Act, made on January 17, 2017 by WS Management LLLP, reporting sole voting power and sole dispositive power with respect to 5,576,048 shares at December 31, 2016.

 

(6) Based on a Schedule 13G filing under the Exchange Act, made on February 9, 2017 by State Street Corporation, reporting shared voting power and shared dispositive power with respect to 5,561,288 shares at December 31, 2016.

 


 

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STOCK OWNERSHIP INFORMATION | STOCK OWNERSHIP OF DIRECTORS, BOARD NOMINEES AND EXECUTIVE MANAGEMENT

 

 

 

 

Stock Ownership of Directors, Board Nominees and Executive Management

The following table shows the shares of Common Stock reported to ATI as beneficially owned as of March 15, 2017 by the nominees for director, the continuing directors, each officer named in the Summary Compensation Table, and for all directors, officers and other statutory insiders as a group. Unless indicated otherwise below, the information provided in the following table is based on the Company’s records, information filed with the SEC, and information furnished by the respective individuals and includes as “beneficially owned” those shares that each such person has the power to vote or transfer currently, or the right to acquire within 60 days following March 15, 2017.

For biographical information regarding the beneficial owners, please see information under “Item 1—Election of Directors” and “Members of ATI’s Executive Management” of this Proxy Statement. The business address for each beneficial owner is c/o Allegheny Technologies Incorporated, 1000 Six PPG Place, Pittsburgh, PA 15222.

 

Beneficial Owner   

Amount and Nature of

Beneficial Ownership(1)

    

Percentage

Of Class

 

Carolyn Corvi

 

    

 

18,730

 

 

 

    

 

*

 

 

 

Diane C. Creel

 

    

 

41,242

 

 

 

    

 

*

 

 

 

Patrick J. DeCourcy

 

    

 

60,538

 

 

 

    

 

*

 

 

 

James C. Diggs

 

    

 

30,082

 

 

 

    

 

*

 

 

 

Richard J. Harshman

 

    

 

464,745

 

 

 

    

 

*

 

 

 

J. Brett Harvey

 

    

 

30,544

 

 

 

    

 

*

 

 

 

Barbara S. Jeremiah

 

    

 

31,425

 

 

 

    

 

*

 

 

 

Kevin B. Kramer

 

    

 

52,109

 

 

 

    

 

*

 

 

 

David J. Morehouse

 

    

 

9,413

 

 

 

    

 

*

 

 

 

John R. Pipski

 

    

 

27,679

 

 

 

    

 

*

 

 

 

James E. Rohr

 

    

 

58,944

 

 

 

    

 

*

 

 

 

John D. Sims

 

    

 

121,625

 

 

 

    

 

*

 

 

 

Louis J. Thomas

 

    

 

26,368

 

 

 

    

 

*

 

 

 

John D. Turner

 

    

 

36,979

 

 

 

    

 

*

 

 

 

Robert S. Wetherbee

 

    

 

35,622

 

 

 

    

 

*

 

 

 

All directors, nominees, named executive officers and other statutory insiders as a group (18 persons)

 

    

 

1,213,686

 

 

 

    

 

1.12

 

 

 

* Indicates beneficial ownership of less than one percent (1%) of the outstanding shares of Company Common Stock. As of March 15, 2017, there were 108,824,992 shares of Company Common Stock outstanding.

 

(1) The table includes aggregate restricted stock awards as follows: (a) 12,483 shares for each of our directors, other than Mr. Morehouse, who holds 9,413 shares of restricted stock; (b) the following shares of restricted stock for each NEO: Mr. Harshman, 152,504; Mr. DeCourcy, 41,113; Mr. Kramer 31,045; Mr. Sims, 121,625; Mr. Wetherbee, 31,977; and (c) 522,747 shares of restricted stock held by all directors, nominees and officers as a group. The table includes shares held jointly with the named individuals’ spouses. The table also includes 25,687 shares owned by Mr. Harshman’s spouse with respect to which Mr. Harshman disclaims beneficial ownership. The table does not include restricted stock units granted to our NEOs in 2016 and 2017, none of which vest within 60 days following March 15, 2017.

 


 

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STOCK OWNERSHIP INFORMATION | MEMBERS OF ATI’S EXECUTIVE MANAGEMENT

 

 

 

Members of ATI’s Executive Management

The following lists our executive officers as of March 15, 2017.

 

Name

 

  

Biographical information

 

Richard J. Harshman, 60

Chairman, President and Chief

Executive Officer since 2011

 

  

Mr. Harshman was President and Chief Operating Officer from 2010 until May 2011. Prior to that, he served as Executive Vice President, Finance and Chief Financial Officer from 2003 to 2010. Mr. Harshman joined the Company in 1978 and served in several financial management roles for the Company.

 

Patrick J. DeCourcy, 55

Senior Vice President,
Finance and Chief Financial
Officer since December 2013

 

  

Mr. DeCourcy was Interim Chief Financial Officer from July 2013 to December 2013. From 2011 to July 2013, he provided assistance to ATI executive management with business integration and strategic investments. He was Senior Director, Strategic Projects and Business Integration, from March 2012 to July 2013. From 2000 to April 2010, he served as Vice President, Finance and Administration of ATI Specialty Materials.

 

John D. Sims, 57

Executive Vice President, High Performance Materials and Components Segment since August 2015

 

  

Mr. Sims was Executive Vice President, High Performance Components Group from September 2013 to August 2015, and President, ATI Forged Products from September 2013 to April 2014. Previously, he served as Executive Vice President, Primary Titanium Operations, and Engineered Alloys and Products beginning in February 2013. Prior to that, Mr. Sims served as Executive Vice President, Primary Metals and Exotic Alloys from May 2011 to February 2013 and President, ATI Specialty Alloys and Components from 2008 to February 2013. Previously, he was Group President, ATI Primary Metals and Exotic Alloys from February 2011 to May 2011.

 

Robert S. Wetherbee, 57

Executive Vice President, Flat Rolled Products since
January 2015

 

  

Mr. Wetherbee served as President, ATI Flat Rolled Products beginning in April 2014. Prior to that, Mr. Wetherbee was President and Chief Executive Officer of Minerals Technologies, Inc. from March 2013 until February 2014. He was President of ATI’s tungsten materials business from 2010 through 2012. Previously, Mr. Wetherbee was Vice President of Market Strategy of Alcoa Inc. from 2006 through 2009.

 

Elliot S. Davis, 55

Senior Vice President, General Counsel, Chief Compliance
Officer and Corporate Secretary since May 2011

 

  

Mr. Davis was Vice President and General Counsel from 2010 to May 2011. Previously, he served as Assistant General Counsel from 2008, when he joined the Company, to 2010. Prior to that, Mr. Davis was a partner of the law firm K&L Gates LLP, where he practiced for nearly 20 years in its corporate, mergers and acquisitions and securities group.

 

Kevin B. Kramer, 57

Senior Vice President, Chief Commercial since February 2014

 

  

Prior to joining ATI in February 2014, Mr. Kramer was President—Stoneridge Wiring Division and Vice President of Stoneridge, Inc., from May 2012 through January 2014. Previously, Mr. Kramer worked for Alcoa, Inc. from 2004 until 2012, where he served as President—Growth Initiatives and President—Wheel and Transportation Products.

 

Elizabeth C. Powers, 57

Senior Vice President, Chief Human Resources Officer since November 2014

 

  

Ms. Powers served as Vice President, Human Resources and Chief Administrative Officer for Dresser-Rand Group, Inc. from 2010 until 2012 and from 2005 to 2009. She was named Vice President, Human Resources of Dresser-Rand Group in April 2004. From 2012 until she joined ATI in November 2014, Ms. Powers worked in academia. In 2009 and 2010, Ms. Powers worked in the public policy and non-profit sectors.

 

Karl D. Schwartz, 53

Vice President, Controller and Chief Accounting Officer since January 2016

 

  

Mr. Schwartz served as Controller and Chief Accounting Officer from May 2011 to January 2016, and Controller and Principal Accounting Officer from 2010 to May 2011. Prior to that, Mr. Schwartz was Assistant Controller beginning in 2002, when he joined the Company.

 

 


 

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Item 2 — Approval of Our 2017 Incentive Plan

We are asking our stockholders to approve a new 2017 Incentive Plan (the “2017 Incentive Plan” or the “Plan”) authorizing the issuance of a total of 5,200,000 shares of our common stock, which represents 4.78% of the 108,824,992 total shares of our common stock outstanding on the record date. The new Plan will enable us to continue including in our executive compensation program equity-based long-term incentive compensation opportunities, which we believe are a key component to maintaining a competitive compensation program that is appropriately aligned with stockholder interests.

The long-term incentive awards that we granted in 2016 and, most recently, in February 2017, were made under our 2015 Incentive Plan, which was approved by our stockholders at our 2015 Annual Meeting of Stockholders. If the 2017 Incentive Plan is approved by our stockholders at the 2017 Annual Meeting, no new awards will be granted under the 2015 Incentive Plan. Grants previously made under the 2015 Incentive Plan will remain in effect in accordance with their terms and the terms of the 2015 Incentive Plan.

The 2017 Incentive Plan authorizes independent members of our Board or an authorized committee or subcommittee of independent members of the Board to make incentive awards, including stock-based awards, to Company employees, and stock-based awards to non-employee members of the Board. The following summary of the Plan is qualified by reference to the complete text of the Plan, which is attached as Appendix A to this Proxy Statement.

Section 162(m) of the Internal Revenue Code (the “Code”) imposes an annual deduction limit of $1 million on the amount of compensation paid to each of the chief executive officer and certain other named executive officers. The deduction limit does not apply to performance-based compensation that satisfies the requirements of Section 162(m). In order for awards under the 2017 Incentive Plan to be eligible to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code, the material terms of the performance goals under which compensation may be paid must be disclosed to and approved by the Company’s stockholders. The material terms include (i) the persons eligible to receive awards under the 2017 Incentive Plan, (ii) a description of the business criteria on which the performance goals may be based and (iii) the maximum amount of compensation that can be paid to an eligible person upon attainment of the performance goals in a given time period. Each of these aspects is discussed below, and approval of the 2017 Incentive Plan will constitute approval of, among other things, the eligibility requirements, performance goals, and limits on various types of awards available for grant under the 2017 Incentive Plan for purposes of Section 162(m) of the Code.

Because the performance-based compensation exception under Section 162(m) of the Code requires a review of individual facts, and there is limited binding guidance under Section 162(m), the Company cannot guarantee that the awards under the 2017 Incentive Plan to covered employees will qualify for exemption under Section 162(m) of the Code. In addition, even though we are seeking stockholder approval for purposes of Section 162(m) of the Code, the Company may choose to grant awards under the 2017 Incentive Plan that do not qualify for the performance-based compensation exemption under Section 162(m) of the Code.

 


 

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ITEM 2 — APPROVAL OF OUR 2017 INCENTIVE PLAN

 

 

 

 

 

 

 

Plan Highlights – Promotion of Best Practices

 

We are committed to sound corporate governance and the application of best practices to our equity compensation programs. Some key features of the Plan reflecting these principals are set forth below, and are more fully described under the caption “Summary of the Plan.”

 

   Plan Limits. The Plan authorizes an aggregate of 5.2 million shares for grant, subject to anti-dilution adjustments upon the occurrence of significant corporate events. No participant may receive stock options, stock appreciation rights (“SARs”) or other stock grants for more than one million shares in any calendar year.

 

   Minimum Vesting and Performance Periods. Awards in respect of 95% of the shares authorized under the Plan may not vest prior to the first anniversary of the applicable grant date, except in connection with a Change in Control (as defined in the Plan), a qualifying termination of employment or any other event or circumstances that the Company determines to be appropriate.

 

   No Repricing or Discounted Awards. The Plan prohibits repricing of awards without stockholder approval. In addition, no awards of stock options or SARs will be granted with an exercise price of less than fair market value of Company Common Stock on the date of grant. The Plan prohibits various specific forms of option or SAR repricing.

 

   Robust Clawback provisions. All Awards under the Plan are subject to a repayment obligation to the extent the payment was the result of inaccurate or incomplete information that resulted or contributed to a larger than deserved payment.

 

   No “Evergreen” Provision. The Plan does not include an “evergreen” feature, which would allow the number of shares available for issuance under the Plan to be automatically replenished.

 

   No Liberal Share Counting. The Plan prohibits shares of Common Stock that are tendered in payment of the exercise price of an option or SAR, withheld to satisfy a tax withholding obligation relating to an option of SAR from being used to increase the number of shares available for grant under the Plan. The full number of shares issued with respect to SARs are likewise counted against the Plan’s share pool.

 

   “Double Trigger” Change in Control. Awards under the Plan that are assumed by the surviving entity as part of a change in to control will not vest solely upon the consummation of the change in control unless expressly provided in the applicable award agreement.

 

   Dividends. Dividends may accumulate on performance shares or units and grants of restricted stock and restricted share units but are paid, if at all, only at the time that the restrictions lapse.

