DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to §240. 14a-12

MASCO CORPORATION

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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LOGO

 

 

  

Masco Corporation

21001 Van Born Road

Taylor, Michigan 48180

 

313-274-7400

www.masco.com

March 28, 2014

Dear Stockholder:

You are cordially invited to attend Masco Corporation’s Annual Meeting of Stockholders on Tuesday, May 6, 2014 at 10:00 A.M. at our corporate office in Taylor, Michigan.

The following pages contain information regarding the meeting schedule and the matters proposed for your consideration and vote. Following our formal meeting, we expect to provide a review of our operations and respond to your questions.

Our Annual Meeting agenda again includes an advisory “say-on-pay” vote to approve the compensation paid to our named executive officers. We are pleased that our say-on-pay proposal received strong support last year. We believe input from our ongoing outreach to our largest stockholders and our independent compensation consultant further strengthened our executive compensation program in 2013 as we continue to enhance our pay-for-performance practices. Our agenda also includes a proposal to approve the 2014 Long Term Stock Incentive Plan (the “2014 Plan”). Our existing equity compensation plan expires in 2015. Equity compensation is a key element of our overall compensation program because it links pay with our performance, and therefore, we are asking for stockholder approval of the 2014 Plan. We urge you to carefully consider the information in the proxy statement regarding these and the other proposals to be presented at our Annual Meeting.

Your vote on the proposals presented in the accompanying notice and proxy statement is important, regardless of whether or not you are able to attend the Annual Meeting. Voting instructions can be found on the enclosed proxy card. Please submit your vote today by internet, telephone or mail.

On behalf of our entire Board of Directors, we thank you for your continued support of Masco Corporation and look forward to seeing you on May 6.

Sincerely,

 

LOGO

Verne G. Istock

Chairman of the Board

 

LOGO

Keith J. Allman

President and Chief Executive Officer

 


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MASCO CORPORATION 2014 PROXY STATEMENT       May 6, 2014  

 

 

MASCO CORPORATION

Notice of Annual Meeting of Stockholders

 

 

 

Date:   May 6, 2014
Time:   10:00 A.M. Eastern Time
Place:       Masco Corporation
  21001 Van Born Road
  Taylor, Michigan 48180

The purposes of the Annual Meeting are:

 

  1. To elect four Class II directors;

 

  2. To consider and act upon a proposal to approve the compensation paid to our named executive officers;

 

  3. To ratify the selection of PricewaterhouseCoopers LLP as our independent auditors for 2014;

 

  4. To consider and act upon a management proposal to approve the 2014 Long Term Stock Incentive Plan; and

 

  5. To transact such other business as may properly come before the meeting.

The Company recommends that you vote as follows:

 

   

FOR each director nominee;

 

   

FOR the approval of executive compensation;

 

   

FOR the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors; and

 

   

FOR the approval of the 2014 Long Term Stock Incentive Plan.

Stockholders of record at the close of business on March 14, 2014 are entitled to vote at the Annual Meeting or any adjournment or postponement of the meeting. Whether or not you plan to attend the Annual Meeting, you can ensure that your shares are represented at the meeting by promptly voting by internet or by telephone, or by completing, signing, dating and returning your proxy card in the enclosed postage prepaid envelope. Instructions for each of these methods and the control number that you will need are provided on the proxy card. You may withdraw your proxy before it is exercised by following the directions in the proxy statement. Alternatively, you may vote in person at the meeting. Directions to our corporate office, where the meeting will be held, are on the back cover of the proxy statement.

By Order of the Board of Directors,

 

LOGO

Kenneth G. Cole

Secretary

March 28, 2014

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

STOCKHOLDER MEETING TO BE HELD ON MAY 6, 2014. THIS PROXY STATEMENT AND THE

MASCO CORPORATION 2013 ANNUAL REPORT TO STOCKHOLDERS ARE AVAILABLE AT:

http://www.ezodproxy.com/masco/2014


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  May 6, 2014       MASCO CORPORATION 2014 PROXY STATEMENT

 

2014 Proxy Statement Summary

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider. You should read the entire proxy statement carefully before voting.

 

 

MEETING INFORMATION

 

 

Date:    May 6, 2014    Record Date:   March 14, 2014
Time: Place:   

10:00 A.M. Eastern Time Masco Corporation

21001 Van Born Road

Taylor, Michigan 48180

   Shares Outstanding
as of the Record Date:
 

 

357,683,811

 

 

VOTING MATTERS

 

 

    Proposals   Board  Recommendation   Vote Required

Proposal 1:

  Election of Class II Directors   FOR EACH NOMINEE   Majority of Votes Cast

Proposal 2:

  Advisory Vote to Approve the Compensation Paid to our Named Executive Officers   FOR   Majority of Votes Cast

Proposal 3:

  Ratification of the Selection of Independent Auditors   FOR   Majority of Votes Cast

Proposal 4:

  Management Proposal to Approve the 2014 Long Term Stock Incentive Plan   FOR   Majority of Votes Cast

 

 

DIRECTOR NOMINEES

 

The following individuals are director nominees for Class II, with a term expiring at the Annual Meeting in 2017.

 

                Committees
Name   Position   Director
Since
  Independent   Audit   Organization
and
Compensation
 

Corporate

Governance
and

Nominating

Keith J. Allman

  President and Chief Executive Officer of Masco Corporation   2014                

Verne G. Istock

  Retired Chairman/President of Bank One Corporation   1997   X

Chairman

of the Board

      X   Chair

J. Michael Losh

  Retired Chief Financial Officer and Executive Vice President of General Motors Corporation   2003   X   Chair   X    

Christopher A. O’Herlihy

 

Executive Vice President

Illinois Tool Works Inc.

  2013   X   X       X

 


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MASCO CORPORATION 2014 PROXY STATEMENT       May 6, 2014  

 

 

 

2013 EXECUTIVE COMPENSATION

 

We are committed to maintaining executive compensation programs that promote the long-term interests of our stockholders by attracting and retaining talented executives and motivating them to achieve our business objectives and to create long-term value for our stockholders. At our 2013 Annual Meeting, over 90% of the votes cast on our say-on-pay proposal approved the compensation paid to our named executive officers.

We have adopted a number of changes to our compensation programs since 2011 based on our Board of Director’s Organization and Compensation Committee’s review of these programs and stockholder feedback. These changes include:

 

   

Adopting an anti-hedging and anti-pledging policy in 2013 that prohibits the hedging of our stock by our executives and directors, and also prohibits (without preapproval) these individuals from making future pledges of our stock;

 

   

Strengthening our clawback policy to enable the Organization and Compensation Committee to recover incentive compensation if we restate our financial statements;

 

   

Significantly reducing our executive officers’ stock option opportunity and introducing a new Long Term Cash Incentive Program based on return on invested capital performance over a three-year period;

 

   

Changing the mix of long-term incentives to give approximately equal weight to performance-based restricted stock, stock options, and our Long Term Cash Incentive Program;

 

   

Eliminating the excise tax gross-up feature on all equity grants beginning in 2012;

 

   

Increasing our CEO’s stock ownership requirement to six times base salary; and

 

   

Adopting double-trigger vesting of equity on a change in control for all equity grants beginning in 2013.

In 2013, the Organization and Compensation Committee continued to review our compensation programs and practices to ensure alignment of our Company’s best interests and the objectives for our compensation programs. We continued our communications with our largest stockholders on a broad range of executive compensation and governance topics.

Our performance in 2013 improved significantly compared to 2012. Consistent with our commitment to pay-for-performance, the compensation we paid to our executive officers increased, and our executive officers earned restricted stock awards and cash bonuses based on our achievement of our 2013 performance metrics of operating profit and working capital as a percent of sales. Our 2013 results and the incentive compensation paid to our executive officers are described in our Compensation Discussion and Analysis under “Summary of Compensation Decisions for 2013.”

 

 

PROPOSAL TO APPROVE THE 2014 LONG TERM STOCK INCENTIVE PLAN

 

Equity compensation is a key element of our overall compensation program because it links pay with our performance and represents a significant portion of the compensation package for our key employees. We are asking for stockholder approval of the 2014 Long Term Stock Incentive Plan (the “2014 Plan”), which authorizes us to grant equity awards for 8 million shares, plus shares under awards existing on May 6, 2014 that are forfeited, canceled, expired or withheld.

The 2014 Plan provides for the award of stock options, restricted stock, stock appreciation rights, restricted stock units, dividend equivalents and performance awards (of cash or stock) to our employees, consultants and directors for the purpose of attracting, motivating, retaining and rewarding them. The 2014 Plan includes the following features to protect our stockholders’ interests and help ensure effective corporate governance:

 

   

Limit on shares authorized;

 


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  May 6, 2014       MASCO CORPORATION 2014 PROXY STATEMENT

 

 

   

Minimum three-year vesting for awards that vest solely based on continued service;

 

   

No discounted stock options;

 

   

No repricing of stock options;

 

   

Double trigger required for vesting in case of change in control;

 

   

No provision for gross-up for excise taxes paid by participants;

 

   

Clawback in the case of financial restatement; and

 

   

Independent committee administration.

The 2014 Plan also contains performance metrics that we may use for performance-based compensation paid or granted under the 2014 Plan and intended to qualify under Internal Revenue Code Section 162(m). Stockholder approval of the 2014 Plan will also be considered as stockholder approval of the performance metrics, which would help preserve our ability to deduct for income tax purposes compensation associated with future performance-based awards made to certain executives in accordance with Section 162(m) of the Internal Revenue Code.

The 2014 Plan, including the performance metrics, is described more fully in Proposal 4, Approval of the 2014 Long Term Stock Incentive Plan. The 2014 Plan is attached to this proxy statement as Appendix A.

 


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MASCO CORPORATION 2014 PROXY STATEMENT       May 6, 2014  

 

Table of Contents

 

Part I – General Information     1   
General Information     1   

Who is entitled to vote at the Annual Meeting?

    1   

What is the difference between holding shares as a record holder and as a beneficial owner?

    1   

What is a broker non-vote?

    1   

How are abstentions and broker non-votes treated?

    1   

What constitutes a quorum?

    2   

How can I submit my vote?

    2   

How many votes are needed for each proposal to pass?

    2   

Is my proxy revocable?

    3   

Who is paying for the expenses involved in preparing and mailing this proxy statement?

    3   

What happens if additional matters are presented at the Annual Meeting?

    3   

What is “householding” and how does it affect me?

    3   

Our Website

    3   
 
Part II – Corporate Governance     4   
Corporate Governance     4   

Leadership Structure of the Board of Directors

    4   

Independence of our Directors

    4   

Board of Directors and Independent Committees of the Board

    5   

Risk Oversight

    5   

Communications with Our Board of Directors

    5   
Executive Officers     6   
Security Ownership of Management and Certain Beneficial Owners     7   
Section 16(a) Beneficial Ownership Reporting Compliance     9   
Certain Relationships and Related Transactions     9   
 
Part III – Board of Directors     10   
Board of Directors     10   
Director Nominees for Class II (Term Expiring at the Annual Meeting in 2017)     11   
Class III Directors (Term Expiring at the Annual Meeting in 2015)     13   
Class I Directors (Term Expiring at the Annual Meeting in 2016)     14   
Director Attendance and Committees     15   

Audit Committee

    15   

Organization and Compensation Committee

    15   

Corporate Governance and Nominating Committee

    15   
Compensation of Directors     16   
 
Part IV – Executive Compensation     18   
Compensation Discussion and Analysis     18   

Executive Summary

    18   

How did our 2013 financial performance impact the compensation we paid to our executive officers?

    18   

How did we consider the 2013 say-on-pay vote?

    18   

What compensation “best practices” have we adopted?

    19   


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  May 6, 2014       MASCO CORPORATION 2014 PROXY STATEMENT

 

Compensation principles and objectives that are the foundation for Masco’s executive compensation programs

    19   

Annual Review Process

    20   

What process is used by management and the Committee to make compensation decisions?

    20   

What compensation data are considered by the Committee in establishing annual compensation?

    21   

Has the Committee engaged a compensation consultant?

    22   

Summary of Compensation Decisions for 2013

    23   

How did Masco perform in 2013?

    23   

What were the components of Masco’s executive compensation program in 2013?

    23   

How did the executive officers’ direct compensation in 2013 compare to 2012?

    27   

Masco’s Executive Compensation Programs Incorporate Best Practices

    28   

We Prohibit Hedging and Pledging

    28   

We Can Clawback Incentive Compensation

    28   

We Require Minimum Levels of Stock Ownership by Our Executives

    29   

We Prohibit Excise Tax Gross-Up Payments

    29   

We Have Adopted Double-Trigger Change of Control Provisions for Our Equity Awards

    29   

We Do Not Have Employment, Change in Control or Severance Contracts

    29   

Our Policies Encourage Executive Retention and Protect Us

    30   

Our Committee Conducts an Annual Compensation Risk Evaluation

    30   

Tax Treatment

    30   

Conclusion

    30   
Compensation Committee Report     31   
Compensation of Executive Officers     32   

Summary Compensation Table

    32   

Grants of Plan-Based Awards

    34   

Outstanding Equity Awards at Fiscal Year-End

    36   

Option Exercises and Stock Vested

    38   

Retirement Plans

    38   

Payments Upon Change in Control

    41   

Payments Upon Retirement, Termination, Disability or Death

    42   
 
Part V – Audit Committee Matters     44   
Audit Committee Report     44   
PricewaterhouseCoopers LLP Fees     45   
 
Part VI – Proposals     46   
Proposal 1:   Election of Class II Directors     46   
Proposal 2:   Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers     47   
Proposal 3:   Ratification of Selection of Independent Auditors     49   
Proposal 4:   Approval of the 2014 Long Term Stock Incentive Plan     50   

Introduction

    50   

Why should our stockholders approve the 2014 Plan?

    50   

What has been Masco’s historic equity usage?

    50   

How was the size of the new share authorization determined?

    51   

What key provisions of the 2014 Plan protect our stockholders’ interests and promote effective corporate governance?

    51   


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MASCO CORPORATION 2014 PROXY STATEMENT       May 6, 2014  

 

Summary of the Terms and Conditions of the 2014 Plan

    52   

Who is eligible to receive awards?

    52   

Are there limits on awards under the 2014 Plan?

    52   

What types of awards may be granted under the 2014 Plan?

    53   

What is the maximum aggregate amount of awards that can be granted to a participant during the year?

    53   

What special requirements must Section  162(m) “qualified performance-based compensation” awards under the 2014 Plan satisfy?

    54   

When may dividend equivalents be paid with respect to performance awards?

    55   

What happens upon a change in control of the Company?

    55   

What kind of adjustments can be made for corporate reorganizations?

    55   

What will be the specific terms of the awards under the 2014 Plan?

    55   

Can the Company withhold shares for taxes?

    56   

Who administers the 2014 Plan?

    56   

Can the 2014 Plan be amended or terminated?

    56   

Will the 2014 Plan be exclusive?

    57   

What are the federal income tax consequences of the 2014 Plan?

    57   

What are the consequences if the 2014 Plan is not approved by stockholders?

    58   

New Plan Benefits

    58   

Vote Required to Approve the 2014 Plan

    58   

Equity Compensation Plan Information

    59   
 
Part VII – Other Matters     60   
2015 Annual Meeting of Stockholders     60   
Other Matters     61   
 
Appendix A     A-1   
Masco Corporation 2014 Long Term Stock Incentive Plan     A-1   

 


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MASCO CORPORATION 2014 PROXY STATEMENT       PART I – GENERAL INFORMATION  

 

Masco Corporation Proxy Statement Annual Meeting of Stockholders on May 6, 2014

 

 

GENERAL INFORMATION

 

The Board of Directors of Masco Corporation (referred to as the “Company” or “we,” “us,” or “our” in this proxy statement) is soliciting the enclosed proxy for use at the Annual Meeting of Stockholders of Masco Corporation to be held at our corporate office at 21001 Van Born Road, Taylor, Michigan 48180, on Tuesday, May 6, 2014 at 10:00 A.M., and at any adjournment or postponement of the Annual Meeting. This proxy statement and the enclosed proxy card are being mailed or otherwise made available to stockholders on or about March 28, 2014. We are concurrently mailing to stockholders a copy of our 2013 Annual Report to Stockholders, which includes our Form 10-K for the year ended December 31, 2013.

Who is entitled to vote at the Annual Meeting?

Our Board established the close of business on March 14, 2014 as the record date to determine the stockholders entitled to receive a notice of, and to vote at, our Annual Meeting or an adjournment or postponement of the meeting. On the record date, there were 357,683,811 shares of our common stock, $1 par value, outstanding and entitled to vote. Each share of our common stock represents one vote that may be voted on each matter that may come before the Annual Meeting.

All shares of our common stock represented by properly executed and unrevoked proxies will be voted by the persons named as proxy holders in accordance with the instructions given. If no instructions are indicated on a proxy, properly executed proxies will be voted as follows:

 

   

FOR each director nominee,

 

   

FOR the approval of executive compensation,

 

   

FOR the selection of PricewaterhouseCoopers LLP as our independent auditors, and

 

   

FOR the approval of the 2014 Long Term Stock Incentive Plan.

What is the difference between holding shares as a record holder and as a beneficial owner?

If your shares are registered in your name with our registrar and transfer agent, Computershare, you are the “record holder” of those shares. If you are a record holder, we have provided these proxy materials directly to you.

