Is Your Company Prepared for a CEO Transition? - Pearl … · Is Your Company Prepared for a CEO...

Is Your Company Prepared for a CEO Transition?

©2012 Pearl Meyer & Partners, LLC

Is Your Company Prepared for a CEO Transition?

Jack RichieRetired VP HR

Rogers Corporation

World At Work Total Rewards Conference – May 21, 2012

Bernie AldrichChairman of the Board

Apogee Enterprises Warren PlanitzerVP Human ResourcesApogee EnterprisesMelissa Means

Managing DirectorPearl Meyer & Partners

Agenda

Introductions

Setting the Stage

The Rogers Corporation Story

The Apogee Enterprises Inc Story

A Sample Compensation Story

1©2012 Pearl Meyer & Partners, LLC

Introductions

Setting the Stage

The Rogers Corporation Story

The Apogee Enterprises Inc Story

A Sample Compensation Story

Introductions

Panelists

Jack Richie Retired Vice President of Human Resources –Rogers Corporation

Bernie Aldrich Chairman of the Board of Directors – ApogeeEnterprises Inc.


Bernie Aldrich Chairman of the Board of Directors – ApogeeEnterprises Inc.

Warren Planitzer Vice President of Human Resources – ApogeeEnterprises Inc.

Melissa Means Managing Director – Pearl Meyer & Partners

The following chart outlines key constituents and related steps toconsider when working on a CEO transition

Setting the Stage


CEO Transition


The Story

Advanced materials technologycompany specializing in uniquehigh-reliability, high-performancesolutions

2011 Sales of $553.2 M

Headquartered in Rogers, CT;manufacturing & sales worldwide

~2500 employees worldwide

Public Company, ROG on NYSE

Established in 1832

About Rogers Corporation


Advanced materials technologycompany specializing in uniquehigh-reliability, high-performancesolutions

2011 Sales of $553.2 M

Headquartered in Rogers, CT;manufacturing & sales worldwide

~2500 employees worldwide

Public Company, ROG on NYSE

Established in 1832

Our Technologies


High PerformanceFoams

Printed CircuitMaterials

PowerElectronicsSolutionscuramik® DBC SubstratesRO-LINX® Busbars

PORON® Urethane FoamsBISCO® Silicone Materials

ROGERS Advanced CircuitMaterials

GlobalHeadquartersRogers, Connecticut

ManufacturingCarol Stream, IllinoisChandler, ArizonaRogers, ConnecticutWoodstock, Connecticut

ManufacturingEschenbach & Bremen,GermanyGent & Evergem, Belgium

ManufacturingSuzhou, ChinaAnsan, KoreaNagoya, Japan (JV)

Sales OfficesBangaloreBeijingSeoulShanghaiShenzhenSingaporeTaipeiTokyo

North America Europe

Asia

2011 Revenues by Region*

Asia49%

N.America

20%

Other3%

Our Global Reach


GlobalHeadquartersRogers, Connecticut

ManufacturingCarol Stream, IllinoisChandler, ArizonaRogers, ConnecticutWoodstock, Connecticut

ManufacturingSuzhou, ChinaAnsan, KoreaNagoya, Japan (JV)

Sales OfficesBangaloreBeijingSeoulShanghaiShenzhenSingaporeTaipeiTokyo

Europe28%

80% of Sales Outside US

Megatrends Accelerating Our Growth


CLEAN TECHNOLOGY• Variable Frequency Motor

Drives• Wind & Solar Energy• Hybrid Electric Vehicles

MASS TRANSIT• Commercial Aircraft

interiors• Rail power distribution• Vibration Management

INTERNET• Wireless Infrastructure• Mobile Internet Devices• Wired Infrastructure

Preparing for the Trip

Board of Directors establish selection processfor new CEO

List of internal candidates selected

Quarterly progress report to Board

Directors target last 15 months of CEO’stenure to select new CEO


Board of Directors establish selection processfor new CEO

List of internal candidates selected

Quarterly progress report to Board

Directors target last 15 months of CEO’stenure to select new CEO

Starting the Trip – Is there an Internal Candidate?

Search Committee selected

Establish CEO qualifications

Develop process to assess internal candidates

Provide on-the-job development opportunitiesfor internal candidates

Develop internal communication plan


Search Committee selected

Establish CEO qualifications

Develop process to assess internal candidates

Provide on-the-job development opportunitiesfor internal candidates

Develop internal communication plan

Arriving at the 1st Destination

Internal or External?

