CCK Crown Holdings Inc

The following table shows, as of March 7, 2017, the number of shares of Common Stock beneficially owned by each person or group that is known to the Company to be the beneficial owner of more than 5% of the Company's outstanding Common Stock.

The following table shows, as of March 7, 2017, the number of shares of Common Stock beneficially owned by each Director; the Company's Chief Executive Officer, Chief Financial Officer and the three other Executive Officers who were the highest paid during 2016; and all Directors and Executive Officers as a group.  The Directors and Executive Officers of the Company have sole voting and investment power with respect to the securities of the Company listed in the table below.

 

 

* Less than 1%

(1)   Percentages are derived based upon 139,124,617 shares of Common Stock outstanding as of March 7, 2017. (2)  Excludes 3,000,000 shares of Common Stock held in the Crown Cork & Seal Company, Inc. Master Retirement Trust on behalf of various Company pension plans ("Trust Shares").  Messrs. Donahue and Kelly are members of the Benefits Plan Investment Committee of the trust that has sole voting and dispositive power with respect to the Trust Shares, but they disclaim beneficial ownership of the Trust Shares. (3)  Includes 16,708 shares of Common Stock held in a revocable family trust, of which Mr. Donald is trustee. (4)  Includes 24,000 shares of Common Stock subject to presently exercisable options held by Mr. Gifford. (5)  Includes 34,000 shares of Common Stock subject to presently exercisable options held by certain Executive Officers (inclusive of those options listed in the preceding footnotes).

 

Meetings of the Board of Directors.   In 2016, there were five meetings of the Board of Directors.  Each Director during his or her term of service attended at least 75% of the aggregate meetings held by the Board and by the committees on which he or she served.

Attendance at the Annual Meeting.   Under the Company's Corporate Governance Guidelines, Directors are expected to attend the Company's Annual Meeting of Shareholders.  In 2016, each of the Directors serving on the Board at the time, except Mr. Donald, attended the Annual Meeting of Shareholders.

 

Director Independence.   The Board has determined that Jenne Britell, Arnold Donald, Rose Lee, William Little, Hans Löliger, James Miller, Josef Müller, Caesar Sweitzer, Jim Turner and William Urkiel are independent under the listing standards of the NYSE.  The Board made this determination based on the absence of any of the express disqualifying criteria set forth in the listing standards that require a majority of the Board nominees to be Independent Directors.

 

In making the foregoing determinations, the Board considered Company payments to the following third parties and the Directors' affiliations with such parties:  For Dr. Britell, Chairman of United Rentals – ordinary course of business equipment rentals at various Company plants and also for Dr. Britell, a director of Quest Diagnostics – routine Company employee medical testing.  For Mr. Donald, a director of Bank of America Corporation – fees for ordinary course treasury and pension management, foreign currency exchange and commodity hedging services and Bank of America Corporation's participation as one of a number of lenders under the Company's senior secured revolving credit facility and term loans.  For Mr. Little, employment of his son-in-law by the Company in a middle management position in Europe.  None of these transactions fell within the NYSE listing standards disqualifying criteria.

 

Of the remaining Directors, Timothy Donahue is Chief Executive Officer of the Company and is therefore not independent.  John Conway was the Chief Executive Officer of the Company until his retirement effective January 1, 2016 and is therefore not independent.

 

Board Leadership and Risk Oversight.   Mr. Conway is the non-executive Chairman of the Board.  The role of the non-executive Chairman of the Board has been defined to include, among other things:

 



creating and maintaining an effective working relationship with the Chief Executive Officer and other members of management and with the other members of the Board;

 



providing the Chief Executive Officer ongoing direction as to Board needs, interests and opinions; and

 



assuring that the Board agenda is appropriately directed to the matters of greater importance to the Company.

 

Mr. Little, as the Chairperson of the Nominating and Corporate Governance Committee, serves as the Presiding Director of the Board and presides over executive sessions of the Independent Directors.  The Board's current leadership structure includes Audit, Compensation and Nominating and Corporate Governance Committees that are each chaired by and composed solely of Independent Directors.

The roles of Chairman of the Board and Chief Executive Officer are held by two different individuals.  The Chairman of the Board, Mr. Conway, presides over meetings of the Board and acts as liaison between the Board and Mr. Donahue, the Chief Executive Officer, who is responsible for the day-to-day management of the Company.  Moreover, the Board believes that its other structural features, including ten Independent Directors among the slate of twelve Directors standing for election at the Company's Annual Meeting, regular meetings of Non-Management Directors in executive session, key committees consisting wholly of Independent Directors and an Independent Presiding Director, provide for substantial independent oversight of the Company's management.

The Board is responsible for providing oversight of the Company's Executive Officers' responsibilities to assess and manage the Company's risk, including its credit risk, liquidity risk, reputational risk and risk from adverse fluctuations in foreign exchange and interest rates and commodity prices.  The Board periodically meets in person with the Executive Officers regarding the Company's risks and ways to mitigate such risks.  In addition, the Audit Committee periodically reviews with management, internal audit and independent auditors the adequacy and effectiveness of the Company's policies for assessing and managing risk.

 

Director Stock Ownership, Pledging and Hedging .  Under the Company's Corporate Governance Guidelines, after five years of service on the Board, Non-Employee Directors are expected to hold Company Common Stock having a market value of at least five times the cash base annual Director's fee.  As of March 7, 2017, each Director with five or more years of service on the Board owned the required minimum level of Common Stock.  The Company's Corporate Governance Guidelines prohibit Directors from pledging or hedging transactions relating to Company Common Stock.