If your shares are held in a stock brokerage account, or with a bank or other holder of record, you are considered the “beneficial owner” of those shares held in “street name.” If your shares are held in street name, these proxy materials have been forwarded to you by your bank or broker. As the beneficial owner, you have the right to instruct that organization on how to vote your shares.

What is a broker non-vote?

If your shares are held in “street name” through a bank, broker or other nominee, you must provide voting instructions to that organization. If you do not provide voting instructions, the organization may vote in its discretion on routine proposals, but not on non-routine proposals, which is called a “broker non-vote.” Except for Proposal 3, Ratification of Selection of Independent Auditors, all of the proposals on our agenda are non-routine.

How are abstentions and broker non-votes treated?

Abstentions are not treated as votes cast for Proposals 1, 2 and 3, so they will not have an effect on those proposals. Under New York Stock Exchange requirements for the approval of equity plans, abstentions will

 

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  PART I – GENERAL INFORMATION       MASCO CORPORATION 2014 PROXY STATEMENT

 

have the effect of being counted as a vote cast “against” Proposal 4, Approval of the 2014 Long Term Stock Incentive Plan.

Broker non-votes are not treated as votes cast, so they will not have an effect on any of the proposals at this Annual Meeting.

What constitutes a quorum?

To conduct business at our Annual Meeting, we must have a quorum of stockholders present. A quorum is present when a majority of the outstanding shares of stock entitled to vote, as of the record date, are represented in person or by proxy. Broker non-votes and abstentions will be counted toward the establishment of the quorum.

How can I submit my vote?

There are four methods you can use to vote: by internet, by telephone, by mail or in person. Submitting your proxy by internet, telephone or mail will not affect your right to attend the Annual Meeting and change your vote. Unless you are voting in person, your vote must be received by 11:59 p.m. EDT on May 5, 2014.

 

METHOD                RECORD HOLDER   BENEFICIAL OWNER
Internet    Have your proxy card available and log on to www.proxyvote.com.   If your bank or broker makes this method available, the instructions will be included with the proxy materials.
Telephone    Have your proxy card available and call (800) 690-6903 from a touchtone telephone anywhere (toll free only in the United States).   If your bank or broker makes this method available, the instructions will be included with the proxy materials.

Mail Your 

Proxy Card 

  Mark, date, sign and promptly mail the enclosed proxy card in the postage-paid envelope provided for mailing in the United States.   Mark, date, sign and promptly mail the voting instruction form provided by your bank or broker in the postage-paid envelope provided for mailing in the United States.
In Person    You may vote by ballot in person at the Annual Meeting.   Obtain proof of stock ownership as of the record date and a valid legal proxy from the organization that holds your shares and attend the Annual Meeting.

How many votes are needed for each proposal to pass?

All of the matters to be considered at our Annual Meeting require the approval of a majority of the votes that are actually cast.

Our Bylaws provide that, in uncontested elections, directors are elected if the majority of votes cast FOR each nominee exceed the votes cast AGAINST such nominee. Proxies cannot be voted for a greater number of persons than the number of nominees named. Each director nominee will provide to us an irrevocable resignation if the majority of the votes cast are against him or her. The resignation will be effective within 90 days after the election results are certified, if the Board (excluding nominees who did not receive a majority of votes for their election) accepts the resignation, which it will do in the absence of a compelling reason otherwise.

If you are the stockholder of record, and you sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by our Board on all matters presented in this proxy statement, and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the meeting.

 

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MASCO CORPORATION 2014 PROXY STATEMENT       PART I – GENERAL INFORMATION  

 

Is my proxy revocable?

You may revoke your proxy before it is exercised by voting in person at the Annual Meeting, by timely delivering a subsequent proxy or by notifying us in writing of such revocation to the attention of Kenneth G. Cole, Secretary, at 21001 Van Born Road, Taylor, Michigan 48180 before your proxy is voted. Unless you revoke your proxy in person at the meeting, your revocation must be received by 11:59 p.m. EDT on May 5, 2014.

Who is paying for the expenses involved in preparing and mailing this proxy statement?

We are paying the expenses involved in preparing, assembling and mailing these proxy materials and all costs of soliciting proxies. Our executive officers and other employees may solicit proxies, without additional compensation, personally and by telephone and other means of communication. In addition, we have retained Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to assist in the solicitation of proxies for a fee of $12,000, plus expenses. If you have questions about voting your shares, you may call Morrow & Co., LLC, at (800) 607-0088 (for stockholders) or (203) 658-9400 (for banks and brokerage firms). We will reimburse brokers and other persons holding our common stock in their names or in the names of their nominees for their reasonable expenses in forwarding proxy materials to beneficial owners.

What happens if additional matters are presented at the Annual Meeting?

Other than the items of business described in this proxy statement, we are not aware of any other business to be acted upon at the Annual Meeting. If you grant a proxy, the persons named as proxy holders, Messrs. Allman and Cole, will have the discretion to vote your shares on any additional matters properly presented for a vote at the Annual Meeting. If for any reason any of our director nominees is not available as a candidate, Messrs. Allman and Cole may vote your shares for another candidate (or candidates) who may be nominated by the Board, or the Board may reduce its size.

What is “householding” and how does it affect me?

The proxy rules of the Securities and Exchange Commission (the “SEC”) permit companies and intermediaries, such as brokers and banks, to satisfy proxy statement delivery requirements for two or more stockholders sharing an address by delivering one proxy statement to those stockholders. This procedure, known as “householding,” reduces the amount of duplicate information that stockholders receive and lowers our printing and mailing costs.

We have been notified that certain intermediaries will use householding for our proxy materials and our 2013 Annual Report. Therefore, only one proxy statement and 2013 Annual Report may have been delivered to your address if multiple stockholders share that address. Stockholders who wish to opt out of this procedure and receive separate copies of the proxy statement and annual report in the future, or stockholders who are receiving multiple copies and would like to receive only one copy, should contact their bank, broker or other nominee or us at the address and telephone number below.

We will promptly send a separate copy of the proxy statement for the Annual Meeting or 2013 Annual Report if you send your request to webmaster@mascohq.com, call our Investor Relations Department at (313)  274-7400, or if you write to Investor Relations, Masco Corporation, 21001 Van Born Road, Taylor, Michigan 48180.

Our Website

We maintain a website at www.masco.com. The information on our website is not a part of this proxy statement, and it is not incorporated into any other filings we make with the SEC.

 

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  PART II – CORPORATE GOVERNANCE       MASCO CORPORATION 2014 PROXY STATEMENT

 

Corporate Governance

Our Board of Directors is committed to maintaining our high standards of ethical business conduct and corporate governance principles and practices.

Leadership Structure of the Board of Directors

Mr. Verne Istock assumed the role of Chairman of the Board effective July 1, 2012, when Mr. Richard Manoogian, who had served as Chairman of the Board since 1985, became our Chairman Emeritus. Mr. Istock had served as our Lead Director (formerly Presiding Director) since 2003.

As an independent Chairman of the Board, Mr. Istock presides at Board meetings and at executive sessions of the independent directors; consults with management regarding information sent to the Board; approves the Board’s meeting agendas and assures that there is sufficient time for discussion of all agenda items; has the authority to call meetings of the independent directors; and oversees the Board and Committee self-evaluation process.

Mr. Istock has a strong working relationship with the other members of the Board. Although the Board believes that this Board leadership structure is in the best interests of the Company and our stockholders at this time, the Board has no policy with respect to the separation of the roles of CEO and Chairman and believes that this matter should be discussed and determined by the Board from time to time, based on all of the then-current facts and circumstances. If the roles of Chairman and CEO are combined in the future, the role of Lead Director would likely become part of our Board leadership structure again.

If you are interested in contacting the Chairman of the Board, you may send your communication in care of our Secretary to the address specified in “Communications with Our Board of Directors” below.

Independence of our Directors

Our Corporate Governance Guidelines require that a majority of our directors qualify as “independent” under the requirements of applicable law and the New York Stock Exchange’s listing standards. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with us. Our Board has adopted standards to assist it in making a determination of independence for directors. These standards are posted on our website at www.masco.com.

Our Board has determined that all of our non-employee directors, other than Mr. Manoogian, are independent. Our independent directors are Messrs. Archer, Istock, Losh, O’Herlihy, Parfet and Plant, Ms. Payne and Ms. Van Lokeren. Our Board also determined that Mr. Thomas Denomme, who served as a director until our 2013 Annual Meeting, was also independent. In making its independence determinations, the Board reviewed all transactions, relationships and arrangements for the last three fiscal years involving each non-employee director and the Company. In evaluating Mr. O’Herlihy’s independence, the Board considered the fact that, from time to time, we and our consolidated subsidiaries purchase goods and services from Illinois Tool Works Inc. and its subsidiaries. The aggregate amount of these purchases approximated $1.88 million in 2013. The Board does not believe that Mr. O’Herlihy has a material interest in these transactions. Mr. Wadhams, who retired as our President and Chief Executive Officer in February 2014, remains as a non-independent director. Mr. Allman is now our President and Chief Executive Officer and, as an employee, is not an independent director.

The Board also determined that we did not make any discretionary charitable contributions exceeding the greater of $1 million or 2% of the revenues of any charitable organization in which any of our directors was actively involved in the day-to-day operations.

 

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MASCO CORPORATION 2014 PROXY STATEMENT       PART II – CORPORATE GOVERNANCE  

 

Board of Directors and Independent Committees of the Board

The standing committees of our Board of Directors are the Audit Committee, the Organization and Compensation Committee and the Corporate Governance and Nominating Committee. Each member of each of these committees qualifies as independent. These committees function pursuant to written charters adopted by the Board. The committee charters, as well as our Corporate Governance Guidelines and our Code of Business Ethics, are posted on our website at www.masco.com and are available to you in print from the website or upon request. Amendments to or waivers of the Code of Business Ethics for directors and executive officers, if any, will be posted on our website.

Our non-employee directors frequently meet in executive session without management, and the independent directors meet separately at least once per year. As Chairman of the Board, Mr.  Istock presides over these executive sessions.

Risk Oversight

Management continually monitors four general categories of risk related to our business: financial reporting risk, strategic risk, operational risk, and legal and compliance risk. The entire Board discharges its oversight of risk through an annual review and discussion of a comprehensive analysis prepared by management on material risks facing us; updates regarding these risks are presented at each subsequent Board meeting. Our President and Chief Executive Officer (our “CEO”), as the head of our management team and a member of the Board, assists the Board in its risk oversight function and leads those discussions.

The Organization and Compensation Committee considers risk issues related to compensation and has determined that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on us. Our executive officers and other members of management report to the Organization and Compensation Committee on executive compensation programs at our business units to assess whether these programs or practices expose us to excessive risk taking.

At each of its meetings, the Audit Committee discharges its oversight of financial reporting risk through review and discussion of management’s reports and analyses of financial reporting risk and risk management practices. At a majority of its meetings, the Audit Committee also reviews and discusses certain additional financial and non-financial risks which we believe are most germane to our business activities.

Communications with Our Board of Directors

If you are interested in contacting our Chairman of the Board, an individual director, our Board of Directors as a group, our independent directors as a group, or a specific Board committee, you may send your communication in care of:

Kenneth G. Cole, Secretary

Masco Corporation

21001 Van Born Road

Taylor, Michigan 48180

Please specify the applicable party or parties you wish to contact in your communication.

 

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  PART II – CORPORATE GOVERNANCE       MASCO CORPORATION 2014 PROXY STATEMENT

 

Executive Officers

Effective February 14, 2014, Timothy Wadhams retired from his position as our President and Chief Executive Officer, and our Board of Directors elected Keith J. Allman as his successor. Our Board of Directors elects our executive officers annually. Our current executive officers are listed below.

 

Name   Position     Age    

Executive

Officer

Since

Keith J. Allman

 

President and Chief Executive Officer

  51   2014

John G. Sznewajs

 

Vice President, Treasurer and Chief Financial Officer

  46   2005

Kenneth G. Cole

 

Vice President, General Counsel and Secretary

  48   2013

Jai Shah

 

Vice President – Chief Human Resource Officer

  47   2012

John P. Lindow

 

Vice President – Controller

  50   2011

Mr. Allman’s experience is described in “Part III – Board of Directors” under “Class II Directors (Nominees for Term Expiring at the Annual Meeting in 2017).”

Mr. Sznewajs was elected as our Vice President, Treasurer and Chief Financial Officer in July 2007. He had previously served as our Vice President and Treasurer since 2005 and our Vice President – Business Development since 2003.

Mr. Cole was elected as our Vice President, General Counsel and Secretary in July 2013. Mr. Cole joined us in 2004 and has held positions of increasing responsibility in our legal department, serving most recently as Senior Assistant General Counsel and Director of Commercial Legal Affairs.

Mr. Shah was elected as our Vice President – Chief Human Resource Officer in July 2012. He previously served as our Vice President Finance – Retail/Wholesale Platform since 2008, as a Group Vice President from 2007 to 2008, and as our Vice President – Strategic Planning from 2005 to 2007.

Mr. Lindow was elected as our Vice President – Controller in May 2011. He was a Group Controller from 2000 to 2007, and then served as Vice President Administration – Plumbing Products Platform until 2009, when he became the Vice President – Controller, Corporate Accounting.

 

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MASCO CORPORATION 2014 PROXY STATEMENT       PART II – CORPORATE GOVERNANCE  

 

Security Ownership of Management and Certain Beneficial Owners

The following table shows the beneficial ownership of our common stock as of December 31, 2013 by (i) each of our directors and director nominees, (ii) each named executive officer included in the 2013 Summary Compensation Table, (iii) all of our directors and current executive officers as a group (15 individuals), and (iv) all persons whom we know to be beneficial owners of five percent or more of our common stock. Except as indicated below, each person exercises sole voting and investment power with respect to the shares listed.

 

Name  

Shares of

Common Stock

Beneficially

Owned  (1)

   

Percentage of

Voting Power

Beneficially

Owned

 

Keith J. Allman

    321,943        *   

Dennis W. Archer

    105,000        *   

Kenneth G. Cole

    87,925        *   

Verne G. Istock

    105,560        *   

John P. Lindow

    263,492        *   

J. Michael Losh

    119,380        *   

Richard A. Manoogian (2)

    7,911,452        2.2

Christopher A. O’Herlihy

           *   

Donald R. Parfet

    12,624        *   

Lisa A. Payne (3)

    91,245        *   

John C. Plant

    10,460        *   

Jai Shah

    403,436        *   

John G. Sznewajs

    876,685        *   

Mary Ann Van Lokeren (4)

    104,060        *   

Timothy Wadhams

    3,924,669        1.1

All directors and current executive officers of Masco as a group (1)

    14,337,931        3.9

Gregory D. Wittrock (5)

    270,165        *   

BlackRock Inc. (6)

40 East 52nd Street, New York, New York 10022

    20,904,170        5.9

Capital World Investors (7)

333 South Hope Street, Los Angeles, California 90071

    26,171,751        7.3

JPMorgan Chase & Co. (8)

270 Park Avenue, New York, New York 10017

    26,896,417        7.5

State Street Corporation (9)

State Street Financial Center

One Lincoln Street, Boston, Massachusetts 02111

    18,228,188        5.1

The Vanguard Group (10)

100 Vanguard Blvd., Malvern, Pennsylvania 19355

    24,574,822        6.9

 

* Less than one percent

 

(1) 

Includes shares of unvested restricted stock and shares that may be acquired on or before March 1, 2014 upon exercise of stock options, as set forth in the table below. Holders have sole voting, but no investment power, over unvested restricted shares and have neither voting nor investment power over unexercised stock option shares.

 

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  PART II – CORPORATE GOVERNANCE       MASCO CORPORATION 2014 PROXY STATEMENT

 

 

Name

 

Unvested Restricted

Stock Awards

   

Shares that may be

acquired on or before
March 1, 2014 upon
exercise of stock options

 

Keith J. Allman

    128,182        171,480   

Dennis W. Archer

    17,550        70,400   

Kenneth G. Cole

    33,471        43,100   

Verne G. Istock

    17,550        46,400   

John P. Lindow

    52,095        194,280   

J. Michael Losh

    17,550        78,400   

Richard A. Manoogian

    68,636        2,854,000   

Christopher A. O’Herlihy

             

Donald R. Parfet

    6,380          

Lisa A. Payne

    16,752        54,400   

John C. Plant

    9,202          

Jai Shah

    81,721        300,000   

John G. Sznewajs

    113,380        712,500   

Mary Ann Van Lokeren

    17,550        40,000   

Timothy Wadhams

    390,120        3,341,200   

All directors and current executive officers of Masco as a group

    970,139        7,906,160   

Gregory D. Wittrock

    48,128        188,600   

 

(2) 

Shares owned by Mr. Manoogian and by all of our directors and current executive officers as a group include, in each case, an aggregate of 1,455,000 shares owned by charitable foundations for which Mr. Manoogian serves as a director or officer. The directors and officers of the foundations share voting and investment power with respect to shares owned by the foundations, but Mr. Manoogian disclaims beneficial ownership of such shares. Excluding unvested restricted stock shares and shares that he has a right to acquire, substantially all of the shares beneficially owned by Mr. Manoogian (other than unvested restricted stock and shares he has a right to acquire) have been pledged.

 

(3) 

Shares owned by Ms. Payne include 875 shares held in a revocable living trust.

 

(4) 

Shares owned by Ms. Van Lokeren include 45,810 shares held in a revocable living trust and 700 shares held in an IRA.

 

(5) 

Mr. Wittrock ceased serving as an executive officer in July 2013.