Internal candidates will not succeed the currentCEO

• Internal candidates were not told at this time


Internal or External?

Internal candidates will not succeed the currentCEO

• Internal candidates were not told at this time

Off to the 2nd Destination – An Outside Search

Compensation package developed with PM&Pfor search firm

Guidance to search firm on screeningcandidates

Create and document external candidateevaluation process

Interviews of external candidates


Compensation package developed with PM&Pfor search firm

Guidance to search firm on screeningcandidates

Create and document external candidateevaluation process

Interviews of external candidates

The 2nd Destination – A Candidate is Selected

Work with PM&P to understand externalcandidate compensation to constructemployment offer

Work with PM&P to create “transitioncompensation package” for current CEO


Work with PM&P to understand externalcandidate compensation to constructemployment offer

Work with PM&P to create “transitioncompensation package” for current CEO

Arrival at Final Destination

Develop internal and external communicationsplan

New CEO contact each direct report

Current and new CEO develop transition plan

First day “town hall” meeting with allemployees at Corporate Offices

Coaching process for new CEO


Develop internal and external communicationsplan

New CEO contact each direct report

Current and new CEO develop transition plan

First day “town hall” meeting with allemployees at Corporate Offices

Coaching process for new CEO

Key Take Aways

Selection criteria based on competencies, skillsand experiences

All Directors need to agree on selection criteria

Interviews need to be structured and documented

Work with PM&P on compensation issues

Transition to new CEO as quickly as possible

Only include “qualified” internal candidates


Selection criteria based on competencies, skillsand experiences

All Directors need to agree on selection criteria

Interviews need to be structured and documented

Work with PM&P on compensation issues

Transition to new CEO as quickly as possible

Only include “qualified” internal candidates


The Story

Industry leader in GlassFabrication forArchitectural & PictureFraming Products

Founded in 1949

More than 3,400employees in 6 businessunits within the U.S. andBrazil

Publicly traded on theNASDAQ (APOG)

Fiscal 2012 sales >$663M

About Apogee Enterprises, Inc.


Industry leader in GlassFabrication forArchitectural & PictureFraming Products

Founded in 1949

More than 3,400employees in 6 businessunits within the U.S. andBrazil

Publicly traded on theNASDAQ (APOG)

Fiscal 2012 sales >$663MMandalay BayLas Vegas, NV

Primarily commercial &institutional customers

Visible presence onskylines around theworld:

• Africa, Asia, Australia,Europe, New Zealand,North and SouthAmericas, Middle East

Dominate the PictureFraming Glass &Acrylic Market

About Apogee Enterprises, Inc.


Primarily commercial &institutional customers

Visible presence onskylines around theworld:

• Africa, Asia, Australia,Europe, New Zealand,North and SouthAmericas, Middle East

Dominate the PictureFraming Glass &Acrylic Market

Freedom Tower & Ground Zero SiteNew York, NY

Background

Apogee Background

Board Discussion

CEO/Director Meeting


Board Action

Formulation of Board search committee

• Apogee business strategy

• Apogee situation

• Candidate attributes

Director interviews

Management interviews

Search firm selection – Spencer Stuart


Formulation of Board search committee

• Apogee business strategy

• Apogee situation

• Candidate attributes

Director interviews

Management interviews

Search firm selection – Spencer Stuart

Process

Candidate sourcing

Internal candidates

Pearl Meyer & Partners

Interview


Candidate sourcing

Internal candidates

Pearl Meyer & Partners

Interview

Selection

Offer

Development of compensation package

Identification and resolution of compensationissues

Clarification of existing non-competes

Board review and approval


Offer

Development of compensation package

Identification and resolution of compensationissues

Clarification of existing non-competes

Board review and approval

Issues

Timeline is difficult to co-ordinate between sitting CEO,Board, and new CEO

Verification, clarification, and valuation of LTI which newCEO will be forfeiting from current employer requiresindependent analysis

Verification, clarification, and valuation of departing CEOLTI and bonus opportunity must be addressed

Existing non-competes must be reviewed by legal counsel

What and when such information should be shared with theexecutive management team to keep them informed yetprotect the confidentiality of the search / candidate