 

 

 


 

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ITEM 2 — APPROVAL OF OUR 2017 INCENTIVE PLAN

 

 

 

Why You Should Vote to Approve the 2017 Incentive Plan

The Board of Directors recommends a vote in favor of approval of the 2017 Plan because it believes that it is in the best interests of the Company and its stockholders, principally for the following reasons:

 

  Equity Compensation Awards Are a Critical Recruitment and Retention Tool. We believe that our success and performance depends in part on our ability to attract, motivate and retain talented employees and directors. Equity awards under our long-term incentive compensation programs are a key component to maintaining a total compensation package that is competitive in our industry and the markets in which we operate, which we believe is essential for attracting and retaining key employees.

 

  Our Compensation Programs Are Aligned with Stockholder Interests. We believe that equity compensation is, by its nature, performance-based compensation. Equity compensation has been an important component of total compensation at our Company for many years because it fosters an employee ownership culture and motivates employees to create stockholder value. A significant portion of our compensation is performance-oriented and “at risk” for our key employees, with achievement tied to the Company’s performance. The Company has stock ownership guidelines for its executives and targets long-term incentive compensation at the midpoint of its peer group. Our equity compensation plans, which emphasize restricted stock units and performance awards, are our principal means of aligning the interests of employees with those of stockholders. Equity compensation also promotes a focus on long-term value creation because equity compensation awards are subject to vesting and/or performance conditions, and generally provide the greatest value to employees when held over the long-term.

 

  We are Committed to Sound Equity Compensation Practices and Pay-For-Performance. Our equity compensation practices are designed to be in line with peer group norms, and we believe that our historical share usage has been responsible and mindful of stockholder interests. Moreover, as explained in the Compensation Discussion and Analysis section of this Proxy Statement, the Company’s long term compensation programs are tied to Company performance.

 

  Plan Approval Would Avoid Disruption in Compensation Programs. At March 15, 2017, there were approximately 224,323 shares of Common Stock available for issuance to employees and directors under the 2015 Incentive Plan, which is not an adequate number of shares to support our current equity compensation programs, and therefore, a market-competitive executive compensation program, beyond 2017. If the 2017 Plan is not approved, we may be compelled to increase significantly the cash component of our employee and director compensation, which may not necessarily align employee and director compensation interests with the investment interests of our stockholders as well as alignment provided by equity-based awards. Replacing equity awards with cash also would increase cash compensation expense and use cash that could be better utilized if reinvested in our businesses or returned to our stockholders.

The following includes aggregated information regarding our view of the overhang and dilution associated with our 2015 Incentive Plan and other legacy plans (the “Legacy Plans”) and the potential stockholder dilution that would result if our proposed share authorization under the 2017 Plan is approved. The information below is as of March 15, 2017, on which approximately 108,824,992 shares of our Common Stock were outstanding:

Under the Legacy Plans:

 

    Total shares of Common Stock subject to outstanding awards (comprised entirely of full-value awards): 4,405,997 shares of Common Stock (approximately 4.05 percent of our outstanding shares of Common Stock);

 

    Total shares of Common Stock available for future awards under the 2015 Plan: 224,323 shares of Common Stock (approximately 0.2 percent of our outstanding shares of Common Stock); however, as noted above, no further grants will be made under the 2015 Plan upon the effective date of the 2017 Incentive Plan; and

 

    The total number of shares of Common Stock subject to outstanding awards (4,405,997 shares of Common Stock), plus the total number of shares of Common Stock available for future awards under the 2015 Plan (224,323 shares of Common Stock), represents a current overhang percentage of 4.25 percent (potential dilution of our stockholders represented by the Legacy Plans).

 


 

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ITEM 2 — APPROVAL OF OUR 2017 INCENTIVE PLAN

 

 

 

Under the 2017 Incentive Plan:

 

    Proposed shares of Common Stock available for awards under the 2017 Plan: 5,200,000 shares of Common Stock, which represents a new share request of approximately 4.78 percent of our outstanding shares of Common Stock. This percentage reflects the dilution of our stockholders that would occur if the 2017 Incentive Plan is approved.

Total potential overhang or dilution:

 

    The total shares of Common Stock subject to outstanding awards as of March 15, 2017 (4,405,997 shares of Common Stock), plus the proposed new shares of Common Stock available for awards under the 2017 Plan (5,200,000 shares of Common Stock), represent a total overhang of 9,605,997 shares (8.83 percent).

Based on the closing price for a share of our Common Stock on the NYSE on March 15, 2017 of $17.75 per share, the aggregate market value of the new 5,200,000 shares of Common Stock requested under the 2017 Incentive Plan was $92,300,000.

SUMMARY OF THE 2017 INCENTIVE PLAN

The following is a general description of the material features of the Plan. This description is qualified in its entirety by reference to the full text of the Plan, a copy of which is attached to this Proxy Statement as Appendix A. We encourage our stockholders to read the Plan in its entirety. Capitalized terms used and not otherwise defined in this Proposal have the meanings given to them in the Plan.

Purpose

The purpose of the Plan is to motivate and reward key executives and other employees who contribute to our profitability and, in the case of stock-based awards, to give these individuals and members of our Board a vested ownership interest in the Company’s growth and financial success. We believe that the Plan enhances our ability to attract and retain individuals with exceptional managerial, technical and professional skills upon whom, in large measure, the sustained growth and profitability of the Company depend.

Eligibility for Awards

Awards may be granted under the Plan to directors, officers, employees and consultants of the Company and any of its subsidiaries. As of the date of this Proxy Statement, ten non-employee directors and approximately 150 officers and other employees participate in the Plan. Awards also may be granted to prospective directors, officers, employees and consultants who have accepted offers of employment or consultancy from the Company or any of its subsidiaries.

Administration

The Plan will be administered by the Board directly, or if the Board elects, the Personnel and Compensation Committee of the Board, or such other committee of the Board as the Board may from time to time designate. Subject to applicable law, the Committee may allocate all or any portion of its responsibilities and powers to one or more of its members or persons selected by it.

Subject to the terms and conditions of the Plan, the Committee will have authority under the Plan to select individuals to whom awards may be granted, to determine the type of award as well as the number of shares of common stock to be covered by each award, and to determine the terms and conditions of any such awards.

Vesting

Except for Awards granted with respect to a maximum of five percent (5%) of the authorized Shares under the Plan, Award Agreements will not provide for vesting prior to the first anniversary of the Grant Date, provided that the

 


 

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Committee can provide for shorter vesting periods in connection with a Corporate Transaction, a qualifying termination of employment, or other event or circumstance deemed appropriate by the Committee.

Shares Available; Adjustments

The aggregate number of shares of the Company’s common stock available for issuance under the Plan is 5,200,000 and the maximum number of shares that may be granted pursuant to stock options intended to be incentive stock options is 1,000,000 shares.

During any calendar year, no participant may be granted performance-based equity awards intended to qualify under Section 162(m) of the Code (other than stock options and stock appreciation rights) covering in excess of 1,000,000 shares or stock options and stock appreciation rights covering in excess of 1,000,000 shares. In addition, no participant who is a non-employee director of the Company may be granted Awards covering shares with a grant date fair value in excess of $500,000 during any single calendar year.

To the extent that any award under the Plan or any award under the 2015 Incentive Plan is forfeited, expires, or is settled for cash, the shares of common stock subject to such awards not delivered as a result thereof will again be available for awards under the Plan. If the exercise price of or tax withholding obligations relating to any stock option or stock appreciation right is satisfied by delivering shares (either by actual delivery or by attestation) or by withholding shares, the gross number of shares of common stock shall be deemed to have been granted under the Plan.

The Plan provides that in the event of certain extraordinary corporate transactions or events affecting the Company, the Committee will or may make such substitutions or adjustments as it deems appropriate and equitable to (a) the aggregate number and kind of shares or other securities reserved for issuance and delivery under the Plan, (b) the various maximum limitations set forth in the Plan, (c) the number and kind of shares or other securities subject to outstanding awards, (d) the number of shares considered delivered based on the type of award granted, and (e) the exercise price of outstanding options and stock appreciation rights. In the event of a corporate transaction such as a merger or consolidation, such adjustments may include the cancellation of outstanding awards in exchange for cash or other property or the substitution of other property for the shares subject to outstanding awards.

Awards Under the Plan

Awards may be granted under the Plan to eligible individuals; provided, however, that Incentive Stock Options may be granted only to employees of the Company and its subsidiaries.

Stock Options and Stock Appreciation Rights

Stock options granted under the Plan may either be incentive stock options, which are intended to qualify for favorable treatment to the recipient under U.S. federal tax law, or nonqualified stock options, which do not qualify for this favorable tax treatment. Stock appreciation rights granted under the Plan may either be “tandem SARs,” which are granted in conjunction with a stock option, or “free-standing SARs,” which are not granted in tandem with a stock option.

Each grant of stock options or stock appreciation rights under the Plan will be evidenced by an award agreement that specifies the exercise price, the duration of the award, the number of shares to which the award pertains, and such additional limitations, terms and conditions as the Committee may determine, including, in the case of stock options, whether the options are intended to be incentive stock options or nonqualified stock options. The Plan provides that the exercise price of stock options and stock appreciation rights will be determined by the Committee, but may not be less than the fair market value of the stock underlying the stock options or stock appreciation rights on the date of grant. Award holders may pay the exercise price in cash or, if approved by the Committee, in common stock (valued at its fair market value on the date of exercise) or a combination thereof, or by “cashless exercise” through a broker or by withholding shares otherwise receivable on exercise. The term of stock options and stock appreciation rights will be determined by the Committee but may not exceed ten years from the date of grant. The Committee will determine the

 


 

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vesting and exercise schedule of stock options and stock appreciation rights. Unless otherwise determined by the Committee or provided in the applicable award agreement, upon termination of service, stock options and stock appreciation rights will be treated as follows:

 

  Termination by Reason of Death or Disability. Any stock option or stock appreciation right will immediately vest in full and may thereafter be exercised until the earlier of the third anniversary of termination of service and the expiration of its term.

 

  Termination by Reason of Retirement. Any unvested stock option or stock appreciation right will terminate and any vested stock option or stock appreciation right may thereafter be exercised until the earlier of the third anniversary of termination of service and the expiration of its term.

 

  Termination by the Company for Cause. Any stock options and stock appreciation rights, whether vested or unvested, will terminate.

 

  Other Termination of Service. Any stock option or stock appreciation right to the extent it is then exercisable at the time of termination, or on such accelerated basis as the Committee may determine, may be exercised for the lesser of 90 days following the date of such termination of service and the balance of its term.

Restricted Stock

Restricted stock may be granted under the Plan with such restrictions as the Committee may designate. The Committee may provide at the time of grant that the vesting of restricted stock will be contingent upon the achievement of applicable performance goals and/or continued service. Except for these restrictions and any others imposed under the Plan or by the Committee, upon the grant of restricted stock under the Plan, the recipient will have rights of a stockholder with respect to the restricted stock, including the right to vote the restricted stock; however, whether and to what extent the recipient will be entitled to receive cash or stock dividends paid, either currently or on a deferred basis, will be set forth in the award agreement, provided that in no event will any dividend be paid until the vesting of the underlying restricted stock. The award agreement may also provide for vesting upon certain qualifying terminations of employment.

Restricted Stock Units. The Committee may grant restricted stock units payable in cash, shares of common stock, or both, conditioned upon continued service and/or the attainment of applicable performance goals determined by the Committee. The Company is not required to set aside a fund for the payment of any restricted stock units, and the award agreement for restricted stock units will specify whether, to what extent, and on what terms and conditions the applicable participant will be entitled to receive dividend equivalents with respect to the restricted stock units, provided that in no event will any dividend equivalent be paid until the vesting of the underlying restricted stock unit. The award agreement may also provide for vesting upon certain qualifying terminations of employment.

Performance Units. The Committee may grant performance units valued by reference to a designated amount of cash or other property (other than shares of common stock) under the Plan, which will be payable in cash, shares of common stock, other property, or any combination thereof and conditioned upon attainment of applicable performance goals determined by the Committee. The award agreement may provide for vesting upon certain qualifying terminations of employment. The maximum value of property, including cash, which may be paid or distributed to any plan participant pursuant to a grant of Performance Units made in any one calendar year will not exceed $10 million.

Stock Bonus Awards. The Committee may grant unrestricted shares of the Company’s common stock, or other awards denominated in the Company’s common stock, alone or in tandem with other awards, in such amounts and subject to such terms and conditions as the Committee determines from time to time in its sole discretion.

Performance Awards. Under the Plan, the Committee may determine that the grant, vesting, or settlement of an award granted under the Plan will be subject to the attainment of one or more performance goals.