 

Board Committees.  The Board has an Executive Committee, an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.  The Board has approved written charters for the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee that can be found at http://www.crowncork.com/investors/corporate-governance . Each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee conducts a self-evaluation and review of its charter annually.

 

Audit Committee.   In 2016, the Audit Committee had eight meetings.  The Audit Committee provides assistance to the Board in discharging its responsibilities in connection with the oversight of the financial accounting practices and internal controls of the Company and represents the Board in connection with the services rendered by the Company's independent auditors.  The current members of the Audit Committee are Dr. Britell, Ms. Lee and Messrs. Müller, Ralph, Sweitzer and Urkiel.  Dr. Britell serves as Chairperson of the Audit Committee.  The Board has determined that the Directors who serve on the Audit Committee are all independent under the listing standards of the NYSE and that Dr. Britell, Mr. Sweitzer and Mr. Urkiel are "audit committee financial experts" within the meaning of SEC regulations.

 

Compensation Committee.  In 2016, the Compensation Committee had two meetings.  The Compensation Committee is responsible for the review of the executive compensation program.  The current members of the Compensation Committee are Messrs. Donald, Little, Löliger and Turner, each of whom is independent under the listing standards of the NYSE.  Mr. Löliger serves as Chairperson of the Compensation Committee.  For further discussion regarding the Compensation Committee's processes and procedures for the consideration of executive compensation, see "Compensation Discussion and Analysis."

 

Nominating and Corporate Governance Committee.   There were three meetings of the Nominating and Corporate Governance Committee in 2016.  The Nominating and Corporate Governance Committee is responsible for leading the search for individuals qualified to become members of the Board and recommending to the Board individuals as Director nominees.  The Committee also oversees the annual self-evaluation of the Board and its committees and the annual evaluation of management by the Board, makes recommendations to the Board regarding the membership of committees of the Board and performs other corporate governance functions.  The current members of the Nominating and Corporate Governance Committee are Messrs. Little, Löliger, Miller and Ralph, each of whom is independent under the listing standards of the NYSE.  Mr. Little serves as Chairperson of the Nominating and Corporate Governance Committee.

 

Consistent with the Company's Corporate Governance Guidelines, the Nominating and Corporate Governance Committee seeks Director nominees committed to upholding the highest standards of personal and professional integrity and representing the interests of all Shareholders, not particular Shareholder constituencies.  The Committee identifies nominees for Director by first evaluating the current members of the Board willing to continue in service.  In addition, the Committee regularly assesses the appropriate size of the Board, whether any vacancies on the Board are expected because of  retirement  or otherwise  and  whether the Board needs Directors with particular skills or experience.  To identify and evaluate potential candidates for the Board, the Committee solicits ideas for possible nominees from a number of sources, which may include current Board members, senior-level Company executives and professional search firms.  The Committee will also consider candidates properly submitted by Company Shareholders.  Candidates for the Board are evaluated through a process that may include background and reference checks, personal interviews with members of the Committee and a review of each candidate's qualifications and other relevant characteristics.  The same identifying and evaluating procedures apply to all candidates for Director, whether submitted by Shareholders or otherwise.  The Nominating and Corporate Governance Committee and the Board desire to maintain the Board's diversity and consider factors such as nationality, race and gender as well as professional backgrounds and geographic and industry experiences.  The Committee does not intend to nominate representational Directors but instead considers diversity given the characteristics of the Board in its entirety.

Shareholders who wish to suggest qualified candidates may write, via Certified Mail-Return Receipt Requested, to the Office of the Secretary, Crown Holdings, Inc., One Crown Way, Philadelphia, PA 19154, stating in detail the qualifications of the persons they recommend.  Shareholders must include a letter from each person recommended affirming that he or she agrees to serve as a Director of the Company if elected by Shareholders.  However, through its own resources, the Committee expects to be able to identify an ample number of qualified candidates.  See "Questions and Answers About the 2017 Annual Meeting" for information on bringing nominations for the Board of Directors at the 2018 Annual Meeting.

 

Executive Sessions.  Pursuant to the Company's Corporate Governance Guidelines, the Non-Management Directors of the Company meet periodically at regularly scheduled executive sessions without Management Directors.  The Chairman or the Presiding Director, as appropriate, chairs such meetings.

 

Proxy Access.   The Board of Directors amended the Company's By-Laws to adopt proxy access in January 2016.  The Company's proxy access By-Law permits Shareholders owning 3% or more of the Company's Common Stock for a period of at least three years to nominate up to the greater of 20% of the Board of Directors or two Directors and include these nominations in the Company's proxy materials.  The number of Shareholders who may aggregate their shares to meet the 3% ownership threshold is limited to 20.

 

Communications with the Board of Directors.  Shareholders and other interested parties who wish to send communications on any topic to the Chairman, the Presiding Director, the Independent Directors or the Board as a whole may do so by writing c/o Office of the Secretary, Crown Holdings, Inc., One Crown Way, Philadelphia, PA 19154.  Communications will be forwarded to the Directors if they relate to substantive matters and include information, suggestions or comments that the Chairman or Presiding Director, with the assistance of the Corporate Secretary, deems appropriate for consideration by the Directors.

 

Code of Business Conduct and Ethics.   The Company has a Code of Business Conduct and Ethics that applies to all Directors and employees.  The Code of Business Conduct and Ethics is available on the Company's website at http://www.crowncork.com/investors/corporate-governance .  The Company intends to disclose updates to, and waivers of, the Code of Business Conduct and Ethics on the Company's website.