 

(6) 

Based on a Schedule 13G filed with the SEC on January 30, 2014, on December 31, 2013, BlackRock Inc. (through certain of its subsidiaries) beneficially owned 20,904,170 shares of our common stock, with sole voting power over 17,643,375 shares and sole dispositive power over all of the shares.

 

(7) 

Based on a Schedule 13G filed with the SEC on February 13, 2014, on December 31, 2013, Capital World Investors is deemed to have beneficially owned and have sole voting power and sole dispositive power over 26,171,751 shares of our common stock as a result of Capital Research and Management Company acting as an investment advisor. Capital World Investors disclaims beneficial ownership of all of these shares.

 

(8) 

Based on a Schedule 13G filed with the SEC on January 30, 2014, on December 31, 2013, JPMorgan Chase & Co. (through certain of its subsidiaries) beneficially owned 26,896,417 shares of our common stock, with sole voting power over 23,956,249 shares, shared voting power over 647,440 shares, sole dispositive power over 26,093,078 shares and shared dispositive power over 803,339 shares.

 

(9) 

Based on a Schedule 13G filed with the SEC on February 3, 2014, on December 31, 2013, State Street Corporation (through certain of its subsidiaries) beneficially owned 18,228,188 shares of our common stock, with shared voting power and shared dispositive power over these shares.

 

(10) 

Based on a Schedule 13G filed with the SEC on February 11, 2014, on December 31, 2013, The Vanguard Group and certain of its subsidiaries beneficially owned 24,574,822 shares of our common stock, with sole voting power over 579,044 shares, sole dispositive power over 24,034,124 shares and shared dispositive power over 540,698 shares.

 

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MASCO CORPORATION 2014 PROXY STATEMENT       PART II – CORPORATE GOVERNANCE  

 

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of our common stock, to file reports of their ownership of our common stock and changes in their ownership with the SEC and the New York Stock Exchange, and to furnish us with copies of these reports. Based solely on our review of copies of the reports that we received, or written representations from our executive officers and directors that they were not required to file Form 5 ownership reports, we believe that each person who was a director, officer or beneficial owner of more than ten percent of our common stock at any time during 2013 timely met all applicable filing requirements during the year.

Certain Relationships And Related Transactions

Our Board of Directors has adopted a Related Person Transaction Policy that requires the Board or a committee of independent directors to approve or ratify any transaction involving us in which any director, director nominee, executive officer, 5% beneficial owner or any of their immediate family members has a direct or indirect material interest. This policy covers financial transactions, or any series of similar transactions, including indebtedness and guarantees of indebtedness, as well as transactions involving employment, but excludes transactions determined by the Board not to involve a material interest of the related person, such as ordinary course of business transactions of $120,000 or less and transactions in which the related person’s interest is derived solely from service as a director of another entity or ownership of less than 10% of another entity’s stock. The policy requires directors, director nominees and executive officers to provide prompt written notice to the Secretary of any related transaction so it can be reviewed by the Corporate Governance and Nominating Committee to determine whether the related person has a direct or indirect material interest. If the Committee determines this is the case, the Committee considers all relevant information to assess whether the transaction is in, or not inconsistent with, our best interests and the best interests of our stockholders. The Committee annually reviews previously-approved ongoing related transactions to determine whether the transactions should continue.

These procedures have been followed in connection with the review of the transactions described below. There have been no transactions since January 1, 2013 required to be described in this proxy statement that were not subject to review, approval or ratification in accordance with this policy.

In accordance with the terms of our 2009 agreement with Mr. Manoogian, who transitioned to Chairman Emeritus in 2012, we provide him with office space, an administrative assistant and reasonable equipment and supplies for his personal use, which together have an aggregate annual value of approximately $258,000. We charge Mr. Manoogian the full cost for additional office space and related equipment and supplies used by his personal and charitable foundation staff and for a driver and the incremental cost for his use of our aircraft (with prior approval from our CEO), all of which aggregated approximately $334,000 for 2013.

In connection with Mr. Wittrock’s retirement as Vice President, General Counsel and Secretary, at the Company’s request, Mr. Wittrock agreed to provide consulting services to the Company for one year for which he is to be compensated $200,000.

 

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  PART III – BOARD OF DIRECTORS       MASCO CORPORATION 2014 PROXY STATEMENT

 

Board Of Directors

Our Board of Directors is divided into three classes. Upon election of the Class II directors nominated at this Annual Meeting, the terms of office of Class I, Class II and Class III directors will expire at the Annual Meeting of Stockholders in 2016, 2017 and 2015, respectively, or when their respective successors are elected and qualified.

Timothy Wadhams, who is currently a Class II director, retired as our President and Chief Executive Officer on February 14, 2014 and is not standing for re-election. We wish to express our deep appreciation to him for his dedication and contributions during his many years with us. Effective as of this Annual Meeting, the number of directors will be reduced to ten.

With Mr. Istock recused, our Corporate Governance and Nominating Committee recommended Mr. Istock be re-nominated as a Class II director. Our Board recommended that Mr. Istock stand for re-election based on his current leadership as Chairman of the Board and on his tenure as a director. In making its recommendation, our Board also made an exception to its age 72 retirement policy for Mr. Istock.

In addition to meeting the criteria that are described below under “Director Attendance and Committees – Corporate Governance and Nominating Committee,” each continuing director and each director nominee brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including executive management, finance and accounting, executive compensation, risk management, manufacturing, corporate governance and board oversight, marketing, governmental relations, law and real estate development. Biographical information regarding each of our continuing directors and our director nominees is set forth below, including the specific business experience, qualifications, attributes and skills that led the Board to conclude that each should serve as a director.

 

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MASCO CORPORATION 2014 PROXY STATEMENT       PART III – BOARD OF DIRECTORS  

 

Director Nominees for Class II

(Term Expiring at the Annual Meeting in 2017)

 

 

KEITH J. ALLMAN | Director since 2014

 

President and Chief Executive Officer of the Company

Mr. Allman, 51, became our President and Chief Executive Officer in February 2014. He joined us in 1998 as Vice President of Manufacturing for Merillat Industries, one of our cabinetry businesses, and was promoted in 2000 to its Vice President, Operations and in 2003 to its Executive Vice President. He served as the Executive Vice President, Operations for our Builder Cabinet Group from 2004 until 2007, when he became President of Delta Faucet Company. He was promoted to Group President in 2011, and, in that role, had responsibility for our Plumbing and North American Cabinet businesses.

Mr. Allman’s key leadership positions within our Company have given him valuable insight into all aspects of our business. He brings to our Board a significant understanding of, and experience with, complex operations, as well as company-specific customer expertise.

 

 

VERNE G. ISTOCK | Director since 1997

 

Retired Chairman/President of Bank One Corporation

Chairman of the Board

Mr. Istock, 73, joined NBD Bank in 1963 and served as Vice Chairman and a director of NBD Bank and its parent, NBD Bancorp, from 1985 until he was named Chairman and Chief Executive Officer in 1994. Upon the merger of NBD and First Chicago Corporation in 1995, he was named President and Chief Executive Officer of First Chicago NBD Corporation and was elected Chairman in 1996. Upon the merger of First Chicago NBD Corporation and Bank One Corporation in 1998, he was named Chairman of the Board of Bank One Corporation, where he served in various executive positions, including Chief Executive Officer, until his retirement in 2000. Mr. Istock is the lead director of Rockwell Automation, Inc. During the past five years, he also served as a director of Kelly Services, Inc.

Mr. Istock brings exceptional business leadership skills to the Board. His significant experience in finance and banking gives him a comprehensive understanding of credit and financial markets. His current and past service as a director of other publicly held companies provides the Board with important experience regarding corporate governance, executive compensation, risk management and other matters.

 

 

J. MICHAEL LOSH | Director since 2003

 

Retired Chief Financial Officer and Executive Vice President of General Motors Corporation

Mr. Losh, 67, retired from General Motors Corporation in 2000 after 36 years of service in various capacities, lastly as Chief Financial Officer and Executive Vice President. He served as Interim Chief Financial Officer of Cardinal Health, Inc. from July 2004 until May 2005. He is a director of Prologis, Aon plc, CareFusion Corporation, H.B. Fuller Company and TRW Automotive Holdings Corp. During the past five years, he also served as a director of Cardinal Health, Inc. prior to the spin-off of CareFusion Corporation.

Based on his substantial finance and accounting expertise, Mr. Losh is the Chairman of our Audit Committee. He has significant experience in key leadership roles in a manufacturing environment. He currently serves on the boards and audit committees of other publicly held companies, giving him valuable exposure to developments in accounting, financial reporting, board oversight responsibilities, corporate governance and risk management.

 

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  PART III – BOARD OF DIRECTORS       MASCO CORPORATION 2014 PROXY STATEMENT

 

 

 

CHRISTOPHER A. O’HERLIHY | Director since 2013

 

Executive Vice President of Illinois Tool Works Inc.

Mr. O’Herlihy, 50, has been an Executive Vice President of Illinois Tool Works Inc. (“ITW”) since 2010, with worldwide responsibility for ITW’s Food Equipment segment. During his almost 25 years with ITW, he has held various roles of increasing responsibility, including as Group President of both ITW’s Food Equipment and Polymers & Fluids segments. Mr. O’Herlihy serves as a director of the National Restaurant Association, an industry trade association.

Mr. O’Herlihy has extensive knowledge and experience in all aspects of business, including operations, business strategy, acquisitions, emerging markets, financial performance and structure, legal matters, and human resources/talent management. Based on his current leadership position with ITW and his experience with ITW’s diversified global operations, he brings to our Board strategic insight and understanding of complex business and manufacturing operations, as well as a valuable perspective of international business operations.

 

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MASCO CORPORATION 2014 PROXY STATEMENT       PART III – BOARD OF DIRECTORS  

 

Class III Directors

(Term Expiring at the Annual Meeting in 2015)

 

 

RICHARD A. MANOOGIAN | Director since 1964

 

Chairman Emeritus

Mr. Manoogian, 77, joined us in 1958 and was elected Vice President and a director in 1964 and President in 1968. Mr. Manoogian served as Chief Executive Officer from 1985 until 2007, when he was elected Executive Chairman. He retired as an employee in 2009, to serve solely as Chairman of the Board, a position he held from 1985 until 2012, when he became our Chairman Emeritus. He is a director of Ford Motor Company.

Mr. Manoogian’s long-term leadership of Masco gives him extensive Company and industry-specific knowledge, including firsthand knowledge of our operations and strategy as well as a deep understanding of the new home construction and home improvement markets.

 

 

JOHN C. PLANT | Director since 2012

 

Chairman, Chief Executive Officer and President of TRW Automotive Holdings Corp., a diversified automotive supplier

Mr. Plant, 60, has been the Chairman of the Board of TRW Automotive Holdings Corp. since 2011 and its President and Chief Executive Officer as well as a director since 2003. Prior to that, he had been a co-member of the Chief Executive Office of TRW Inc. and the President and Chief Executive Officer of the automotive business of TRW Inc. since 2001. From 1999 to 2001, Mr. Plant was the Executive Vice President and General Manager of TRW Chassis Systems. From 1991 to 1997, Mr. Plant was employed by Lucas Varity Automotive in management positions, ultimately serving as its President until it was acquired by TRW Inc. Mr. Plant serves as a director of the Automotive Safety Council and is the Vice Chairman of the Kennedy Center Corporate Fund Board.

Mr. Plant has a background in finance and extensive knowledge and experience in all aspects of business, including operations, business development matters, financial performance and structure, legal matters and human resources. Based on his current leadership positions with a diversified global operation, he brings to our Board strategic insight and understanding of complex operations as well as a valuable perspective of international business.

 

 

MARY ANN VAN LOKEREN | Director since 1997

 

Retired Chairman and Chief Executive Officer of Krey Distributing Company, a beverage distribution firm

Ms. Van Lokeren, 66, served as the Chairman and Chief Executive Officer of Krey Distributing Company from 1987 through 2006 and as its Secretary upon joining Krey in 1978. She is a director of The Laclede Group, Inc.

Ms. Van Lokeren’s nearly 20 years of experience as the Chairman and CEO of a large and successful distribution company gives her valuable insight into many facets of company leadership and management including personnel, marketing, customer relationships and overall business strategy. Her current and past service as a director of other public companies and non-profit organizations gives her a broad perspective on issues of corporate governance, executive compensation, board oversight and risk management.

 

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  PART III – BOARD OF DIRECTORS       MASCO CORPORATION 2014 PROXY STATEMENT

 

Class I Directors

(Term Expiring at the Annual Meeting in 2016)

 

 

DENNIS W. ARCHER | Director since 2004

 

Chairman and CEO of Dennis W. Archer PLLC and Chairman Emeritus, Dickinson Wright PLLC, a Detroit, Michigan-based law firm

Mr. Archer, 72, has served as Chairman and CEO of Dennis W. Archer PLLC since 2010. He has also served as Chairman Emeritus of Dickinson Wright PLLC since 2010, prior to which he was Chairman from 2002 to 2009. Mr. Archer was Chair of the Detroit Regional Chamber from 2006 to 2007, and President of the American Bar Association from 2003 to 2004. He served two terms as Mayor of the City of Detroit, Michigan from 1994 through 2001 and was President of the National League of Cities from 2000 to 2001. He was appointed as an Associate Justice of the Michigan Supreme Court in 1985, and in 1986 was elected to an eight-year term. Mr. Archer is also a director of Compuware Corporation and Johnson Controls, Inc.

Mr. Archer’s long and distinguished career as an attorney and judge provides the Board with specific expertise and a unique understanding of litigation and other legal matters. As a result of his position as Mayor of Detroit, he has broad leadership, administrative and financial experience and is also knowledgeable in the area of governmental relations.

 

 

DONALD R. PARFET | Director since 2012

 

Managing Director, Apjohn Group, LLC, a business development company, and General Partner, Apjohn Ventures Fund, Limited Partnership, a venture capital fund

Mr. Parfet, 61, has been the Managing Director of Apjohn Group, LLC since 2001 and a General Partner of Apjohn Ventures Fund, Limited Partnership since 2003. Mr. Parfet retired in 2000 from Pharmacia Corporation, a pharmaceutical company where he served as Senior Vice President. He had also served two predecessor companies, Pharmacia & Upjohn and The Upjohn Company, as a senior corporate officer. Mr. Parfet is a director of Kelly Services, Inc. and Rockwell Automation, Inc. He also serves as a director or trustee of a number of charitable and civic organizations.

Mr. Parfet brings extensive financial and operating experience to the Board, including financial and corporate staff management responsibilities and senior operational responsibilities for multiple global business units. He is also experienced in leading strategic planning, risk assessment, human resource planning and financial planning and control. His global operating experience, strong financial background and proven leadership capabilities are especially important to the Board’s consideration of product and geographic expansion.

 

 

LISA A. PAYNE | Director since 2006

 

Vice Chairman and Chief Financial Officer and director of Taubman Centers, Inc., a real estate investment trust

Ms. Payne, 55, has served as Chief Financial Officer and Vice Chairman of Taubman Centers, Inc. since 2005, prior to which she served as the Executive Vice President and the Chief Financial and Administrative Officer from 1997 to 2005. She has been a director of Taubman Centers, Inc. since 1997. Ms. Payne was an investment banker with Goldman, Sachs & Co. from 1987 to 1997. She is a trustee of Munder Series Trust and Munder Series Trust II, open-end management investment companies.

Ms. Payne’s past experience as an investment banker and her present position as CFO of Taubman Centers provide the Board with financial, accounting and corporate finance expertise. In addition, Ms. Payne’s extensive experience in real estate investment, development and acquisition gives her an informed and thorough understanding of macroeconomic factors that may impact our business.

 

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MASCO CORPORATION 2014 PROXY STATEMENT       PART III – BOARD OF DIRECTORS  

 

Director Attendance And Committees

During 2013, the Board of Directors held six meetings. Each director attended at least 75% of the Board meetings and applicable committee meetings that were held while such person served as a director. It is our policy to encourage directors to attend the Annual Meeting of Stockholders. All of our directors attended the 2013 Annual Meeting, except for Ms. Payne, who was out of the country on business, and Mr. O’Herlihy, who joined our Board after the 2013 Annual Meeting.

 

 

AUDIT COMMITTEE

 

The Audit Committee of the Board of Directors, consisting of Messrs. Archer, Losh, O’Herlihy, Parfet and Plant and Ms. Payne, held five meetings during 2013. In addition to risk oversight described above, the Audit Committee assists the Board in its oversight of the integrity of our financial statements, the effectiveness of our internal control over financial reporting, the qualifications, independence and performance of our independent auditors, the performance of our internal audit function, and our compliance with legal and regulatory requirements, including employee compliance with our Code of Business Ethics.

The Board has determined that each member of the Audit Committee is independent, financially literate and that five members of the Audit Committee, Messrs. Losh, O’Herlihy, Parfet and Plant and Ms. Payne, qualify as “audit committee financial experts” as defined in Item 407(d)(5)(ii) of Regulation S-K. Although Mr. Losh serves on the audit committee of more than three publicly traded companies, the Board has determined that such service does not impair his ability to serve on our Audit Committee.