The Committee has the authority to establish any performance objectives to be achieved during the applicable performance period when granting performance awards. If an award under the Plan is intended to qualify as

 


 

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“performance-based compensation” under Section 162(m) of the Code, however, the performance goals will be established with reference to one or more of the following, in each case with respect to the Company or any one or more subsidiaries, divisions, business units, or business segments thereof, either in absolute terms or relative to the performance of one or more other companies (including an index covering multiple companies): stock price, net income, operating income, gross profit, operating profit, income before taxes, earnings (whether based on earnings, earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization), earnings per share, return on investment or working capital, return on capital employed, return on equity, return on assets or operating assets, return or commissioning or qualification of particular capital expenditures or equipment, economic value added (the amount, if any, by which net operating profit after tax exceeds a reference cost of capital, cash flow (before or after dividends), operating cash flow, cash flow per share (before or after dividends), cost control and/or reductions, balanced scorecard, execution of growth strategy, integration or qualification of acquired businesses, manufacturing cycle time reductions, reductions in inventory, inventory turns, on-time delivery performance and improvements in safety or environmental performance. In establishing a performance goal, the Committee may determine whether or not to exclude or adjust for specific items that are unusual in nature or occur infrequently, impact of charges for restructurings, discontinued operations, and the cumulative effects of accounting or tax changes, each as defined by generally accepted accounting principles or as identified on the Company’s financial statements, management’s discussion and analysis or other Company filings with the SEC, provided that with respect to awards intended to remain qualified as “performance-based compensation” under Section 162(m) of the Code, such specific items and/or adjustments must be objectively determinable and applied in a manner consistent with Section 162(m) of the Code.

Cash-Based Awards

Cash-based awards may be granted under the Plan. No participant may be granted cash- based awards that have an aggregate maximum payment value in any calendar year in excess of $10 million if the awards are intended to qualify as tax-deductible performance-based compensation under Section 162(m) of the Code.

Effect of Change in Control

The Plan provides that, unless otherwise set forth in an award agreement, in the event of a change in control (as defined in the Plan) and to the extent an award is not replaced by a replacement award (as described below), (a) each then-outstanding stock option and stock appreciation right will become fully vested and exercisable, and each other award (other than a performance-based award) will vest, be free of restrictions, and be deemed to be earned and payable; and (b) each then-outstanding performance-based award will be deemed to be earned and payable, with all applicable performance goals deemed achieved at the greater of (i) the applicable target level and (ii) actual performance, as determined by the Committee, through the latest date practicable preceding the date of the change in control.

A replacement award is an award that is the same type as the replaced award with a value equal to the value of the replaced award as of the date of the change in control, as determined by the Committee and if the underlying replaced award was an equity-based award, the replacement award relates to publicly traded equity securities of the Company or the entity surviving the Company following the change in control and contains terms relating to vesting that are substantially identical to those of the replaced award and other terms and conditions are not less favorable than the terms and conditions of the replaced award.

Unless otherwise determined by the Committee and set forth in the applicable award agreement, upon termination of service other than for cause within 24 months following a change in control, (i) all replacement awards held will vest in full, be free of restrictions, and be deemed to be earned in full (with respect to performance goals, unless otherwise agreed in connection with the change in control, at the greater of (x) the applicable target level and (y) actual performance, as determined by the Committee, through the latest date practicable preceding the termination of service) and (ii) any outstanding stock option or stock appreciation right as of the date of the change in control that remains outstanding as of the date of such termination of service may thereafter be exercised until the expiration of its stated full term.

 


 

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ITEM 2 — APPROVAL OF OUR 2017 INCENTIVE PLAN

 

 

 

With respect to an award that constitutes nonqualified deferred compensation within the meaning of Section 409A of the Code, a change in control will not constitute a settlement or distribution event with respect to such award unless such change in control is also a change in control for purposes of Section 409A of the Code, provided that such change in control may result in accelerated vesting of such award.

Amendment and Termination of the Plan

The Board or the Committee may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation may be made that would materially impair the rights of the Participant with respect to a previously granted Award without such Participant’s consent, except such an amendment made to comply with applicable law, including Section 409A of the Code, applicable exchange listing standards or accounting rules. In addition, no amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by applicable law or the listing standards of the applicable exchange. The Plan will become effective on the date that it is approved by the Company’s stockholders and, if not terminated earlier, will expire on the tenth anniversary thereof.

Federal Income Tax Consequences Relating to Equity Awards Granted under the Plan.

The following discussion summarizes certain federal income tax consequences of the issuance, receipt, and exercises of stock options and the granting and vesting of restricted stock and restricted stock units, in each case under the Plan. The summary does not purport to cover federal employment tax or other federal tax consequences that may be associated with the Plan, nor does it cover state, local, or non-U.S. taxes.

 

  Nonqualified Options. In general, in the case of a nonqualified stock option, the participant has no taxable income at the time of grant but realizes income in connection with exercise of the option in an amount equal to the excess (at the time of exercise) of the fair market value of the shares acquired upon exercise over the exercise price. A corresponding deduction is available to the Company. Any gain or loss recognized upon a subsequent sale or exchange of the shares is treated as capital gain or loss for which the Company is not entitled to a deduction.

 

  Incentive Stock Options. In general, a participant realizes no taxable income upon the grant or exercise of an incentive stock option. The exercise of an incentive stock option, however, may result in an alternative minimum tax liability to the participant. With certain exceptions, a disposition of shares purchased under an incentive stock option within two years from the date of grant or within one year after exercise produces ordinary income to the participant (and a deduction for the Company) equal to the value of the shares at the time of exercise less the exercise price. Any additional gain recognized in the disposition is treated as a capital gain for which the Company is not entitled to a deduction. If the participant does not dispose of the shares until after the expiration of these one- and two-year holding periods, any gain or loss recognized upon a subsequent sale is treated as a long-term capital gain or loss for which the Company is not entitled to a deduction.

 

  Restricted Stock. Unless a participant makes an election to accelerate recognition of the income to the date of grant as described below, the participant will not recognize income, and the Company will not be allowed a tax deduction, at the time a restricted stock award is granted. When the restrictions lapse, the participant will recognize ordinary income equal to the fair market value of the common stock as of that date, less any amount paid for the stock, and the Company will be allowed a corresponding tax deduction at that time. If the participant files an election under Section 83(b) of the Code within 30 days after the date of grant of the restricted stock, the participant will recognize ordinary income as of the date of grant equal to the fair market value of the common stock as of that date, less any amount the participant paid for the common stock, and the Company will be allowed a corresponding tax deduction at that time. Any future appreciation in the common stock will be taxable to the participant at capital gains rates. If, however, the restricted stock award is later forfeited, the participant will not be able to recover the tax previously paid pursuant to his or her Section 83(b) election.

 

 

Restricted Stock Units. A participant does not recognize income, and the Company will not be allowed a tax deduction, at the time a restricted stock unit is granted. When the restricted stock units vest and are settled for cash

 


 

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ITEM 2 — APPROVAL OF OUR 2017 INCENTIVE PLAN

 

 

 

 

or stock, the participant generally will be required to recognize as income an amount equal to the fair market value of the shares on the date of vesting. Any gain or loss recognized upon a subsequent sale or exchange of the stock (if settled in stock) is treated as capital gain or loss for which we are not entitled to a deduction.

Clawback Provision

Any Awards or amounts paid in respect thereof that were granted or paid based on financial statements or performance metrics that are subsequently restated or revised may be subject to recovery by the Company. The determination whether to seek recovery of Awards or amounts paid in respect thereof from a Participant will be made by the Committee in its discretion, provided that, such demand will be limited to Awards granted or amounts paid in respect thereof within the three-year period following the first public filing of the document requiring restatement.

Awards to Executives

While the Personnel and Compensation Committee has established general guidelines with respect to its compensation programs for NEOs, which are described in the Compensation Discussion and Analysis section of this Proxy Statement, the designation of specific participants, whether NEOs, executive officers as a group, other employees as a group or non-employee directors as a group, and the amount of any award that may be made under the Plan will be determined in the discretion of the Personnel and Compensation Committee, up to the limitations on individual awards set forth in the Plan. Because awards under the Plan are discretionary, awards are generally not determinable at this time.

Recent Share Price

On March 15, 2017 (the record date for the Annual Meeting), the closing trading price on the New York Stock Exchange for Company Common Stock was $17.75 per share.

Equity Compensation Plan Information

The following table sets forth information regarding the securities authorized for issuance under our equity compensation plans as of March 15, 2017:

 

(in thousands, except per share amounts)

Plan Category

  

Number of Securities

to be Issued upon

Exercise of

Outstanding Options,

Warrants and
Rights(a)

    

Weighted Average

Exercise

Price of Outstanding

Options, Warrants
and Rights(b)

    

Number of Securities

Remaining Available for

Future Issuance under

Equity Compensation

Plans (Excluding

Securities

Reflected in Column(a)

 

Equity compensation plans approved by stockholders

     4,406                 224  

Equity compensation plans not approved by stockholders

                      

Total

 

     4,406                 224  

Vote Required for Approval

Approval of the Plan requires the affirmative vote of a majority of votes cast by holders of shares of Common Stock present in person or represented by proxy and entitled to vote at the meeting. The Board has approved the Plan and believes it to be in the best interests of the Company and the stockholders.

 

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Item 3 — Say on Pay Frequency

Under the Dodd-Frank Act, we are required to provide to our stockholders the ability to vote, at least every six years, on the frequency with which we should seek an advisory vote on the compensation of our NEOs. At our 2011 annual meeting of stockholders, our stockholders voted, consistent with our Board’s recommendation, to conduct annual “say on pay” advisory votes. In voting on this Item 3, stockholders may indicate whether they would prefer an advisory vote on executive compensation once every year, every two years, or every three years.

After careful consideration, our Board of Directors has determined that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for the Company at this time, and therefore our Board of Directors recommends that you vote for a one-year interval for the advisory vote on executive compensation.

In formulating its recommendation, our Board of Directors considered that while our executive compensation policies are designed to promote a long-term connection between pay and performance, executive compensation disclosures are made annually, and an annual advisory vote on executive compensation will allow our stockholders to provide us with their direct input on our compensation philosophy, policies and practices as disclosed in the proxy statement every year.

The option of one year, two years or three years that receives the highest number of votes will be considered by the Board to be preference of our stockholders, as expressed on an advisory basis. Because this vote is advisory and not binding on the Board of Directors or the Company, the Board may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders and may vary its practice based on factors such as discussions with stockholders and the adoption of material changes to our compensation programs.

 

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Item 4 — Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers

Each year we ask our stockholders to approve the compensation of ATI’s named executive officers. This proposal, commonly known as a “Say On Pay” proposal, gives our stockholders the opportunity to express their views on our NEOs’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement.

While this vote is advisory, and not binding on our Company, it provides valuable information to our Personnel and Compensation Committee regarding investor sentiment about our executive compensation philosophy, policies and practices. The Committee will consider the outcome of this vote when determining executive compensation for the remainder of 2017 and in future years. In 2016, our Say On Pay proposal received the support of 76% of the shares voted at our Annual Meeting, as we introduced the 2016 redesign of our executive compensation program. Our “clean sheet” redesign effort stemmed from concerns expressed by our stockholders in connection with the advisory vote on our 2015 executive compensation and our subsequent investor outreach efforts. We believe that ATI’s 2016 executive compensation is appropriately aligned with stockholder interests.

Before voting, we encourage you to read the “Compensation Discussion and Analysis” section to learn more about our executive compensation program.

 

 

 

How We Use Executive Compensation to Create Long-Term Stockholder Value

 

The Committee continually reviews the compensation program for our NEOs to ensure that it achieves the desired goal of offering total compensation consisting of base salary competitive with an identified peer group of companies and incentive opportunities that are performance-oriented and linked to the interests of stockholders.

 

When casting your Say on Pay vote, we urge you to consider:

 

Linking compensation to ATI performance.

 

   Approximately 81% of the CEO’s 2016 compensation opportunities are tied to performance and are “at risk.” Performance drives pay.

 

   Short-term cash incentive and long-term equity incentive plans are based on the attainment of business plan performance metrics such as operating profit, EBITDA, net income, cash flow, return on capital, strategic goals, and total stockholder return relative to a peer group.

 

   Payments are made only when the performance targets are achieved.

 

Aligning compensation to stockholder interests.

 

   All of the long-term incentive compensation opportunities for the NEOs are equity-based.

 

   The business plan performance metrics are aimed to achieve sustained profitable growth.

 

   In February 2016, we revised our stock ownership guidelines for senior executives to denote ownership as a multiple of base salary, requiring 6X ownership for our CEO. The revised guidelines require 100% retention until ownership guidelines are met.

 

 

 

 

 


 

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ITEM 4 — ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS

 

 

 

 

 

 

 

For 2016, we redesigned the executive compensation program.

 

    We aligned our long-term incentives to match our business strategies, with greater weighting on financial performance.

 

    We simplified the program by reducing the number of plans and components within the plans to make them more transparent and easier to understand.

 

    We reduced the total compensation opportunities for the CEO and other NEOs to align with the market median.

 

 

We ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the stockholders of Allegheny Technologies Incorporated approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2017 Annual Meeting of Stockholders, pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in the Company’s Proxy Statement for the 2017 Annual Meeting of Stockholders.”