 

Transactions with Related Persons.   The Nominating and Corporate Governance Committee is charged with reviewing and approving or ratifying all transactions with related persons of Directors and executive officers required to be disclosed under Item 404(a) of Regulation S-K under the Securities Exchange Act of 1934, as amended ("Regulation S-K").  The written Company policy pertaining to related party transactions is included in the Company's Corporate Governance Guidelines.

Company Website.  The Company's Corporate Governance Guidelines and the Charters of the Audit, Compensation and Nominating and Corporate Governance Committees are available on the Company's website at http://www.crowncork.com/investors/corporate-governance .

This Compensation Discussion and Analysis ("CD&A") provides an overview of the Company's executive compensation program together with a description of the material factors underlying the decisions that resulted in the compensation provided for 2016 to the Company's Chief Executive Officer ("CEO"), the Company's Chief Financial Officer and the other three Executive Officers who were the highest paid during 2016 (collectively, "Named Executive Officers" or "NEOs").  The names of the Company's 2016 NEOs and their titles at year-end are:



Timothy J. Donahue – President and Chief Executive Officer

 



Thomas A. Kelly – Senior Vice President and Chief Financial Officer

 



Gerard H. Gifford – President – European Division (1)

 



Djalma Novaes – President – Americas Division

 



Robert H. Bourque – President – Asia Pacific Division

 

____________________

 

(1)	Mr. Gifford will become the Company's Executive Vice President and Chief Operating Officer on April 1, 2017.

 

The following discussion and analysis contains statements regarding individual and Company performance targets and goals. These targets and goals are disclosed in the limited context of the Company's compensation programs and should not be understood to be statements of management's expectations or estimates of financial results or other guidance.  The Company specifically cautions investors not to apply these statements to other contexts.

2016 Say-on-Pay Vote Results .  At our Annual Meeting of Shareholders held in April 2016, we held a non-binding Shareholder Say-on-Pay vote on the 2015 compensation of our NEOs.  Over 90% of the shares voted at last year's Annual Meeting voted FOR our Say-on-Pay resolution, approving the compensation of our NEOs.  The Board's Compensation Committee (the "Committee") believes the results of the Say-on-Pay vote show strong support for the performance-based and ownership-oriented compensation philosophy that the Committee has utilized.  Accordingly, the Committee did not change its general approach to executive compensation in 2016, although the Committee has made changes to the short-term and long-term compensation programs, effective in 2017, as noted below.  Although the advisory Shareholder vote on executive compensation is non-binding, the Committee will continue to take the outcome of this annual vote into consideration when making compensation decisions for our NEOs.

In designing the compensation program described on the following pages, we adhere to a range of best practices, including the following:

 

 

Pay-for-Performance Alignment – Forfeiture of Performance Shares.  The Company's executive compensation program is designed to motivate our NEOs to create long-term value for our Shareholders and to efficiently use the Company's invested capital in order to grow our business.  To achieve these objectives, our program emphasizes performance-based incentives that are based, in part, upon total shareholder return relative to a group of industry peers.  Notwithstanding the Company's total shareholder return of 57% over the past 5 years, because this return has somewhat underperformed our industry peers, NEOs have forfeited performance shares in each of the last three years:



In 2015 our NEOs forfeited 28% of their 2012 performance-based equity grants.



In 2016 they forfeited 63% of their 2013 performance-based equity grants.



In 2017 they forfeited 34% of their 2014 performance-based equity grants.



In particular, the Company's CEO forfeited 42% of the aggregate grant-date fair value of performance shares granted him in 2012, 2013 and 2014, and this resulted in forfeiture of 19% of the CEO's aggregate total direct compensation for those three years.

Such forfeitures display a clear and direct correlation between total shareholder return and our executives' compensation.  In addition, the Company's "at risk" non-equity performance-based compensation incentives focus upon the Company's strategy of driving free cash flow and long-term growth of the Company's economic profit, which is driven by efficient utilization of capital, income from operations and cash flow from operations.

 

Our executive compensation program is based on our "pay-for-performance" philosophy, as outlined in the following table.

 

At-Risk Compensation .  Consistent with our "pay-for-performance" philosophy, our executive compensation program emphasizes "at risk" compensation and stock ownership. The majority of our NEOs' total direct compensation is tied to the accomplishment of performance objectives.  The allocation of 2016 total direct compensation for our CEO and for our other NEOs among these various components is set forth in the following graphs that highlight the Company's emphasis on "at risk" and equity-based compensation.

 

Role of the Compensation Committee.  The Committee currently comprises four Non-Employee Directors, all of whom are independent under the NYSE listing standards.  During 2016, the Committee members were Hans Löliger (Chairperson), Arnold Donald, William Little and Jim Turner.  The Committee has responsibility for determining and implementing the Company's philosophy with respect to executive compensation.  To implement this philosophy, the Committee oversees the establishment and administration of the Company's executive compensation program.  The Committee operates under a written charter adopted by the Board of Directors. A copy of this charter is available on the Company's website at http://www.crowncork.com/investors/corporate-governance .

Compensation Philosophy and Objectives.  The Committee maintains a "pay-for-performance" philosophy toward executive compensation. One of the guiding principles of this "pay-for-performance" philosophy is that the executive compensation program should enable the Company to attract, retain and motivate a team of highly qualified executives who will create long-term value for the Shareholders.  To achieve this objective, the Committee has developed an executive compensation program that is ownership-oriented and that rewards the attainment of specific annual and long-term goals that will result in improvement in total shareholder return.  To that end, the Committee believes that the executive compensation program should include both cash and equity-based compensation that rewards specific performance by the Company.  In addition, the Committee continually monitors the effectiveness of the program to ensure that the compensation provided to executives remains competitive relative to the compensation paid to executives in a peer group comprising select container and packaging industry and other manufacturing companies.