 

 

ORGANIZATION AND COMPENSATION COMMITTEE

 

The Organization and Compensation Committee of the Board of Directors, consisting of Messrs. Istock, Losh and Parfet, Ms. Payne and Ms. Van Lokeren, held six meetings during 2013. The Organization and Compensation Committee determines executive compensation, evaluates the performance of our senior executives, determines and administers restricted stock awards and options granted under our stock incentive plan, administers our Long Term Cash Incentive Program, and reviews our management succession plan, including periodically reviewing our CEO’s evaluation and recommendation of potential successors. Information about the Organization and Compensation Committee’s process and procedures for consideration and determination of executive compensation, and a description of the role of the compensation consultant engaged by the Organization and Compensation Committee, are presented in the “Compensation Discussion and Analysis” below.

 

 

CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

 

The Corporate Governance and Nominating Committee of the Board of Directors (the “Governance Committee”), consisting of Messrs. Archer, Istock, O’Herlihy and Plant, Ms. Payne and Ms. Van Lokeren, held five meetings during 2013. The Governance Committee advises the Board on the governance structure and conduct of the Board and has responsibility for developing and recommending to the Board appropriate corporate governance guidelines. In addition, the Governance Committee identifies and recommends qualified individuals for nomination and re-nomination to the Board and recommends directors for appointment and re-appointment to Board committees.

The Governance Committee periodically assesses Board composition, including whether any vacancies are expected on the Board due to retirement or otherwise. The Governance Committee believes that directors should possess exemplary personal and professional reputations, reflecting high ethical standards and values. The expertise and experience of directors should provide a source of advice and guidance to our management. A director’s judgment should demonstrate an inquisitive and independent perspective with acute intelligence and practical wisdom. Directors should be free of any significant business relationships

 

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which would result in a potential conflict in judgment between our interests and the interests of those with whom we do business. Each director should be committed to serving on the Board for an extended period of time and to devoting sufficient time to carry out the director’s duties and responsibilities in an effective manner for the benefit of our stockholders. The Governance Committee also considers additional criteria adopted by the Board for Director nominees and the independence, financial literacy and financial expertise standards required by applicable law and by the New York Stock Exchange.

Neither the Board nor the Governance Committee has adopted a formal Board diversity policy. However, the Governance Committee periodically considers, as part of its assessment of Board composition and evaluation of potential candidates for Board membership, whether the Board is comprised of individuals who hold diverse viewpoints, professional experiences, education and other skills and attributes which are necessary to enhance Board effectiveness. In addition, the Governance Committee believes that it is desirable for Board members to possess diverse characteristics of race, national and regional origin, ethnicity, gender and age, and considers such factors in its evaluation of candidates for Board membership.

The Governance Committee uses a number of sources to identify and evaluate nominees for election to the Board. During 2013, our Board engaged the search firm of Spencer Stuart to help identify and evaluate potential director candidates. It is the Governance Committee’s policy to consider director candidates recommended by stockholders. All Board candidates, including those recommended by stockholders, are evaluated against the criteria described above. Stockholders wishing to have the Governance Committee consider a candidate should submit the candidate’s name and pertinent background information to our Secretary at the address stated above in “Corporate Governance – Communications with our Board of Directors.” Stockholders who wish to nominate director candidates for election to the Board should follow the procedures set forth in our Certificate of Incorporation and Bylaws. For a summary of these procedures, see “2015 Annual Meeting of Stockholders” below.

Compensation of Directors

As compensation for their service on our Board of Directors, our non-employee directors receive an annual retainer of $180,000, of which one-half is paid in cash. To reinforce our directors’ focus on long-term stockholder value and to recognize their long-term commitment to serve the Company, the other half of the retainer is paid in the form of restricted stock granted under our Non-Employee Directors Equity Program (the “Directors Equity Program”). The Directors Equity Program prohibits former directors from engaging in activities detrimental to us while they hold restricted stock we awarded to them. The restricted stock may be forfeited if a former director breaches this obligation. Further, the Directors Equity Program restricts directors from engaging in competitive activities while serving as a director and for one year after service as a director. If a former director breaches this non-compete agreement, we may require him or her to pay us amounts realized within two years prior to termination from awards of restricted stock and exercises of stock options.

The Board has established stock retention guidelines for our non-employee directors that require them to retain at least 50% of the shares of restricted stock they receive until their termination from service as a director. The stock retention requirement is intended to assure that non-employee directors maintain a financial interest in our Company over an extended period of time.

Our non-employee directors are eligible to participate in our matching gifts program until December 31 of the year in which their service as a director ends. Under this program, we will match up to $5,000 of a director’s contributions made in any calendar year to eligible 501(c)(3) tax-exempt organizations. Directors are also eligible to participate in our employee purchase program, which enables them to obtain rebates on our products they purchase for their personal use. Each of these programs is available to all of our employees. In addition, if space is available, a director’s spouse is permitted to accompany a director who travels on our aircraft to attend Board or committee meetings.

 

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The following table shows 2013 compensation paid to our directors, other than Mr. Wadhams, who was also an employee and who received no additional compensation for his service as director. Mr. Allman, who joined the Board in 2014, is also an employee of the Company and receives no additional compensation for his services as a director. Directors receive a fee of $1,500 per Board or committee meeting attended. The annual retainer for serving as Chairman of the Board is $150,000, and so long as Mr. Istock serves in this capacity, he will not receive additional compensation for also serving as Chairman of the Corporate Governance and Nominating Committee. Mr. Losh receives an annual fee of $20,000 for his service as chair of our Audit Committee, and Ms. Van Lokeren receives an annual fee of $15,000 for her service as chair of our Organization and Compensation Committee.

 

 

2013 Director Compensation

 

 

Name   Cash  Fees
Earned ($)
    Stock
Awards  ($)
(1)
    All  Other
Compensation ($)
(2)
    Total ($)(3)  

Dennis W. Archer

    114,000        89,990        5,000        208,990   

Thomas G. Denomme (4)

    57,000                      57,000   

Verne G. Istock

    279,000        89,990               368,990   

J. Michael Losh

    146,000        89,990        5,000        240,990   

Richard A. Manoogian

    99,000        89,990        10,000        198,990   

Christopher A. O’Herlihy (5)

    4,500                      4,500   

Donald R. Parfet

    112,500        134,986        5,500        252,986   

Lisa A. Payne

    132,000        89,990        5,000        226,990   

John C. Plant

    123,000        89,990               212,990   

Mary Ann Van Lokeren

    141,000        89,990        5,000        235,990   

 

(1) 

In May 2013, we granted 4,170 shares of restricted stock to each non-employee director, except for Mr. O’Herlihy, who joined our Board in December, and Mr. Denomme, whose service as a director concluded at our 2013 Annual Meeting. In February 2013, Mr. Parfet received an award for 2,210 shares as prorated equity compensation for his service as a director beginning in December 2012. This column reflects the aggregate grant date fair value of the shares, calculated in accordance with accounting guidance. Directors only realize the value of restricted stock awards over an extended period of time because the vesting of awards occurs pro rata over three years from the date of grant (five years for grants made prior to 2013), and one-half of these shares must be retained until completion of their service on the Board.

 

(2) 

Amounts in this column include our contributions in 2013 to eligible tax-exempt organizations under our matching gifts program, as described above, for which directors receive no direct financial benefit. The matching contributions were attributable to director charitable contributions made in 2012, 2013 or in both years.

 

(3)

The following table sets forth the aggregate number of shares of unvested restricted stock, and the aggregate number of stock options outstanding, held by each director as of December 31, 2013. The Board ceased granting stock options to non-employee directors in 2010; however, a portion of the stock options granted before then remains outstanding.

 

Director   Unvested Restricted Stock     Stock Options Outstanding  

Dennis W. Archer

    17,550        72,000   

Verne G. Istock

    17,550        48,000   

J. Michael Losh

    17,550        80,000   

Richard A. Manoogian

    68,636        2,854,000   

Christopher A. O’Herlihy

             

Donald R. Parfet

    6,380          

Lisa A. Payne

    16,752        56,000   

John C. Plant

    9,202          

Mary Ann Van Lokeren

    17,550        41,600   

 

(4) 

Mr. Denomme’s service as a director concluded at our 2013 Annual Meeting.

 

(5) 

Mr. O’Herlihy joined the Board in December 2013.

 

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Compensation Discussion and Analysis

 

 

EXECUTIVE SUMMARY

 

We are committed to maintaining executive compensation programs that promote the long-term interests of our stockholders by attracting and retaining talented executives and motivating them to achieve our business objectives and to create long-term value for our stockholders. We believe that our performance, the creation of long-term stockholder value, and the achievement of goals that are critical to our success should impact a significant portion of our executive officers’ compensation. Our Organization and Compensation Committee (which we refer to in this Compensation Discussion and Analysis as the “Committee”) oversees our compensation programs and the compensation paid to our named executive officers (who are listed in our 2013 Summary Compensation Table and to whom we refer in this Compensation Discussion and Analysis as “executive officers”).

Timothy Wadhams served as our President and Chief Executive Officer during 2013. He retired from that position in February 2014 and was succeeded by Keith J. Allman. As President and Chief Executive Officer, Mr. Allman receives an annual base salary of $900,000 and stock options. He also participates in our annual performance-based restricted stock and cash bonus opportunities and in our Long Term Cash Incentive Program, which are described below. In accordance with SEC rules, this Compensation Discussion and Analysis describes the compensation paid to Mr. Wadhams during 2013 and does not further discuss the compensation of Mr. Allman, who is not included in our 2013 Summary Compensation Table.

How did our 2013 financial performance impact the compensation we paid to our executive officers?

For the second consecutive year, our performance improved significantly as compared to the previous year. In 2013, our annual performance-based compensation was based on operating profit and working capital as a percent of sales goals, which we achieved at 164% of the target goals. As a result, consistent with our commitment to pay-for-performance, the compensation we paid to our executive officers increased, and our executive officers earned restricted stock awards and cash bonuses based on our achievement of these performance metrics. Our 2013 results and the incentive compensation paid to our executive officers are described under “Summary of Compensation Decisions in 2013” below.

How did we consider the 2013 say-on-pay vote?

At our 2013 Annual Meeting, over 90% of the votes cast on our say-on-pay proposal approved the compensation paid to our executive officers. Although the say-on-pay vote is advisory and non-binding, the Committee considered results of last year’s say-on-pay vote and concluded that our stockholders approve of our current executive compensation programs and policies and the changes we have made in recent years to those programs.

In 2013, the Committee continued to review our compensation programs and practices to ensure alignment of our best interests and the objectives for our compensation programs. We engaged in outreach in the spring and again in the fall to our largest stockholders on a broad range of executive compensation and governance topics. Taking this feedback and current best practices into consideration, and after consultation with Semler Brossy, the Committee’s independent compensation consultant, the Committee recommended and our Board adopted an anti-hedging and anti-pledging policy in 2013. This policy prohibits hedging transactions involving our securities by our executives and our directors, and also prohibits these individuals from making any future pledges of our securities, unless the arrangement is preapproved by our Corporate Governance and Nominating Committee for any executive or by the Board for any director.

 

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What compensation “best practices” have we adopted?

In addition to our new anti-hedging and anti-pledging policy, since 2011 we have incorporated many best practices in our executive compensation programs, as follows:

 

   

Our clawback policy provides that if we restate our financial statements, other than as a result of changes to accounting rules or regulations, the Committee may recover from our executives incentive compensation that was paid or granted in the three-year period prior to the restatement, regardless of whether misconduct caused the restatement;

 

   

We reduced our executive officers’ stock option opportunity and introduced a Long Term Cash Incentive Program based on return on invested capital performance over a three-year period;

 

   

Our compensation program is weighted toward long-term incentives and our mix of these incentives gives approximately equal weight to performance-based restricted stock, stock options and our Long Term Cash Incentive Program;

 

   

We eliminated the excise tax gross-up feature on all equity grants beginning in 2012;

 

   

Our CEO is required to own stock valued at six times his base salary;

 

   

We adopted double-trigger vesting of equity on a change in control;

 

   

Our restricted stock and stock option awards generally have five-year vesting schedules, longer than current market practice;

 

   

We employ an annual market analysis of executive compensation relative to peer companies and published survey data for comparably-sized companies;

 

   

We provide limited perquisites to our executive officers;

 

   

We have no employment agreements, change in control agreements or contractual severance agreements with our executive officers;

 

   

Our equity plan prohibits the repricing of options; and

 

   

Our Committee, comprised exclusively of independent directors, uses tally sheets and analyzes risk in setting executive compensation.

 

 

COMPENSATION PRINCIPLES AND OBJECTIVES THAT ARE THE FOUNDATION FOR MASCO’S EXECUTIVE COMPENSATION PROGRAMS

 

The fundamental principles of our compensation programs are to reward our executive officers to a significant degree based on our performance, both in achieving our performance goals and by making effective strategic decisions, and to align our executive officers’ interests with the long-term interests of stockholders. Our compensation programs are designed to incentivize our executive officers to focus on critical business objectives, to appropriately balance risks and rewards and to attract and retain executive officers who can effectively lead our business. As a result of our emphasis on rewarding our executive officers based on our performance, each executive officer’s potential performance-based compensation represents a significant percentage of his total annual target compensation.

 

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Our 2013 target compensation mix for our CEO and our other executive officers reflects our emphasis on performance-based elements, as follows:

 

LOGO

We believe this target compensation mix, which emphasizes long-term, performance-based compensation, appropriately incentivizes our executive officers to achieve long-term value creation for our stockholders and to make strategic decisions that will strengthen our business.

In addition, we believe that having a significant ownership interest in our stock is critical to aligning the interests of our executive officers with the long-term interests of our stockholders. Accordingly, equity grants in the form of restricted stock awards and, to a lesser extent, stock options are an important component of compensation for our executive officers. Our equity awards vest in 20% installments over five years. Five-year vesting defers the executives’ realization of the full benefit of equity-based compensation for a substantial period of time and is longer than current market practice. The value ultimately realized from equity awards depends on the long-term performance of our common stock. Our equity awards do not vest immediately upon retirement. Instead, following retirement, equity awards generally continue to vest in accordance with the remaining vesting period. Our executive officers understand that our performance will continue to impact them financially even after they retire, thereby reinforcing their focus on the long-term enhancement of stockholder value.

Our approach to executive compensation emphasizes corporate rather than individual performance, echoing our operating strategy that encourages collaboration and cooperation among our businesses and corporate functions. We believe that the effectiveness of our executive compensation programs requires not only objective, formula-based arrangements, but also the exercise of discretion and sound business judgment by the Committee. Accordingly, the Committee retains discretion to adjust base salary, grant special equity awards, adjust the mix of cash and equity compensation, adjust the mix of restricted stock and stock options awarded, and offer different forms of equity-based compensation. With this discretion, the Committee is best able to reward the individual contributions of each executive officer and to respond to an executive’s expanding responsibilities, market practices and our changing business needs. The Committee exercised this discretion in 2013 when it adjusted the base salaries of Messrs. Sznewajs and Cole as described below.

 

 

ANNUAL REVIEW PROCESS

 

What process is used by management and the Committee to make compensation decisions?

We review and make decisions regarding the amount of eligible annual performance-based restricted stock awards and cash bonus payments and stock option grants in the first quarter of the year. We believe that determining these elements of compensation together at the beginning of the year gives us a better

 

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foundation for establishing our performance criteria and opportunity levels for the current year. This also better enables the Committee to determine the executive officers’ appropriate compensation mix and to align compensation with ongoing talent review and development in conjunction with our annual management talent review.

Our annual management talent review and development process is used by the Committee and our CEO in making compensation decisions and for succession planning purposes. As part of this process, our CEO provides the Committee with an assessment of each executive who reports to him. The assessment includes an evaluation of each executive’s performance, development, progress and plans and potential for advancement, and considers market demand for the executive’s skill set. The Committee also receives information, analyses and recommendations from our Vice President – Chief Human Resource Officer. While the Committee gives significant weight to the evaluations by our CEO, the final determination of compensation to be paid to the executive officers, including our CEO, rests solely with the Committee.

In evaluating our CEO in 2013, the Committee considered the factors noted above for other members of management, and also considered the qualities of leadership and responsibility necessary for the chief executive officer position. Other factors considered by the Committee include the CEO’s contribution to our performance and governance, the impact of his leadership on the performance of our executive officers and management team and his reputation for representing us in the community.

What compensation data are considered by the Committee in establishing annual compensation?

In establishing compensation, the Committee reviews a tally sheet that comprehensively summarizes the various components of total compensation for our executive officers and other members of management. The tally sheet includes base salary, annual performance-based cash bonus and restricted stock, stock options, dividends on unvested shares of restricted stock, and our costs for the foregoing and for perquisites and other benefits, including the annual costs under retirement plans. The tally sheet allows the Committee to compare an executive officer’s compensation with the compensation of our other executive officers as part of its consideration of internal and external pay equity. Amounts actually realized by an executive officer from prior equity grants are not necessarily a factor in establishing current compensation, although the current value of outstanding equity awards may be considered by the Committee when assessing pay equity.

The Committee also reviews published compensation surveys for companies with annual revenues between $5 billion and $10 billion and compensation information disclosed in the proxy statements of our peer group. When we achieve targeted levels of performance, our executive compensation program seeks to provide total target compensation (base salary, target annual bonus and the target value of long-term incentives) at approximately the median compensation level provided to executives in comparable positions at these companies. While the Committee generally targets total compensation for each executive officer at the median, it considers other factors, such as the length of time an executive officer has served in his current position, his roles and responsibilities and his performance. The Committee also analyzes actual compensation paid as reported in published surveys and by our peer group to help inform individual pay decisions. We believe understanding the market data allows us to attract and retain the talent we need while enabling us to manage our compensation expense.