 

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Executive Compensation

Compensation Discussion and Analysis

This section discusses material information relating to our executive compensation program and plans for the following executive officers of the Company:

 

Richard J. Harshman

Chairman, President and Chief Executive Officer

Patrick J. DeCourcy

Senior Vice President, Finance, and

Chief Financial Officer

John D. Sims

Executive Vice President, High Performance Materials & Components Segment

Kevin B. Kramer

Senior Vice President, Chief Commercial and

Marketing Officer

Robert S. Wetherbee

Executive Vice President, ATI Flat Rolled Products Group

 

 

Messrs. Harshman, DeCourcy, Sims, Kramer and Wetherbee are collectively referred to as the “named executive officers,” or “NEOs”. Each of our NEOs is a member of our Executive Council, which also includes other key members of our senior management.

TABLE OF CONTENTS:

 

      Page  
Executive Compensation Summary      45  
ATI Performance Impact on NEO Compensation      47  
Our Compensation Philosophy      49  

Compensation Setting Process

     52  
Benchmarking Peer Group      53  
Investor Outreach and the Executive Compensation Program      55  
2016 Executive Compensation Program      57  
Annual Performance Plan      59  
Long-Term Incentive Plan      62  

Other Compensation Policies

     66  

2016 Total Realized Compensation

     68  

Compensation Committee Report

     69  
      Page  

2016 Compensation Tables

  
Summary Compensation      70  
Grants of Plan-Based Awards      72  
Outstanding Equity Awards at Fiscal Year-End      73  
Option Exercises and Stock Vested for 2016      74  
Pension Benefits for 2016      74  
Non-Qualified Deferred Compensation      75  
Employment and Change in Control Agreements      76  
 

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE COMPENSATION SUMMARY

 

 

 

Executive Compensation Summary

ATI’s BUSINESS

ATI is a global manufacturer of technically advanced specialty materials and complex components. Over 50% of our sales are to the aerospace and defense market, particularly jet engines, and we have a strong presence in the oil and gas, electrical energy, medical, automotive and other industrial markets. We are a market leader in manufacturing differentiated specialty alloys and forgings that require our unique manufacturing and precision machining capabilities and our innovative new product development competence. We produce nickel-based alloys and superalloys, titanium and titanium-based alloys, specialty alloys, stainless steels, and zirconium and other related alloys in many mill product forms. We operate in two segments, our High Performance Materials and Components, or “HPMC,” segment and our Flat Rolled Products, or “FRP” segment, and our capabilities range from alloy development, to melting and hot-working, through highly-engineered finished components. We are also a leader in producing nickel-based alloy and titanium-based alloy powders for use in next-generation jet engine forgings and 3D-printed products.

2016 BUSINESS PERFORMANCE

The full year 2016 has been a period of transition for ATI as we made hard decisions and took important restructuring actions across both of our business segments to improve our cost structure and lay the groundwork for future long-term profitable growth. ATI’s business is cyclical, as are the end markets that use our products. Consequently, some of the challenges we faced were felt throughout our industry and the economy, such as the significant downturn in the oil and gas industry, which represents our second largest market. Other factors influencing our recent performance, including the work stoppage at our Flat Rolled Products business resulting from our contract negotiations with the United Steelworkers, which extended from August 2015 to March 2016, have been specific to our business.

Our financial performance for the full year 2016 reflected these conditions. Net loss attributable to ATI was $641 million for the year, including $544 million (after tax) of restructuring and other non-recurring charges, and income tax valuation charges. Recognizing these challenges and the need for significant changes to our operations to enable sustainable profitability, our management pursued a number of transformational initiatives in order to reposition our business for long-term growth and success. We are beginning to see these operational and strategic efforts reflected in our financial results. Our major strategic accomplishments during 2016 include:

 

  Continuing to reposition ATI as a growth-oriented aerospace and defense company. We positioned ATI as an increasingly important supplier to the commercial aerospace industry, particularly in the production of next-generation engines and aircraft. More than 50% of our 2016 sales were to the aerospace and defense market, led by a 13% increase in 2016 sales of products for commercial aerospace jet engines. Through recent acquisitions, alloy development, internal growth strategies, and long-term supply agreements on current and next-generation aero-engines and airframes, we are well positioned with a fully qualified asset base to meet the expected multi-year growth in demand from the commercial aerospace market. Our HPMC segment’s isothermal and hot-die forge press utilization continues to improve to meet aerospace demand growth, including new market share gains.

 

  Restructuring our HPMC segment titanium operations. During 2016, we restructured our HPMC titanium operations, including the indefinite idling of the Rowley, UT titanium sponge production facility, to improve cost competitiveness. We entered into long-term, cost competitive supply agreements with several leading global producers of premium-grade and standard-grade titanium sponge, with the lower cost titanium sponge purchased under these agreements replacing the titanium sponge produced at the Rowley facility.

 

 

Restructuring the FRP business to focus on value, not volume. At the end of 2015, which represented the third consecutive year of losses for our Flat Rolled Products business, we determined that prevailing structural market and competitive conditions compelled decisive actions to fundamentally change the Flat Rolled Products business and enable its return to profitability. Our ultimate objective is to transition the business to be a cost competitive, innovative, technology-based and market-driven specialty materials business. Building on actions taken in 2015, we permanently idled our Midland, PA stainless steel melt shop and sheet finishing facility, and Bagdad, PA grain oriented electrical

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE COMPENSATION SUMMARY

 

 

 

 

steel, or “GOES,” finishing facility during 2016. These actions have significantly lessened ATI’s exposure to more commoditized products and markets in the FRP segment. We continue to reposition the FRP business to a higher value product mix, and achieved near-breakeven results in this segment in the fourth quarter of 2016, after four years of operating losses. We also reduced the size of the FRP salaried workforce by more than 250 employees, consistent with operating as a smaller, more focused business emphasizing the production of high-value, differentiated products.

 

  Concluding difficult labor negotiations, ending a seven month work stoppage in March 2016. We incurred approximately $49 million in costs in the first half of 2016, primarily in the FRP segment, for operating inefficiencies and contractual obligations associated with the work stoppage and return to work of represented employees. Our new agreement with the United Steelworkers includes important changes to retirement benefit programs, including a freeze to new entrants to ATI’s defined benefit pension plan and the elimination of retiree medical benefits for new employees, and other changes affecting plant operations that improve our cost competitiveness.

 

  Maintaining a solid liquidity position. We have maintained a solid liquidity position while addressing several near-term funding challenges, and ending the year with $230 million in cash on hand and $310 million of available borrowing capacity under our asset-based domestic lending facility.

 

  Continuing to make capital investments to support our growth initiatives. We had $202 million of capital expenditures in 2016, including $85 million of scheduled payments on the Hot Rolling and Processing Facility, and the expansion of nickel alloy powder production capacity in the HPMC segment. We are at the end of a significant, multi-year period of capital expansions, and expect our capital expenditures to be well below depreciation expense for the next several years.

These achievements built upon other actions that we took to transform our business, including, among others: enhancements to our manufacturing capabilities in our High Performance Materials and Components segment for nickel alloy powder, titanium investment castings and forgings; management reorganizations and other efforts to operate as one fully integrated and aligned business; initial right-sizing actions within our FRP business; and improvements in our liquidity position.

The actions that we took in 2015 and 2016 are the result of a disciplined management review process, taking into account current and expected future market conditions. This disciplined process is a key part of our commitment to make the tough decisions that are required to strengthen and enhance ATI’s ability to deliver sustainable, profitable growth and create value for our customers and our stockholders over the long term

As noted above, we are beginning to recognize the results of this multi-faceted and multi-year strategy. Business segment operating profit for 2016, which excludes restructuring charges, was $6 million, a $91 million improvement over 2015, with stronger operating performance in our HPMC segment and a smaller operating loss in our FRP segment, particularly in the second half of 2016. While sales in 2016 decreased 16% to $3.1 billion, our cost of sales decreased 19%, compared to 2015, resulting in a 170% increase in gross profit margin, to $162.5 million, primarily as a result of our restructuring actions. Sales to our largest end market, aerospace and defense, increased more than 5% compared to 2015. Our next-generation, differentiated jet engine product mix continued to grow, and our airframe titanium product shipments remained strong. Our FRP segment made progress to achieve sustainable profitability, primarily as a result of our cost reduction and restructuring actions. Notably, we have achieved these improved results in spite of ongoing softness in a number of the markets that we serve other than the aerospace market, including most significantly, oil and gas. In fact, ATI’s sales to the oil and gas market declined 48% in 2016 compared to 2015. However, we are beginning to see signs of improving demand in this market and believe it presents opportunities for future growth from which our business is poised to benefit.

In sum, although 2016 was a transitional year for our Company, as reflected in our financial results, we have successfully taken important steps toward returning or business to sustainable profitability, and our management remains committed to building long-term stockholder value.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE COMPENSATION SUMMARY

 

 

 

PAY FOR PERFORMANCE

Paying for performance is a key attribute of ATI’s compensation philosophy. For many years, a fundamental principle of ATI’s executive compensation program has been to tie compensation to the achievement of specific financial and performance goals that further ATI’s business strategies, reward actual performance and are effective in achieving the Company’s underlying compensation goals. As such, a significant portion of our NEOs’ compensation is subject to the achievement of rigorous performance goals and, therefore, is “at risk.” The Company uses three-year performance measurement periods for all but our annual cash incentive plan in recognition of performance over a longer period of time and to mitigate compensation risk.

ATI Performance Impact on NEO Compensation

 

 

 

For both 2015 and 2016, our Personnel and Compensation Committee determined that our CEO, Rich Harshman, should forego his earned annual cash award under our annual incentive programs due to overall Company financial performance. Mr. Harshman did not receive a salary increase for 2016. In 2015, he was paid only his base salary, as no amounts were earned under the long-term incentive plans in effect for the 2013—2015 performance period.

 

 

Our NEOs other than Mr. Harshman received cash incentives for 2016 under our short term incentive program, the 2016 Annual Performance Plan or “APP.”

The TSR portion of our long-term incentive program in effect for the 2014-2016 performance period was earned at a rate equal to 63% of the applicable target awards, and the LTSV portion of the 2014-2016 program also resulted in a payout.

The following table shows the compensation paid to each NEO based on ATI’s 2016 performance.

 

Named Executive Officer

 

  

2016 Base Salary ($)(1)

 

    

2016 APP ($)(2)

 

    

2014-2016 PRSP  ($)(3)

 

    

2014-2016  TSRP($)(4)

 

    

2014-2016 LTSV  ($)(5)

 

 

Harshman

 

    

 

1,060,000

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

613,154

 

 

 

    

 

741,407

 

 

 

DeCourcy

 

    

 

480,000

 

 

 

    

 

38,400

 

 

 

    

 

0

 

 

 

    

 

175,762

 

 

 

    

 

318,794

 

 

 

Kramer

 

    

 

425,000

 

 

 

    

 

29,750

 

 

 

    

 

0

 

 

 

    

 

163,495

 

 

 

    

 

296,554

 

 

 

Sims

 

    

 

510,000

 

 

 

    

 

265,200

 

 

 

    

 

0

 

 

 

    

 

202,340

 

 

 

    

 

367,001

 

 

 

Wetherbee

 

    

 

500,714

 

 

 

    

 

40,000

 

 

 

    

 

0

 

 

 

    

 

122,626

 

 

 

    

 

N/A

 

 

 

 

(1) Mr. Wetherbee’s base salary was $450,000 for the first two months of 2016 and $510,000 for the balance of the year.

 

(2) Reflects a below target award for named executive officers other than Mr. Harshman, who did not receive an award. Mr. Wetherbee’s award reflects his change in base salary effective February 23, 2016.

 

(3) Half of the performance/restricted stock award, including accumulated dividends, was forfeited. The remaining half of the 2014 award will vest in February 2019, for participants who remain employed by the Company on the vesting date.

 

(4) Reflects achievement at 63% of the target award.

 

(5) Reflects achievement at target.

The following comparison of target compensation to realized compensation for our NEOs demonstrates our 2016 reduction in target compensation levels to better align with market median in connection with the redesign of our executive compensation program, as well as our ongoing commitment to compensating our leadership based on the Company’s performance and placing a significant proportion of senior executive compensation “at risk”:

 

Named Executive Officer

 

  

2014 Target

 

    

2015 Target

 

    

2016 Target

 

    

2016 Realized

 

 

Harshman

 

   $

 

6,150,000

 

 

 

   $

 

6,519,000

 

 

 

   $

 

4,992,600

 

 

 

   $

 

2,575,179

 

 

 

DeCourcy

 

   $

 

2,021,000

 

 

 

   $

 

2,256,000

 

 

 

   $

 

1,632,000

 

 

 

   $

 

1,082,848

 

 

 

Kramer

 

   $

 

1,880,000

 

 

 

   $

 

1,997,500

 

 

 

   $

 

1,402,500

 

 

 

   $

 

1,125,682

 

 

 

Sims

 

   $

 

2,326,500

 

 

 

   $

 

2,397,000

 

 

 

   $

 

1,734,000

 

 

 

   $

 

1,429,344

 

 

 

Wetherbee

 

    

 

N/A

 

 

 

   $

 

2,115,000

 

 

 

   $

 

1,716,000

 

 

 

   $

 

721,309

 

 

 

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE COMPENSATION SUMMARY

 

 

 

 

 

 

2017 Say on Pay Proposal

 

Why should you vote in favor of our 2017 Say on Pay proposal?