 

The Committee annually evaluates the components of the compensation program as well as the desired mix of compensation among these components.  The Committee believes that a substantial portion of the direct compensation paid to the Company's NEOs should be at risk, contingent on the Company's operating and stock market performance.  Consistent with this philosophy, the Committee will continue to place significant emphasis on stock-based compensation and performance-based pay in an effort to more closely align compensation with Shareholder interests and increase executives' focus on the Company's long-term performance.  Accordingly, the annual incentive bonus is determined by operating metrics that drive long-term

growth and Shareholder value, and approximately two-thirds of the value of the restricted stock granted in 2016 under the Company's long-term incentive plan is tied to performance of the Company's total shareholder return versus that of a peer group.  In addition, beginning in 2017, the Company's long-term incentive plan will also be tied to the Company's return on invested capital, as a second metric.

Stock Ownership Guidelines and Share Retention Policy .  Consistent with the Committee's stock ownership-oriented compensation philosophy and its focus on long-term performance, the Company maintains stock ownership guidelines under which our NEOs are expected to own Company Common Stock with a minimum value equal to the applicable multiple of base salary set forth in the following table.

 

Until the ownership requirement is satisfied, an NEO is required to retain 50% of the after-tax value of any Common Stock received as the result of an option exercise or vesting of restricted shares.  At year-end, all the NEOs either owned more than the minimum level of Common Stock or were otherwise in compliance with the stock ownership guidelines.

 

Committee Process.  The Committee meets as often as necessary to perform its duties and responsibilities.  During 2016, the Committee met two times.  The Committee usually meets with the CEO and, when appropriate, with other Company Officers and outside advisors.  In addition, the Committee periodically meets in executive session without management present.

 

Setting of Meeting Agenda .  The Committee's meeting agenda is normally established by the Committee Chairperson in consultation with the CEO and the Vice President of Human Resources.  Committee members receive and review materials in advance of each meeting.  Depending on the meeting's agenda, such materials may include: financial reports regarding the Company's performance, reports on achievement of corporate objectives, reports detailing executives' stock ownership and stock awards and information regarding the compensation programs and compensation levels of certain peer group companies.

 

Use of Tally Sheets .  The Committee reviews tally sheets when setting annual compensation for the NEOs.  These tally sheets allow the Committee to review each NEO's compensation on an aggregate basis and to see how a change in any one component affects each NEO's total compensation.  For 2016, the Committee used the tally sheet information to review total compensation, the current mix of compensation (e.g., cash versus equity), issues of internal pay equity, total value of Company stock held by each NEO, payouts under certain potential termination scenarios and the aggregate value of retirement benefits.

 

Retention of Compensation Consultants .  The Committee's charter authorizes the Committee, in its sole discretion, to retain and terminate consultants to assist it in the evaluation of compensation for the NEOs.  The Committee has sole authority to approve the fees and other retention terms of any such consultant.

 

Role of Executive Officers in Compensation Decisions.  The Committee makes all decisions regarding the CEO's compensation.  Decisions regarding the compensation of other NEOs are made by the Committee in consultation with, and upon the recommendation of, the CEO.  In this regard, the CEO provides the Committee evaluations of business goals and objectives and executive performance and recommendations regarding salary levels, equity grants and other incentive awards.

 

Executive Compensation Consultant.  Pursuant to its authority under its charter to retain compensation consultants, the Committee engaged Pay Governance, LLC, an executive compensation consulting firm, to act as its independent advisor with respect to 2016 compensation decisions.

 

Consultant Independence .  All services provided by Pay Governance to the Committee are conducted under the direction and authority of the Committee, and all work performed by Pay Governance must be pre-approved by the Committee.  Pay Governance does not provide any other services to the Company, and neither Pay Governance nor the individuals who provide services to the Company owns any shares of the Company's stock.  There are no personal or business relationships between the Pay Governance consultants and any executive of the Company.  In addition, there are no personal relationships between the Pay Governance consultants and any member of the Committee.  Pay Governance maintains a detailed conflict of interest policy in order to ensure that compensation committees receive conflict-free advice.

 

Use of Benchmarking .  In advising the Committee regarding 2016 compensation for our NEOs, Pay Governance developed competitive compensation levels by establishing a benchmark match for each NEO position in the competitive market.  Competitive levels were developed for the following elements of pay:

 



base salary

 



target annual incentive

 



target total cash compensation (base salary plus target annual incentive)

 



long-term equity incentives

 



target total direct compensation (target total cash compensation plus the value of long-term equity incentives)

 

Peer Group Composition .  In establishing its benchmarks for each of the NEOs, Pay Governance gathered data for 17 public companies, or divisions of public companies, defined as the "Peer Group."  Members of the Peer Group are manufacturing companies of similar scope and are generally from the following three categories: (i) other packaging companies, (ii) current or potential suppliers to the Company and (iii) current or potential customers of the Company.  The Peer Group comprises the following companies:

 

Specific benchmark levels were developed using regression analysis to size-adjust the market data to reflect the Company's corporate revenue or the individual business unit revenue, when appropriate.  To provide a broader frame of reference, Pay Governance also analyzed each NEO position against data from general industry.  In establishing its benchmarks for Messrs. Gifford and Bourque, who are U.S. expatriates, Pay Governance used data based on U.S. competitive rates.

Compensation Strategy for CEO.   The evaluation of the CEO's performance and the setting of his compensation is one of the fundamental duties of the Committee.  Effective January 1, 2016, Mr. Donahue was promoted to be the Company CEO.  As a result, the Committee established Mr. Donahue's initial compensation as CEO.