Finally, the Committee considers an analysis of the overall pay-for-performance alignment of our CEO’s compensation compared to our peer group over one-year, three-year and five-year periods. Our total shareholder return has been below the 25th percentile of our peers for the five-year period ended 2012. While target compensation for our CEO has approximated the median of our peer group during this five-year period ended 2012, our CEO’s realizable compensation has been below the 25th percentile of our peer group. Realizable compensation is defined as the sum of salary, actual bonus, and the value of equity awards (stock options and restricted stock) based on the stock price as of December 31, 2012. Based on this analysis, the Committee believes that there is good alignment between compensation paid to our CEO and our performance. In addition, the Committee recognized that for the three-year period from 2011 through 2013, our total shareholder return improved to the 63rd percentile of our peer group.

 

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The following table shows how our current executive officers’ target compensation and actual compensation in 2013 compared to market data published in 2013. Actual compensation is defined as the sum of base salary, actual cash bonus paid, and the grant date fair value of restricted stock awards and stock options.

 

    Comparison to Market Compensation
Executive Officer   2013 Target  Compensation   2013 Actual  Compensation

Timothy Wadhams*

President and

Chief Executive Officer

  Approximately 50th percentile   Approximately 75th percentile

John G. Sznewajs

Vice President, Treasurer and

Chief Financial Officer

  Approximately 50th percentile   Between the 50th and 75th percentiles

Kenneth G. Cole

Vice President, General

Counsel and Secretary

  Below the 25th percentile   Below the 25th percentile

Jai Shah

Vice President – Chief Human

Resource Officer

  Approximately 50th percentile   Between the 50th and 75th percentiles

John P. Lindow

Vice President – Controller

  Between the 50th and 75th percentiles   Approximately 75th percentile

 

* Mr. Wadhams retired as President and CEO in February 2014.

Given the many and diverse businesses in which we operate, composition of an appropriate peer group is challenging, as historically there have been few companies providing a similar mix of products and services as we offer. The Committee believes that our peer group reflects the companies that we compete with for executive talent and that have a range of annual revenues and business and operational characteristics similar to ours.

Our peer group is comprised of the following companies:

 

D.R. Horton   Ingersoll-Rand   NVR   Stanley Black & Decker
Danaher   ITT   Owens Corning   Textron
Dover Corporation   Lennar   PulteGroup   Tyco International

Fortune Brands Home

  & Security

  Mohawk Industries  

Sherwin-Williams

  Company

  Whirlpool
Illinois Tool Works   Newell Rubbermaid   SPX    

Has the Committee engaged a compensation consultant?

The Committee has exercised its authority to retain its own independent advisor and has engaged Semler Brossy as its compensation consultant. Semler Brossy was chosen by the Committee based on its deep experience in the area of executive compensation and its creative and proactive approach in analyzing executive compensation practices and programs. During 2013, Semler Brossy attended Committee meetings, met with the Committee in executive sessions without our executive officers or other members of management, met individually with Committee members and the Committee chair, and advised the Committee on its overall implementation of our compensation objectives and on director compensation practices. In 2013, Semler Brossy also advised the Committee on our new anti-hedging and anti-pledging policy and on the 2014 Long Term Stock Incentive Plan that is proposed for stockholder approval at this annual meeting. After considering the factors promulgated by the SEC for assessing the independence of Committee advisers, the Committee has determined that the work of Semler Brossy has not raised any conflict of interest.

 

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SUMMARY OF COMPENSATION DECISIONS FOR 2013

 

How did Masco perform in 2013?

We experienced sales growth of 9% and our operating leverage drove strong profit growth in 2013 as compared to 2012. In addition, free cash flow in 2013 exceeded $500 million. We benefited from improved housing starts and increased spending for repair and remodeling projects compared to 2012, despite continued economic uncertainties, weak consumer confidence and modest consumer spending. Our improved performance in 2013 was due in part to our ability to continue to successfully leverage a number of our well-known brands and to introduce new and improved products. Our brand equity also grew through geographic expansion of several of our businesses.

During 2013, we remained focused on reducing our costs, primarily through supply chain savings and productivity improvements. We improved our operating profit across all of our businesses as a result of the significant progress we have made in reducing our cost structure, streamlining our sourcing process and accelerating our supply chain savings. During the year, we returned our Cabinet and Installation businesses to profitability by realizing the benefits of restructuring activities in prior years as well as through profit improvements made during the year. By lowering the breakeven points, each of these businesses returned to profitability at lower revenue levels than historically had been the case. Our operating profit also improved from favorable pricing and promotional activities at several of our businesses.

In 2013, we continued to focus on enhancing our balance sheet and our liquidity. During the year, we reduced our debt by approximately $200 million with cash on hand. We ended the year with approximately $1.5 billion of balance sheet liquidity.

What were the components of Masco’s executive compensation program in 2013?

The components of the compensation for our executive officers in 2013 were base salary, performance-based restricted stock and cash bonus opportunities, stock option awards, minimal perquisites and retirement programs. Because our Long Term Cash Incentive Program (“LTCIP”), established in 2012, provides for a three-year performance period, no cash payout will be available under that program until our financial results for 2014 have been finalized. Each of these components is described below.

Base Salary

We pay our executive officers a base salary to provide each of them with a minimum, base level of cash compensation. The Committee did not increase base salaries in 2013 for our CEO, Vice President – Controller and Vice President – Chief Human Resource Officer. Mr. Sznewajs, our Vice President, Treasurer and Chief Financial Officer, received an 8.5% base salary increase, from $530,000 to $575,000, in July 2013. Mr. Cole’s base salary was increased to $320,000 in connection with his promotion to Vice President, General Counsel and Secretary in July 2013. In determining the appropriate compensation adjustment for these executives, the Committee reviewed market survey data in published executive compensation surveys for companies with annual revenues similar to ours, as well as Mr. Sznewajs’s and Mr. Cole’s compensation history.

Annual Performance-Based Restricted Stock and Cash Bonus Opportunities

We provide annual performance-based restricted stock and cash bonus opportunities to our executive officers to emphasize our annual performance, provide incentive to achieve our critical business objectives, and align our executive officers’ interests with those of our stockholders.

The Committee establishes the restricted stock award and cash bonus opportunities available to each executive officer as a percent of his annual base salary. Each executive officer can earn up to the maximum

 

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opportunity as a restricted stock award and as a cash bonus payment. In 2013, the opportunity levels as a percentage of base salary for our current executive officers remained the same as in 2012, as follows:

 

    Opportunities for Cash Bonus & Stock Awards,
Each as a % of Annual Base Salary
 
Executive Officer   Minimum     Target     Maximum  

Timothy Wadhams

    0     150     300

John G. Sznewajs

    0     75     150

Kenneth G. Cole

    0     65     130

Jai Shah

    0     65     130

John P. Lindow

    0     65     130

In the first quarter of each year, the Committee approves our performance metrics and performance targets for the year. For several years prior to 2013, our annual performance opportunities were based on the achievement of earnings per share (“EPS”) and cash flow performance metrics. In 2013, after a thorough review and consultation with its consultant, the Committee decided to use the performance metrics of operating profit and working capital as a percent of sales. These metrics were chosen because the Committee believes that improvement in these metrics will continue to drive stockholder value. Further, the Committee believes these metrics are more easily calculated from our audited financial statements and provide greater transparency (as requested from stockholders when we sought feedback) for both our stockholders and our executive officers. The Committee decided that the change from EPS to operating profit would better align our executive officers’ incentives with the principal metric used to measure and reward our executives at our business units and better reflect management’s contribution to our operating performance. The Committee moved from cash flow to working capital as a percent of sales because, while cash flow continues to be important to our business, the Committee believed it was appropriate, as we emerge from a recessionary economic environment, for our executive officers to focus on the capital efficiency initiatives we undertook during the recent recession. The Committee gave the operating profit goal a weighting of 75% of the total opportunity available to each executive officer and the working capital as a percent of sales goal a weighting of 25% of the total opportunity available to each executive officer.

In setting our performance targets, the Committee reviews our operating forecast for the year, taking into account general economic and industry conditions. When the Committee established the 2013 performance targets, it was expected that (i) housing starts and consumer spending for home improvement projects would increase in 2013 compared to 2012, (ii) big ticket repair and remodel activity would lag overall repair and remodel purchases, and (iii) we would continue to incur incremental expenses related to growth investments. Notwithstanding these incremental expenses, the operating profit target for 2013 was set substantially higher than our actual results in 2012. The working capital as a percent of sales target was set at a level that represented an improvement in this metric compared to our 2012 actual results, reflecting the fact that we have made significant improvement in working capital as a percent of sales over the past several years, and that additional improvement would be more challenging to achieve. We were successful in generating both operating profit and working capital as a percent of sales that exceeded the target level of performance in 2013, as follows:

 

    Potential Payout Versus Performance                                      
Performance Metric  

Threshold

(40% Payout)

   

Target

(100% Payout)

   

Maximum

(200% Payout)

    Actual  as
Adjusted
    Actual  Percentage
Attained Relative
to Target
          Weighting          

Actual
Performance

Percentage

 

Operating Profit
(in millions)

  $ 500      $ 615      $ 785      $ 721        158     ×        75     =        119

Working Capital as a Percent of Sales

    13.6     13.0     12.0     12.2     180     ×        25     =        45
                                                                      164

For purposes of determining achievement of the performance target, our reported operating profit from continuing operations of $673 million was adjusted to exclude the effects of rationalization and other special

 

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charges of $48 million and other unusual non-recurring gains and losses. The adjustment increased the value used to determine achievement of the operating profit performance metric to $721 million. Working capital as a percent of sales is defined as quarter-end averages of our reported accounts receivable and inventories, less accounts payable, divided by our reported sales for the year. For 2013, our working capital as a percent of sales was 12.2%.

The Committee determined that we achieved 158% of the target performance level for the operating profit metric, and 180% of the target performance level for the working capital as a percent of sales metric. Weighting the operating profit metrics at 75% and the working capital as a percent of sales metric at 25%, the Committee authorized restricted stock awards and cash bonus payments to our executive officers at 164% of the target amounts. While the Committee may exercise negative discretion to reduce (but not increase) restricted stock awards and cash bonuses regardless of the operating profit and working capital as a percent of sales results actually attained, the Committee did not elect to do so. To determine the actual restricted stock award values to be granted and cash bonuses to be paid to our executive officers based on our 2013 performance, we multiplied the target opportunities for each executive officer by their 164% payout percentage and multiplied that result by each executive officer’s base salary.

In addition to granting performance-based restricted stock, the Committee also has the discretion to award shares of restricted stock to our executive officers, other than our CEO, if it determines that an executive officer has made outstanding individual contributions during the prior year. These discretionary awards, if made, would be awarded following certification of our prior year’s results and at the time that our executive officers’ evaluations take place. The total value of these awards cannot exceed 20% of the combined annual base salaries of the executive officers (excluding the salary of our CEO). No individual awards were recommended for 2013.

Stock Options

We have granted stock options annually to our executive officers to motivate and reward them for improving our share price, to align their long-term interests with those of stockholders and to maintain the competitiveness of our total compensation package. After evaluating the mix of our long-term incentive compensation and considering the feedback from our stockholders regarding our long-term incentives, in 2012 the Committee significantly reduced the importance of stock options in our long-term incentive compensation mix. Since then, the Committee has granted significantly fewer options (approximately half the number granted historically) to each of our executive officers. The Committee continues to believe that stock options are an important component of our executive compensation program because they align our executive officers’ long-term interests with those of our stockholders by reinforcing the goal of long-term share price appreciation. Further, they provide value to our executive officers following the grant of the stock options and over their long vesting schedule only if the price of our common stock increases.

Long Term Cash Incentive Program

In 2012 the Committee modified our long-term incentives by establishing a Long Term Cash Incentive Program (“LTCIP”). The LTCIP award opportunity replaced a significant portion of the stock options historically granted to our executive officers. In adopting the LTCIP, the Committee changed the mix of long-term incentive compensation opportunity for our executive officers, giving approximately equal weight to performance-based restricted stock, stock options, and LTCIP awards.

Performance awards will be earned under the LTCIP only if we achieve long-term growth and profitability, measured by the achievement of return on invested capital (“ROIC”) goals over a three-year period. The Committee chose the ROIC performance metric because it provides a meaningful incentive to achieve our long-term growth and profitability goals and reinforces our executive officers’ focus on capital efficiency and consistent return on capital. Additionally, ROIC is a measure of importance to our stockholders in their assessment of our long-term value creation.

Under the LTCIP, we measure performance over three annual performance periods, with the average results for the three annual performance periods determining the amount of any award. Performance goals are established at the start of each three-year period. The Committee has established the following ROIC goals

 

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and corresponding payout percentages for the performance periods of 2012 through 2014, 2013 through 2015, and 2014 through 2016. Our increasing ROIC targets reflect our goal of attaining 15% ROIC, which would be in the top quartile among companies in the S&P 500.

 

    2012-2014 Performance Period
Potential Payout Versus Performance
 
   

Threshold

(40% Payout)

   

Target

(100% Payout)

   

Maximum

(200% Payout)

 

Three-Year Average ROIC

    6.00     7.00     8.50

 

   

2013-2015 Performance Period

Potential Payout Versus Performance

 
   

Threshold

(40% Payout)

   

Target

(100% Payout)

   

Maximum

(200% Payout)

 

Three-Year Average ROIC

    7.50     8.50     10.25

 

   

2014-2016 Performance Period

Potential Payout Versus  Performance

 
   

Threshold

(40% Payout)

   

Target

(100% Payout)

   

Maximum

(200% Payout)

 

Three-Year Average ROIC

    9.00     12.00     17.00

These performance goals are consistent with our long-range business plan and will require a high level of performance to achieve. Under the LTCIP, we define ROIC as after-tax operating income from continuing operations adjusted to exclude the effect of special charges and certain other non-recurring income and expenses, divided by adjusted invested capital. Invested capital as adjusted includes shareholders’ equity, which we adjust to add back the cumulative after-tax impact of goodwill and intangible asset impairment charges and to exclude the impact of certain non-operating income and expenses and the effects of special charges, plus short-term and long-term debt minus cash. The Committee believes that these adjustments are important to reflect our actual investment at the time we invested in our current businesses. Taking these adjustments into account, ROIC, as calculated under the LTCIP was less than as calculated using reported numbers:

 

    ROIC
    Using Reported Numbers   As Adjusted Under LTCIP

2012

  10.43%   5.76%

2013

  17.44%   9.24%

The performance award opportunity for each of our current executive officers under the LTCIP is based on a percent of his annual base salary, and is identical to the opportunity levels available to our executive officers under our annual performance program, described under “Annual Performance-Based Restricted Stock and Cash Bonus Opportunities” above.

If we achieve the threshold three-year average ROIC, we will determine the actual award to be made to each executive officer by multiplying the target opportunity for each executive officer by the payout percentage corresponding to the actual three-year average ROIC achieved. If we do not achieve the ROIC threshold, no payments will be made under the LTCIP.

Perquisites and Other Compensation

Our executive officers receive a limited number of perquisites. We maintain Company aircraft for business purposes, and the Committee has evaluated our policies and valuation practices for personal use of these aircraft. The Board has requested that our CEO use our aircraft for both business and personal travel, with personal travel subject to prior approval by our Chairman of the Board. Notwithstanding this, personal use of our aircraft is considered a perquisite for SEC reporting purposes. Our CEO may occasionally permit other executive officers to use our aircraft, if available, for personal travel.

 

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Our executive officers are eligible to participate in an estate and financial planning program to assist them in achieving the benefit of our compensation programs. This program provides up to $10,000 per year for financial planning and tax preparation.

Retirement Programs

We maintain defined contribution retirement plans for all of our employees to provide them with income to supplement social security and their personal asset accumulation. These plans include 401(k) savings plans and profit sharing plans. Our executive officers are eligible to participate in a tax-qualified 401(k) savings plan (the “401(k) Savings Plan”) and a tax-qualified Future Service Profit Sharing Plan (the “Profit Sharing Plan”), as well as a benefits restoration plan (the “BRP”). The BRP enables highly-compensated employees to obtain the full financial benefit of the 401(k) Savings Plan and the Profit Sharing Plan, notwithstanding various limitations imposed on the plans under the Internal Revenue Code (the “Code”).

Our executive officers are also entitled to receive benefits under our frozen defined benefit plans, which are the Masco Corporation Pension Plan and the portion of the BRP applicable to the Masco Corporation Pension Plan. Messrs. Wadhams and Sznewajs may also receive benefits under a Supplemental Executive Retirement Plan (“SERP”). SERP benefits are not provided to Messrs. Cole, Shah or Lindow. In 2010, we froze accruals in all of these plans, as well as in all of our other defined benefit plans offered to our U.S. employees. Consequently, the pension benefits ultimately payable to all executive officers are essentially fixed, although Mr. Sznewajs’s vesting in the frozen accrued SERP benefit has continued. Mr. Sznewajs will not be fully vested in his frozen SERP benefit unless he continues to be employed with us until he is age 55, or we have a change in control (or an alternate change in control). See “Executive Compensation – Payments Upon a Change in Control.”

Our retirement plans and our frozen defined benefit plans are described in detail in “Compensation of Executive Officers – Retirement Plans” below.

How did the executive officers’ direct compensation in 2013 compare to 2012?

