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SCHEDULE 14A

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INFORMATION REQUIRED IN PROXY STATEMENT

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NORDSON CORPORATION

 

Notice of

2019 Annual Meeting

and Proxy Statement

 

 

LOGO


Table of Contents

 

LOGO

 

Nordson Corporation

28601 Clemens Road

Westlake, Ohio 44145

 

 

January 18, 2019

Dear Shareholder:

It is my pleasure, on behalf of the Board of Directors of Nordson Corporation (the “Board of Directors”), to invite you to attend our annual meeting of shareholders (the “Annual Meeting”), which will be held at the law offices of BakerHostetler LLP, 2000 Key Tower, 127 Public Square, Cleveland, Ohio 44114, at 8:00 a.m., Eastern Time, on Tuesday, February 26, 2019.

The accompanying notice of Annual Meeting and Proxy Statement describe the items of business that will be discussed and voted upon during the Annual Meeting. It is important that you vote your shares of common stock whether or not you plan to attend the Annual Meeting. You have a choice of voting through the Internet, by telephone, or by returning the enclosed proxy/voting instruction card by mail. If you are a registered shareholder, you may also vote in person at the Annual Meeting. Please refer to the instructions in the enclosed materials.

On behalf of management and the Board of Directors, I want to thank you for your continued support and confidence in 2019.

Sincerely,

MICHAEL J. MERRIMAN, JR.

Chair of the Board of Directors


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NORDSON CORPORATION

TABLE OF CONTENTS

 

Notice of Annual Meeting of Shareholders

     1  

Proxy Statement Summary

     2  

General Information

     2  

Voting Matters and Board Recommendations

     2  

Business Highlights

     4  

Compensation Highlights

     5  

Governance Highlights

     7  

Directors Serving on Boards of Other Public Companies

     8  

Proxy Statement

     9  

Proposal 1: Election of Directors Whose Terms Expire in 2022

     10  

Corporate Governance

     17  

Committees of the Board of Directors

     21  

Proposal 2: Ratify the Appointment of Independent Registered Public Accounting Firm

     25  

Security Ownership of Nordson Common Shares by Directors, Director Nominees, Executive Officers, and Large Beneficial Owners

     27  

Proposal 3: Advisory Vote to Approve the Compensation of Our Named Executive Officers

     29  

Executive Compensation: Compensation Discussion and Analysis

     32  

Part I: Executive Summary

     33  

Part II: Setting Executive Compensation

     37  

Part III: Key Components of Our Executive Compensation Program

     41  

Part IV: Other Components of Our Executive Compensation Program

     52  

Part V: Policies Related to Executive Compensation

     56  

Compensation Committee Report

     58  

Risks Related to Executive Compensation Policies and Practices

     59  

Summary Compensation for Fiscal Year 2018

     60  

Grants of Plan-Based Awards

     63  

Outstanding Equity Awards at October 31, 2018

     65  

Stock Option Exercises and Stock Vested Tables

     68  

Pension Benefits

     69  

Non-Qualified Deferred Compensation

     71  

Potential Benefits Upon Termination

     73  

CEO Pay Ratio

     77  

Audit Committee Report

     78  

Questions and Answers About the Annual Meeting and These Proxy Materials

     79  


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NORDSON CORPORATION

NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS

To Be Held Tuesday, February 26, 2019

 

Date and Time:

   Tuesday, February 26, 2019, at 8:00 a.m., Eastern Time.

Place:

   Law offices of BakerHostetler LLP, 2000 Key Tower, 127 Public Square, Cleveland, Ohio 44114.

Items of Business:

  

1. To elect as directors, three nominees named in this Proxy Statement and recommended by the Board of Directors, to serve until the 2022 Annual Meeting and until their successors shall have been duly elected and qualified;

2. To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending October 31, 2019;

3. To approve, on an advisory basis, the compensation of our named executive officers; and

4. To transact other business as may properly come before the meeting or any adjournment or postponement thereof.

Record Date:

   Close of business on January 2, 2019.

A Proxy Statement, Proxy/Voting Instruction Card, and Annual Report to Shareholders, which includes our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, accompany this Notice and are also available at: www.nordson.com/en/our-company/investors/annual-reports-and-presentations. The Board of Directors has determined that shareholders of record at the close of business on January 2, 2019 are entitled to notice of, and to vote during, the Annual Meeting.

By Order of the Board of Directors,

GINA A. BEREDO

Executive Vice President, General Counsel

and Secretary

January 18, 2019

Westlake, Ohio

 

Important Notice Regarding the Availability of Proxy Materials for the Annual

Meeting of Shareholders to be held on February 26, 2019:

The Proxy Statement, Proxy/Voting Instruction Card, and the Annual Report to Shareholders, which includes our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, are available at: www.nordson.com/en/our-company/investors/annual-reports-and-presentations.

 

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PROXY STATEMENT SUMMARY

This summary highlights information relating to the items to be voted on during the Annual Meeting and important business, compensation, and corporate governance matters. For additional information, please refer to the discussions contained in this Proxy Statement and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018 filed with the United States Securities and Exchange Commission on December 14, 2018 (the “2018 Annual Report”).

 

 

GENERAL INFORMATION

 

 

2019 Annual Meeting Date and Time

 

  

 

Tuesday, February 26, 2019

8:00 a.m., Eastern Time

 

 

Place

  

 

Law Offices of BakerHostetler LLP

2000 Key Tower

127 Public Square

Cleveland, Ohio 44114

USA

 

 

Record Date

 

  

 

Close of business on January 2, 2019

 

 

Voting

  

 

Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for the election of directors and one vote for each of the proposals to be voted on.

 

 

 

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

         
Proposal   Voting Options   Required Vote   Broker Discretionary
Vote Permitted
  Board’s Voting
Recommendation

 

1. Election of directors

 

 

“FOR” all nominees or “WITHHOLD” your vote for one or more of the nominees.

 

 

 

Each nominee must receive a plurality of the votes cast.

  No  

FOR

the election of each of the director nominees

 

2. Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending October 31, 2019

 

 

 

“FOR” or “AGAINST” or “ABSTAIN” from voting.

 

 

This non-binding proposal will be considered approved if more votes are cast in favor than against.

  Yes(1)   FOR

 

3. Advisory vote to approve compensation of named executive officers

 

 

“FOR” or “AGAINST” or “ABSTAIN” from voting.

 

 

This non-binding proposal will be considered approved if more votes are cast in favor than against.

 

  No   FOR

 

(1)

This is considered to be a routine matter and, therefore, if you hold your shares in street name and do not provide voting instructions to the broker, trustee, or other nominee that holds your shares, the nominee has discretionary authority to vote on this Proposal but not any other Proposals since they are considered to be “non-routine” matters.

Abstentions as to any matter are counted in determining the presence of a quorum at the Annual Meeting. They are not included in the vote count for election of directors. However, abstentions will affect the outcome of the vote on Proposals 2 and 3, being equivalent to a vote “against” the Proposals.

 

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We will also consider any other matters that may properly be brought before the Annual Meeting and any postponement(s) or
adjournment(s) thereof. As of the date of this Proxy Statement, we have not received notice of other matters that may be properly presented at the Annual Meeting.

The following table provides summary information about our director nominees:

 

Nominee

 

 

 

Primary
Occupation

 

 

 

Independent    

 

 

 

 

Board
Committee

Memberships

 

 

 

Key Attributes/
Qualifications

 

 

 

 

  Lee C. Banks

 

 

President and Chief Operating Officer, Parker Hannifin Corporation

 

 

Yes  

 

 

Compensation

 

 

Significant executive general management and operational experiences and a unique perspective in identifying strategic and tactical risks attendant to a multi-national sales, distribution, manufacturing, and operational footprint.

 

 

 

  Randolph W. Carson  

 

 

Retired

 

 

Yes  

 

 

Audit and Governance & Nominating

 

 

Deep operational experience in global industrial businesses, strategic vision, and understanding of financial accounting and financial matters; public company board experience.

 

 

 

  Victor L. Richey, Jr.

 

 

Chair of the Board, President, and Chief Executive Officer, ESCO Technologies Inc.

 

 

 

Yes  

 

 

Compensation and Governance & Nominating

 

 

Extensive experience as chair, president, and chief executive officer of a diversified global producer and marketer of technology; significant executive management and board experience at public and private companies.

 

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BUSINESS HIGHLIGHTS

Fiscal year 2018 was a year of outstanding results in an uncertain and low-growth global macroeconomic environment. The following highlights our performance for fiscal year 2018:

 

Record Sales

 

 

      

 

Record Operating Profit

 

   

Record Net Income

 

 

 

$2.3 Billion

 

9% increase over 2017

 

      

 

$495 Million

 

8% increase over 2017

   

 

$377 Million

 

28% increase over 2017

          

 

Record Free Cash Flow(1)

      

 

Record GAAP Diluted

Earnings Per Share

 

   

 

Record Full Year EBITDA(2)

 

$415 Million

 

110% of net income

 

      

 

$6.40

 

26% increase over 2017

   

 

$605 Million

 

11% increase over 2017

          

 

Operating Margin

      

 

Dividends Paid

 

   

 

Total Shareholder Return(3)

 

22%

      

 

$72 Million

 

55th consecutive year

dividend has increased

 

   

 

3 Year: 25.9%

5 Year: 66.8%

10 Year: 392.7%

 

(1)

“Free cash flow,” a non-GAAP measure, is determined from our consolidated statement of cash flows and for 2018 represents $504.6 million of net cash provided by operating activities minus $89.8 million of additions to property, plant, and equipment plus $0.5 million of proceeds from the sale of property, plant, and equipment.

 

(2)

“EBITDA,” a non-GAAP measure, is defined as earnings before interest, taxes, depreciation, and amortization.