 

We took a “clean sheet” approach resulting in the substantial redesign of our compensation program in 2016 and developed a new executive compensation program that is more aligned with stockholders’ interests. Among other changes, we:

 

 
 

   Redesigned our short-term cash incentive program and related financial measures to place greater emphasis on financial results. Awards to our CEO and Executive Council members are 90% contingent on ATI’s financial performance. Additionally, the Personnel and Compensation Committee of our Board has the authority to reduce or eliminate the remaining 10% of such awards, which is contingent on the achievement of individual strategic goals, based on the Company’s overall financial results and in order to align as closely as possible with stockholder interests.

 

   Redesigned our long-term incentive program, which incorporates 3-year equity performance-based incentives that are aligned with our business strategies. Awards to our CEO and Executive Council are comprised 70% of performance shares.

 

 

   Decreased the 2016 long-term incentive opportunities for our CEO and Executive Council members reflecting our lower financial performance and current market trends.

 

   Adopted a simplified overall incentive compensation structure that is more transparent and easier to understand.

 

   Implemented market-leading stock ownership guidelines for executives, officers and other top leadership positions.

 
 

Our business faced a number of challenges during 2016, following a similarly difficult year in 2015, as our management continued to execute the right sizing and other initiatives described above under the heading “2016 Business Performance” that we believe position us well for sustainable, profitable long-term growth in 2017 and beyond.

 

The compensation of our senior executives during 2016 under our new “clean sheet” program reflects our financial results. Our CEO and NEOs (other than Mr. Wetherbee) did not receive salary increases in 2016, and our NEOs whose awards under our 2016 Annual Performance Plan were contingent on our overall corporate results and/or the results of our FRP business did not receive any portion of the 90% of their awards that were contingent on such results. Our Personnel and Compensation Committee determined, after consideration of the Company’s overall financial results, that although our CEO earned the 10% of his 2016 Annual Performance Plan award tied to the achievement of strategic goals, his entire award should be forfeited in the interest of stockholder alignment. Moreover, a portion of the long-term incentive awards granted to our NEOs for the performance period ending in 2016 did not vest, because the applicable performance criteria were not satisfied.

 

 

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | COMPENSATION PHILOSOPHY

 

 

 

Our Compensation Philosophy

ROLE OF THE PERSONNEL AND COMPENSATION COMMITTEE

The Committee’s primary responsibility is to design compensation plans that drive the Board’s and management’s long-term strategic vision for ATI, and to ensure that those plans support ATI’s goal of creating stockholder value over the long-term. Over the last several years, the Committee has emphasized design clarity and transparency to better communicate with our stockholders and to ensure that our compensation programs are aligned with evolving best practices.

The Committee is composed of four independent, non-employee directors. The Committee has the sole responsibility to carry out ATI’s overarching policy of linking the executive compensation program to the interests of stockholders. The Committee is responsible for determining compensation for the NEOs and other members of the management Executive Council, which is comprised of seven members of senior management, including the CEO. The Committee also has the responsibility for oversight of the Company’s equity plans, variable compensation plans for management employees and supervising management’s implementation of those plans to ensure a continuing source of leadership and succession planning for ATI. In addition, the Committee reviews compliance with independence standards applicable to ATI’s compensation consultant.

ROLE OF INDEPENDENT COMPENSATION CONSULTANTS

The Committee, under its charter, has the sole authority to retain and terminate any compensation consultant used in the evaluation of executive compensation and has the sole authority to approve the retention terms of the consultant, including fees. The compensation consultant retained by the Committee is responsible only to the Committee. The Committee reviews the qualifications of the consultant, including independence. The Committee re-evaluates the consultant’s independence on an ongoing basis. The Committee may, at any time, contact the consultant without interaction from management.

In September 2016, the Committee retained Meridian Compensation Partners, LLC, a nationally recognized executive compensation consultant, for benchmarking compensation and program design and advice on a variety of compensation related matters. Prior to that, Pay Governance served as the Committee’s independent compensation consultant. Meridian provides no other services to ATI and has been determined to be independent by the Committee. Further, because Meridian is involved only in the business of executive compensation consulting, Meridian does not attempt to sell other services to the Company.

OUR PHILOSOPHY

The Committee’s approach to compensation is to offer a base salary that is competitive with an identified benchmarking peer group of companies and incentive opportunities that are performance-oriented and linked to the interests of stockholders. The Committee has developed a balance of annual and long-term programs using diverse criteria to discourage inappropriate risk taking. For the NEOs, the program consists of base salary, an annual performance-based cash incentive, and longer-term performance-based compensation opportunities.

The Committee views the executive compensation program as a management tool that, through a detailed and quantitative target-setting process establishes challenging financial performance goals that encourage the management team to achieve or surpass ATI’s business objectives.

 

 

 

The Committee has determined that the executive compensation program should:

 
 

•   pay competitively by setting overall target compensation, which is realized when performance targets are met, in line with target compensation at peer companies and other companies and industries with which ATI competes for executive talent;

 

•   provide performance-oriented incentive pay opportunities that are linked to the interests of stockholders by (i) putting substantial portions of potential compensation at risk, (ii) supporting ATI’s business strategy by tying performance goals to specific Company annual and longer-term strategic objectives; and

 

•   retain executives that are essential to driving ATI’s strategies and future growth.

 

 

 


 

ATI 2017 Proxy Statement    / 49


Table of Contents
 

 

COMPENSATION DISCUSSION AND ANALYSIS | COMPENSATION PHILOSOPHY

 

 

 

Competitive Compensation

The Committee reviews, with outside compensation and other advisors, the compensation policies and practices at peer companies that ATI competes with for talent and skill sets in the Company’s multiple locations, or are in our industry and serving our end markets. We use this information to help establish base compensation levels throughout the management organization at the approximate median of these groups. The incentive plans provide opportunities to earn additional amounts if performance goals are met or exceeded, but do not pay out if performance goals are not met.

Performance-Oriented and Linked to the Interests of Stockholders

The Committee believes that the more senior the manager, the larger the percentage of compensation that, over time, should be at risk. The goals and targets used across all management levels include both company-wide financial performance measures as well as pre-set goals within a particular participant’s area of responsibility. They are designed to encourage a team-oriented approach to achieving ATI profitability and strategic objectives and positioning the Company for the future challenges. The Committee scales compensation challenges and opportunities by level of responsibility and focuses performance on the measures that particular managers can most directly influence.

The Committee implements its pay-for-performance philosophy by using performance metrics that are linked to the interests of stockholders, such as operating profit, EBITDA, net income/earnings, total stockholder return, and/or strategic goals that are designed to help create stockholder value over the long-term. In the new compensation program design for 2016, performance goals focus on income, cash flow, and ROIC (return on invested capital). ATI’s business plans have focused on internal generation of the funds necessary for sustainable profitable growth and both product and end market diversification.

Attract and Retain Talent

We designed our program to attract and retain a deep pool of managerial talent who share ATI’s commitment to enhancing stockholder value in the short- and longer-terms. The Committee believes that the plans and performance goals will attract, challenge, and retain superior managers experienced in ATI’s businesses and direct their efforts toward achieving specific tasks that the Board and senior management determine to be necessary for profitable growth through business cycles.

 


 

50 \    ATI 2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS | COMPENSATION PHILOSOPHY

 

 

 

 

 

 

 

Executive Compensation Highlights

 

 
 

 

o  Link compensation to ATI performance. Performance drives pay. A significant portion of compensation opportunities for the NEOs is variable, meaning it is tied to performance. Cash and equity incentive plans are based on the attainment of business plan performance metrics. Payments are made only when the performance targets are achieved.

 

o  Balanced compensation program. The compensation program includes complementary but diverse performance goals, a balance of types of compensation, and caps on the amount of compensation that can be awarded.

 

o  Compensation aligned with stockholder interests. Long-term incentive compensation opportunities for the NEOs are equity-based and tied to business plan performance metrics.

 

o  Double trigger change in control agreements.

 

o  Independent Compensation Consultant. Our Personnel and Compensation Committee works closely with an independent compensation consultant.

 

o  Clawback policy. Clawback arrangements require the return of compensation to the extent that information used to calculate the achievement of earnings or other performance measures is subsequently determined to be materially incorrect.

 

o  Robust Stock Ownership Guidelines for Directors and Executive Management. Our stock ownership guidelines for management include 6X base salary ownership for the CEO and require 100% retention until ownership guidelines are met.

 

o  Limits on severance arrangements. In 2016, we adopted a policy that limits future severance arrangements to 2.99X base salary.

 

o  Board compensation risk oversight.

 

o  162(m) compliant. Our incentive programs are designed with the intent that payouts will satisfy the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code.

 

 

 

 

 

X  No employment agreements for executive officers.

 

X  No excise tax gross-ups in change in control agreements.

 

X  Executive perquisites. We do not have executive perquisites such as personal air travel, club dues or tax gross-ups.

 

X  No hedging transactions or pledging of ATI stock by officers and directors. We prohibit officers and directors from hedging or pledging ATI stock.

 

X  No repricing of awards. No previously granted awards can be repriced or surrendered in exchange for new awards.

 

   

 


 

ATI 2017 Proxy Statement    / 51


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COMPENSATION DISCUSSION AND ANALYSIS | COMPENSATION SETTING PROCESS

 

 

 

Compensation Setting Process

SETTING COMPENSATION LEVELS AND OPPORTUNITIES

This section explains the Committee’s multi-step process for setting compensation levels and opportunities and validating our pay targets. The table below, and description that follows, summarizes the analyses involved in this process:

 

Process Step/

Analysis

 

 

Responsibility or

Data Source

 

 

Purpose

 

 

How It’s Used

 

 

When It’s Conducted

 

Review of Annual and Long-Term Business Plans

 

 

Board/ management

 

 

Aligning incentive compensation with business objectives

 

 

To support determination of performance targets in incentive plans

 

 

December

– February

 

Individual Performance Assessments

 

 

Committee; Executive feedback

 

 

Evaluating individual performance of CEO and Executive Council (EC) members (for EC members, based on CEO input)

 

 

To determine short-term incentive award payments for the award period that recently ended and to assist in setting individual award opportunities for the next year/ award cycle

 

 

December

– January

 

Company Achievement of Performance Goals

 

 

Board/ management

 

 

Determining award payments based on Company performance in completed performance periods

 

 

Considered when determining appropriate performance goals for upcoming periods

 

 

January

 

Market and Peer Analysis

 

 

Compensation consultants

 

 

Setting pay for our executives

 

 

To set competitive base pay and short- and long-term incentive targets and compensation opportunities for the next year/award cycle

 

 

December

– February

 

Pay and Performance

Analysis

 

 

Publicly available financial and compensation information

 

 

Evaluating pay and performance to validate individual compensation plans that were established in February

 

 

To assess achievement under the incentive plans relative to Company and peer performance

 

 

Ongoing

 

Tally Sheets

 

 

Compensation consultants; Internal compensation and benefits data

 

 

Evaluating total remuneration and internal pay equity of our executives

 

 

To evaluate the total remuneration and projected payments to the NEOs under various termination scenarios. This helps to determine if each executive’s compensation package is appropriately aligned with that of internal peers and whether any adjustments to our compensation plans or programs, or an individual’s pay package, is necessary

 

 

Ongoing

 

Stockholder Outreach

 

 

Board/
management

 

 

To obtain stockholder feedback on concerns and questions relating to plan design and performance

 

 

To understand expectations of investors and monitor trends in executive compensation from the perspective of stockholders. Used to evaluate compensation policies, practices and plans.

 

 

Ongoing

 

Near the end of each year, the Board (including members of the Committee) reviews ATI’s annual and long-term business and strategic plans with management. Generally at the Committee’s January meeting, following the review of the Company’s year-end financial results, the Committee determines the award payments to be made under the compensation plans with performance measurement periods that concluded at the end of the previous year based upon the Committee’s assessment of the achievement of the predefined financial goals and objectives.

Generally, at the Committee’s February meeting, the Committee authorizes compensation plans for future periods and establishes the specific financial performance goals under the incentive plans in light of the Board-approved business and strategic plans for that future period.

 


 

52 \    ATI 2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS | COMPENSATION SETTING PROCESS

 

 

 

The Committee considers which incentive plans, award levels and performance goals would optimize the achievement of ATI’s future business objectives without introducing systemic risk driven by the executive compensation program. The Committee solicits the views of its advisors as to whether the plans under consideration reflect and support achievement of the Company’s short-term and long-term business objectives and strategies. In addition, at that time, the Committee approves individual participation levels in the compensation plans for the CEO and members of the management Executive Council, and directs executive management to establish participation levels in the plans for other eligible employees within the guidelines given by the Committee. Generally, all prospective compensation opportunities under the long-term compensation plans are made at the Committee’s February meeting.

INTERNAL PAY EQUITY

Using market data, our independent compensation consultant advises the Committee on relative compensation among the Executive Council members, including the NEOs. The compensation levels generally reflect the job functions normally associated with a particular title and the degree of responsibility inherent with the job duties.