 

In determining compensation for Mr. Donahue, the Committee considered Mr.  Donahue's significant contributions to the Company as Chief Operating Officer and Chief Financial Officer prior to becoming Chief Executive Officer. The Committee noted that Mr. Donahue led the Empaque acquisition in 2015 and oversaw the successful integration of that acquisition as well as the Mivisa acquisition, which have expanded the Company's geographic footprint, provided access to high performing assets and reduced costs. In addition, Mr. Donahue has continued to lead the Company in developing its global organic growth initiatives, including the development of state-of-the-art facilities in emerging and developed markets such as Cambodia, Turkey, Mexico, Indonesia, Colombia, France and the United States. The successful execution of these strategic initiatives has contributed tangibly to strong performance in net income, operating cash flow and earnings per share, allowing the Company to reduce debt and the Board to authorize the Company to return significant value to our Shareholders through share repurchases.

 

In setting Mr. Donahue's compensation, the Committee also sought to align the CEO's short-term and long-term incentives with the Company's overall financial, operational and strategic performance.  In order to determine a fair and competitive salary level for Mr. Donahue's new role, the Committee engaged Pay Governance to prepare a report regarding market practices for internally promoted CEOs.  The Pay Governance report analyzed the salary increases provided to internal candidates upon their promotion to CEO and a comparison of first-year CEO compensation levels relative to the outgoing CEO for four of the Company's peers and sixteen general industry companies that promoted an internal candidate over the past four years.  Pay Governance advised the Committee of the following:

 



Base salary increases from the prior position are typically meaningful, but remain below the base salary of the prior CEO.

 



Target annual incentives (as a percentage of salary) are often adjusted close to the level of the prior CEO.

 



Long-term incentive levels are typically increased significantly but may remain below the levels for the prior CEO.

 



Overall, total direct compensation levels for internally promoted CEOs are typically below market and prior CEO compensation.

 

The Committee determined to establish Mr. Donahue's initial target total direct compensation as CEO at 85% of Mr. Conway's compensation prior to retirement.  This figure is also 85% of the 50 ^th percentile of the Peer Group, which was within the overall parameters noted in the Pay Governance report.  The specific components of Mr. Donahue's compensation were set as follows:

 

 

In conjunction with the Committee's emphasis on stock-based compensation, a majority of the CEO's 2016 target compensation was in the form of Company Common Stock.

Compensation Strategy for NEOs other than the CEO.  For 2016, the Committee generally continued following its market-based compensation strategy for the NEOs other than the CEO:

 



Pay levels were evaluated relative to the Peer Group as the primary market reference point.  In addition, general industry data was reviewed as an additional market reference and to ensure robust competitive data.

 



Target total cash compensation and target total direct compensation levels were set towards the middle range of the Peer Group.  The Committee used the 50 th percentile of the Peer Group's target total cash compensation and target total direct compensation as a market check in determining compensation.  However, the 50 th percentile is a guidepost and not an absolute target.

 

Components of Compensation.  For 2016, the principal components of compensation for NEOs were:

 



base salary

 



annual incentive bonus

 



long-term equity incentives

 



retirement benefits

 



perquisites

Base Salary.  The Company provides NEOs with base salaries to compensate them for services rendered during the year.  The Committee recognizes that competitive salaries must be paid in order to attract and retain high quality executives.  Normally, the Committee reviews NEO salaries at the end of each year, with any adjustments to base salary becoming effective on January 1 of the succeeding year.  However, under special circumstances, such as a promotion or increased responsibilities, the Committee may act to increase an NEO's salary during the year.

2016 Base Salaries .  The Committee has determined that base salary levels for the NEOs should be targeted towards the middle range of the Peer Group.  Consistent with this market-based pay strategy, the Committee approved an increase in the base salary of Mr. Kelly in order to bring him more in line with the middle range of the Peer Group and increases for Messrs. Gifford and Novaes in order to keep them in line with the middle range of the Peer Group.  Mr. Bourque was promoted to President of the Asia Pacific Division in 2016.  In light of his new role, the Committee set Mr. Bourque's initial compensation near the 25 ^th percentile of the Peer Group with a plan to increase his compensation closer to the 50 ^th percentile over time, based on job performance.  Base salaries for each of the NEOs for 2016 were as set forth in the following table.

 

(1)	Mr. Bourque was paid a salary of $302,413 in 2016 which was a blend of his base salary prior to his promotion in May 2016 and his annual base salary of $350,000 as President – Asia Pacific Division for the remainder of 2016.

 

Annual Incentive Bonus.  Annual cash bonuses are included as part of the executive compensation program because, consistent with our "pay-for-performance" philosophy, the Committee believes that a significant portion of each NEO's compensation should be contingent on success in achieving annual goals that drive the long-term operating performance of the Company. Our NEOs are eligible for annual cash bonuses under our shareholder-approved 2015 Annual Incentive Bonus Plan (the "AIB Plan").  For 2016, our NEOs were eligible to receive annual incentive bonuses under the AIB Plan upon the achievement of specified levels of economic profit and modified operating cash flow. The Committee believes the use of economic profit and modified operating cash flow as key performance measures under the AIB Plan drives the Company's long-term operating performance and is closely correlated with long-term increase in Shareholder value.  In 2016 and earlier periods, the maximum payout under the AIB Plan was three times the target bonus.  Beginning in 2017, however, the maximum payout has been reduced to two times the target bonus.