 

(3)

We define “Total Shareholder Return” as: (share price end of period – share price start of period + dividends paid) / share price start of period.

 

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COMPENSATION HIGHLIGHTS

The information below reflects highlights of our named executive officer compensation program for fiscal year 2018. The tables are not substitutes for, nor do they reflect, all of the information provided in the Summary Compensation Table presented later in this Proxy Statement. During our 2018 Annual Meeting, approximately 97.70% of shareholder votes cast were in favor of the compensation paid to our named executive officers. We value this positive endorsement by our shareholders of our executive compensation policies.

Additional information about our compensation philosophy and program, including the compensation awarded to each of our named executive officers, may be found in the “Executive Compensation: Compensation Discussion and Analysis” section of this Proxy Statement.

 

 

Base Salary

 

    

 

Annual Cash Incentive Award

 

 

Represents 25.3% – 30.6% of the total target direct compensation opportunity of our named executive officer compensation other than our CEO; 14.7% for our CEO.

 

Base salary increases for 2018 for the named executive officers other than our CEO ranged from 3.0% to 4.6%; 5.7% for our CEO.

 

    

 

Target bonus opportunity range for our named executive officers other than our CEO:

65% – 75% of base salary.

 

Target bonus opportunity for CEO:

100% of base salary

 

 

Long-term Compensation

 

 

Performance Share Incentive Award

At target, represents approximately 40% of the long-term compensation opportunity.

 

Other Equity Awards

Stock Options represent approximately 40% of the long-term compensation opportunity.

Restricted Shares represent approximately 20% of the long-term compensation opportunity.

 

The tables below present FY2016 – FY2018 reported results for the three primary drivers of incentive compensation for the named executive officers – Diluted Earnings per Share, Return on Total Capital, and Revenue:

 

LOGO   LOGO   LOGO

Diluted Earnings per Share* Return on Total Capital* Revenue (Billions)

 

*

This data includes the benefits inured to the Company from the Tax Cuts and Jobs Act that was passed in 2017. The Company’s 2018 data, excluding the benefits from the Tax Cuts and Jobs Act and utilizing a more normalized effective tax rate, are: Diluted Earnings per Share is $5.70 and Return on Total Capital is 14%.

 

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CEO Compensation – 2018 Opportunity and Earned/Realized

 

Pay Component   2018 Compensation Opportunity   2018 Compensation Realized

 Base Salary

  $925,000   $925,000

 Annual Cash Incentive
Award

  $925,000 (at target)   $1,082,250

 Long-Term Compensation

 

Ø FY2016-2018 Performance Share Incentive Award 

 

 

 

 

Target # of performance share units:

 

18,400

Grant date fair value at target:

$1,245,496

 

 

 

 

# of performance share units earned:

 

34,095

Award settlement date value:

$3,844,552

 

Ø  Other FY 2018 Equity Awards

 

Stock Options:

 

55,800 shares

$1,942,599 grant date fair value

 

Restricted Shares:

 

6,700 shares

$855,389 grant date fair value

 

 

Stock Options:

 

105,000 options exercised in FY 2018

Value Realized: $9,883,940

 

Restricted Shares:

 

# of shares vested: 8,049

Value Realized: $1,027,733

 

 

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GOVERNANCE HIGHLIGHTS

The following summarizes the structure of our Board of Directors and key elements of our corporate governance framework:

 

 

Director Independence

     

 

Tenure of Independent Directors

     

 

Oversight of Risk

 

 

Eight of nine directors

are independent

 

Audit, Compensation, and

Governance and Nominating

Committees all composed of

independent directors

 

     

 

6 years: George and Jaehnert

8 years: Banks and Richey

9 years: Carson

10 years: Merriman

17 years: Keithley and Puma

 

Average tenure: 10 years

     

 

The Board as a whole exercises its

oversight responsibilities with

respect to material risks

 

The Board has delegated

responsibility for the oversight of

specific risks to Board committees

 

       

 

Meeting of Independent Directors

 

   

 

Board Meeting Attendance

   

 

Board Leadership and Structure

 

Executive sessions of independent

directors are conducted during each

Board meeting

   

 

Each of our directors attended at least 75% of board and

committee meetings

   

 

Classified with three

classes of directors

 

Independent Chair –

Michael J. Merriman, Jr.

 

       

 

Voting Standard for Election of Directors

 

   

 

Share Ownership Guidelines

   

 

Board Self-Assessments

 

Plurality vote with director resignation policy for failure to receive a majority vote in uncontested director elections.

   

 

Share ownership guidelines for directors and executive officers:

•   Directors – 5x cash retainer

•   CEO – 5x base salary

•   CFO – 3x base salary

•   Other executive officers – 2x base salary

 

   

 

Board, Committee, and Peer self- assessments on a regular basis

       

 

Chief Executive Officer

Performance

 

   

 

Hedging/Pledging Transactions

   

 

Clawback Policy

 

Annual review by independent directors

   

 

Strict policy of no pledging or

hedging of company shares

 

   

 

Robust policy

       

 

Advisory Vote on Named

Executive Officer Compensation

 

   

 

Shareholder Rights Plan

(“Poison Pill”)

   

 

Average Age of Independent

Directors

 

Annual Vote

   

 

No shareholder rights plan in place

   

 

Age: 62 years

 

 

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DIRECTORS SERVING ON BOARDS OF OTHER PUBLIC COMPANIES

Board service by members of our Board of Directors is within the limits set by our Governance Guidelines:

“It is the Company’s policy that a Director who is not an executive officer of a public company may serve as a director on up to five other boards of public companies. For Directors who are also serving as an executive officer of a public company, the maximum number of public company boards on which the Director may serve is two in addition to serving as a director on the board of his or her company.”

 

   

Lee C. Banks

 

  

Parker-Hannifin Corporation (NYSE: PH)

 

   

Arthur L. George, Jr.

 

  

Axcelis Technologies, Inc. (Nasdaq GS: ACLS)

 

   

Michael F. Hilton (CEO)

 

  

Ryder System, Inc. (NYSE: R)

Lincoln Electric Holdings, Inc. (Nasdaq: LECO)

 

   

Frank M. Jaehnert

  

Briggs & Stratton Corporation (NYSE: BGG)

Itron, Inc. (Nasdaq: ITRI)

 

   

Joseph P. Keithley

 

  

Axcelis Technologies, Inc. (Nasdaq GS: ACLS)

 

   

Michael J. Merriman, Jr. (Chair)

  

Regis Corporation (NYSE: RGS)

OMNOVA Solutions Inc. (NYSE: OMN)

 

   

Mary G. Puma

 

  

Axcelis Technologies, Inc. (Nasdaq GS: ACLS)

 

   

Victor L. Richey, Jr.

 

  

ESCO Technologies Inc. (NYSE: ESE)

 

 

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NORDSON CORPORATION

PROXY STATEMENT

FOR THE ANNUAL MEETING OF SHAREHOLDERS

FEBRUARY 26, 2019

The accompanying proxy is solicited on behalf of the Board of Directors (the “Board”) of Nordson Corporation for use at the 2019 Annual Meeting. The Annual Meeting will be held at the law offices of BakerHostetler LLP, 2000 Key Tower, 127 Public Square, Cleveland, Ohio 44114 at 8:00 a.m., Eastern Time, on Tuesday, February 26, 2019 for the following purposes:

 

  1.

To elect as directors three nominees, named in this Proxy Statement and recommended by the Board, to serve until the 2022 Annual Meeting and until their successors shall have been duly elected and qualified;

 

  2.

To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending October 31, 2019;

 

  3.

To approve, on an advisory basis, the compensation of our named executive officers; and

 

  4.

To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

This Proxy Statement and the accompanying proxy/voting instruction card were first mailed to shareholders on or about January 18, 2019. Our 2018 Annual Report to Shareholders is enclosed with this Proxy Statement.

This Proxy Statement contains important information regarding our Annual Meeting, the proposals on which you are being asked to vote, information you may find useful in determining how to vote, and information about voting procedures. As used in this Proxy Statement, “we,” “us,” “our,” “Nordson” or the “Company” refers to Nordson Corporation.

 

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PROPOSAL 1: ELECTION OF DIRECTORS WHOSE TERMS EXPIRE IN 2022

The Governance and Nominating Committee is responsible for identifying and evaluating nominees for director and for recommending to the Board a slate of nominees for election at the Annual Meeting. The Governance and Nominating Committee has recommended, and the Board has approved, the persons named as nominees for terms expiring in 2022 and, unless otherwise marked, a duly executed and properly submitted proxy will be voted for such nominees. Nominees Lee C. Banks, Randolph W. Carson, and Victor L. Richey, Jr. currently serve as directors. All nominees have agreed to stand for election for a three-year term.

In considering each director nominee and the composition of the Board as a whole, the Governance and Nominating Committee considers a diverse group of experiences, qualifications, attributes and skills, including diversity in gender, ethnicity, and race, which the Governance and Nominating Committee believes enables a director nominee to make significant contributions to the Board, Nordson, and our shareholders.

The current-serving directors, including the nominees, collectively have a mix of various skills and qualifications, some of which are listed in the table below. These collective attributes enable the Board to provide insightful leadership as it strives to advance our strategies and deliver returns to shareholders.

 

 

Global Business Experience

 

 

    

 

 

 

Mergers & Acquisitions Experience

 

 

Experience working outside the United States and/or with global

enterprises to help oversee the management of our global

operations.

 

   

 

Experience working on M&A transactions, which provides insight

into developing and implementing strategies for growing our businesses.

 

   

 

Financial Experience

 

   

 

Public Company CEO Experience

 

 

Experience with finance, accounting, and/or financial reporting to

help drive our operating and financial performance.