In setting compensation opportunities, the Committee considers the ratios of CEO compensation opportunities and the compensation opportunities of each of the other NEOs. The ratio of the 2016 total realized compensation for Mr. Harshman, Chairman, President and Chief Executive Officer, compared to the average of the compensation of the other NEOs, as reflected in the Total Realized Compensation Table, is approximately 2.36. Recognizing his ultimate management responsibility as Chairman, President and CEO, base pay and compensation opportunities are significantly greater for the CEO than for the other NEOs of the Company.

BENCHMARKING PEER GROUP

The Committee considers, with information provided by the compensation consultant, the compensation practices across a broader group of manufacturing companies. The Committee uses the peer group as a reference in developing its executive compensation program and in determining the competitiveness of its executive compensation levels. The Committee also uses the broader manufacturing company practices as a check against the peer group information. Annually, the Committee reviews the peer group to ensure that the companies constituting the peer group remain relevant and provide meaningful comparisons for compensation and business purposes. ATI believes that there are no public companies that engage in the full range of the Company’s specialty materials and components manufacturing, fabrication, marketing and distribution. To address this reality, the Committee’s independent compensation consultant developed the following criteria to guide the selection of peer companies for benchmarking compensation.

Specifically, peer companies should:

 

1) Be competitors for business and/or executive talent and be primarily from the metals industry or adjacent sectors;

 

2) Be reflective of the general complexity and business orientation of ATI:

  Global footprint, product lines, foreign competition

  Revenues that approximate 50% to 200% of ATI with some flexibility

  Capital intensive businesses as indicated by lower asset turnover ratios (i.e., 0.5 to 1.5)

  Higher stock price volatility, or “beta” (i.e., greater than 1.0)

  Market capitalization reasonably aligned with ATI; Some flexibility for outliers that may be aligned from different perspectives (i.e., revenues, competition)

  Similar number of employees

 

3) Have stock prices reasonably correlated with ATI over the past five years indicating sensitivity to similar external market influences.

 


 

ATI 2017 Proxy Statement    / 53


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COMPENSATION DISCUSSION AND ANALYSIS | COMPENSATION SETTING PROCESS

 

 

 

As a result, for performance measurement periods under the executive compensation plans beginning on January 1, 2016, the Benchmarking Peer Group consists of the following companies:

 

($millions) Company

 

  

Revenue
Actual
FY2016

 

   

Total
Assets
FY2016

 

   

Market
Capitalization
12/31/2016

 

   

Employees

 

   

Asset
Turnover

 

   

Beta
12/31/2016

 

 

Reliance Steel & Aluminum Co.

 

   $

 

8,578

 

 

 

  $

 

7,585

 

 

 

   

 

$5,772

 

 

 

   

 

14,000

 

 

 

   

 

1.25

 

 

 

   

 

1.34

 

 

 

Steel Dynamics Inc.

 

   $

 

7,458

 

 

 

  $

 

6,788

 

 

 

   

 

$8,673

 

 

 

   

 

7,510

 

 

 

   

 

1.12

 

 

 

   

 

1.47

 

 

 

Oshkosh Corporation

 

   $

 

6,279

 

 

 

  $

 

4,514

 

 

 

   

 

$4,776

 

 

 

   

 

13,800

 

 

 

   

 

1.38

 

 

 

   

 

1.77

 

 

 

AK Steel Holding Corporation

 

   $

 

6,007

 

 

 

  $

 

3,921

 

 

 

   

 

$2,433

 

 

 

   

 

8,500

 

 

 

   

 

1.50

 

 

 

   

 

2.67

 

 

 

Terex Corporation

 

   $

 

5,046

 

 

 

  $

 

5,569

 

 

 

   

 

$3,311

 

 

 

   

 

70,400

 

 

 

   

 

1.13

 

 

 

   

 

2.42

 

 

 

Trinity Industries Inc.

 

   $

 

5,031

 

 

 

  $

 

9,136

 

 

 

   

 

$4,225

 

 

 

   

 

22,030

 

 

 

   

 

0.73

 

 

 

   

 

2.22

 

 

 

Commercial Metals Company

 

   $

 

4,611

 

 

 

  $

 

3,131

 

 

 

   

 

$2,497

 

 

 

   

 

8,388

 

 

 

   

 

1.42

 

 

 

   

 

1.38

 

 

 

Westinghouse Air Brake Technologies Corporation

 

   $

 

3,004

 

 

 

  $

 

3,428

 

 

 

   

 

$7,394

 

 

 

   

 

13,000

 

 

 

   

 

1.00

 

 

 

   

 

1.11

 

 

 

Worthington Industries, Inc.

 

   $

 

2,827

 

 

 

  $

 

2,143

 

 

 

   

 

$2,968

 

 

 

   

 

10,000

 

 

 

   

 

1.36

 

 

 

   

 

1.35

 

 

 

Crane Co.

 

   $

 

2,747

 

 

 

  $

 

3,409

 

 

 

   

 

$4,227

 

 

 

   

 

11,200

 

 

 

   

 

0.81

 

 

 

   

 

1.18

 

 

 

The Timken Company(1)

 

   $

 

2,729

 

 

 

  $

 

2,819

 

 

 

   

 

$3,089

 

 

 

   

 

14,709

 

 

 

   

 

0.99

 

 

 

   

 

1.63

 

 

 

Valmont Industries, Inc.

 

   $

 

2,481

 

 

 

  $

 

2,384

 

 

 

   

 

$3,172

 

 

 

   

 

10,697

 

 

 

   

 

1.02

 

 

 

   

 

1.05

 

 

 

Joy Global, Inc.

 

   $

 

2,371

 

 

 

  $

 

3,426

 

 

 

   

 

$2,753

 

 

 

   

 

10,000

 

 

 

   

 

0.66

 

 

 

   

 

1.98

 

 

 

SPX Corporation

 

   $

 

2,113

 

 

 

  $

 

2,750

 

 

 

   

 

$1,342

 

 

 

   

 

8,000

 

 

 

   

 

0.65

 

 

 

   

 

 

 

 

Kennametal Inc.

 

   $

 

2,020

 

 

 

  $

 

2,307

 

 

 

   

 

$2,499

 

 

 

   

 

11,178

 

 

 

   

 

0.80

 

 

 

   

 

1.95

 

 

 

Carpenter Technology Corp.

 

   $

 

1,747

 

 

 

  $

 

2,814

 

 

 

   

 

$2,814

 

 

 

   

 

4,500

 

 

 

   

 

0.64

 

 

 

   

 

2.00

 

 

 

Schnitzer Steel Industries, Inc.

 

   $

 

1,353

 

 

 

  $

 

891

 

 

 

   

 

$   688

 

 

 

   

 

2,818

 

 

 

   

 

1.46

 

 

 

   

 

1.64

 

 

 

25th Percentile

 

   $

 

2,371

 

 

 

  $

 

2,750

 

 

 

   

 

$2,497

 

 

 

   

 

8,388

 

 

 

   

 

0.80

 

 

 

   

 

1.35

 

 

 

Median

 

   $

 

2,827

 

 

 

  $

 

3,409

 

 

 

   

 

$3,089

 

 

 

   

 

10,697

 

 

 

   

 

1.02

 

 

 

   

 

1.64

 

 

 

75th Percentile

 

   $

 

5,046

 

 

 

  $

 

4,514

 

 

 

   

 

$4,227

 

 

 

   

 

13,800

 

 

 

   

 

1.36

 

 

 

   

 

1.99

 

 

 

ATI

 

   $

 

3,135

 

 

 

  $

 

5,170

 

 

 

   

 

$1,735

 

 

 

   

 

8,500

 

 

 

   

 

0.60

 

 

 

   

 

2.38

 

 

 

Percentile

 

    

 

57

 

 

   

 

79

 

 

   

 

13

 

 

   

 

34

 

 

   

 

0

 

 

   

 

92

 

 

Source: Standard & Poor’s Capital IQ Database (Compustat financials)

Data represents each company’s fiscal year, which may not align with ATI’s fiscal year end of December 31

 

(1) In July 2014, The Timken Company spun off its steel-making business into a public company, TimkenSteel Corporation. The Timken Company remains part of the benchmarking peer group.

The peer group used for measuring the Company’s relative total stockholder return (“TSR Peer Group”) is different from the benchmarking peer group. The TSR Peer Group companies, though having a range of sizes, all remain aligned with ATI on the basis of relative similarity to one or more of the aspects of the Company’s businesses. These companies compete in one or more of the markets in which ATI competes, and the risk profiles typically assigned to those companies by the capital markets are similar to ATI. For further information, please see page 63.

MONITORING OF PERFORMANCE AND PROGRESS THROUGHOUT THE YEAR

The Committee meets regularly during the year to monitor the Company’s performance as well as the individual performance of members of our management Executive Council, relative to the incentive plan goals. At these meetings, the Committee is provided with current financial data and with internal status reports on key performance measures. The Committee uses this information to:

 

  assess management’s interim progress toward achieving the predetermined performance goals and the potential payouts under the various executive compensation plans, and

 

  assist in the evaluation of whether the compensation plans continue to support and direct performance as required to achieve the Company’s business goals.

Members of management attend portions of these meetings. The Committee also meets with its outside compensation and other advisors during non-management executive session in order to ensure independent feedback on all compensation-related matters.

 


 

54 \    ATI 2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS | INVESTOR OUTREACH AND THE EXECUTIVE COMPENSATION PROGRAM

 

 

 

Investor Outreach and the Executive Compensation Program

Beginning in December 2014, and as a result of concerns expressed by ISS and Glass Lewis in prior years, ATI management was commissioned by the Personnel and Compensation Committee of the Board of Directors to undertake a “Clean Sheet” approach to executive compensation, including the short-term incentive (STI-annual cash incentive) and long-term incentive (LTI-equity) programs. The new approach initially included two rounds of stockholder outreach in April and September of 2015. Specifically, we engaged with our 50 largest stockholders, which represent over 60% of our share ownership, and discussed stockholders’ comments on our executive compensation program and corporate governance practices. The results of our engagement are best reflected in our corporate governance practices and our new “clean sheet” executive compensation program. We conducted further outreach efforts throughout 2016, and will include stockholder outreach as an annual part of our process going forward. The following table summarizes stockholder feedback from our 2015 outreach initiatives, and ATI’s responsive changes and proposals.

 

Program Element

 

 

2015 Stockholder Feedback

 

 

ATI 2016 Program Changes

 

Annual Cash Incentive Plan   The annual incentive plan should place more emphasis on financial performance and should be designed to drive ATI’s strategy.   We increased the proportion of CEO and Executive Council members’ annual cash incentive plan that is contingent upon the achievement of financial goals (income and cash flow) to 90% from 70%, beginning in 2016. We also removed discretionary bonuses as a potential component of our program. Strategic/individual goals are part of the plan, but are limited to 10% of the plan for CEO and Executive Council members.
       

The plan now includes an “all ATI” component for all participants; at least 20% of each participant’s award is contingent upon ATI’s financial results.

 

Equity Incentive Plan   ATI’s equity program seems complex; does it communicate and drive the right behaviors?   We reduced the number of equity programs in which our CEO and Executive Council participate from 3 programs with multiple measures to 2 programs: Performance Shares (70%) and Time Vested Shares (30%). There are no separate programs for CEO and Executive Council members.
  Long term incentives should include a heavier weight on ROIC.  

Awards granted to our CEO, Executive Council members and other top leaders under the Performance Share component of our new program are contingent on the achievement of ROIC (50%) and Net Income (50%) performance goals.

 

Best Practices   Are all programs following best practices?  

To keep pace with current best practices, we:

  updated our Stock Ownership guidelines to include 6X base salary ownership for CEO and require 100% retention until guidelines are met; and

  stopped paying dividends on unvested shares subject to LTI awards.

 

Level of Compensation   Are all programs’ payout percentages in line with market data?  

To better reflect the market median, we significantly reduced target payouts (as a percentage of base compensation) to our CEO and Executive Council members under our LTI program, generally resulting in reductions of 20%—33%. All other compensation elements are at the median of the market for actual pay (base), or target opportunity (STI).

 

 

LOGO

 

 

 

Our 2016 program changes and proxy disclosure improvements were very well received by ATI stockholders, based on feedback that we received as part of our 2016 stockholder outreach program. Additionally, our stockholders expressed their appreciation for ATI’s ongoing commitment to strong corporate governance, noting in particular our adoption of proxy access by-law provisions in 2016.

 

 

 

LOGO

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | HISTORY OF EXECUTIVE COMPENSATION PROGRAM CHANGES

 

 

 

History of Executive Compensation Program Changes

The 2016 redesign of the executive compensation program follows years of continuous improvement to our executive compensation programs. This progression shows our willingness to incorporate compensation best practices and developments into our program and demonstrates our responsibility to stockholders.