The Supplemental Compensation Table below shows how the Committee assessed total direct compensation for our current executive officers in 2013 and 2012, and shows compensation changes from 2012 to 2013 on a year-over-year basis. Presentation of the components of compensation in the Supplemental Compensation Table is consistent with the information provided to and analyzed by the Committee in our tally sheets, as described above. The Supplemental Compensation Table does not include possible payments that may be made under the LTCIP, as performance awards will be earned under the LTCIP only if, at the end of any three-year performance period, the ROIC goals established for that period are met, which is not guaranteed. The first LTCIP three-year performance period will conclude at the end of 2014. The Supplemental Compensation Table is not intended to be a substitute for the 2013 Summary Compensation Table (which is presented under the heading “Compensation of Executive Officers” below).

The Committee approves restricted stock awards when financial results for the previous year are finalized, which occurs early in the following year. We granted restricted stock in early 2014 based on our performance in 2013, and in early 2013 based on our performance in 2012. The 2013 Summary Compensation Table shows the awards of restricted stock we made in 2013 as compensation received by our executive officers in that year. In the Supplemental Compensation Table below, we show the awards of restricted stock made in 2014 as compensation for 2013, and the awards of restricted stock made in 2013 as compensation for 2012. The Supplemental Compensation Table does not include changes in pension value, as that amount represents the annual change in present value of future payments to be made to our executive officers, and does not reflect additional benefit accruals in our frozen defined benefit pension plans.

 

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Supplemental Compensation Table

 

 

Name and Principal Position        Year
(1)
    Salary
($)
    Restricted
Stock
Awards
($)
(2)
    Stock
Options
($)
(3)
    Non-Equity
Incentive
Plan
Compensation
($)
(4)
    All Other
Compensation
($)
(5)
    Total
($)
(6)
    Percentage
Change
 

Timothy Wadhams

    2013        1,000,000        2,459,946        3,398,640        2,460,000        319,748        9,638,334     

President and Chief Executive Officer

    2012        1,000,000        2,040,072        1,811,520        2,040,000        142,315        7,033,907        37

John G. Sznewajs

    2013        552,500        707,260        603,925        707,300        110,414        2,681,399     

Vice President, Treasurer and

    2012        530,000        540,558        321,900        540,600        58,065        1,991,123        35

Chief Financial Officer

                                                               

Kenneth G. Cole

    2013        275,385        537,054        265,800        229,200        50,923        1,358,362          

Vice President, General

               

Counsel and Secretary

                                                               

Jai Shah

    2013        370,000        394,416        249,900        394,400        76,754        1,485,470     

Vice President – Chief Human

    2012        347,781        506,285        266,400        327,100        41,144        1,488,710        0

Resource Officer

                                                               

John P. Lindow

    2013        260,000        276,988        191,590        277,000        60,158        1,065,736     

Vice President – Controller

    2012        260,000        229,864        102,120        229,800        30,130        851,914        25

 

(1) 

Mr. Cole became an executive officer in July 2013, so no compensation information is provided for him for 2012.

 

(2) 

This column shows the aggregate grant date fair value of awards of restricted stock for the performance year indicated, calculated in accordance with accounting guidance. The amount shown for Mr. Cole for 2013 includes a special award of 15,000 restricted shares granted to recognize his promotion to Vice President, General Counsel and Secretary. The amount shown for Mr. Shah for 2012 includes a special award of 15,000 restricted shares granted to recognize his promotion to Vice President – Chief Human Resource Officer.

 

(3) 

This column shows the aggregate grant date fair value of awards of stock options. For 2013, each executive officer received the following number of stock options: 408,000 options for Mr. Wadhams; 72,500 options for Mr. Sznewajs; 30,000 options for Mr. Cole (which represented a special award to recognize his promotion to Vice President, General Counsel and Secretary); 30,000 options for Mr. Shah and 23,000 options for Mr. Lindow. The amount shown for Mr. Shah for 2012 includes a special award of stock options for 30,000 shares to recognize his promotion to Vice President – Chief Human Resource Officer.

 

(4) 

This column shows the cash bonuses paid for the performance year indicated.

 

(5) 

This column includes our contributions and allocations for the accounts of the executive officers under our qualified and non-qualified defined contribution retirement plans, and perquisites.

 

(6) 

As noted above, the total excludes the change in the year-end pension values included in the 2013 Summary Compensation Table.

 

 

MASCO’S EXECUTIVE COMPENSATION PROGRAMS INCORPORATE BEST PRACTICES

 

Our executive compensation programs incorporate many best practices. This year we implemented an anti-hedging and anti-pledging policy, as described in our Executive Summary and below. Additionally, as described above, our compensation mix is weighted toward long-term incentives, the vesting schedule for our equity awards is longer than current market practice, the Committee utilizes a market analysis of executive compensation relative to peer companies, we provide limited perquisites, our equity plan prohibits the repricing of options, and our Committee uses tally sheets in setting executive compensation. Our other best practices are described below.

We Prohibit Hedging and Pledging

We have adopted an anti-hedging and anti-pledging policy that prohibits our executives and our directors from engaging in any hedging transactions (including transactions involving options, puts, calls, prepaid variable forward contracts, equity swaps, collars and exchange funds or other derivatives) that are designed to hedge or speculate on any change in the market value of our equity or debt securities. Additionally, our executives and directors are prohibited from making any future purchases of our securities on margin or from pledging our securities as collateral for a loan, unless the arrangement is preapproved by our Corporate Governance and Nominating Committee for any executive or by our Board for any director.

We Can Clawback Incentive Compensation

If we restate our financial statements, other than as a result of changes to accounting rules or regulations, the Committee may recover from our executives incentive compensation that was paid or granted in the three-year period prior to the restatement, regardless of whether misconduct caused the restatement.

 

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We Require Minimum Levels of Stock Ownership by Our Executives

For many years we have required minimum stock ownership for our executive officers to further reinforce the alignment of their long-term financial interests with the interests of our stockholders. This requirement ensures that our executive officers maintain a substantial investment in our common stock and that a meaningful amount of each executive officer’s personal net worth is invested in our Company. Our executive officers are required to achieve the stock ownership necessary to meet the stock ownership requirements within three years of becoming subject to them.

The Committee reviews our executive officers’ ownership of our common stock annually to ensure compliance with our stock ownership guidelines. Our executive officers’ direct stock holdings and unvested restricted stock awards are counted toward satisfaction of the guidelines. As of December 31, 2013, when the closing price of our common stock was $22.77, each of our executive officers met his stock ownership requirement, as follows:

 

    Minimum Stock Ownership     Actual Ownership  
Name   Multiple  of
Base Salary
    Multiple  Expressed
in Dollars ($)
    Multiple  of
Base Salary
    Value of  Shares
Held by Executive ($)
 

Timothy Wadhams

    6        6,000,000        13.3        13,285,589   

John G. Sznewajs

    3        1,725,000        6.5        3,738,492   

Kenneth G. Cole

    2        640,000        3.2        1,020,665   

Jai Shah

    2        740,000        6.4        2,355,238   

John P. Lindow

    2        520,000        6.1        1,575,957   

We Prohibit Excise Tax Gross-Up Payments

Our Board has adopted a policy prohibiting excise tax gross-up payments, except for such payments committed to in equity awards and frozen SERP agreements entered into prior to 2012. Specifically, equity awards made in 2012 and thereafter will no longer be included for purposes of determining future excise tax gross-up payments. With the exception of tax equalization gross-up payments made to employees in connection with reimbursement of relocation or foreign expatriate expenses incurred at our request, we do not provide other tax gross-up payments.

We Have Adopted Double-Trigger Change of Control Provisions for Our Equity Awards

In 2012, the Committee modified the terms of future equity awards to implement a double-trigger change in control provision. The terms of our equity awards now state that the awards will vest only if there is both a change in control of our Company and the recipient of the award is terminated from employment at the time of the change in control or within two years after the change in control, or terminates employment for good reason (for example, if his or her job duties have been significantly diminished) (“double-trigger” vesting), or if the recipient’s awards are not replaced with comparable awards by the acquiring company. The terms of our equity awards granted prior to this change provide that the awards would vest immediately upon a change in control of our Company (“single trigger” vesting).

We Do Not Have Employment, Change in Control or Severance Contracts

Our executive officers do not have employment contracts and are “at-will” employees who may be terminated at our discretion. We believe this preserves greater flexibility in our employment arrangements with our executive officers. Our executive officers also do not have change in control or severance contracts, although we have, from time to time, entered into severance arrangements with departing executive officers. However, if a change in control occurs, all outstanding shares of restricted stock and stock options may fully vest, as described above. Additionally, each of our participating executive officers would receive a lump-sum payment equal to the present value of his accrued benefit under our SERP and the BRP.

After a change in control, executive officers may be considered to have received “golden parachute payments” to the extent the amount received as a result of the change in control exceeds certain thresholds

 

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in the Code. Under the Code, “golden parachute payments” are subject to a 20% excise tax, in addition to normally applicable income and other payroll taxes. If an employee, including any executive officer, becomes entitled to receive payments as a result of equity awards or other agreements made before 2012, which trigger the application of the excise tax, we will make an additional cash payment to make the employee whole for such excise tax payments. As described above, our equity awards granted in 2012 and thereafter do not include the excise tax gross-up feature. The Committee’s review of executive compensation also includes our obligations to the executive officers under these programs in the event of any change in control.

Our Policies Encourage Executive Retention and Protect Us

We believe several features of our equity plans improve our retention of our executive officers and also reduce the potential that executive officers might engage in post-termination conduct that would be harmful to us. Our executive officers generally forfeit unvested awards of restricted stock and stock options when their employment terminates prior to retirement. Executive officers may exercise vested options for a limited period of time following termination. The terms of our awards prohibit our executive officers from competing with us for one year after termination. If an executive officer violates this restriction, we can recover the gain the executive officer realized from awards that vested within two years prior to termination.

Our Committee Conducts an Annual Compensation Risk Evaluation

The Committee annually conducts a risk assessment of our executive compensation programs. The Committee has concluded that our programs do not encourage excessive risk taking. While the total compensation program is designed to balance short- and long-term rewards, the largest portion of the compensation opportunity for our executive officers is through equity- and cash-based long-term incentives. Executive officers are also required to own a substantial amount of our stock to further encourage a long-term perspective. The annual cash bonus and stock award programs have established maximum payout opportunities in line with competitive practice.

 

 

TAX TREATMENT

 

Section 162(m) of the Code limits deductibility of annual compensation in excess of $1 million paid to our executive officers, unless this compensation qualifies as “performance-based.” Our stock options and, in most situations, cash bonus and grants of restricted stock under the performance-based programs described above, are intended to qualify under Section 162(m) so that they may be deductible. Awards under our LTCIP are also intended to qualify under Section 162(m). The Committee, however, believes it is in our interest to retain flexibility in our compensation programs. Consequently, in some circumstances, we have paid and intend to continue to pay compensation that may not qualify as deductible under Section 162(m).

 

 

CONCLUSION

 

We recognize the importance of attracting and retaining executive officers who can effectively lead our business, particularly in difficult economic times, and in motivating them to maximize our corporate performance and create long-term value for our stockholders. We believe in rewarding our executive officers to a significant degree based on our performance. Because our performance in 2013 improved compared to 2012, our executive officers’ compensation increased in amounts commensurate with that improved performance. We continue to thoughtfully and thoroughly analyze our compensation practices and programs and to reach out to a significant number of our stockholders to understand their perspectives regarding our compensation programs. Our Board adopted an anti-hedging and anti-pledging policy in 2013 to reflect current best practices. We believe this change, along with the many changes we have implemented in our compensation practices and programs in recent years, continue to strengthen these practices and programs to even more strongly align our executive officers’ interests with the long-term interests of stockholders, reward our executive officers based on our performance and incentivize them to focus on our critical business objectives.

 

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Compensation Committee Report

The Organization and Compensation Committee, which is responsible for overseeing the Company’s executive compensation programs, has reviewed and discussed the Compensation Discussion and Analysis with management. Based on our review and discussion, the Organization and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Masco’s proxy statement.

Mary Ann Van Lokeren, Chairperson

Verne G. Istock

J. Michael Losh

Donald R. Parfet

Lisa A. Payne

 

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Compensation of Executive Officers

 

 

SUMMARY COMPENSATION TABLE

 

The following table reports compensation earned during the years indicated by Mr. Wadhams, who served as our principal executive officer until February 14, 2014, Mr. Sznewajs, our principal financial officer, and Messrs. Cole, Shah and Lindow, our three other most highly compensated executive officers. Mr. Wittrock ceased serving as our Vice President, General Counsel and Secretary in July 2013. He is included in this table because he would have been included in the group of highly compensated executive officers if he had remained as an executive officer through December 31, 2013. We refer to the individuals listed in the table collectively as our “named executive officers.”

 

 

2013 Summary Compensation Table

 

 

Name  and

Principal Position

  Year(1)     Salary
($)
(2)
    Stock
Awards
($)
(3)(4)
    Option
Awards
($)
(3)
    Non-Equity
Incentive
Plan
Compensation
($)
(2)(5)
    Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)
(6)
    All Other
Compensation
($)
(7)
    Total ($)  

Timothy Wadhams

    2013        1,000,000        2,040,072        3,398,640        2,460,000               319,748        9,218,460   

President and Chief

    2012        1,000,000               1,811,520        2,040,000        1,749,638        142,315        6,743,473   

Executive Officer

    2011        1,000,000        899,964        4,161,600               1,914,996        126,580        8,103,140   

John G. Sznewajs

    2013        552,500        540,558        603,925        707,300               110,414        2,514,697   

Vice President, Treasurer

    2012        530,000               321,900        540,600        570,136        58,065        2,020,701   

and Chief Financial Officer

    2011        530,000        238,452        739,500               532,788        42,305        2,083,045   

Kenneth G. Cole

    2013        275,385        440,751 (8)      265,800        229,200               50,923        1,262,059   

Vice President, General

Counsel and Secretary

                                                               

Jai Shah

    2013        370,000        327,185        249,900        394,400               76,754        1,418,239   

Vice President – Chief Human

Resource Officer

    2012        347,780        179,100 (8)      266,400        327,100        22,356        41,144        1,183,880   

John P. Lindow

    2013        260,000        229,864        191,590        277,000               60,158        1,018,612   

Vice President – Controller

    2012        260,000               102,120        229,800        30,993        30,130        653,043   
      2011        250,865        200,863        234,600               41,289        25,580        753,197   

Gregory D. Wittrock

    2013        269,231        353,653        249,900        568,500               70,841        1,512,125   

Retired Vice President, General

    2012        400,000               133,200        353,600        27,974        45,200        959,974   

Counsel and Secretary

    2011        392,615        144,353        306,000               130,022        34,637        1,007,627   

 

(1) 

Information is included only for those years in which individuals have served as named executive officers.

 

(2) 

These columns include amounts voluntarily deferred by each named executive officer as salary reductions under our 401(k) Savings Plan.

 

(3) 

Amounts in these columns reflect the aggregate grant date fair value of restricted stock awards and stock options, calculated in accordance with accounting guidance. In determining the fair market value of stock options, we used the same assumptions as set forth in the notes to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. See “Compensation Discussion and Analysis – Summary of Compensation Decisions for 2013 – What were the components of Masco’s executive compensation program in 2013?” The named executive officers have no assurance that these amounts will be realized. They only realize the value of restricted stock awards over an extended period of time because scheduled vesting of awards occurs pro rata over five years from the date of grant. Actual gains, if any, on stock option exercises will depend on overall market conditions, the future performance of our common stock and the timing of exercise of the option.

 

(4) 

In accordance with SEC requirements, the amounts reported in this column reflect restricted stock awards granted during the year indicated. Performance-based awards of restricted stock for performance achieved in 2010 are reflected in the grants made in 2011. Because we did not meet our performance targets in 2011, no performance-based awards of restricted stock were made in 2012.

 

(5) 

This column shows performance-based cash bonuses that were paid based on the attainment of performance targets, as described above in “Compensation Discussion and Analysis.” The amount shown in 2013 for Mr. Wittrock reflects a proration (based on the portion of the year prior to his retirement) of the (i) performance-based cash bonus, and (ii) cash in lieu of the equity grant he would have received in February 2014 based upon attainment of performance targets if he had been an employee on the date of grant.

 

(6) 

This column shows changes in the sum of year-end pension values, which reflect actuarial factors and variations in interest rates used to calculate present values. Increases in pension values do not represent increased benefit accruals since benefits in our domestic defined benefit plans were frozen effective January 1, 2010. The chart shows no increases for 2013, since all values decreased due to the effect of rising interest rate assumptions used in the calculations. Decreases in pension values in 2013 for Messrs. Wadhams, Sznewajs, Cole,

 

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  Shah, Lindow and Wittrock were $1,356,334, $522,164, $12,391, $23,476, $31,969 and $120,030, respectively. These values were obtained by comparing the present value of accumulated benefits for December 31 of the year indicated (shown for 2013 in the “2013 Pension Plan Table” below) to the comparable amount for the prior year. We calculated the pension values for each of 2011, 2012 and 2013 using the same assumptions as set forth in the notes to our financial statements included in our Annual Report on Form 10-K for the corresponding fiscal years ended December 31. The named executive officers did not have any above-market earnings under any of the plans in which they participate.