 

   

 

Experience as a public company CEO to help us drive business

strategy, growth and performance, and create shareholder value.

 

   

 

Public Company Board Experience

 

   

 

Capital Allocation Experience

 

 

Experience working with publicly-traded companies and corporate governance issues to help us oversee an ever-changing mix of strategic, operational, and compliance-related matters.

 

   

 

Experience with capital allocation decision-making to help us

allocate capital efficiently.

 

   

 

Strategy Development

 

   

 

Manufacturing Experience

 

 

Experience with the development and oversight of long-term

planning.

 

   

 

Experience with manufacturing operations to help us drive

operating performance.

 

   

See director biographies beginning on page 12 for further detail.

 

10  |   Nordson Corporation – 2019 Proxy Statement


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The average tenure of our independent directors is 10 years and the average age of our independent directors is 62 years. Twenty-five percent of our independent directors represent gender and racial diversity.

In determining whether to recommend a director for re-election, the Governance and Nominating Committee considers the director’s skills and expertise, participation in and contributions to the activities of the Board, the results of the annual Board evaluation, and past meeting attendance.

We believe that the tenure spectrum of our directors provides an effective mix of deep knowledge and new perspectives. The Board does not believe in a specific limit for the overall length of time an independent director may serve. Directors who have served on the Board for an extended period can provide valuable insight into the operations and future of the Company based on their experience with, and understanding of, the Company’s history, policies, and objectives. Our Governance Guidelines provide that a director is expected to retire at the conclusion of the Board meeting immediately prior to a director’s 72nd birthday. With respect to Mr. Keithley and Ms. Puma, we see a strategic advantage in their senior-in-service status. Not only do they bring experience, deep institutional knowledge, and historical context to the vitality and growth of Nordson, they serve as seasoned advisors to Mr. Hilton.

It is intended that proxies that are duly executed and properly submitted but do not withhold the authority to vote for any or all of the nominees will be voted for the election as directors of all of the nominees named below. At this time, the Board knows of no reason why any nominee might not be a candidate at the 2019 Annual Meeting. However, in the event any one or more of such nominees becomes unavailable for election, proxies will be voted in accordance with the best judgment of the proxy holder.

The name and age (as of February 26, 2019) of each of the three nominees for election as directors for terms expiring in 2022, as well as present directors whose terms will continue after the Annual Meeting, appear below, together with his or her principal occupation for at least the past five years, the year each became a director of the Company and certain other relevant information.

 

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Nominees for Terms Expiring in 2022

 

 

 

        LEE C. BANKS

 

 

 

                              Age: 56

 

 

 

      Director Since 2010

 

Business Experience.    Mr. Banks has been president and chief operating officer of Parker-Hannifin Corporation (NYSE: PH) since February 2015. Parker-Hannifin is the world’s leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of mobile, industrial, and aerospace markets. Mr. Banks served as executive vice president and operating officer of Parker-Hannifin from 2008 to 2015 and senior vice president and operating officer of Parker-Hannifin from 2006 to 2008.

Current Directorships.    Mr. Banks is a director of Parker-Hannifin.

Key Attributes, Experiences, and Skills.    As a senior executive and director of a multi-national corporation, Mr. Banks provides the Board with significant executive general management and operational experiences and a unique perspective in identifying governance, strategic, and tactical risks attendant to a multi-national sales, distribution, manufacturing, and operational footprint.

 

 

 

        RANDOLPH W. CARSON

 

 

 

                              Age: 68

 

 

 

      Director Since 2009

 

Business Experience.    From 2000 to February 2009, Mr. Carson served as chief executive officer of Eaton Corporation’s Electrical Group. Eaton (NYSE: ETN) is a global, diversified industrial manufacturer and technology leader in electrical components and systems for power quality, distribution, and control. Mr. Carson retired from Eaton in May 2009 following ten years with the company. Prior to Eaton Corporation, Mr. Carson held several executive positions with Rockwell International.

Current Directorships. Mr. Carson is a director of Southwire Company, LLC, the leading North American supplier of wire and cable products.

Key Attributes, Experiences, and Skills.    Mr. Carson served as a director of Fairchild Semiconductor International, Inc. (formerly, Nasdaq: FCS), a leading global manufacturer of semiconductor devices, until September 2016, when ON Semiconductor Corporation (Nasdaq: ON) closed its acquisition of Fairchild. Mr. Carson served as chair of the board of GrafTech International, Ltd. (NYSE: EAF), a global manufacturer of carbon and graphite products, prior to GrafTech becoming an indirect wholly-owned affiliate of Brookfield Asset Management Inc. (NYSE: BAM) (TSX: BAM.A) (Euronext: BAMA).

Our Board believes that Mr. Carson’s deep operational experience in global industrial businesses enables him to provide unique insight to our Board with respect to meeting marketplace challenges, implementing Lean and other productivity initiatives, integrating business units, and anticipating and planning for commercial risk and uncertainties. Together with his experience, strategic vision, and understanding of financial accounting and financial matters, our Board believes Mr. Carson is well qualified to serve as a member of our Board. Mr. Carson’s public company board experience contributes to his familiarity with current issues and his ability to identify and address matters that come before the Governance & Nominating and Audit Committees on which he serves.

 

 

        VICTOR L. RICHEY, JR.

 

 

 

                              Age: 61

 

 

 

      Director Since 2010

 

Business Experience.    Mr. Richey has been chair of the board, president, and chief executive officer of ESCO Technologies Inc. (NYSE: ESE) since 2003. ESCO Technologies manufactures highly-engineered filtration and fluid control products for the aviation, space, and process markets worldwide; is the industry leader in RF shielding and EMC test products; provides diagnostic instruments, software, and services for the benefit of the electric utility industry and industrial power users; and produces custom thermoformed packaging, pulp-based packaging, and specialty products for medical and commercial markets.

 

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Current Directorships.    Mr. Richey is chair of the board of ESCO Technologies.

Key Attributes, Experiences, and Skills.    Our Board believes Mr. Richey provides a breadth of skills critical to the Board’s ability to discharge its oversight responsibility. Mr. Richey has extensive experience as chair, president, and chief executive officer of a diversified global producer and marketer of technology, and he has significant executive management and board experience at public and private companies within some of our end markets, including the semiconductor industry.

Present Directors with Terms Expiring in 2020

 

 

 

        JOSEPH P. KEITHLEY

 

 

 

                             Age: 70

 

 

 

            Director Since 2001

 

Business Experience.    Mr. Keithley served as chair of the board of Keithley Instruments, Inc., a provider of measurement solutions to the semiconductor, fiber optics, telecommunications, and electronics industries, from 1991 until December 2010 when Keithley Instruments was purchased by Danaher Corporation (NYSE: DHR). He also served as Keithley Instruments’ chief executive officer from November 1993 to December 2010, as president from May 1994 to December 2010, and as a member of its board of directors from 1986 until December 2010.

Current Directorships.    Mr. Keithley is a director of Axcelis Technologies, Inc. (Nasdaq GS: ACLS), a provider of equipment and service solutions for the semiconductor manufacturing industry.

Key Attributes, Experiences, and Skills.    Mr. Keithley previously served as chair of our Board, as chair of the board of Keithley Instruments, and as a director of Materion Corporation (NYSE: MTRN), an integrated producer of high performance engineered materials used in a variety of electrical, electronic, thermal, and structural applications. Mr. Keithley brings extensive, broad-based international business and executive management and leadership experience from his leadership roles at Keithley Instruments to his role as a member of our Board. Among other things, Mr. Keithley draws upon his extensive knowledge of the global semiconductor and electronics industries garnered while leading Keithley Instruments. Mr. Keithley also has extensive public company board and governance experience.

 

 

 

        MICHAEL J. MERRIMAN, JR.

 

 

 

                              Age: 62

 

 

 

            Director Since 2008

 

Business Experience.    Mr. Merriman has served as chair of our Board since February 2018. Mr. Merriman was an operating advisor of Resilience Capital Partners LLC from June 2008 until June 2017, and currently serves on the board of one of Resilience’s portfolio companies. Resilience is a private equity firm focused on principal investing in lower middle market underperforming and turnaround opportunities. Mr. Merriman is also a business consultant for Product Launch Ventures, LLC, a company that he founded in 2004 to pursue consumer product opportunities and provide business advisory services. Mr. Merriman served as president and chief executive officer of Lamson & Sessions Co. (formerly, NYSE: LMS), a manufacturer of thermoplastic conduit, fittings and electrical switch and outlet boxes, from November 2006 to November 2007. Mr. Merriman served as senior vice president and chief financial officer of American Greetings Corporation (formerly, NYSE: AM), a designer, manufacturer and seller of greeting cards and other social expression products, from September 2005 until November 2006.

Current Directorships. Mr. Merriman is a director of Regis Corporation (NYSE: RGS), a company that owns, franchises, and operates beauty salons, hair restoration centers and cosmetology education facilities; and of OMNOVA Solutions Inc. (NYSE: OMN), a technology-based company and an innovator of emulsion polymers, specialty chemicals, and decorative and functional surfaces for a variety of commercial, industrial, and residential end uses.

Key Attributes, Experiences, and Skills.     Mr. Merriman was a director of Invacare Corporation (NYSE: IVC), a global leader in the manufacture and distribution of innovative home and long-term care medical products that promote recovery and active lifestyles, until May 2018, and a director of

 

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American Greetings from 2006 through August 2013 when American Greetings became a private company. Mr. Merriman also served as a director of RC2 Corporation (formerly, Nasdaq: RCRC), a manufacturer of pre-school toys and infant products, from 2004 until its sale in April 2011.