 

 

 

   

 

 

 

 

2012

 

 

 

 

   

 

 

Increased rigor of financial targets and reduced
maximum payouts under
two incentive plans
   

Revised management and director stock ownership guidelines, added retention requirement

 

         

Hired new independent compensation consultant

 

    Eliminated NEO perks and related tax gross-ups

 

 

   

 

 

 

2013

 

 

 

 

   

 

 

Reduced CEO’s target
award opportunities by 20% under two incentive plans
   

Increased minimum level of company performance needed for payout under the Total Stockholder Return Plan

 

Reduced maximum payout opportunity

 

         

Formalized long-standing policy prohibiting hedging/pledging of ATI Stock

 

Included clawbacks in executive compensation arrangements

   

Eliminated excise tax
gross up

 

Restructured
benchmarking peer
group to right-size
peer companies

 

 

   

 

 

 

2014

 

 

 

 

   

 

 

Increased CEO stock ownership guidelines

    Reduced NEO target award opportunities by 10% under annual incentive plan          

Adopted new Long Term Performance Plan with two performance components; Total Stockholder Return (TSR) and Long-term Stockholder Value (LTSV) subject to four strategic operational goals

 

   

Froze ATI Pension
Plan and Supplemental Pension Plan accruals
effective 12/31

   

 

 

 

2015

 

 

 

 

   
    Revised benchmarking peer group          

Embedded clawback policy in 2015 Incentive Plan

 

   

 

 

   

 

 

 

2016

 

 

 

 

   

 

 

New executive
compensation program implemented; simplified
and better aligned with business goals
    Updated stock ownership guidelines to require 6X base salary ownership for CEO   LOGO   Reduced CEO and NEOs’ target award opportunities under LTI programs    

Adopted “proxy access”
by-law provisions

 

Future severance arrangements limited
to 3X base salary

 

           

 

56 \    ATI 2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS | 2016 EXECUTIVE COMPENSATION PROGRAM

 

 

 

2016 Executive Compensation Program

 

 

For 2016, we overhauled our executive compensation program and took a “clean sheet” approach to its redesign. ATI engaged external compensation consultants and other advisors to provide research and review peer company practices and the practices of other manufacturing companies. We also considered the business challenges and goals and motivation and retention issues that we face and reached out to our largest stockholders to solicit their feedback on a tentative program design.

 

The clean sheet process included:

 

 
 

 

    Evaluation of alternative annual and long-term incentive plan designs to vet and refine incentive designs deemed to be a best-fit for the business and best-in-class;

 

    Benchmarking executive compensation levels, as well as short term incentives and long-term incentive opportunities, to ensure total compensation levels would be aligned with (or lower than) the market median;

 

    Modeling the impact of incentive designs and compensation reductions;

  

 

    Introduction of new financial performance metrics, including return on invested capital (ROIC) and “one ATI” initiative and ensuring affordability;

 

    Increasing performance expectations embedded in the annual and long-term incentive plan goals to ensure meaningful progress was achieved before payouts were generated; and

 

    Reducing individual long-term incentive target opportunity for the CEO and Executive Council members as well as other executive participants to be aligned with market median.

 
 

 

The resulting program consists of the Annual Performance Plan and the Long-Term Incentive Plan. Specifically, we:

 

 
   

 

Redesigned our short-term incentive program (annual cash performance-based incentive)

 

    Changed our financial measures to put more emphasis on total ATI results through income/income-related and cash flow measures.

 

    Changed the weighting of the financial portion to 90% for the CEO and Executive Council members.

 

    Program prohibits positive discretion to increase award amounts.

 

       

 

Redesigned our long-term incentive program (3-year equity performance-based incentive)

 

     Re-aligned our long-term incentives to match our future business strategies, with 70% weighting on performance shares for the CEO, Executive Council members, and other top leaders.

 

    New long-term incentive financial performance metrics, with a focus on two metrics: ROIC (return on invested capital), and net income.

 

    Maintained total stockholder return performance relative to a peer group of companies as a modifier to ROIC and net income performance.

 

    No dividends are earned on restricted share units.

 

       

 

Simplified our Executive Compensation Program

 

    Long-term equity performance-based incentive program has been reduced from its current format of three plans with multiple metrics and features.

 

    There are no separate programs for the CEO and Executive Council members.

 

    The new executive compensation program is more transparent and easier to understand.

 

 

       

 

Competitive and Market-Based

 

    Decreased the 2016 long-term incentive opportunities for the CEO and all Executive Council members to reflect a target at the market median based on position. This resulted in decreases from 20% to 33% as a percentage of base salary. Specifically, the CEO’s LTI was reduced from 400% of base salary to 320%.

 

    Contemporary design that aligns with other mid-sized and large manufacturing companies.

 

   
                               

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | 2016 EXECUTIVE COMPENSATION PROGRAM

 

 

 

The new executive compensation program is designed to be more aligned with stockholders’ interests, more transparent, easier to understand, retentive, and focused on ATI’s business objectives, such as driving the achievement of financial goals and emphasizing alignment between the interests of ATI’s management and ATI’s stockholders. The changes are reflective of investor feedback, a market analysis of competitive practices, and a goal to simplify the overall structure. We intend for this new program to be in place for the next several years.

Our newly redesigned executive compensation program for 2016 consists of the following elements for our NEOs:

 

     Plan    Purpose   

Relevant Performance

Metric and Description

   
ANNUAL/SHORT TERM INCENTIVE    Base Salary   

To provide fair and competitive compensation for individual performance and level of responsibility of position held.

 

   Individual performance   FIXED  
   2016 Annual Performance Plan (“APP”)   

To provide performance-based annual cash award for ATI and business unit performance to motivate and reward key employees for achieving our short-term business objectives and drive performance.

 

  

Mix of metrics, including:

 

•    EBITDA/ Segment operating profit

•    Cash flow

•    Strategic/Individual goals

 

  VARIABLE

LONG-TERM INCENTIVE    Long-Term Incentive Plan: Performance Share Units (“PSUs”) (70%)    To provide performance-based equity compensation in the form of restricted share units to drive ATI’s earnings and retain key managers.   

Awards vest at the end of a three-year performance period based on achievement of specified goals tied to:

 

•    Net Income (50%)

•    Return on invested income (ROIC) (50%) 20% +/- TSR modifier for Executive Council and other leadership participants.

 
   Long-Term Incentive Plan: Restricted Share Units (“RSUs”) (30%)   

To enhance the program’s ability to retain participants and drive long-term behavior by allowing for time-based awards.

 

   The RSUs are time-vested awards.  

While our legacy long-term incentive programs continued to impact the compensation realized by our NEOs in 2016, base salary and incentive award opportunities for 2016 further reflected both the underlying approach and goals of our clean-sheet redesign effort and the challenges that our business faced in 2015 and 2016. Specifically, for 2016:

 

  Base salaries for the CEO and NEOs (other than Mr. Wetherbee) remained at 2015 levels.

 

  Our incentive programs promote our “one ATI” philosophy by placing greater emphasis on financial metrics that measure total ATI performance, rather than segment or individual results, for all participants.

 

  Our incentive programs are now more heavily weighted toward performance-contingent awards, particularly for NEOs. Short-term incentive awards to our NEOs for 2016 were 90% contingent on total ATI and (as applicable) segment financial performance, compared to 70% for our 2015 awards, and 70% of each long-term award is performance-vested.

 

  The Committee substantially reduced NEO award levels at target under the new LTIP by 20%-33% compared to award levels for prior years. Our CEO’s target long-term award opportunity was reduced from 400% of base salary to 320% of base salary, and awards were weighted to emphasize performance-vested shares. Specifically:

 

    The PSUs awarded at target as a percentage of base salary were 224% for the CEO and 140% for each other NEO; and

 

    The RSUs awarded at target as a percentage of base salary are 96% for the CEO and 60% for each other NEO.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | 2016 EXECUTIVE COMPENSATION PROGRAM

 

 

 

The pie charts below show the mix of aggregate NEO compensation by type, form, and length, at target for 2016:

 

LOGO

2016 ANNUAL PERFORMANCE PLAN (“APP”)

Adopted in connection with our 2016 clean-sheet redesign effort, the APP is a short-term cash incentive plan in which approximately 400 key employees (including the NEOs) participate. For Executive Council members, 90% of the performance goals are based on financial metrics, and 10% on strategic/individual goals, as described below.

For Corporate participants (including our CEO):

 

LOGO

For Business Segment NEOs:

 

LOGO

Performance Criteria. The performance goals for the 2016 APP were set in February 2016 based on ATI’s business and operations plans for 2016. Corporate-wide goals are established in a bottom-up process through which each business unit’s business plan and business conditions are separately reviewed in setting targets, as are the expectations for other performance factors at each business unit. The performance goals include a mix of financial targets and strategic and/or individual performance goals.

Level of Difficulty. The Committee sets the APP metrics so that the relative difficulty of achieving the target level is consistent from year to year. The objective is to establish target goals in any given year that are challenging yet achievable, with a much higher level of difficulty to achieve performance that generates the maximum payout.

 


 

60% on ATI EBITDA
30% on ATI cash flow
10% on strategic/ individual goals
30% on ATI EBITDA
30% on Business Unit/Segment
Operating Profit
30% of Business Unit/Segment
Operating Cash Flow
10% on strategic/ individual goals

 

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COMPENSATION DISCUSSION AND ANALYSIS | 2016 EXECUTIVE COMPENSATION PROGRAM

 

 

 

Award Opportunities. The opportunities for the NEOs under the APP are granted at “threshold,” “target” and “maximum” levels expressed as a percentage of base salary and based on predetermined levels of performance. The Committee sets the potential award ranges as percentages of base salary (the “annual incentive percentage”) for each NEO using comparative market data provided by the compensation consultant. In general, our short-term incentive program is designed so that the payout associated with achieving threshold performance is equal to 50% of target while the payout associated with achieving the maximum performance level is capped at 200% of target. No payout with respect to the financial performance component is earned for performance below the threshold level.

 

    

Annual Incentive Percentage

 

 

Named Executive Officer

 

  

Below
Threshold

 

    

Threshold

 

    

Target

 

    

Maximum

 

 

Harshman

 

    

 

0%

 

 

 

    

 

57.5%

 

 

 

    

 

115%

 

 

 

    

 

230%

 

 

 

DeCourcy

 

    

 

0%

 

 

 

    

 

40%

 

 

 

    

 

80%

 

 

 

    

 

160%

 

 

 

Kramer

 

    

 

0%

 

 

 

    

 

35%

 

 

 

    

 

70%

 

 

 

    

 

140%

 

 

 

Sims

 

    

 

0%

 

 

 

    

 

40%

 

 

 

    

 

80%

 

 

 

    

 

160%

 

 

 

Wetherbee

 

    

 

0%

 

 

 

    

 

40%

 

 

 

    

 

80%

 

 

 

    

 

160%

 

 

 

To calculate a potential award amount, the target percentage of salary for each NEO is multiplied by a formula based on performance.

Formula

 

 

 

Base Salary

as of December 31, 2016

 

      x      

 

Target Annual Incentive Percentage

      x      

 

Performance Achievement

(0-200%)

      =      

 

Annual Incentive Payout ($)

 

 

2016 Earned and Paid Amounts For Each NEO:

 

     At Target (100%)      Actual  

Named Executive Officer

 

  

Target

(% of Base
Salary)

 

    

Dollar
Amount ($)

 

    

Actual
Weighted
Achievement

(% of Target)

 

    

Earned
Cash
Award ($)

 

    

Paid Cash
Award ($)

 

 

Harshman

 

    

 

115

 

 

 

    

 

1,219,000

 

 

 

    

 

10

 

 

 

    

 

121,900

 

 

 

    

 

0

 

 

 

DeCourcy

 

    

 

80

 

 

 

    

 

384,000

 

 

 

    

 

10

 

 

 

    

 

38,400

 

 

 

    

 

38,400

 

 

 

Kramer

 

    

 

70

 

 

 

    

 

297,500

 

 

 

    

 

10

 

 

 

    

 

29,750

 

 

 

    

 

29,750

 

 

 

Sims

 

    

 

80

 

 

 

    

 

408,000

 

 

 

    

 

65

 

 

 

    

 

265,200

 

 

 

    

 

265,200

 

 

 

Wetherbee

 

    

 

80

 

 

 

    

 

400,000

 

 

 

    

 

10

 

 

 

    

 

40,000

 

 

 

    

 

40,000

 

 

 

The Personnel and Compensation Committee decided that our CEO, Rich Harshman, would not be paid the earned APP incentive award in 2016 due to overall Company financial performance.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | 2016 EXECUTIVE COMPENSATION PROGRAM

 

 

 

2016 Performance Goals and Achievement Levels for the Named Executive Officers:

Messrs. Harshman, DeCourcy and Kramer:

The 2016 APP awards for Messrs. Harshman, DeCourcy and Kramer were determined by (a) total ATI performance relative to the financial metrics and (b) each such executive’s individual performance relative to strategic and/or individual goals, in each case established at the inception of the awards in February 2016. The following table describes the relative weighting of each metric and the individual goals, as well as ATI’s and each executive’s relative level of achievement for the year:

ATI Corporate

 

Performance Goals

 

  

Relative
Weighting (%)

 

   

2016 Actual
Achievement
(% of Threshold)

 

 

ATI EBITDA

 

    

 

60

 

 

 

   

 

0

 

 

 

ATI Cash Flow

 

    

 

30

 

 

 

   

 

0

 

 

 

Individual/Strategic Goals

 

    

 

10

 

 

 

   

 

100

 

 

 

      

 

100

 

 

   

 

10

 

 

2016 Achievement: For 2016, the threshold, target and maximum goals for ATI EBITDA and ATI Operating Cash Flow, as defined, were as set forth below. APP awards were earned based on the weighted achievement of each operating goal. The financial goals were not met.