Timeline is difficult to co-ordinate between sitting CEO,Board, and new CEO

Verification, clarification, and valuation of LTI which newCEO will be forfeiting from current employer requiresindependent analysis

Verification, clarification, and valuation of departing CEOLTI and bonus opportunity must be addressed

Existing non-competes must be reviewed by legal counsel

What and when such information should be shared with theexecutive management team to keep them informed yetprotect the confidentiality of the search / candidate

On-Boarding

Pre-start date preparation

Announcement day

External and internal communication

Ongoing coaching and support


Pre-start date preparation

Announcement day

External and internal communication

Ongoing coaching and support

Introduction to the Company

First staff meeting

On-site business unit Town Hall meeting

Two-way communication

Speed and thoroughness


First staff meeting

On-site business unit Town Hall meeting

Two-way communication

Speed and thoroughness

Key Take Aways

Don’t underestimate the depth and breadth ofpreparation needed

Remain flexible with a solid strategy

Keep listening to all voices throughout the process

“One-size” does not fit all

It is difficult and unlikely that an internal CEO candidatecan be selected and groomed within a $500 million dollarorganization attempting a strategic directional change

First time CEO’s need coaching on the role of the Boardand communication with the Board

Executive management team needs to understand therole of the Board and frequency of communication withthe Board


Don’t underestimate the depth and breadth ofpreparation needed

Remain flexible with a solid strategy

Keep listening to all voices throughout the process

“One-size” does not fit all

It is difficult and unlikely that an internal CEO candidatecan be selected and groomed within a $500 million dollarorganization attempting a strategic directional change

First time CEO’s need coaching on the role of the Boardand communication with the Board

Executive management team needs to understand therole of the Board and frequency of communication withthe Board

A Sample Compensation Story –A Side-by-Side Comparison


A Sample Compensation Story –A Side-by-Side Comparison

Recruiter Information(as Provided by the Candidate)

Total Cash:$400,000 - base salary$450,000 - annual guaranteed bonus$320,000 - short-term cash bonus$250,000 - LTIP paid in cash (annual part of 2-year program)$25,000 - other compensation$1,050,000 - total cash compensation

LTI:$300,000 - annual restricted stock (RS) grant value; best over 3 yrs$250,000 - annual stock options (SO) grant value; vest over 3 yrs$1,800,000 - unvested restricted shares (net after $750,000 vests7/1/11)

There is no non-competition or restrictive covenants.

Two bonuses? What’sthe difference?

What does this include?


Total Cash:$400,000 - base salary$450,000 - annual guaranteed bonus$320,000 - short-term cash bonus$250,000 - LTIP paid in cash (annual part of 2-year program)$25,000 - other compensation$1,050,000 - total cash compensation

LTI:$300,000 - annual restricted stock (RS) grant value; best over 3 yrs$250,000 - annual stock options (SO) grant value; vest over 3 yrs$1,800,000 - unvested restricted shares (net after $750,000 vests7/1/11)

There is no non-competition or restrictive covenants.

PM&P Information(as Provided by the Candidate)

Compensation Components FY 2010 FY 2011

Cash & Equity Compensation

Base Salary $375,000 $400,000

Target Bonus($) $187,500 $200,000

Actual Bonus $320,000(85% of base salary)

TBD(estimated at 170%

achievement= $340,000)

Annual Perquisite Allowance $25,000 $25,000

Long-Term Incentives $935,340 $1,071,250


Long-Term Incentives(at target) $935,340 $1,071,250

- Stock Options(grant date fair value) $214,320 $306,000

- Restricted Units(RUs)(grant date fair value) $241,020 $285,250

- Growth Units(GUs)–(grant date fair valueat target)

$480,000(estimated at 177% achievement = $850,,000)

ActualTotal Direct $1,670,340 $1,846,250

PM&P Information(as Provided by the Candidate)

CompensationComponents

Unvested

NotesShares Stock Price on Date

of Grant

In-The Money Valueof Options / Fair

Market Value

As of 2011

Stock Options

14,000 granted on 2/28/08 – 3,500(25%) remain unvested $58.50 $0

Unvested Value The “in-the money” value is

based on a current stock priceof $57.00 as of June 22, 2011.

Please note 3,500 stock optionsare slated to vest in the nextfew days on June 26, 2011.However, due to the grant pricebeing higher than the currentstock price ($57.00), theoptions hold no current value.