Mr. Merriman’s prior experience as a public company chief executive officer and chief financial officer and his current service on the boards of directors of two publicly traded companies, as well as his experience at Resilience, provides him with valuable experience and significant knowledge in the areas of executive management, strategy, corporate governance, acquisitions and divestitures, finance and financial reporting, product development expertise, and investor relations. Mr. Merriman has significant finance, financial reporting, and accounting expertise and was formerly a certified public accountant, which provides the Board with valuable financial expertise.

 

 

        MARY G. PUMA

 

 

 

                              Age: 61

 

 

 

      Director Since 2001

 

Business Experience.    Ms. Puma is president and chief executive officer of Axcelis Technologies, Inc. (Nasdaq GS: ACLS). Axcelis is a provider of equipment and service solutions for the semiconductor manufacturing industry. Ms. Puma has served as chief executive officer of Axcelis since January 2002.

Current Directorships.    Ms. Puma is a director of Axcelis. From May 2005 to May 2015, Ms. Puma was chair of the board of Axcelis.

Key Attributes, Experiences, and Skills.    Ms. Puma contributes extensive executive management experience in an international, technology-driven business and possesses a thorough knowledge of corporate governance and strategy development. Ms. Puma brings valuable experience in compensation and talent management planning matters to our Compensation Committee.

Present Directors with Terms Expiring in 2021

 

 

 

        ARTHUR L. GEORGE, JR.

 

 

 

                              Age: 57

 

 

 

      Director Since 2012

 

Business Experience.    Mr. George served as senior vice president and manager, Analog Engineering Operations of Texas Instruments Incorporated from 2011 until his retirement in March 2014. Texas Instruments (Nasdaq: TXN) is one of the world’s largest semiconductor companies and a highly innovative, high performing global leader in analog, embedded processing, and wireless technologies. Mr. George was senior vice president and worldwide general manager, High Performance Analog of Texas Instruments from 2006 to 2011.

Current Directorships.    Mr. George is a director of Axcelis Technologies, Inc. (Nasdaq GS: ACLS), a provider of equipment and service solutions for the semiconductor manufacturing industry.

Key Attributes, Experiences, and Skills.    Mr. George brings to the Board significant executive and general management experience as well as extensive operational and new product development experiences in high technology markets. Mr. George’s experience with high performance analog products used in a wide range of industrial products gives him insight on a diverse set of industries and affords the Board a unique perspective in identifying strategic and tactical risks attendant to the semiconductor electronics market.

 

 

 

        MICHAEL F. HILTON

 

 

 

                              Age: 64

 

 

 

      Director Since 2010

 

Business Experience.    Mr. Hilton became Nordson’s president and chief executive officer effective January 2010. Prior to his joining Nordson, Mr. Hilton was senior vice president and general manager for Air Products and Chemicals, Inc. (NYSE: APD) from 2007 until 2010, with specific responsibility for leading the company’s $2 billion global Electronics and Performance Materials segment. Air Products and Chemicals serves customers in industrial, energy, technology, and healthcare markets worldwide with a unique portfolio of atmospheric gases, process and specialty gases, performance materials, and equipment and services.

 

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Current Directorships.    Mr. Hilton is a director of Ryder System, Inc. (NYSE: R), a FORTUNE® 500 provider of leading-edge transportation, logistics, and supply chain management solutions. He is also a director of Lincoln Electric Holdings, Inc. (Nasdaq: LECO). Lincoln Electric is the world leader in the design, development, and manufacture of arc welding products, robotic arc welding systems, plasma and oxyfuel cutting equipment and has a leading global position in the brazing and soldering alloys market.

Key Attributes, Experiences, and Skills.    Mr. Hilton is the only member of Nordson’s management serving on our Board. With over 30 years of global manufacturing industry experience, Mr. Hilton brings to the Board an intimate understanding of management leadership, strategy development, and day-to-day operations of a multi-national company, including product line management, new product technology and talent development, manufacturing, distribution and other sales channels, business processes, international operations, and global markets.

 

 

 

        FRANK M. JAEHNERT

 

  

 

                         Age: 61

 

  

 

      Director Since 2012

 

Business Experience.    Mr. Jaehnert served as chief executive officer and president of Brady Corporation (NYSE: BRC) from April 2003 through October 2013. Brady is an international manufacturer and marketer of complete solutions that identify and protect premises, products, and people. Brady’s core capabilities in manufacturing, channel management, printing systems, precision engineering and materials expertise make it a leading supplier to customers in general manufacturing, maintenance and safety, process industries, construction, electrical, telecommunications, electronics, laboratory/healthcare, airline/transportation, brand protection, education, governmental, public utility, and a variety of other industries.

Current Directorships.    Mr. Jaehnert is a director of Briggs & Stratton Corporation (NYSE: BGG), a world leader in gasoline engines for outdoor power equipment, portable generators, and lawn and garden powered equipment and related accessories. He is also a director of Itron, Inc. (Nasdaq: ITRI), a world-leading technology and services company dedicated to the resourceful use of energy and water and providing comprehensive solutions that measure, manage, and analyze energy and water.

Key Attributes, Experiences, and Skills.    Mr. Jaehnert served as a director of Brady from April 2003 through October 2013. Mr. Jaehnert has been the chief executive officer and president of a global manufacturing business. He also served as chief financial officer of that business. His prior work experience includes various financial positions in Germany and in the United States for Robert Bosch GmbH, an international manufacturer of automotive, communications, industrial, and consumer products. Mr. Jaehnert received the equivalent of a master of business administration degree from the University of Stuttgart, Germany, and has been designated as a “financial expert” on the Audit Committee, as described under the “Committees of the Board of Directors” section of this Proxy Statement. Mr. Jaehnert’s experience as head of a diversified international business and his expertise in finance and operations enable him to make significant contributions to discussions regarding the Company’s strategy and the activities of the Audit Committee.

No shareholder or group that beneficially owns 1% or more of our outstanding common shares has recommended a candidate for election as a director at the 2019 Annual Meeting.

Cumulative Voting

Voting for directors will be cumulative if any shareholder provides notice in writing to the President, an Executive Vice President, or the Secretary of Nordson of a desire to have cumulative voting. The notice must be received at least 48 hours before the time set for the Annual Meeting, and an announcement of the notice must be made at the beginning of the meeting by the Chair or the Secretary, or by or on behalf of the shareholder giving the notice. If cumulative voting is in effect, each shareholder will be entitled to cast, in the election of directors, a number of votes equal to the product of the number of directors to be elected multiplied by the number of shares that the shareholder is voting. Shareholders may cast all of these votes for one nominee or distribute them among several

 

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nominees, as they see fit. If cumulative voting is in effect, shares represented by each properly submitted proxy will also be voted on a cumulative basis, with the votes distributed among the nominees in accordance with the judgment of the persons named on the proxy/voting instruction card.

To date, we have not received a notice from any shareholder of his, her, or its intention to request cumulative voting.

Majority Voting Policy

The Director nominees receiving the greatest number of votes will be elected (plurality standard). However, our majority voting policy states that any Director who fails to receive a majority of the votes cast in his/her favor is required to submit his/her resignation to the Board. The Governance and Nominating Committee of the Board would then consider each resignation and determine whether to accept or reject it. Abstentions and broker non-votes will have no effect on the election of a Director and are not counted under our majority voting policy.

Required Vote

The election of directors requires the affirmative vote of the holders of a plurality of the shares of common stock voting at the Annual Meeting. Under the plurality voting standard, the nominees receiving the most “for” votes will be elected, regardless of whether any nominee received a majority of the votes. Only shares that are voted in favor of a particular nominee will be counted toward such nominee’s achievement of a plurality. Shares present at the meeting that are not voted for a particular nominee or shares present by proxy where the shareholder properly withheld authority to vote for such nominee (including broker non-votes) will not be counted toward such nominee’s achievement of a plurality, but will be counted for quorum purposes.

 

 

RECOMMENDATION REGARDING PROPOSAL 1:

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”

ALL NOMINEES AS DIRECTORS.

 

PROXIES RECEIVED BY THE BOARD WILL BE VOTED FOR ALL NOMINEES UNLESS

SHAREHOLDERS SPECIFY A CONTRARY VOTE.

 

 

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CORPORATE GOVERNANCE

Corporate Governance Documents

The following corporate governance documents are available at: www.nordson.com/en/our-company/corporate-governance.

 

•  Governance Guidelines

  

•  Related Persons Transaction Policy

•  Committee Charters

  

•  Share Ownership Guidelines

•  Director Recruitment and Performance Guidelines

  

•  Code of Ethics and Business Conduct

•  Suppliers Code of Conduct

•  Conflict Minerals Policy

The Governance Guidelines contain general principles regarding the functions of Nordson’s Board of Directors (the “Board”) and Board committees. The Annual Report to Shareholders, which includes the 2018 Annual Report and this Proxy Statement, are available at: www.nordson.com/en/our-company/investors/annual-reports-and-presentations. Upon request, copies of the Annual Report to Shareholders will be mailed to you (at no charge) by contacting Nordson Corporation, Attn: Corporate Communications, 28601 Clemens Road, Westlake, Ohio 44145. The information in, or that can be accessed through, our internet site is not part of this Proxy Statement, and all references herein to our internet site are for reference purposes only.

Director Independence

In accordance with the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”), and our Governance Guidelines, the Board must consist of a majority of independent directors. The Board has determined that Ms. Puma and Messrs. Banks, Carson, George, Jaehnert, Keithley, Merriman, and Richey each satisfy the definition of “independent director” under these listing standards. Mr. Hilton is not an independent director because he serves as our President and Chief Executive Officer.