 

(7) 

For 2013, this column includes (i) our total contributions and allocations for the accounts of the named executive officers under the Profit Sharing Plan, the 401(k) Savings Plan and the portions of the Benefit Restoration Plan applicable to those plans ($275,900 for Mr. Wadhams; $110,414 for Mr. Sznewajs; $50,923 for Mr. Cole; $76,754 for Mr. Shah; $59,133 for Mr. Lindow; and $70,441 for Mr. Wittrock); and (ii) perquisites. The only perquisite that exceeded the greater of $25,000 or 10% of the total perquisite amount was personal use of Company aircraft ($43,848 for Mr. Wadhams). The incremental cost for the Company aircraft includes the cost for fuel, landing and parking fees, variable maintenance, variable pilot expenses for travel and any special catering costs. We also include these same costs for associated repositioning of the aircraft. For 2013, perquisites also included financial planning (for Messrs. Lindow and Wittrock).

 

(8) 

Mr. Cole received an award of restricted stock in 2013 in connection with his promotion to Vice President, General Counsel and Secretary. Mr. Shah received an award of restricted stock in 2012 in connection with his promotion to Vice President – Chief Human Resource Officer.

 

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GRANTS OF PLAN-BASED AWARDS

 

The following table provides information about (i) the potential payouts that were available in 2013 to our named executive officers under our annual performance-based cash bonus opportunity, (ii) the potential payouts under our Long Term Cash Incentive Program (“LTCIP”), and (iii) the actual grants of restricted stock and stock options we made in 2013 to our named executive officers under our 2005 Long Term Stock Incentive Plan (the “2005 Plan”). Our “Compensation Discussion and Analysis” above describes our annual performance-based cash bonus and stock award opportunities, performance targets, grants of stock options and the LTCIP. Stock options granted in 2013 vest in equal annual installments of 20% over a period of five years and remain exercisable until ten years from the date of grant.

 

 

2013 Grants of Plan-Based Awards

 

 

Name  

Grant

Date

   

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards

   

All Other

Stock
Awards:
Number of

Shares of
Stock (3)

   

All Other

Option Awards:

Number of
Securities
Underlying

Options (4)

    Exercise or
Base Price of
Option Awards
($ Per Share)
    Grant Date Fair
Value of Stock
and Option
Awards ($) (5)
 
    Threshold  ($)     Target  ($)     Maximum  ($)          

Timothy Wadhams

    n/a (1)        600,000        1,500,000        3,000,000                                   
    n/a (2)        600,000        1,500,000        3,000,000                                   
    2/13/2013                                100,200                        2,040,072   
      2/13/2013                                        408,000        20.36        3,398,640   

John G. Sznewajs

    n/a (1)        172,500        431,250        862,500                                   
    n/a (2)        159,000        397,500        795,000                                   
    2/13/2013                                26,550                        540,558   
      2/13/2013                                        72,500        20.36        603,925   

Kenneth G. Cole

    n/a (1)        83,200        208,000        416,000                                   
    2/13/2013                                6,530                        132.951   
    7/31/2013                                15,000                        307,800   
      7/31/2013                                        30,000        20.52        265,800   

Jai Shah

    n/a (1)        96,200        240,500        481,000                                   
    n/a (2)        96,200        240,500        481,000                                   
    2/13/2013                                16,070                        327,185   
      2/13/2013                                        30,000        20.36        249,900   

John Lindow

    n/a (1)        67,600        169,000        338,000                                   
    n/a (2)        67,600        169,000        338,000                                   
    2/13/2013                                11,290                        229,864   
      2/13/2013                                        23,000        20.36        191,590   

Gregory D. Wittrock

    n/a (1)        60,667        151,667        303,333                                   
    n/a (2)        60,667        151,667        303,333                                   
    2/13/2013                                17,370                        353,653   
      2/13/2013                                        30,000        20.36        249,900   

 

(1) 

The amounts shown reflect the threshold, target, and maximum payouts under the 2013 annual performance-based cash bonus opportunity described in our “Compensation Discussion and Analysis.” The amounts paid under this program are set forth in the “2013 Summary Compensation Table” above.

 

(2) 

The amounts shown reflect the threshold, target, and maximum payouts available under the LTCIP relating to the Company’s performance for the 2013-2015 performance period. The actual amount paid under the LTCIP will depend on return on invested capital performance over the three-year period and the LCTIP’s terms and conditions.

 

(3) 

The amounts shown reflect the number of shares of restricted stock granted in 2013 under the 2012 performance-based restricted stock award opportunity. See discussion captioned “Annual Performance-Based Restricted Stock and Cash Bonus Opportunities” in the Compensation Discussion and Analysis above. Additionally, Mr. Cole received a special grant of 15,000 restricted shares when he was promoted to Vice President, General Counsel and Secretary in July 2013.

 

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(4) 

The amounts shown reflect the number of stock options granted in 2013. Mr. Cole received a special stock option grant for 30,000 shares when he was promoted to Vice President, General Counsel and Secretary in July 2013.

 

(5) 

The grant date fair value shown in the column is determined in accordance with accounting guidance. Regardless of the value placed on a stock option on the grant date, the actual value of the option will depend on the market value of our common stock at a future date when the option is exercised.

 

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

We make equity grants pursuant to our 2005 Plan; outstanding grants made prior to May 2005 were made pursuant to our 1991 Long Term Stock Incentive Plan (the “1991 Plan”). We refer to the 2005 Plan and the 1991 Plan collectively in this proxy statement as the “Long Term Stock Incentive Plan.” The following table shows, for each named executive officer as of December 31, 2013, (i) each vested and unvested stock option outstanding, (ii) the aggregate number of unvested shares of restricted stock, and (iii) the market value of unvested shares of restricted stock based on the closing price of our common stock on December 31, 2013, which was $22.77 per share. Unvested restricted shares are held in the named executive officer’s name, and the named executive officer has the right to vote the shares and receive dividends on the restricted shares, but the named executive officer may not sell the shares until they vest. The value each named executive officer will realize when his restricted shares vest will depend on the value of our common stock on the vesting date.

 

 

2013 Outstanding Equity Awards at Fiscal Year-End

 

 

    Option Awards(1)     Restricted Stock Awards(2)  
Name  

    Original    

Grant

Date

   

Number of

Securities

Underlying

   Unexercised  

Options (#)

Exercisable

    Number  of
Securities
Underlying
Unexercised
Options (#)
  Unexercisable  
   

Option

  Exercise  

Price ($)

   

Option

  Expiration  

Date

   

Number of
Shares or
Units of
Stock
  That Have  

Not
Vested (#)

   

  Market Value  

of Shares or
Units of
Stock
That Have
Not
Vested ($)

 

Timothy Wadhams

              390,120        8,883,032   
        01/14/2004        30,000               26.50        01/14/2014       
    07/29/2004        75,000               30.00        07/29/2014       
    05/09/2005        85,000               30.75        05/09/2015       
    07/26/2006        85,000               26.60        07/26/2016       
    05/24/2007        85,000               30.40        05/24/2017       
    06/02/2007        400,000               30.16        06/02/2017       
    05/12/2008        816,000               18.58        05/12/2018       
    02/09/2009        244,800        163,200        8.03        02/09/2019       
    02/12/2010        489,600        326,400        13.81        02/12/2020       
    02/16/2011        326,400        489,600        12.82        02/16/2021       
    02/15/2012        81,600        326,400        11.67        02/15/2022       
      02/13/2013               408,000        20.36        02/13/2023                   

John G. Sznewajs

              113,380        2,581,663   
    07/29/2004        33,000               30.00        07/29/2014       
    05/09/2005        33,000               30.75        05/09/2015       
    07/28/2005        20,000               34.40        07/28/2015       
    07/26/2006        40,000               26.60        07/26/2016       
    05/24/2007        40,000               30.40        05/24/2017       
    06/02/2007        70,000               30.16        06/02/2017       
    05/12/2008        145,000               18.58        05/12/2018       
    02/09/2009        56,000        29,000        8.03        02/09/2019       
    02/12/2010        87,000        58,000        13.81        02/12/2020       
    02/16/2011        58,000        87,000        12.82        02/16/2021       
    02/15/2012        14,500        58,000        11.67        02/15/2022       
      02/13/2013               72,500        20.36        02/13/2023                   

Kenneth G. Cole

              33,471        762,135   
    05/09/2005        6,000               30.75        05/09/2015       
    07/26/2006        6,000               26.60        07/26/2016       
    05/24/2007        6,000               30.40        05/24/2017       
    05/12/2008        10,200               18.58        05/12/2018       
    02/09/2009               2,100        8.03        02/09/2019       
    02/12/2010        9,600        6,400        13.81        02/12/2020       
      07/31/2013               30,000        20.52        07/31/2023                   

 

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    Option Awards(1)     Restricted Stock Awards(2)  
Name  

    Original    

Grant

Date

   

Number of

Securities

Underlying

   Unexercised  

Options (#)

Exercisable

    Number  of
Securities
Underlying
Unexercised
Options (#)
  Unexercisable  
   

Option

  Exercise  

Price ($)

   

Option

  Expiration  

Date

   

Number of
Shares or
Units of
Stock
  That Have  

Not
Vested (#)

   

  Market Value  

of Shares or
Units of
Stock
That Have
Not
Vested ($)

 

Jai Shah

              81,721        1,860,787   
    07/29/2004        6,000               30.00        07/29/2014       
    05/09/2005        6,500               30.75        05/09/2015       
    05/09/2005        3,500               30.75        05/09/2015       
    12/05/2005        20,000               30.25        12/05/2015       
    07/26/2006        27,000               26.60        07/26/2016       
    05/24/2007        27,000               30.40        05/24/2017       
    07/25/2007        30,000               26.44        07/25/2017       
    05/12/2008        60,000               18.58        05/12/2018       
    02/09/2009               12,000        8.03        02/09/2019       
    02/12/2010        36,000        24,000        13.81        02/12/2020       
    02/16/2011        24,000        36,000        12.82        02/16/2021       
    02/15/2012        6,000        24,000        11.67        02/15/2022       
    08/01/2012        6,000        24,000        11.94        08/01/2022       
      02/13/2013               30,000        20.36        02/13/2023                   

John P. Lindow

              52,095        1,186,203   
    07/29/2004        14,000               30.00        07/29/2014       
    05/09/2005        12,000               30.75        05/09/2015       
    07/26/2006        15,000               26.60        07/26/2016       
    05/24/2007        20,000               30.40        05/24/2017       
    05/12/2008        45,900               18.58        05/12/2018       
    02/09/2009               9,180        8.03        02/09/2019       
    02/12/2010        27,600        18,400        13.81        02/12/2020       
    02/16/2011        18,400        27,600        12.82        02/16/2021       
    02/15/2012        4,600        18,400        11.67        02/15/2022       
      02/13/2013               23,000        20.36        02/13/2023                   

Gregory D. Wittrock

              48,128        1,095,875   
    07/29/2004        14,400               30.00        07/29/2014       
    05/09/2005        14,400               30.75        05/09/2015       
    07/26/2006        14,400               26.60        07/26/2016       
    05/24/2007        14,400               30.40        05/24/2017       
    02/09/2009        7,800        5,200        8.03        02/09/2019       
    12/07/2009        16,000        6,000        13.91        12/07/2019       
    02/12/2010        36,000        24,000        13.81        02/12/2020       
    02/16/2011        24,000        36,000        12.82        02/16/2021       
    02/15/2012        6,000        24,000        11.67        02/15/2022       
      02/13/2013               30,000        20.36        02/13/2023                   

 

(1) 

Stock option awards vest in equal annual installments of 20% commencing in the year following the year of grant.

 

(2) 

Restricted stock awards granted in 2010 and after vest in equal annual installments of 20%. Restricted stock awards granted prior to 2010 vest in equal annual installments of 10%; however, the number of shares that vest annually is adjusted when the participant turns age 66 so that awards are fully vested by the end of the year in which the participant turns 70.

 

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OPTION EXERCISES AND STOCK VESTED

 

The following table shows the number of shares acquired, and the value realized, by each of our named executive officers during 2013, in connection with the vesting of stock options and restricted stock previously awarded to them.

 

 

2013 Option Exercises and Stock Vested

 

 

Name  

Number of Shares

Acquired on Exercise (#)

   

Value Realized on

Exercise ($)

    Number of  Shares
Acquired on Vesting (#)
   

Value Realized on

Vesting ($)

 

Timothy Wadhams

    131,965        4,951,325        92,193        1,669,538   

John G. Sznewajs

    23,053        785,261        17,868        500,613   

Kenneth G. Cole

    3,630        112,178        2,769        76,837   

Jai Shah

    18,906        591,144        11,934        353,268   

John P. Lindow

    15,128        443,467        8,040        221,197   

Gregory D. Wittrock

    9,538        262,935        8,068        216,970   

 

 

RETIREMENT PLANS

 

We maintain tax-qualified defined contribution and defined benefit retirement plans for our employees, including our named executive officers. We also maintain a non-qualified Benefits Restoration Plan (“BRP”), which enables highly compensated employees to obtain the full financial benefits of the tax-qualified plans, notwithstanding various limitations imposed on them under the Code. Substantially all of our defined benefit pension plans were frozen for future benefit accruals effective January 1, 2010. Consequently, the defined benefit pension benefits accrued for each of our named executive officers are essentially fixed.

Defined Contribution Plans

Our defined contribution plans include a tax-qualified 401(k) Savings Plan and a tax-qualified Profit Sharing Plan. We match 100% of the first 4% of an employee’s compensation deferred into the 401(k) Savings Plan. Our contributions to the Profit Sharing Plan are guided by the earnings per share performance target used to determine annual performance-based restricted stock awards and cash bonuses. The Organization and Compensation Committee has established our maximum contribution percentage at 10% of each participant’s annual earnings (base salary and cash bonus) if we achieve the maximum performance levels. Employees become 100% vested in their profit sharing accounts after completing three years of employment with us. All of our named executive officers are 100% vested in their profit sharing accounts.

Under the defined contribution portion of our BRP, we make book account allocations for highly compensated employees, including our named executive officers, reflecting 401(k) Savings Plan employer match (in 2013, for contributions up to $17,500) and Profit Sharing Plan contribution amounts that otherwise exceed the Code’s limitations, together with amounts reflecting pro-forma earnings (or losses) on participants’ accounts. Because the BRP is not a tax-qualified plan, allocations and pro-forma earnings are maintained in book entry form in a Company account in each participant’s name and are not funded. The pro-forma earnings (or losses) are posted to these BRP book entry accounts based on the performance reported by the several mutual fund offerings designated by each participant. Following a participant’s termination of employment, the BRP account is paid by us in a lump sum. Distributions from the Profit Sharing Plan are made through a trust and may be paid in a lump sum or in installments. The Profit Sharing Plan also permits distributions after a participant reaches age 59 1/2 and prior to termination of employment.

 

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The columns in the following table show, for each named executive officer, (A) the amount of the book entry allocation to his BRP account made by us for 2013; (B) the amount of pro-forma earnings posted to his account in 2013; (C) the aggregate amount of all withdrawals, distributions or segregations from his account during 2013; and (D) the account’s ending balance at December 31, 2013.

 

 

2013 Non-Qualified Deferred Compensation (Defined Contribution Portion of the Benefits Restoration Plan)

 

 

    A     B     C     D  
Name  

Masco

Allocations
    for 2013  ($)
(1)    

   

Aggregate

    Earnings in     
2013 ($)

    Aggregate
Withdrawals/
    Distributions ($)    
         Aggregate Balance     
at December 31,
2013 ($)
(2)
 

Timothy Wadhams

    244,025        63,901                619,658   

John G. Sznewajs

    78,539        49,756                217,218   

Kenneth G. Cole

    19,048        815                5,289   

Jai Shah

    44,879        13,728                92,796   

John P. Lindow

    27,258        8,307                35,176   

Gregory G. Wittrock

    38,566        19,746        25,905        84,845   

 

(1) 

Amounts in this column are included in “All Other Compensation” in the 2013 Summary Compensation Table.

 

(2) 

The following amounts included in this column were previously reported as compensation in our Summary Compensation Table for 2011 and 2012: $56,350 in 2011 and $61,750 in 2012 for Mr. Wadhams; $22,405 in 2011 and $27,440 in 2012 for Mr. Sznewajs; $11,049 in 2012 for Mr. Shah; $6,830 in 2011 and $1,130 in 2012 for Mr. Lindow; and $15,457 in 2011 and $16,950 in 2012 for Mr. Wittrock.

We offer no other plans of deferred compensation that would permit the election of deferrals of cash compensation by our named executive officers.

Defined Benefit Pension Plans

Our frozen defined benefit pension plans are the tax-qualified Masco Corporation Pension Plan (the “Pension Plan”) and a non-qualified Supplemental Executive Retirement Plan (“SERP”) for each of Messrs. Wadhams and Sznewajs. We also maintain a portion of the non-qualified BRP applicable to the Pension Plan for highly compensated employees, including our named executive officers.

Masco Corporation Pension Plan and BRP

The Pension Plan and BRP provide that at normal retirement age (65), participants receive an annual payment for the remainder of their life, with five years’ payments guaranteed. Employees became 100% vested in their pension benefit after completing five years of employment with us. The benefits are not subject to reduction for social security benefits or for other offsets, except to the extent that pension or equivalent benefits are also payable under a prior affiliate’s plan. Participants who retire or terminate employment with us are eligible for a reduced early retirement benefit between age 55 and 65. If a participant retires or terminates employment and commences payments at age 55, his or her benefit would be reduced by one-half; if he or she retires and commences payments at age 60, the benefit would be reduced by one-third. The maximum credited service under the Pension Plan and the defined benefit portion of the BRP was 30 years. A participant who has ten or more years of service with us is eligible to receive a disability benefit equal to the participant’s accrued benefit. Benefits accrued under the Pension Plan and the portion of the BRP applicable to the Pension Plan were frozen as of January 1, 2010. All of our named executive officers are 100% vested in their Pension Plan and BRP benefits.