 

     (millions)  
     

Threshold

 

  

Target

 

  

Maximum

 

  

2016 Actual
Performance(a)

 

 

ATI EBITDA

 

  

$161

 

  

$261

 

  

$361

 

    

 

$77

 

 

 

ATI Cash Flow

 

  

$156

 

  

$216

 

  

$316

 

    

 

$137

 

 

 

 

(a) ATI EBITDA was $29.2 million including $471.3 million of non-cash restructuring charges, and ATI cash flow from operations was $(43.7) million. Actual 2016 APP Award performance includes certain adjustments to both the EBITDA and Cash Flow metrics. EBITDA adjustments include certain idling and shutdown costs related to the August 2016 idling of our titanium sponge production facility in Rowley, UT. Cash Flow adjustments include the $115 million contribution to our U.S. qualified defined benefit pension plan, adjustments for the Rowley idling, and other adjustments affecting unplanned changes in managed working capital balances.

Mr. Sims:

The 2016 APP award for Mr. Sims was determined by the achievement of goals relevant to both total ATI performance and performance of the ATI High Performance Materials & Components segment, as well as his performance relative to individual strategic goals. Mr. Sims’ 2016 earned award was at 64.3% of target, as described in the following table:

ATI High Performance Materials & Components

 

Performance Goals

 

  

Relative
Weighting
(%)

 

   

2016 Actual
Achievement
(% of Threshold)

 

 

ATI EBITDA

 

    

 

30

 

 

 

   

 

0.00

 

 

 

ATI High Performance Materials Components Segment Operating Profit

 

    

 

30

 

 

 

   

 

67.90

 

 

 

ATI High Performance Materials Components Segment Operating Cash Flow

 

    

 

30

 

 

 

   

 

115.57

 

 

 

Individual/Strategic Goals

 

    

 

10

 

 

 

   

 

100.00

 

 

 

      

 

100

 

 

   

 

65.00

 

 

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | 2016 EXECUTIVE COMPENSATION PROGRAM

 

 

 

Mr. Wetherbee:

The 2016 APP award for Mr. Wetherbee was determined by the achievement of goals relevant to both total ATI performance and performance of the ATI FRP business, as well as his performance relative to individual strategic goals. Mr. Wetherbee’s 2016 earned award was at 10% of target, as described in the following table:

ATI Flat Rolled Products

 

Performance Goals

 

  

Relative
Weighting (%)

 

   

2016 Actual
Achievement
(% of Threshold)

 

 

ATI EBITDA

 

    

 

30

 

 

 

   

 

0

 

 

 

ATI Flat Rolled Products Operating Profit

 

    

 

30

 

 

 

   

 

0

 

 

 

ATI Flat Rolled Products Operating Cash Flow

 

    

 

30

 

 

 

   

 

0

 

 

 

Individual/Strategic Goals

 

    

 

10

 

 

 

   

 

100

 

 

 

      

 

100

 

 

   

 

10

 

 

For further information about ATI financial performance, please see ATI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC.

LONG-TERM INCENTIVE PLAN (“LTIP”)

The long-term incentive portion of our redesigned compensation program, the Long-Term Incentive Plan, or “LTIP,” consists of two components, including performance share units and restricted share units, each of which were awarded in 2016. For our NEOs, 70% of the aggregate LTIP award is performance-based and entirely contingent on the achievement of quantitative performance measures, while the remaining 30% of the LTIP award is time-based to provide retention incentives.

 

Vehicle

 

  

Performance Metric

 

  

Vesting

 

  

Payout Ranges

 

 

Performance

Share Units (70%)

  

 

•   Income 50%

 

•   Return on Invested Capital 50%

 

•   h or ¯ TSR Modifier of 20% for Executive Council members and leadership level participants

  

 

3-Year performance

period

  

 

Threshold = 50% of Target*

Target = 100%

Maximum = 200% of Target*

 

* At the inception of the award period, the Committee can reduce the threshold and maximum payout levels at their discretion.

 

For 2016:

 

Threshold = 25% of Target

Target = 100%

Maximum = 150% of Target

 

Restricted Share

Units (30%)

 

   N/A    3-Year Ratable Vesting     

Individual opportunities under the LTIP are granted at Threshold, Target and Maximum levels, which are expressed as a

percentage of base salary. The respective opportunities granted to the CEO and NEOs under the 2016 LTIP were reduced from 2015, as follows:

 

     

2015 Target

 

    

2016 Target

 

 

CEO

 

    

 

400%

 

 

 

    

 

320%

 

 

 

Other NEOs

 

    

 

300%

 

 

 

    

 

200%

 

 

 

The CEO’s 2016 target was below the market median, while the other NEOs’ 2016 targets aligned with the market median.

All LTIP participants have a PSU component based on income and ROIC metrics.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | 2016 EXECUTIVE COMPENSATION PROGRAM

 

 

 

Performance Share Units (PSUs):

PSUs will vest to the extent that cumulative earnings (defined as income from continuing operations attributable to ATI) and return on invested capital (“ROIC,” defined as net operating profit after taxes divided by average invested capital) meet or exceed a Threshold, Target or Maximum level of performance set by the Committee at the beginning of the three-year performance measurement period. ROIC performance will be averaged over the three year performance measurement period. Whether the income or ROIC performance goals are met, and the extent to which the PSUs vest, will be determined by the Personnel and Compensation Committee at the end of the performance measurement period. When vested, each PSU will convert into a share of the Company’s common stock. No dividends are accumulated or paid on the PSUs.

2016 Payout Percentages if Performance Goals are Met

For the 2016 PSU component, which is scheduled to vest subject to goal achievement on December 31, 2018, the Committee reduced the Threshold and Maximum payout percentages from the plan design of 50% Threshold and 200% Maximum, to 25% Threshold and 150% Maximum, as a result of the challenges that the Company faced at the times the awards were made.

Total Shareholder Return Adjustment. If the Committee determines that the income and ROIC goals for the 2016-2018 performance measurement period meet or exceed Threshold, the number of shares earned may be increased or decreased by up to an additional 20% based on the Company’s TSR relative to the TSR of a peer group of companies, as follows:

 

LOGO

For 2016 awards, we used the SPDR S&P Metals and Mining ETF (XME) as our TSR peer group.

Restricted Share Units (RSUs):

In order to provide a retention component to the long-term incentive program, granted RSUs will vest ratably over three years so long as the individual remains an employee of the Company. If and when vested, each RSU converts into a share of Company common stock. No dividends will be accumulated or paid on the RSUs.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | LEGACY LONG-TERM INCENTIVE COMPENSATION PROGRAMS

 

 

 

LEGACY PLANS

In 2014 and 2015, the Company issued equity awards under two long-term equity incentive plans, the Performance/Restricted Stock Program (“PRSP”) and the Long-Term Incentive Performance Plan (“LTPP”), which had two components, including the Total Shareholder Return Program (“TSR”) and the Long-Term Shareholder Value (“LTSV”), each of which is described below. Both the PRSP and LTPP were discontinued beginning in 2016. These programs were replaced with our new clean sheet long-term incentive programs and no new awards are being made under either plan.

Legacy Performance/Restricted Stock Program (“PRSP”)

Overview. Under the PRSP, shares of performance/restricted stock were awarded to participants at the beginning of a three-year performance measurement period. Approximately 120 key managers, including the NEOs, participated in this plan. One-half of the award under the remaining PRSP awards has a performance-based vesting feature and the other half has both performance-based and time vesting components, as more fully described below.

Performance Criteria. The PRSP used an aggregate net income target that reflected ATI’s baseline expectations for earnings under the applicable three-year business plan. For awards under the 2014—2016 and 2015—2017 performance measurement periods:

 

  Performance Feature: One-half of the stock-based award is scheduled vest, if at all, only upon ATI’s achievement of at least a minimum, predetermined aggregate net income target for the applicable three-year performance period, in the case of the 2014—2016 award, excluding certain facility start-up costs and underutilization costs associated with our Rowley, Utah titanium sponge plant in the aggregate for fiscal years 2014, 2015 and 2016.

If the net income target is not reached or exceeded on or before the end of the three-year performance period, or if the individual leaves the employ of the Company for a reason other than retirement, death or disability before that date, this one-half of the award is forfeited.

Conversely, if the net income target is reached or exceeded on or before the end of the performance period, the vesting of the remaining one-half of the award (described below) will accelerate so that 100% of the award is payable at the end of the third year.

 

  Time-Based and Performance Feature: For our NEOs, one-half of each award will vest upon the earlier of (i) five years from the date of grant, if the participant is still an employee of the Company on that date (or if the participant has retired, died or become disabled), or (ii) the last day of the applicable three-year performance period, if the net income performance criteria for the performance period is attained.

 

 

 

2014-2016 Performance. The PRSP implemented in 2014 had a performance goal of aggregate net income of $250 million for the 2014-2016 performance measurement period, excluding certain facility start-up costs and underutilization costs associated with our Rowley, Utah titanium sponge plant in the aggregate for fiscal years 2014, 2015 and 2016. Based on ATI’s actual aggregate net loss of $950.8 million over that time, half of each of the 2014-2016 awards was forfeited as of January 27, 2017. The remaining half of each such award will vest in February 2020, if the participant is still an ATI employee as of that date or has retired, died or become disabled. The fair market value of ATI stock on the grant date of February 26, 2014 was $31.215.

 

 

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | LEGACY LONG-TERM INCENTIVE COMPENSATION PROGRAMS

 

 

 

Legacy Long-Term Incentive Performance Plan (“LTPP”)

Overview. The Long Term Incentive Performance Plan, which was designed to drive overall ATI performance and the achievement of strategic goals while retaining key managers, included two components:

 

TSR Component: Measures total stockholder return    LTSV Component: Measures long-term stockholder value

The Committee awarded a target number of shares to the recipient for the applicable performance measurement period calculated using a specified percentage of base pay. At the end of the applicable performance measurement period, the number of shares received by the recipient, if any, is based on the Company’s total stockholder return (generally, the change in the trading prices of a share of Company common stock plus dividends paid) (“TSR”) relative to the TSR of a peer group of publicly traded companies deemed comparable by the Committee. Approximately 60 key managers participated in this portion of the LTPP.

 

 

   The Committee grants performance restricted stock which will vest after three years, in whole or in part, subject to the achievement of various pre-set strategic operational goals that are expected to create stockholder value over the long-term, using specified percentages of base pay to calculate the grant. Only members of our Executive Council participated in this portion of the LTPP.

Total Shareholder Return (TSR) Component

Performance Criteria, Including Peer Group. The Committee established a three-year performance measurement period selected the eligible participants, established the Opportunity Shares for each participant, and identified the peer group of companies for that performance measurement period. The target number of shares of an individual’s TSR component is calculated as a percentage of base salary on the date of grant, then divided by the average of the high and the low trading prices of ATI’s Common Stock on the NYSE on the date of grant.

Measurement Criteria. The performance ranges for threshold, target and maximum performance are as follows, which are rigorous and consistent with other TSR-measured plans used by peers:

 

  Threshold: 35th percentile of the peer group results in a payout equal to 50% of target;

 

  Target: 50th percentile of the peer group results in a payout equal to 100% of target; and

 

  Maximum: 90th percentile or greater of the peer group results in a payout capped at 200% of target.

Interpolation is used to determine the payout for performance between threshold, target, and maximum performance levels.

Long Term Shareholder Value (LTSV) Component

Performance Criteria. Under the LTSV component, the Committee established various strategic, operational goals, the achievement of which were considered crucial to the completion and implementation of the Company’s capital improvement, acquisitions, and business development strategies, and assigned relative weight to each performance metric. At the end of the performance measurement period, the Committee determines the degree to which each of the performance goals has been met. The achievement level of the respective performance goals with relative weighting will be added together and the sum, expressed as percentage, is multiplied by the number of shares of restricted stock granted to each participant, to determine the number of shares of restricted stock that will vest. Dividends declared on the Company’s Common Stock are accumulated and paid in stock to the holders of this performance/ restricted stock when and if the restrictions lapse on the shares.

 

 

 

2014-2016 Performance. For the 2014—2016 Performance Period, ATI’s total shareholder return was at the 39th percentile relative to the TSR for each member of its peer group for that performance period, resulting in the payment of awards equal to 63% of each participant’s target award.

 

The Committee determined that the operational goals established under the LTSV for the 2014—2016 Performance Period were successfully achieved. As a result, ATI’s total shareholder return was at the 39th percentile relative to the TSR for each member of its peer group for that performance period, resulting in the payment of awards equal to 63% of each participant’s target award.

 

 

 

 

 


 

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COMPENSATION DISCUSSION AND ANALYSIS | OTHER COMPENSATION POLICIES

 

 

 

Other Compensation Policies

Employment Agreements; Change in Control Agreements.