In determining independence, each year the Board affirmatively determines, among other things, whether directors have a “material relationship” with Nordson. When assessing the “materiality” of a director’s relationship with Nordson, the Board considers all relevant facts and circumstances, including a consideration of the persons or organizations with which the director has an affiliation. Where an affiliation is present, the Board considers the frequency or regularity of the provision of services, whether the services are being carried out at arm’s length in the ordinary course of business and whether the services are being provided substantially on the same terms to Nordson as those prevailing at the time from unrelated parties for comparable transactions. With respect to Audit Committee members, the Board must affirmatively determine that such directors, in addition to the general independence requirements described above, satisfy certain financial education requirements and do not, among other things, accept any consulting, advisory, or other compensatory fee from Nordson.

As part of our commitment to ensuring director independence, we have a monitoring and reporting program with respect to purchases of products supplied by, or to, a company which may employ a director to ensure the avoidance of any conflicts of interest resulting from our relationship. Mr. Banks, a director, serves as president and chief operating officer of Parker-Hannifin Corporation. Mr. Richey, a director, serves as a director of ESCO Technologies Inc. These two companies purchase components manufactured by a number of our business units in volumes that are insignificant when compared to the respective companies’ and Nordson’s annual revenue for fiscal year 2018. The Board does not believe that these relationships impair the independence of Messrs. Banks or Richey or that they have any material interest in any transaction between Nordson and Parker and ESCO, respectively. For more information on our review standards for related party transactions, see “Review of Transactions with Related Persons” below.

 

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Director Qualifications

Through its selection and vetting process, the Governance and Nominating Committee seeks not only to identify directors that meet basic criteria, but also to enhance the diversity of the Board in such areas

as professional experience, race, gender, ethnicity, and age and to obtain a variety of occupational, educational, and personal backgrounds on the Board in order to provide a range of viewpoints and perspectives. As a whole, we believe that the Board should possess a combination of skills, professional experience, and diversity of backgrounds necessary to oversee the Company’s business. Diversity of background includes racial and gender diversity. Twenty-five percent of our independent directors are women or racially diverse individuals.

The Governance and Nominating Committee also periodically evaluates the composition of the Board to assess the skills and experience that are currently represented on the Board, as well as the skills and experience that the Board will find valuable in the future, considering the Company’s current situation and strategic plans. We believe that this focus on finding qualified directors from diverse backgrounds has allowed the Company to assemble a Board comprised of directors of the highest caliber and with a wide range of viewpoints.

Consideration of Director Candidates Recommended by Shareholders

Under its charter, the Governance and Nominating Committee is responsible for vetting shareholder nominations of directors. The Committee does not have a formal policy with respect to the consideration of director candidates recommended by shareholders. However, its practice is to consider those candidates on the same basis and in the same manner as it considers recommendations from other sources. For more information on how a shareholder can recommend a candidate, see the “Questions and Answers About the Annual Meeting and These Proxy Materials” section of this proxy statement.

Code of Ethics and Business Conduct

We have a Code of Ethics and Business Conduct (the “Code”) that applies to all Nordson directors, officers, employees, and its subsidiaries, wherever located. Our Code contains the general guidelines and principles for conducting Nordson’s business consistent with the highest standards of business ethics. Our Code embodies our five guiding values, which form the foundation of our Company: Integrity, Excellence, Passion for Our Customers, Energy, and Respect for People. Our employees are expected to report all suspected violations of Company policies and the law, including incidents of harassment or discrimination. We will take appropriate steps to investigate all such reports and will take appropriate action. Under no circumstances will employees be subject to any disciplinary or retaliatory action for reporting, in good faith, a possible violation of our Code or applicable law or for cooperating in any investigation of a possible violation.

Board Leadership Structure

Our Governance Guidelines require us to have either an independent Chair of the Board or a presiding independent director if the Chair is not an independent director. The Governance Guidelines set forth the responsibilities of the Chair of the Board and the Presiding Director when the Chair of the Board is not an independent director. At present, the Chair of the Board position is separate from the Chief Executive Officer position. The Board’s role in risk oversight does not affect the Board’s leadership structure.

We believe that separating the Chair of the Board and Chief Executive Officer positions provides independent oversight of management while permitting our Chief Executive Officer, Michael Hilton, to focus his time and energy on setting the strategic direction for the Company, overseeing daily operations, engaging with external constituents, developing and mentoring our future leaders, and promoting employee engagement at all levels of the organization. Our independent Chair of the Board, Michael J. Merriman, Jr., leads the Board in the performance of its duties by establishing

 

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agendas and ensuring appropriate meeting content (in collaboration with Mr. Hilton), presiding during regularly held executive sessions with our independent directors, actively engaging with all independent directors and Mr. Hilton between Board meetings, and providing overall guidance to Mr. Hilton as to the Board’s views and perspectives, particularly on the strategic direction of the Company.

Meetings of the Board of Directors

The Board held twelve meetings during fiscal year 2018. In addition, there were a total of eighteen meetings of our committees. Nordson’s policy is to require attendance and active participation by directors at Board and committee meetings. Each director attended at least 75% of the total number of meetings of the Board and the committees on which the director served during fiscal year 2018. Directors are encouraged to attend the Annual Meeting. All of Nordson’s directors attended the 2018 Annual Meeting of Shareholders held on February 27, 2018.

Executive Sessions of Independent Directors

Pursuant to our Governance Guidelines, independent directors meet in regularly scheduled executive sessions without management. The Chair of the Board (or, when our Chair is not an independent director, the Presiding Director) chairs all regularly scheduled executive sessions of the Board, and also has authority to convene meetings of the independent directors at any time with appropriate notice.

Oversight of Risk

The Board plays an active role, both as a whole and also at the committee level, in overseeing management of the Company’s risks. Management is responsible for the Company’s day-to-day risk management activities. The Company has established an enterprise risk framework for identifying, aggregating, and evaluating risk across the enterprise. The risk framework is integrated with the Company’s annual planning, audit scoping, and control evaluation management by its internal auditor.

The involvement of the Board in assessing our business strategy at least annually is a key part of its oversight of risk management, its assessment of management’s appetite for risk, and its determination of what constitutes an appropriate level of risk for Nordson. The Board regularly receives updates from management and outside advisors regarding this oversight responsibility.

In addition, our Board committees each oversee certain aspects of risk management as presented below:

 

 

Audit Committee

 

        

 

Compensation Committee

 

        

 

Governance and Nominating
Committee

 

Risks associated with financial matters, particularly financial reporting, accounting, disclosure, and internal controls.

   

Risks associated with the establishment and administration of executive compensation and equity-based compensation programs and performance management of officers.

 

   

Risks associated with Board independence, effectiveness and organization, corporate governance matters, and director succession planning.

 

Senior management attends Board and Board committee meetings at the invitation of the Board or its committees and is available to address any questions or concerns raised by the Board on risk management and any other matters.

The Audit and Compensation Committees rely also on the advice and counsel of our independent auditors and independent compensation consultant, respectively, to raise awareness of any risk issues that may arise during their regular reviews of our financial statements, audit work, and executive compensation policies and practices. The Board is updated on each committee’s risk oversight and other activities via meeting reports from each committee chair to the full Board.

 

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Review of Transactions with Related Persons

The Board has adopted a written policy regarding the review and approval of transactions between the Company and its subsidiaries and certain persons that are required to be disclosed in proxy statements, which are commonly referred to as “related persons transactions.” Related persons include our directors, nominees for election as a director, persons controlling over 5% of our common shares, executive officers, and the immediate family members of each of these individuals. Under the written policy, Nordson’s Audit Committee is responsible for reviewing any related persons transactions and will consider factors it deems appropriate, including but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction. To the extent any member of the Audit Committee is involved in any transaction under review, such member recuses themselves.

We have a monitoring and reporting program with respect to transactions with products supplied by, or to, a company which may employ a director, to ensure the avoidance of any conflicts of interest resulting from our relationship. This program includes all such transactions collectively over $120,000 in one annual period. Under the program, we reviewed transactions with all companies which employ a director or have one of our directors serving as a member of its board. The review determined that any related persons transactions were neither material nor significant to either Nordson or the respective director’s company. All such transactions were conducted at arms-length. Information on the related persons transaction review is set forth under the caption “Director Independence” above.

The Board’s Role in Talent Development

A primary Board responsibility is to ensure that we have the appropriate management talent to successfully execute our strategies. Our Board believes that effective talent development is critical to Nordson’s continued success. Our Board’s involvement in leadership development and succession planning is systematic and ongoing. The Board plans for CEO succession and oversees management’s planning for succession of other key executive positions. Our Board calendar includes at least one meeting each year during which the Board conducts a detailed review of the Company’s talent strategies, leadership pipeline, and succession plans for key executive positions. The Compensation Committee oversees the process of succession planning and implements programs to retain and motivate key talent. To assist the Board, the CEO annually provides the Board with an in-depth assessment of senior managers and their potential to succeed to the position of CEO or other key executive positions.

Self-Assessments

On a regular basis, the Board conducts a self-assessment of the Board as a whole to determine, among other matters, whether the Board is functioning effectively. The independent directors also undertake a peer assessment of other independent directors as part of this self-assessment process. Each committee of the Board also conducts a self-assessment of the committee’s effectiveness. The Board considers this process to be the primary means of determining whether incumbent directors continue to demonstrate the attributes that should be reflected on the Board, or whether changes to membership are appropriate.

 

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COMMITTEES OF THE BOARD OF DIRECTORS

The Board has three standing committees – Audit Committee, Compensation Committee, and Governance and Nominating Committee – and an Executive Committee. Respective committee functions, memberships and number of meetings held during fiscal year 2018 are listed below. All members of the Audit Committee, Compensation Committee, and Governance and Nominating Committee are independent under the independence standards of Nasdaq and our Governance Guidelines. A more detailed discussion of the purposes, duties, and responsibilities of the committees is found in the respective committee charters which are available at: www.nordson.com/en/our-company/corporate-governance.