Supplemental Executive Retirement Plan (“SERP”)

Messrs. Wadhams and Sznewajs are participants in the frozen SERP. SERP benefits are not provided to Messrs. Cole, Shah, Lindow and Wittrock. SERP participants receive an annual payment for life of an amount up to 60% of the average of their highest three years’ cash compensation (base salary plus annual cash bonus, up to 60% of that year’s maximum bonus opportunity) earned on or before January 1, 2010. SERP payments are offset by amounts payable under the Pension Plan and the Profit Sharing Plan balance as of January 1, 2010 and the portions of the BRP applicable to those plans, and, in most cases, by retirement

 

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benefits payable to the SERP participant by other employers. Benefits under the SERP are not payable in a lump sum, other than in the case of a change in control or alternate change in control.

The maximum benefit under the SERP accrues after 15 years, limited to service accrued at January 1, 2010. When the SERP was frozen on January 1, 2010, Mr. Wadhams was fully accrued and fully vested in his benefit, and Mr. Sznewajs’s accrual of 52% was frozen, and he is now 50% vested. Mr. Sznewajs will not be fully vested in his frozen SERP benefit unless he continues to be employed with us until he is age 55, or we have a change in control or alternate change in control.

SERP benefits are not payable to a terminated participant until age 65, provided no change in control or alternate change in control has occurred. Participants must refrain from activities negatively impacting our business following termination of employment in order to continue to receive SERP benefits.

The SERP provides a disability benefit for participants who have been employed by us at least two years and who become disabled while employed by us. The disability benefit is paid until the earlier of death, recovery from disability or age 65; is offset by payments from long-term disability insurance we have paid for; and is equal to 60% of the participant’s annual salary and bonus (up to 60% of the maximum bonus opportunity) as of January 1, 2010. At age 65, payments revert to a calculation based on the highest three-year average compensation as of January 1, 2010.

Under the SERP, participants and their spouses may also receive medical benefits.

A change in control or alternate change in control accelerates full vesting, may accelerate the payment of benefits (calculated on a present value basis), and may result in payment of an amount for any related excise taxes, as discussed below under “Payments Upon Change in Control.”

The present value of SERP payments to be made to our participating named executive officers is set forth in the “2013 Pension Plan Table.” A surviving spouse will receive reduced benefits.

Pension Plan Table

The 2013 Pension Plan Table below shows the estimated present values on December 31, 2013 of accumulated benefits for each of our named executive officers under the Pension Plan, the defined benefit portion of the BRP (other than for Mr. Lindow) and, for Messrs. Wadhams and Sznewajs, the SERP. Accruals under all of these plans were frozen as of January 1, 2010. As described above, amounts payable under the SERP are offset by amounts payable under the Pension Plan and the defined benefit portion of the BRP, and the SERP amounts shown in the table below reflect these offsets. The amounts for the SERP have also been reduced by the December 31, 2009 benefits under the Profit Sharing Plan and defined contribution portion of the BRP, and by the estimated amounts payable by prior employers, as described above, but these offsets are not separately shown.

 

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2013 Pension Plan Table

 

 

Name   Plan Name   Number of Years
Credited Service (#)
(1)
    Present  Value of
Accumulated
Benefits ($)
(2)
 

Timothy Wadhams

 

Pension Plan

    30        342,508   
 

Defined Benefit Portion – BRP

    30        2,458,314   
   

SERP

    15        12,077,098   

John G. Sznewajs

 

Pension Plan

    13        181,001   
 

Defined Benefit Portion – BRP

    13        167,344   
   

SERP

    13        1,786,537   

Kenneth G. Cole

 

Pension Plan

    6        58,788   

Jai Shah

 

Pension Plan

    6        88,060   
   

Defined Benefit Portion – BRP

    6        19,964   

John P. Lindow

 

Pension Plan

    12        164,647   

Gregory D. Wittrock

 

Pension Plan

    30        886,706   
   

Defined Benefit Portion – BRP

    30        125,455   

 

(1) 

Reflects credited service through January 1, 2010, the date on which accruals under our defined benefit pension plans were frozen, for years of employment with us, our subsidiaries or certain of our prior affiliates and their subsidiaries. Credited service under the SERP includes service through January 1, 2010 only with us and businesses in which we had a 50% or greater interest. Mr. Wadhams was employed by us for eight years and by a prior affiliate for 17 years before returning to us in 2001. When Mr. Wadhams rejoined us in 2001, we agreed to credit him with full vesting in the maximum 60% benefit in the SERP, and to guarantee his retiree medical benefits and the offset to the SERP which would otherwise arise from his prior employer. We have not otherwise granted additional accruals to any of the named executive officers in any of these retirement plans, and none of these plans provides for personal contributions or additional income deferral elections.

 

(2) 

Amounts in this column were calculated as of December 31, 2013 using the normal form of benefit payable under each plan using (a) base pay only for the Pension Plan and BRP, (b) base pay plus cash bonus for the SERP, and (c) the same discount rates and mortality assumptions as described in the notes to financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Although SEC disclosure rules require a present value calculation, none of these plans (other than the SERP and the BRP, in the event of a change in control or alternate change in control) provides benefits in a lump sum. Mr. Wittrock retired as an employee in August 2013 and commenced benefits on September 1, 2013. The amounts for Mr. Wittrock were calculated based on actual benefit elected.

 

 

PAYMENTS UPON CHANGE IN CONTROL

 

We do not have employment agreements or change in control agreements with any of our named executive officers. If we experienced a change in control or alternate change in control, our named executive officers could receive lump-sum payments of benefits under the BRP and, in the cases of Messrs. Wadhams and Sznewajs, under the SERP, that otherwise would be paid over time. Additionally, these two plans and the Long Term Stock Incentive Plan provide that all participants, including the named executive officers, could receive accelerated vesting and reimbursement (limited, for equity grants, to those made prior to 2012) in the case of imposition of excise tax upon a change in control. Upon a change in control or alternate change in control, Mr. Sznewajs’s frozen SERP accrual of 52% would not change, but his vesting in this benefit would advance from 50% to 100%. None of these plans provides for additional accrual of benefits in the case of a change in control or alternate change in control.

A “change in control” under the SERP and the BRP occurs if, during any 24-month period (or, for an “alternate change in control,” any 12-month period), the individuals who were incumbent directors at the beginning of the period cease for any reason to be a majority of the Board of Directors. Individuals who became directors after the beginning of the period with the approval of at least two-thirds (or a majority for an “alternate change in control”) of the incumbent directors are considered as incumbents. However, regardless of any such approval, individuals will not be considered incumbent if they become directors within one year after unauthorized tender offers for, or acquisitions of, 25% (or 30% for an “alternate change in control”) or more of the combined voting power of all of our outstanding voting securities or, in the case of the Long Term Stock Incentive Plan, as a result of actual or threatened election contests not by or on behalf of the Board. The definition of “change in control” under the Long Term Stock Incentive Plan is otherwise identical to the definition of this term in the SERP and BRP.

 

 

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The following table sets forth the values of all payments (other than from our tax-qualified retirement plans) assuming a change in control or alternate change in control had occurred on December 31, 2013.

 

 

Payments Upon a Change in Control

 

 

Name   Cash  ($)     Equity
($)
(1)
    SERP and  BRP
Payments
($)
(2)
    Perquisites  ($)     Excise Tax
Reimbursement ($)
(3)
    Other  ($)     Total ($)  

Timothy Wadhams

           23,690,984        16,707,140                             40,398,124   

John G. Sznewajs

           5,212,978        2,628,131                             7,841,109   

Kenneth G. Cole

           917,933        24,337                             942,270   

Jai Shah

           3,209,527        160,896                             3,370,423   

John P. Lindow

           2,020,670        62,434                             2,083,104   

Gregory D. Wittrock

           2,137,623        259,689                             2,397,312   

 

(1) 

A change in control would trigger vesting of unvested restricted stock and stock option awards, the total value of which is shown in this column. This column is comprised of the incremental values for vestings of restricted stock (as shown in the last column of the “2013 Outstanding Equity Awards at Fiscal Year-End” table above), plus the incremental values for vesting of stock options (based on our closing stock price of $22.77 on December 31, 2013): $14,807,952 for Mr. Wadhams; $2,631,315 for Mr. Sznewajs; $155,798 for Mr. Cole; $1,348,740 for Mr. Shah; $834,467 for Mr. Lindow; and $1,041,748 for Mr. Wittrock.

 

(2) 

Amounts calculated for both the SERP and the BRP utilize the discount rates and mortality assumptions equal to the Pension Benefit Guarantee Corporation discount rates for lump sums in plan terminations, as in effect four months prior to the change in control or alternate change in control, and the UP-1984 mortality table (both of which differ from the rates and assumptions used to calculate the lump sums set forth in the Pension Plan Table). If a change in control occurs that does not meet the narrower “alternate change in control” definition, lesser lump sum values (reflecting the portion of benefits not subject to Code Section 409A) would be payable, and the portion of benefits subject to Section 409A would not be paid in a lump sum but would be paid over time, as if such event had not occurred. Prior to 2008 the BRP had no change in control provision; it was amended to provide that any change in control would result in funding a trust, but the indicated lump sum benefits would be payable only upon the occurrence of an “alternate change in control,” whereas in the case of the more broadly-defined “change in control,” benefits would not be paid in a lump sum, but would be paid over time, as if such event had not occurred. Amounts in this column also include amounts shown in columns A and D in the “2013 Non-Qualified Deferred Compensation” table above.

 

(3) 

Excise tax reimbursements apply only to agreements and equity grants entered into prior to 2012. At December 31, 2013, no individual’s payments would have exceeded applicable limits in the Code for parachute payments; therefore, no amounts are shown in this column.

 

 

PAYMENTS UPON RETIREMENT, TERMINATION, DISABILITY OR DEATH

 

Retirement Plans and Long-Term Disability Policy

Upon retirement at or after age 65, or if voluntary or involuntary termination of employment had occurred on December 31, 2013, all of our named executive officers would be fully vested in the present value of accumulated benefits shown in the last column of the “2013 Pension Plan Table” above, as well as the amounts in columns A and D in the “2013 Non-Qualified Deferred Compensation” table above, and benefits would become payable under the plans, as described above. In the case of voluntary or involuntary termination of employment, however, the amount payable to Mr. Sznewajs under the SERP, as shown in the 2013 Pension Plan Table, would have been reduced by 50% to his vested benefit. The values shown in the 2013 Pension Plan Table would be paid on a monthly basis and not as lump sum payments. All payments referred to above would be made by us, other than Pension Plan payments, which would be made from the trust established pursuant to the Pension Plan.

If disability had terminated employment of any of our named executive officers on December 31, 2013, under our long-term disability plan he would receive a maximum benefit of $144,000 per year, payable from our long-term disability insurance policy; in addition, each named executive officer would have received a BRP disability benefit with respect to the underlying Pension Plan, plus, for Messrs. Wadhams and Sznewajs the SERP disability benefit described above under “Supplemental Executive Retirement Plan.” After reductions by the insured long-term disability benefit, resulting present values for disability benefits would have been $13,276,706 for Mr. Wadhams; $6,026,829 for Mr. Sznewajs; $24,337 for Mr. Cole; $182,239 for Mr. Shah; and $62,434 for Mr. Lindow. The disability benefit would terminate upon the earliest of death, recovery from disability or age 65, at which time the applicable retirement, termination or death benefits would become effective. Mr. Wittrock retired as an employee in August 2013 and therefore is not eligible for a disability benefit.

 

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Medical benefits under the SERP, assuming the participant retired at age 65, became disabled, or terminated employment with at least an 80% vested SERP benefit, would have had a present value on December 31, 2013 of $523,384 for Mr. Wadhams and $312,989 for Mr. Sznewajs.

If a named executive officer died, his surviving spouse would receive an annual pension benefit. The benefit is equal to (i) amounts payable under our Pension Plan and the portion of the BRP applicable to the Pension Plan (actuarially adjusted for any optional coverage effective under these plans), plus (ii) distributions from the Profit Sharing Plan and the portion of the BRP applicable to the 401(k) Savings Plan and the Profit Sharing Plan (amounts described in (i) and (ii) are, collectively, the “offsets”), plus, (iii) for Messrs. Wadhams and Sznewajs 45% and 39%, respectively, of his SERP benefit, reduced by the offsets. If a named executive officer has no surviving spouse, his beneficiary (if applicable) would receive the amounts described in (i) and (ii) above. The present values on December 31, 2013 of payments that we would have made from the BRP and (for Messrs. Wadhams and Sznewajs) from the SERP if one of our named executive officers had died on that date were: $10,679,827 for Mr. Wadhams; $5,228,962 for Mr. Sznewajs; $24,337 for Mr. Cole; $146,806 for Mr. Shah; $62,434 for Mr. Lindow; and $232,540 for Mr. Wittrock.

Equity Plans

Absent an agreement for post-termination extended vesting, voluntary or involuntary (with or without cause) termination of employment would result in forfeiture to us of all of a named executive officer’s unvested restricted stock awards and unvested stock options. Vested stock options remain exercisable for 30 days, in the case of voluntary termination, or three months, in the case of involuntary termination (with or without cause), but not beyond the originally-specified exercise period. Vested options exercisable on December 31, 2013 are shown in the second column of the “2013 Outstanding Equity Awards at Fiscal Year-End” table above. If these vested options had been exercised at a termination date of December 31, 2013 based on our closing stock price of $22.77 on that date, the value of such options would have been $15,567,648 for Mr. Wadhams; $2,950,560 for Mr. Sznewajs; $128,754 for Mr. Cole; $944,340 for Mr. Shah; $673,757 for Mr. Lindow; and $884,692 for Mr. Wittrock. Subject to limited exceptions, if employment terminates (voluntarily or involuntarily, with or without cause), we retain the right to terminate unexercised options that vested within two years prior to such termination and to recover the after-tax proceeds for exercises of options that vested within two years prior to such termination.

In the case of disability or death, whether before or after normal retirement date, all restrictions on restricted shares would lapse. Disability or death would cause all unvested stock options to become exercisable; in the case of disability, for the maximum period of time allowed under the original awards, and in the case of death, for up to a year, but not beyond any originally-specified exercise period. If death or disability had occurred on December 31, 2013, the value of restricted shares and options vesting (assuming exercise of the options) at such date, would be as shown in the “Equity” column and in Note 1 in the “Payments Upon Change in Control” table above.

By design, our restricted stock and stock option awards do not vest upon retirement. Instead, following retirement, equity awards generally continue to vest in accordance with the remaining vesting period. Notwithstanding the foregoing, there are no termination or change in control provisions in our equity plans applicable to our named executive officers that are unavailable generally to salaried employees participating in such plans.

Other Arrangements

As noted above in the “Compensation Discussion and Analysis,” it is our general policy not to enter into employment or severance contracts. On an individually-negotiated basis we may enter into severance arrangements or arrangements for a named executive officer’s services following termination of employment. Such arrangements may include continued vesting of restricted stock or options that would otherwise be forfeited, as well as provisions restricting competitive activities following termination.

 

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  PART V – AUDIT COMMITTEE MATTERS       MASCO CORPORATION 2014 PROXY STATEMENT

 

Audit Committee Report

The Audit Committee assists the Board of Directors in fulfilling the Board’s responsibility for oversight of the integrity of our financial statements, the effectiveness of our internal controls over financial reporting, the qualifications, independence, performance and compensation of our independent registered public accounting firm (“independent auditors”), the performance of our internal audit function, our compliance with legal and regulatory requirements, and compliance by our employees and officers with our Code of Business Ethics. Management is responsible for the accuracy of our financial statements and our reporting process, including our system of internal controls over financial reporting. In discharging its oversight responsibilities, the Audit Committee reviewed and discussed with management our audited financial statements as of and for the year ended December 31, 2013 and our processes to ensure the accuracy of our financial statements.

The Audit Committee obtained from our independent auditors, PricewaterhouseCoopers LLP (“PwC”), the written disclosures and letter required by the Public Company Accounting Oversight Board regarding PwC’s communications with the Audit Committee concerning independence. The Audit Committee discussed with PwC any relationships that may impact PwC’s objectivity and independence and satisfied itself as to PwC’s independence. The Audit Committee confirmed that PwC’s provision of non-audit services to us did not impair their independence. The Audit Committee discussed with PwC the matters required to be discussed by Statement on Auditing Standards No. 16 as adopted by the Public Company Accounting Oversight Board, regarding communication with the Audit Committee. The Audit Committee also met with PwC independent of management.

Based on the reviews and discussions with management and the independent auditors described above, the Audit Committee recommended to the Board of Directors that our financial statements as of and for the year ended December 31, 2013 be included in our Annual Report on Form 10-K for the year ended December 31, 2013 for filing with the SEC . The Audit Committee also reappointed PwC as our independent registered public accounting firm, which stockholders are being asked to ratify.

J. Michael Losh, Chairman

Dennis W. Archer

Christopher A. O’Herlihy

Donald R. Parfet

Lisa A. Payne

John C. Plant

 

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PricewaterhouseCoopers LLP Fees

 

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Aggregate fees for professional services rendered to us by our independent registered public accounting firm, PricewaterhouseCoopers LL