2016 Bonus Opportunities and Results .  For 2016, the Committee assigned each NEO an annual target level of participation in the AIB Plan together with a maximum annual bonus opportunity as a percentage of each NEO's base salary.  Based upon the Peer Group information provided by Pay Governance and the consideration of officer performance and internal equity, the Committee determined that the target and maximum bonus opportunities for Messrs. Gifford and Novaes for 2016 should be the same as in 2015.  For Mr. Bourque, who was promoted in 2016, the Committee set his target and maximum bonus opportunity at the 25 ^th percentile of the Peer Group, with the intent to increase this over time based on his job performance.  The Committee determined to increase Mr. Kelly's target and maximum bonus opportunity to bring him more in line with the middle range of the Peer Group.  The 2016 minimum, maximum and target bonus opportunities together with actual bonuses paid to the NEOs were as follows.

 

(1)	Had Mr. Bourque served as President – Asia Pacific Division for full year 2016, his actual bonus amount would have been $682,500.

 

Performance Measures .  Bonus amounts under the AIB Plan were based on the following performance measures:



economic profit – defined generally as net operating profit after tax less cost of capital employed as adjusted for certain items, including currency exchange rates and acquisitions/divestitures



modified operating cash flow – defined generally as earnings before interest, taxes, depreciation and amortization reduced by capital spending and adjusted for certain items, including changes in year-end trade working capital and variances in average trade working capital

Cost of Capital .  For purposes of calculating economic profit under the AIB Plan, cost of capital was defined as the average capital employed multiplied by the average cost of capital.  Capital employed was generally defined as total assets less non-interest bearing liabilities and is adjusted for certain items.  Excluded from capital employed were the following items: investments, net goodwill and intangibles, pension and post-employment assets and liabilities and deferred tax assets and liabilities.  Invested capital may also be adjusted for additional capital employed at the direction of the Company's corporate office or in accordance with overall corporate objectives. For 2016, the AIB Plan used a cost of capital of 9%, which is higher than the Company's actual cost of capital.

Weighting of Performance Measures .  At the beginning of 2016, the Committee determined target levels of performance for each performance measure.  At year-end, the Committee assessed the actual results versus the original goals in determining awards.  The Committee must approve all awards, and all awards are subject to review and downward discretionary adjustment by the Committee.

An NEO's actual bonus amount was determined by: (i) multiplying the NEO's target bonus amount by the actual percentage earned for each of the two performance measures, (ii) weighting each performance measure in accordance with a pre-specified formula and (iii) adding the results together to determine the overall payout factor.

As the achievement of economic profit and modified operating cash flow increases in excess of respective performance targets, the percentages of our NEOs' target bonuses payable with respect to such performance measures also increase. In the case of modified operating cash flow, up to 50% of the target bonus amount will be paid as the achievement level increases from 100% to 120% of the performance target. Conversely, the percentage of the target bonus amount payable with respect to modified operating cash flow decreases as achievement falls below 100% of the applicable performance target, with no amount being payable for achievement levels below the threshold of 80% of the applicable performance target. The modified operating cash flow component of the AIB Plan was determined based upon actual performance compared to a budgeted modified operating cash flow amount.

The economic profit component of the AIB Plan was determined by relating current-year economic profit to prior years economic profit, adjusted for currency fluctuations.  In the case of economic profit, up to 250% of the target bonus amount will be paid, in incremental increases, if economic profit exceeds 100% of the performance target, with no amount being payable for achievement levels below the threshold of 80% of the applicable performance target.  To the extent modified operating cash flow is achieved between 100% and 120% of the performance target, up to 250% of the target bonus amount can be achieved based on economic profit.  No portion of the target bonus amount will be paid for economic profit arising from accounting changes or similar non-cash items.

Setting of Target Performance Levels .  Generally, the Committee attempts to set the target performance levels so that the relative difficulty of achieving the targets is consistent among the NEOs in any one year and from year to year.  In making this determination the Committee may consider specific circumstances experienced by the Company in prior years or that the Company expects to face in the coming year.  For example, with respect to modified operating cash flow, targets may be set below prior year actual results due to the forecasted increase in capital investment required for the Company's expansion in growth markets, higher input costs due to price increases by suppliers, prior years' actual working capital and variances in average trade working capital.

The economic profit and modified operating cash flow thresholds and targets for 2016 were set at the Company level for the CEO and Chief Financial Officer and at the divisional level for the other NEOs.  The applicable thresholds, targets and actual achievement levels for 2016 are set forth for each NEO in the following table.

2016 Bonus Calculations .  Messrs. Donahue and Kelly received bonuses under the AIB Plan equal to 246.6% of their respective target bonus amounts, 38.8% attributable to modified operating cash flow and 207.8% to economic profit.  With respect to the Americas Division, Mr. Novaes received a bonus under the AIB Plan equal to 231.6% of his target bonus amount, 30.2% attributable to modified operating cash flow and 201.4% to economic profit.  With respect to the European Division, Mr. Gifford received a bonus under the AIB Plan equal to 269.3% of his target bonus amount, 43.1% attributable to modified operating cash flow and 226.2% to economic profit.  With respect to the Asia Pacific Division, Mr. Bourque received a bonus under the AIB Plan equal to 300% of his target bonus amount, 50% attributable to modified operating cash flow and 250% to economic profit.