 

Committee    Function  

Members for

2018(1)

 

Meetings in

2018

       
Audit   

•   Reviewing the proposed audits (including both independent and internal audits) for each fiscal year, the results of these audits, and the adequacy of our systems of internal accounting control;

•   Appointing, compensating, and overseeing the independent auditors for each fiscal year;

•   Establishing procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters; and

•   Reviewing and approving all related-persons transactions.

 

Jaehnert*

Carson

George

Keithley

  9
       

Compensation

  

•   Reviewing and approving compensation for our executive officers;

•   Administering the incentive and equity participation plans under which we compensate our executive officers; and

•   Providing oversight to executive talent and management succession planning, other than chief executive officer succession, which is a responsibility of the entire Board.

 

 

Puma*

Banks

Merriman

Richey

  5
    

The Compensation Committee takes significant steps to ensure that we maintain strong links between executive compensation and performance of our business. Examples of these steps are:

 

•   Holding executive sessions (without management present) at every regularly scheduled committee meeting;

•   Engaging an independent compensation consultant to advise on executive compensation issues, including peer benchmarking data;

•   Aligning compensation structures based on examination of peer group compensation structures, goals, and financial performance; and

•   Strengthening the link between executive officer compensation and shareholder value by basing incentive/variable pay on the achievement of financial and operating performance goals to foster alignment with shareholder interests.

       

 

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Committee    Function  

Members for

2018(1)

 

Meetings in

2018

       
Governance and Nominating   

•   Assisting the Board by identifying individuals qualified to serve as directors, and to recommend to the Board the director nominees for each annual meeting of shareholders;

•   Reviewing and recommending to the Board qualifications for committee membership and committee structure and operations;

•   Recommending to the Board directors to serve on each committee and a chair for such committee;

•   Developing and recommending to the Board a set of corporate governance policies and procedures; and

•   Developing, administering, and overseeing the self-assessment process for the Board and its committees.

•   Overseeing management’s development of an orientation program for new directors.

•   Reviewing Director’s compensation.

 

Richey*

Carson

Keithley

Puma

  4

 

*

Committee chair

 

(1)

In February 2018, Mr. Merriman was elected Chair of the Board and Mr. Jaehnert was elected chair of the Audit Committee. In May 2018, Mr. Merriman was appointed as a member of the Compensation Committee and removed as a member of the Audit Committee and Mr. Keithley was appointed as a member of the Audit Committee and removed as a member of the Compensation Committee.

The Board has designated Mr. Jaehnert, who is an independent director under the Nasdaq listing standings and the SEC’s audit committee requirements, as an “audit committee financial expert” pursuant to the SEC’s final rules implementing Section 407 of the Sarbanes-Oxley Act. Shareholders should understand that the designation of Mr. Jaehnert as an “audit committee financial expert” is an SEC disclosure requirement and that it does not impose upon him any duties, obligations, or liabilities that are greater than those imposed on him as members of the Audit Committee and the Board in the absence of such designation.

The Audit Committee has confirmed Ernst & Young LLP’s independence from management and the Company, including compatibility of non-audit services with the auditors’ independence. The Audit Committee Report to the Board is at page 78 of this Proxy Statement.

Director Compensation

Objectives of Director Compensation

Quality non-employee directors are critical to our success. We believe that the two primary duties of non-employee directors are (1) to effectively represent the long-term interests of our shareholders and (2) to provide guidance to management. As such, our compensation program for non-employee directors is designed to meet several key objectives:

 

   

Adequately compensate directors for their responsibilities and time commitments and for the personal liabilities and risks that they face as directors of a public company;

 

   

Attract the highest caliber non-employee directors by offering a compensation program consistent with those at companies of similar size, complexity, and business character;

 

   

Align the interests of directors with our shareholders by providing a significant portion of compensation in equity and requiring directors to own our stock;

 

   

Provide compensation that is simple and transparent to shareholders and reflects corporate governance best practices; and

 

   

Where possible, provide flexibility in the form and timing of payments.

Elements of Director Compensation

We believe that the following components of our director compensation program support the objectives above:

 

   

We provide cash compensation through retainers for board and committee service, as well as additional cash retainers to the Chair of the Board and chairs of our standing Board committees.

 

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We do not provide board and committee meeting fees. Compensating our directors in this manner simplifies the administration of our program and creates greater equality in rewarding service on committees of the Board. The additional retainers compensate directors for the additional responsibilities and time commitments involved with chair responsibilities.

 

   

All of the non-employee directors receive annual awards of restricted share units which vest 100% on the last day of the fiscal year.

 

   

We pay for, provide, or reimburse directors for expenses incurred to attend Board and committee meetings and director education programs.

 

   

Directors do not have a retirement plan but are afforded business travel and accident insurance coverage.

Determining Director Compensation.    The Governance and Nominating Committee of the Board provides oversight on director compensation. The Committee oversees, reviews, and reports to the Board on director compensation. The Committee annually reviews competitive market data for non-employee director compensation and makes recommendations to the Board of Directors for its approval. The Committee is assisted in performing its duties by Exequity LLP (“Exequity”), the Compensation Committee’s independent compensation consultant.

Exequity’s review for fiscal year 2018 consisted of an analysis of competitive market data from a selected peer group of companies. The peer group is consistent with the peer group Exequity used for the executive compensation review conducted during fiscal year 2018.

The components and respective amounts of non-employee director compensation for fiscal year 2018 were:

 

                     Type    Annual Amount ($)  

•  Annual Cash Retainer

     75,000

•  Annual Chair Cash Retainer:

    

¡  Chair of the Board

     60,000

¡  Audit Committee Chair

     15,000

¡  Compensation Committee Chair

     10,000

¡  Governance & Nominating Committee Chair

       8,000

•  Annual Equity Award (Restricted Share Units) (1)

 

   125,000

 

 

(1)

The number of restricted share units granted is determined by the closing share price on the date of grant.

Annual Cash Retainer.    The cash retainers are paid in equal quarterly installments. For directors who join the Board after the commencement of a fiscal year, the annual retainer is prorated based on the number of months remaining in the fiscal year. Due to Committee membership changes during fiscal year 2018, the director cash retainers for Messrs. Jaehnert, Keithley, and Merriman were prorated.

Annual Equity Award.    Restricted share unit awards are granted annually and are effective the first business day of the fiscal year. The awards vest 100% on the last day of the fiscal year. If a director retires from the Board prior to the vesting date, restricted share units are forfeited on a pro-rata basis, based on the number of months served prior to retirement. If a director is elected by the Board or shareholders after the commencement of a fiscal year, the restricted share unit award is prorated based on the number of months remaining in the fiscal year. If restricted share units are not deferred, then the units and accrued dividend equivalents convert to Nordson common shares on a one-for-one basis on the vesting date.

Deferred Compensation Program.    Under the directors deferred compensation plan, non-employee directors may defer all or a portion of their annual cash retainer into a non-qualified, unfunded deferred compensation account in the form of deferred cash or share equivalent units. Amounts deferred (i) as cash will earn a return based on the 10-year Treasury bill constant maturity interest rate, or (ii) as share equivalent units will earn a return based on our common share price and accrued dividend equivalents. We do not pay above market or preferential interest rates under this deferred compensation plan.

 

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Directors may elect to defer the receipt of restricted share units prior to the grant date. If receipt is deferred, the restricted share units and accrued dividend equivalents will convert to share equivalent units on a one-for-one basis on the vesting date and are not subject to forfeiture.

After retirement from our Board, the share equivalent units and any cash retainers that were deferred as share equivalent units are paid out in our common shares in predetermined quarterly installments over a four-year period. Any cash retainers that were deferred as cash, and accrued interest thereon, will be paid out in cash in predetermined quarterly installments over a four-year period.

Share Ownership Guidelines.    The Board believes that our non-employee directors should have a meaningful ownership interest in the Company and has implemented share ownership guidelines for our non-employee directors. The ownership guidelines require non-employee directors to own a minimum of five times their annual cash retainer in common shares. Shares held in the form of share equivalent units or restricted share units qualify as shares owned under the guidelines. Newly elected directors have five years within which to achieve the share ownership requirement. All non-employee directors currently meet the guideline.

Charitable Gifts Matching Program.    Current and retired non-employee directors may participate in our charitable matching gift program that is available to all current and retired employees. Directors Banks, George, Jaehnert, Keithley, Puma, and Richey, Jr. participated in this program in fiscal year 2018. During fiscal year 2018, we made matching contributions totaling $49,500 under this program.

Indemnity Agreements.    We have indemnification agreements for directors in order to attract and retain highly qualified candidates to serve as our directors. The indemnification agreements are intended to secure the protection for our directors contemplated by our Regulations and to the full extent permitted by Ohio law.

Director Compensation Table for Fiscal Year 2018

The following table sets forth the total compensation of each non-employee director for services provided as a director for fiscal year 2018. Due to Committee membership changes the director fees for Messrs. Jaehnert, Keithley, and Merriman were prorated.

 

  Name    Fees Earned or Paid
in Cash
($)
   Stock Awards (1)
($)
   All Other
Compensation (2)
($)
  

Total  

($)  

 

  Lee C. Banks

 

  

 

  75,000

 

  

 

125,000

 

  

 

11,293

 

  

 

211,293  

 

 

  Randolph W. Carson

 

  

 

  75,000

 

  

 

125,000

 

  

 

21,077

 

  

 

221,077  

 

 

  Arthur L. George, Jr.