32,000 granted on 2/24/09 – 16,000(50%) remain unvested $28.00 $464,000



Sub-Total 62,500 -- $766,940

Restricted Units

13,000 vests on 2/24/2012 $741,000

Unvested Value Reflects the value of unvested

restricted shares multiplied bythe current stock price of$57.00 as of June 22, 2011.

4,000 vests on 7/31/2012 $228,000

6,000 vests on 2/26/2013 $342,000

2,400 vests on 3/12/2013 $136,800

6,000 vests on 6/28/2013 $342,000

5,000 vests on 2/25/2014 $285,000

5,000 vests on 7/13/2014 $285,000

Sub-Total 41,400 -- $2,359,800

Growth Units 4,800 $100

$850,000(estimated at 177%

achievement to be paidin cash)

Unvested Value Reflects the estimated

expected payout of 177% oftarget (current performanceachievement) at the end of the2-year performance period(1/1/2010 – 12/31/2011).Award to be paid in cash 50%in 2013 and 50% in 2014.

Total 103,900 -- $3,976,740


Benefits - Health insurance premium paid by 70% company and 30% employee, Vacation – Entitled to 4 weeks ofvacation, Receives annual $25,000 perq allowance to pay for other perquisites

Retirement and Non-Qualified Deferred Compensation Plans - All retirement benefits are fully vested

Severance/CIC Benefits - Severance – 1X salary plus bonus, medical/dental for 1 year and all outstanding equity isforfeited; CIC – Single Trigger – immediate acceleration of all outstanding equity; CIC – Double Trigger – 1Xsalary plus bonus, medical/dental for 1 year

CompensationComponents

Unvested

NotesShares Stock Price on Date

of Grant

In-The Money Valueof Options / Fair

Market Value

As of 2011

Stock Options


Unvested Value The “in-the money” value is

based on a current stock priceof $57.00 as of June 22, 2011.

Please note 3,500 stock optionsare slated to vest in the nextfew days on June 26, 2011.However, due to the grant pricebeing higher than the currentstock price ($57.00), theoptions hold no current value.




Sub-Total 62,500 -- $766,940

Restricted Units

13,000 vests on 2/24/2012 $741,000

Unvested Value Reflects the value of unvested

restricted shares multiplied bythe current stock price of$57.00 as of June 22, 2011.

4,000 vests on 7/31/2012 $228,000

6,000 vests on 2/26/2013 $342,000

2,400 vests on 3/12/2013 $136,800

6,000 vests on 6/28/2013 $342,000

5,000 vests on 2/25/2014 $285,000

5,000 vests on 7/13/2014 $285,000

Sub-Total 41,400 -- $2,359,800

Growth Units 4,800 $100

$850,000(estimated at 177%

achievement to be paidin cash)

Unvested Value Reflects the estimated

expected payout of 177% oftarget (current performanceachievement) at the end of the2-year performance period(1/1/2010 – 12/31/2011).Award to be paid in cash 50%in 2013 and 50% in 2014.

Total 103,900 -- $3,976,740

PM&P Information (as Provided by the Candidate)

The following outlines some issues to consider for the Companywhen formulating an offer for a new CEO candidate:

• The Company is 4 months into its current fiscal year and should take thisinto account when determining the annual bonus and LTI awardopportunities

• All retirement plan benefits are fully vested

• If the executive voluntarily terminates employment, the executive willleave behind the following:

» A cash bonus payout under the annual incentive plan of $340,000

» A total of 62,500 stock options with an in-the-money value of $766,940

» A total of 41,400 time-based restricted units with a current value of $2,359,800

» An opportunity for a growth unit plan cash payout of $850,000

» Total lost value of the above


The following outlines some issues to consider for the Companywhen formulating an offer for a new CEO candidate:

• The Company is 4 months into its current fiscal year and should take thisinto account when determining the annual bonus and LTI awardopportunities

• All retirement plan benefits are fully vested

• If the executive voluntarily terminates employment, the executive willleave behind the following:

» A cash bonus payout under the annual incentive plan of $340,000

» A total of 62,500 stock options with an in-the-money value of $766,940

» A total of 41,400 time-based restricted units with a current value of $2,359,800

» An opportunity for a growth unit plan cash payout of $850,000

» Total lost value of the above $4,316,740

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