 

Long-Term Equity Incentives.  The Committee believes that equity-based incentives, delivered through annual grants of time-based restricted stock and performance-based restricted stock, are an important link between executive and Shareholder interests.  Because the Committee believes that a significant portion of the benefits realized from long-term equity-based incentive grants should require continuous improvement in value created for the Shareholders, approximately two-thirds of the targeted value of stock awards to NEOs is performance-based.  In 2016 and earlier periods, the Company used total shareholder return as the single performance metric for purposes of awarding performance-based shares.  However, beginning in 2017, the Committee approved the use of return on invested capital as a second performance metric in awarding performance-based shares.  The Committee believes that the use of this second metric will better align the Company's long-term incentive plan with its peers, with current market practice and with the expectations of  Shareholders.  Although the Committee may vary the size of annual grants based on the Company's and executive's performance, the total annual equity award granted to each NEO is generally determined based upon the difference between the total direct compensation target established by the Committee, using the competitive market benchmarking and internal factors described above, and the sum of the NEO's base salary and annual incentive bonus opportunity.  See "Compensation Strategy for CEO" and "Compensation Strategy for NEOs other than the CEO."  In addition to the annual equity awards, the Committee may approve equity awards for newly hired executives or in recognition of an executive's promotion or expansion of responsibilities.

 

Equity awards to NEOs are generally made by the Committee each year in the form of restricted stock as part of the normal annual compensation review cycle.  The awards for a particular year generally occur in January or February.

 

The Committee approved the following award structure for 2016:

 

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Target Award Levels .  Award levels were generally set to deliver target total direct compensation (sum of base salary, annual and long-term equity incentives) in the middle range of the Peer Group after taking into account the competitive positioning of the executives' target total cash compensation.

 

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Performance-Based Restricted Stock .  Approximately two-thirds of an NEO's targeted long-term equity incentive was delivered in performance-based restricted stock that may be earned based upon the Company's total shareholder return relative to a group of industry peers over a three-year performance period.  A target number of shares was established for 2016 for each NEO, as set forth in the "Grants of Plan-Based Awards" table below.  Actual vesting of performance-based share awards generally will not occur until the third anniversary of the grant date, if at all.  The Committee believes that, in addition to linking a substantial portion of our NEOs' compensation to the long-term performance of the Company, the three-year vesting structure provides a strong retention element because an NEO terminating employment (other than for retirement with Committee approval, disability or death) will leave behind unvested awards.

 

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Time-Based Restricted Stock .  Approximately one-third of an NEO's targeted long-term equity incentive was delivered in time-based restricted stock that vests in equal annual installments over three years from the date of the award in the amounts set forth on the "Grants of Plan-Based Awards" table below.

Industry Peer Group Composition .  The Committee believes that for purposes of comparing shareholder returns it is appropriate to utilize a recognized publicly available index of container and packaging industry companies as the peer group.  As a result, with respect to determining shareholder return for 2016 grants, the Committee will use the Dow Jones "U.S. Containers & Packaging" Index, currently comprising the Company and the following other companies:

 

 

Performance Vesting Schedule .  The Committee determined that performance-based shares would vest based upon the following schedule.

 

 

Calculation of Total Shareholder Return - NEO Forfeiture of Performance-Based Shares .  Total shareholder return is calculated by dividing the closing share price of a company's common stock on the ending date of the applicable three-year calendar period plus cumulative dividends during such period, if any, by the closing share price of such company's common stock on the beginning date of the applicable period.

As set forth above in "Pay-for-Performance Alignment," NEOs forfeited performance-based shares granted in each of the last three years:

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The Company's total shareholder return for the three-year calendar period ending December 31, 2014 was 52% based upon the closing price of the Company's Common Stock on that date (i.e., $50.90 per share) compared to the closing price on December 31, 2011 (i.e., $33.58 per share).

When compared, however, to the total shareholder return of the other companies in the industry peer group at the time of the 2012 performance-based share award, the Company ranked at the 44 ^th percentile. Therefore, in accordance with the preceding schedule, the performance-based shares vesting in 2015 pursuant to the 2012 grant were vested at the 72% level, and 28% of the award was forfeited.

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The Company's total shareholder return for the three-year calendar period ended December 31, 2015 was 38% based upon the closing price of the Company's Common Stock on that date (i.e., $50.70 per share) compared to the closing price on December 31, 2012 (i.e., $36.81 per share). When compared, however, to the total shareholder return of the other companies in the industry peer group at the time of the 2013 performance-based share award, the Company ranked at the 32 nd percentile. Therefore, in accordance with the preceding schedule, the performance-based shares vesting in 2016 pursuant to the 2013 grant were vested at the 37% level, and 63% of the award was forfeited. The number of performance-based shares from the 2013 grant in which each NEO vested in 2016 based on the Company's stock performance for the three-year calendar period ended December 31, 2015 are set forth below in the "Option Exercises and Stock Vested" table.

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The Company's total shareholder return for the three-year calendar period ended December 31, 2016 was 18% based upon the closing price of the Company's Common Stock on that date (i.e., $52.57 per share) compared to the closing price on December 31, 2013 (i.e., $44.57 per share).  When compared, however, to the total shareholder return of the other companies in the industry peer group at the time of the 2014 performance-based share award, the Company ranked at the 43 rd percentile.  Therefore, in accordance with the preceding schedule, the performance-based shares vesting in 2017 pursuant to the 2014 grant were vested at the 66% level, and 34% of the award was forfeited.  Performance-based shares from the 2014 grant did not vest until January 2017 and, therefore, will be set forth in the "Option Exercises and Stock Vested" table in next year's Proxy Statement.

Notwithstanding consistent positive shareholder return totaling 57% over the 2012 to 2016 time period that comprised the cumulative performance period for the 2012, 2013 and 2014 performance share grants, the Company's CEO at the time of the grants nevertheless forfeited 42% of the aggregate grant-date fair value of performance shares granted him in 2012, 2013 and 2014.  This forfeiture, representing 19% of the CEO's aggregate total direct compensation for those three years, exemplifies the Company's pay-for-performance philosophy.