 

  

 

  75,000

 

  

 

125,000

 

  

 

18,110

 

  

 

218,110  

 

 

  Frank M. Jaehnert

 

  

 

  85,112

 

  

 

125,000

 

  

 

11,238

 

  

 

221,350  

 

 

  Joseph P. Keithley

 

  

 

  94,551

 

  

 

125,000

 

  

 

69,724

 

  

 

289,275  

 

 

  Michael J. Merriman, Jr. (3)

 

  

 

120,337

 

  

 

125,000

 

  

 

42,669

 

  

 

288,006  

 

 

  Mary G. Puma

 

  

 

  85,000

 

  

 

125,000

 

  

 

  9,363

 

  

 

219,363  

 

 

  Victor L. Richey, Jr.

 

  

 

  83,000

 

  

 

125,000

 

  

 

24,333

 

  

 

232,333  

 

 

(1)

This column represents the grant date fair value of the restricted share unit awards as calculated under FASB ASC Topic 718 and do not reflect whether the recipient has actually received a financial gain from these awards. The assumptions made in valuing share awards reported in this column for 2018 are discussed in Note 14 Stock-based Compensation in the “Notes to Consolidated Financial Statements” section of our Form 10-K for 2018.

 

(2)

This column includes the value of dividends on restricted shares, restricted share units, and share equivalent units, premiums for business travel accident insurance, and matching gifts made during fiscal year 2018.

 

(3)

Mr. Merriman participates in our company-sponsored health care plan under a legacy program which affords health care coverage to a non-employee director on the same terms as our employees. We imputed $17,940 in income to Mr. Merriman for insurance premiums for coverage based on the full COBRA premium value for 2018. No other non-employee directors participate in this legacy, and now discontinued, program.

 

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PROPOSAL 2: RATIFY THE APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

Appointment of Independent Registered Public Accounting Firm for Fiscal Year Ending October 31, 2019

Ernst & Young LLP served as our independent registered public accounting firm for the fiscal year ended October 31, 2018. The Audit Committee has appointed Ernst & Young LLP to serve as our auditors for the fiscal year ending October 31, 2019. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire, and are expected to be available to respond to appropriate shareholder questions. Although ratification of the appointment of the independent auditors is not required by law, the Audit Committee and the Board of Directors believe that shareholders should be given the opportunity to express their views on the subject. While not binding on the Audit Committee or the Board of Directors, the failure of the shareholders to ratify the appointment of Ernst & Young LLP as our independent auditors would be considered by the Board of Directors in determining whether or not to continue the engagement of Ernst & Young LLP. Ultimately, the Audit Committee retains full discretion and will make all determinations with respect to the appointment of independent auditors, whether or not our shareholders ratify the appointment.

As provided in the Audit Committee’s charter, the Audit Committee is responsible for directly appointing, retaining, terminating, and overseeing our independent registered public accounting firm. Our Audit Committee continuously evaluates the independence and effectiveness of Ernst & Young LLP and its personnel, and the cost and quality of its audit and audit-related services.

Pre-Approval of Audit and Non-Audit Services

At the start of each fiscal year, our Audit Committee pre-approves the audit services and audit-related services, if any, together with specific details regarding such services anticipated being required for such fiscal year including, as available, estimated fees. The Audit Committee reviews the services provided to date and actual fees against the estimates and such fee amounts may be updated for presentation at the regularly scheduled meetings of the Audit Committee. Additional pre-approval is required before actual fees for any service can exceed the originally pre-approved amount. The Audit Committee may also revise the list of pre-approved services and related fees from time to time. All of the services described below under the captions “Audit Fees” and “Audit-Related Fees” with respect to fiscal years 2017 and 2018 were approved in accordance with this policy.

If we seek to engage our independent registered public accounting firm for other services that are not considered subject to general approval as described above, then the Audit Committee must approve such specific engagement as well as the estimated fees. Such engagement will be presented to the Audit Committee for approval at its next regularly scheduled meeting. If the timing of the project requires an expedited decision, then we may ask the chair of the Audit Committee to approve such engagement. Any such approval by the chair is then reported to the full Audit Committee for ratification at the next Audit Committee meeting. In any event, approval of any engagement by the Audit Committee or the chair of the Audit Committee is required before our independent registered public accounting firm may commence any engagement. Additional approval is required before any fees can exceed approved fees for any such specifically-approved services.

 

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Fees Paid to Ernst & Young

The following table shows the fees we paid or accrued for audit and other services provided by Ernst & Young LLP for the fiscal years ended October 31, 2018 and October 31, 2017:

 

 

Services

 

  

 

Fiscal Year 2018

 

  

 

Fiscal Year 2017  

 

 

   Audit Fees (1)

 

  

 

$2,204,684

 

   $1,919,363  

 

   Audit-Related Fees (2)

 

  

 

$     18,000

 

  

 

$   240,000  

 

 

   Other Fees

 

  

 

$             —

 

  

 

$            —  

 

 

(1)

Audit services of Ernst & Young LLP consisted of the audit of our annual consolidated financial statements, the quarterly review of interim financial statements, the audit of internal control over financial reporting, and statutory audits required internationally.

 

(2)

Audit-Related Fees generally include fees for employee benefit plans, business acquisitions, accounting consultations, and services related to SEC registration statements.

 

RECOMMENDATION REGARDING PROPOSAL 2:

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE

“FOR” RATIFICATION OF THE

AUDIT COMMITTEE’S APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING

OCTOBER 31, 2019.

 

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SECURITY OWNERSHIP OF NORDSON COMMON SHARES BY DIRECTORS, DIRECTOR

NOMINEES, EXECUTIVE OFFICERS, AND LARGE BENEFICIAL OWNERS

The following table sets forth the number and percentage of issued and outstanding Nordson common shares beneficially owned as of January 2, 2019 by directors, director nominees, each named executive officer, and all directors and executive officers as a group. There were 57,609,588 shares of common stock outstanding as of January 2, 2019. The business address for matters related to Nordson for each of our directors, director nominees, and executive officers is 28601 Clemens Road, Westlake, Ohio, 44145.

This beneficial ownership information is based on information furnished by the directors, director nominees, and named executive officers. Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act for purposes of this Proxy Statement and is not necessarily to be construed as beneficial ownership for other purposes.

 

   Name of Beneficial
   Owner
 

Total
Number

of Shares
Beneficially
Owned

    Percent of
Outstanding
Shares
  Direct
Ownership (1)
   

Employee

Plan (2)

   

Right to

Acquire (3)

   

Restricted Share  

Units and Share  

Equivalent  

Units (4)  

 

 

   Lee C. Banks

 

 

 

 

 

 

14,735

 

 

 

 

 

 

*

 

 

 

 

 

 

14,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Randolph W. Carson

 

 

 

 

 

 

26,786

 

 

 

 

 

 

*

 

 

 

 

 

 

12,093

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,693

 

 

 

 

 

   Arthur L. George, Jr.

 

 

 

 

 

 

11,823

 

 

 

 

 

 

*

 

 

 

 

 

 

4,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,287

 

 

 

 

 

   Frank M. Jaehnert

 

 

 

 

 

 

13,773

 

 

 

 

 

 

*

 

 

 

 

 

 

12,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,564

 

 

 

 

 

   Joseph P. Keithley

 

 

 

 

 

 

48,010

 

 

 

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48,010

 

 

 

 

 

   Michael J. Merriman, Jr.

 

 

 

 

 

 

22,555

 

 

 

 

 

 

*

 

 

 

 

 

 

2,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,854

 

 

 

 

 

   Mary G. Puma

 

 

 

 

 

 

18,829

 

 

 

 

 

 

*

 

 

 

 

 

 

16,359

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,470

 

 

 

 

 

   Victor L. Richey, Jr.

 

 

 

 

 

 

13,501

 

 

 

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,501

 

 

 

 

 

   Michael F. Hilton

 

 

 

 

 

 

401,350

 

 

 

 

 

 

*

 

 

 

 

 

 

24,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

233,550

 

 

 

 

 

 

 

 

 

143,669

 

 

 

 

 

   Gregory A. Thaxton

 

 

 

 

 

 

130,171

 

 

 

 

 

 

*

 

 

 

 

 

 

10,899

 

 

 

 

 

 

 

 

 

8,646

 

 

 

 

 

 

 

 

 

81,625

 

 

 

 

 

 

 

 

 

29,001

 

 

 

 

 

   John J. Keane

 

 

 

 

 

 

127,150

 

 

 

 

 

 

*

 

 

 

 

 

 

23,469

 

 

 

 

 

 

 

 

 

897

 

 

 

 

 

 

 

 

 

90,925

 

 

 

 

 

 

 

 

 

11,859

 

 

 

 

 

   Gregory P. Merk

 

 

 

 

 

 

105,495

 

 

 

 

 

 

*

 

 

 

 

 

 

41,370

 

 

 

 

 

 

 

 

 

367

 

 

 

 

 

 

 

 

 

59,800

 

 

 

 

 

 

 

 

 

3,958

 

 

 

 

 

   Jeffrey A. Pembroke

 

 

 

 

 

 

22,434

 

 

 

 

 

 

*

 

 

 

 

 

 

4,544

 

 

 

 

 

 

 

 

 

140

 

 

 

 

 

 

 

 

 

17,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Directors, director nominees, and executive officers as a Group (18 persons)

 

 

 

 

 

 

 

 

1,133,365

 

 

 

 

 

 

 

 

1.97%

 

 

 

 

 

 

 

 

215,631

 

 

 

 

 

 

 

 

 

 

 

 

13,616

 

 

 

 

 

 

 

 

 

 

 

 

591,290

 

 

 

 

 

 

 

 

 

 

 

 

312,828

 

 

 

 

 

 

*

Less than 1%

 

(1)

Except as otherwise stated, beneficial ownership of the shares held by each of the directors, director nominees, and executive officers consists of sole voting power and/or sole investment power, or of voting power and investment power that is shared with the spouse of the director, director nominee, or executive officer.