2016 Long-Term Equity Incentive Awards .  The following table sets forth the target number of time-based and performance-based restricted shares granted to the NEOs for 2016 as well as the minimum and maximum number of performance-based shares that may vest based on the Company's total shareholder return relative to the industry peer group over the applicable performance period.  The table also sets forth the fair value of the shares on the date of grant based on a share price of $48.47 for time-based restricted stock and $51.05 for performance-based restricted stock (based on a Monte Carlo valuation model) for all NEOs with the exception of Robert Bourque.  Mr. Bourque was granted shares when he was promoted to President of the Asia Pacific Division in May 2016.  The fair value on the date of grant was $53.87 per share for time-based restricted stock and $55.95 per share for performance-based restricted stock.

 

Retirement Benefits.  To attract and retain highly qualified senior executives and as an incentive for long-term employment, the Company maintains a number of retirement plans.

U.S. Pension Plan .  In the United States, the Company maintains a defined benefit pension plan ("U.S. Pension Plan") for certain eligible employees in which all NEOs participate.  The U.S. Pension Plan is designed and administered to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").  The U.S. Pension Plan provides normal retirement benefits at age 65 based on the average of the five highest consecutive years of earnings in the last ten years prior to employment termination.  For purposes of the U.S. Pension Plan, earnings consist of salary excluding any bonus.  These average earnings are multiplied by 1.25% and by years of service, which yields the annual Company-funded pension benefit.  Under U.S. federal law for 2016, benefits from the U.S. Pension Plan are limited to $210,000 per year and may be based only on the first $265,000 of an employee's annual earnings.

 

Senior Executive Retirement Plan .  Because of the benefit limits under the U.S. Pension Plan described above, the Company provides additional retirement benefits to the NEOs under the Senior Executive Retirement Plan ("SERP").  The annual benefit for executives eligible to participate in the SERP is based upon a formula equal to (i) 2.0% of the average of the five highest consecutive years of earnings (consisting of salary and bonus, but excluding stock compensation, and determined without regard to the limits imposed on tax-qualified plans) during the last 10 years of employment times years of service up to twenty years plus (ii) 1.45% of such earnings for the next fifteen years plus (iii) at the discretion of the Committee, 1% of such earnings for years of service beyond thirty-five years less (iv) Social Security old-age benefits (and similar benefits provided in foreign jurisdictions) attributable to employment with the Company and the Company-funded portion of the executive's Pension Plan benefits.  In the case of Mr. Gifford, the SERP is reduced by his benefits under the Company's Restoration Plan (described below).

All benefits earned under the SERP are paid in a lump sum.  If an NEO with a vested retirement benefit under the SERP dies prior to termination of employment, the NEO's surviving spouse will be entitled to a 50% survivor benefit.  The SERP also provides a lump-sum death benefit of five times the annual retirement benefit.

 

SERP participants vest in their benefits at the earliest of five years of participation, specified retirement dates, total disability or upon a "change in control" of the Company.

 

Restoration Plan .  Prior to participating in the SERP, Mr. Gifford became a participant in the Company's Restoration Plan.  Participants in the Restoration Plan receive supplemental retirement benefits equal to the difference between (i) the benefits that they would have accrued under the U.S. Pension Plan if their target bonus amounts were included in compensation for purposes of calculating their benefits under that Plan and if certain statutory benefit limits did not apply and (ii) the benefits that they actually accrue under the U.S. Pension Plan.  As described above, the benefits to which Mr. Gifford is entitled under the SERP will be offset by the benefits to which he is entitled under the Restoration Plan.

 

Defined Contribution Plan .  The Company also maintains a tax-qualified 401(k) Retirement Savings Plan to which all U.S. salaried employees, including all NEOs, are able to contribute a portion of their salaries on a pre-tax basis.  Subject to certain Code limits, the Company will match 50% of the first 3% of salary that is contributed to this 401(k) plan.

 

Perquisites.  The Company provides the NEOs with a limited number of perquisites and other personal benefits that the Committee believes are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain key executives.  An item is a perquisite if it confers a direct or indirect benefit that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the Company, unless it is generally available on a non-discriminatory basis to all employees.  An item is not a perquisite if it is integrally and directly related to the performance of the executive's duties.  In 2016, the NEOs were provided, among others, the following perquisites: automobile allowances, insurance coverage and, in certain cases, overseas allowances.  Effective January 1, 2016, the Company revised its policy regarding Company-provided automobiles to eliminate after 2018 Company-provided automobiles for most Corporate Headquarters employees, including Messrs. Donahue, Kelly, Gifford and Novaes.

 

Severance .  The Company has employment agreements with all of the NEOs.  In addition to the compensation components listed above, these contracts provide for post-employment severance payments and benefits in the event of employment termination under certain circumstances.  For more information regarding these potential severance payments and benefits, see "Employment Agreements and Potential Payments upon Termination."  The Committee believes that these contracts provide an incentive to the NEOs to remain with the Company and serve to align the interests of the NEOs and Shareholders, including in the event of a potential acquisition of the Company.

Tax Deductibility of Executive Compensation.   Compensation paid to our CEO and to each of our three highest paid NEOs other than our Chief Financial Officer will not be deductible for federal income tax purposes to the extent such compensation exceeds $1 million in any year unless such compensation is "performance-based" as defined in Section 162(m) of the Code.  The Committee has structured performance-based awards to the NEOs under the Company's long-term equity compensation program that qualify for this exemption. In addition, under the AIB Plan, the Committee has structured annual incentive bonuses that also qualify for this exemption.  However, the Committee believes that Shareholder interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some compensation awards result in non-deductible compensation expenses. Therefore, the Committee intends to maintain flexibility to pay compensation that is not entirely deductible when sound direction of the Company would make that advisable.