 

(2)

This column shows indirect shares held in our Employee Stock Ownership Plan and 401(k) Plan, for which the individuals indicated have sole voting power and limited investment power.

 

(3)

This column shows shares covered by stock options that currently are exercisable or will be exercisable by March 1, 2019.

 

(4)

This column shows the direct share unit ownership held by directors and director nominees, either as deferred or non-deferred, and executive officers under the deferred compensation plans described in this Proxy Statement.

 

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Five Percent Beneficial Owners

The following table lists each person we know to be an owner of more than 5% of our common shares as of January 2, 2019.

 

Beneficial Owner   

Total Number

of Shares
Beneficially Owned

   Percent of  
Outstanding  
Shares  

 

   The Vanguard Group, Inc. (1)

 

    

 

 

 

 

4,560,618

 

 

 

    

 

 

 

 

7.9

 

 

%

 

 

   BlackRock, Inc. (2)

 

    

 

 

 

 

4,311,022

 

 

 

    

 

 

 

 

7.5

 

 

%

 

 

   Jennifer A. Savage (3)

 

    

 

 

 

 

4,038,708

 

 

 

    

 

 

 

 

7.0

 

 

%

 

 

   Jane B. Nord (4)

 

    

 

 

 

 

3,272,213

 

 

 

    

 

 

 

 

5.7

 

 

%

 

 

(1)

The information set forth is based solely on the Schedule 13G/A filed February 9, 2018 with the SEC by The Vanguard Group, Inc., 100 Vanguard Blvd., Malvern, PA 19355, wherein it reported beneficial ownership of 4,560,618 shares and stated that it has sole voting power over 30,140 of the reported shares, sole investment power over 4,528,123 of the reported shares, shared voting power over 6,519 of the reported shares, and shared investment power over 32,495 of the reported shares. According to the Schedule 13G/A, Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 25,976 shares as a result of its serving as an investment manager of collective trust accounts, and Vanguard Investments Australia, Ltd., a wholly owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 10,683 shares as a result of its serving as investment manager of Australian investment offerings.

 

(2)

The information set forth is based solely on the Schedule 13G/A filed January 29, 2018 with the SEC by BlackRock, Inc., 55 East 52nd Street, New York, NY 10055, wherein it reported beneficial ownership of 4,311,022 shares and stated that it has sole voting power over 4,108,770 of the reported shares and sole investment power over all of the reported shares.

 

(3)

The information set forth is based solely on the Schedule 13G filed October 17, 2018 with the SEC by Jennifer A. Savage, an individual, 1375 East 9th Street, Suite 900, Cleveland, OH 44114, wherein she reported beneficial ownership of 4,038,708 shares and stated that she has sole voting and investment power over 2,792,697 of the reported shares and shared voting and investment power over 1,246,011 of the reported shares. According to the Schedule 13G, the amount of shares beneficially owned by Ms. Savage includes (a) 1,147,155 shares owned by Nord Irrevocable Trusts held for the benefit of Nord family descendants, of which Ms. Savage is the sole trustee, (b) 1,645,142 shares collectively owned by several GRATs and a CLAT, of which Ms. Savage is the sole trustee, (c) 892,536 shares owned by Eric T. Nord Trusts, of which Ms. Savage is a co-trustee, and (d) 353,475 shares owned by Nord Trusts held for the benefit of Nord family descendants, of which Ms. Savage is a co-trustee. Ms. Savage has shared voting and investment power with respect to all shares held by trusts for which she serves as co-trustee.

 

(4)

The information set forth is based solely on the Schedule 13G/A filed February 8, 2018 with the SEC by Jane B. Nord, an individual, P.O. Box 457, Oberlin, OH 44074, wherein she reported beneficial ownership of 3,272,213 shares and stated that she has sole voting and investment power over 2,379,677 of the reported shares and shared voting and investment power over 892,536 of the reported shares. According to the Schedule 13G/A, the amount of shares beneficially owned by Ms. Nord includes (a) 2,379,677 shares owned by the Jane B. Nord Grantor Trust, over which Ms. Nord is the sole trustee, and (b) 892,536 shares owned by Eric T. Nord Trusts, of which Ms. Nord is a co-trustee.

We are party to an agreement that, with some exceptions, gives us a right of first refusal with respect to proposed sales of our common shares by certain members of the Nord family and The Nord Family Foundation.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers, and beneficial owners of more than ten percent of our outstanding common shares to file reports of beneficial ownership and changes in beneficial ownership with the SEC, and to furnish copies of those reports to us. To our knowledge, based solely on a review of the Forms 3, 4, and 5 and amendments thereto with respect to fiscal year ended October 31, 2018, we believe that for the year 2018 all filing requirements were met on a timely basis.

 

28  |   Nordson Corporation – 2019 Proxy Statement


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PROPOSAL 3: ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED

EXECUTIVE OFFICERS

During our 2018 Annual Meeting, we asked our shareholders to approve the compensation of our named executive officers, commonly referred to as a “Say-on-Pay” vote. Approximately 97.7% of shareholder votes cast were in favor of our executive officer compensation program. We value the positive endorsement by our shareholders of our executive compensation policies and believe that the outcome signals our shareholders’ support of our executive compensation program. As a result, our Compensation Committee decided to retain our general approach to named executive officer compensation, with an emphasis on performance-based short and long-term incentive compensation that rewards our most senior executives when they deliver value for our long-term shareholders. At our 2017 Annual Meeting, our shareholders voted in favor of holding our “Say-on-Pay” vote annually, which our Board subsequently approved. Our next shareholder vote on the frequency of our “Say-on-Pay” vote is expected to be held at our 2023 Annual Meeting.

Nordson’s consistent long-term shareholder value creation is attributed to a rigorously-applied management process implemented over the years by successive teams of talented and committed executives. Our executive compensation program underpins and reinforces this process and the performance it generates. We believe the program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our executives to dedicate themselves fully to creating value for our shareholders. In support of this belief, and reflective of the Compensation Committee’s diligent oversight of the executive compensation program, the Compensation Committee urges you to consider the following factors:

 

 

WHAT WE DO

 

      

 

 

Pay-for-Performance. A significant portion of executive pay is not guaranteed, but rather tied to key financial and operating measures that are disclosed to our shareholders. For fiscal year 2018, an average of 72% of the total target direct compensation (base salary, annual cash incentive, and grant date value of long-term incentives) components for our named executive officers (85% for our CEO) was tied to incentive-based measures and performance.

 

 

 

      

 

 

Committee Independence. Each member of the Compensation Committee meets the independence requirements under SEC rules and Nasdaq listing standards.

 

 

 

      

 

 

Independent Compensation Consultant. The Compensation Committee engages an independent compensation consultant, Exequity LLP.

 

 

 

      

 

 

Peer Group Benchmarking. We review annually our compensation peer group and make adjustments as needed.

 

 

 

      

 

 

Balanced Compensation Structure. We utilize a balanced approach to compensation, which combines fixed and variable, short-term and long-term, and cash and equity compensation.

 

 

 

      

 

 

Total Target Direct Compensation Generally Approximating the Median. In general, we establish total target direct compensation for our named executive officers, excluding the CEO, to approximate to the median total target direct compensation for executives in comparable positions at companies in our peer group, although the Compensation Committee may vary from this approach for particular executives. Actual financial and operating performance and share price performance drive amounts earned. Consistent with our “pay-for-performance” philosophy, we established the CEO’s total direct compensation to approximate the 75th percentile of other CEOs in our peer group, which is aligned with the Company’s TSR performance in the top quartile relative to our peers.

 

 

 

      

 

 

Responsibly Administered Incentive Compensation Programs. We have diversified incentive compensation goals without steep payout cliffs. Vesting periods for annual equity awards encourage consistent behavior and reward long-term, sustained performance.

 

 

 

      

 

 

Certify Performance. The Compensation Committee certifies performance based upon pre-established financial and operating measures before any incentive award payouts are made.

 

 

 

      

 

 

Capped Award Payouts. Cash payments that can be earned under the Annual Cash Incentive Award, as well as shares under the longer-term Performance Share Incentive Award, are capped.

 

 

 

      

 

 

Consistent Equity Award Policy. Equity awards are made on a consistent schedule and are not made in anticipation of significant developments that may impact the price of our common shares. Similarly, we do not time the release of material, non-public information based on equity award dates.

 

 

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WHAT WE DO

 

 

      

 

  

 

Include Recoupment and Other Forfeiture Provisions in our Equity and Annual Cash Incentive Awards. Our Annual Cash Incentive Award and equity-based compensation awards are subject to recoupment and forfeiture (“clawbacks”) that allows the Company to cancel all or any outstanding portion of equity awards and recover the payouts under the Annual Cash Incentive Award.

 

 

      

 

  

 

Share Ownership Guidelines. There are restrictions on sales of vested awards until an executive officer has attained ownership of the Company’s stock as follows: CEO — five times base salary; CFO — three times base salary; and Corporate Executive Vice Presidents — two times base salary.

 

 

      

 

  

 

Equity and Cash Incentive Award Plan Best Practice Features:

 

Evaluate Share Utilization. We review ongoing awards, forfeitures, overhang levels (dilutive impact of equity compensation on our shareholders), and annual run rates (the aggregate shares awarded as a percentage of total outstanding shares);

Double-Trigger for Change-in-Control Severance Payments. Cash severance payments for our executive officers require a “double-trigger” — a change-in-control and involuntary termination without cause within two years following a change-in-control, and new equity awards granted after December 27, 2017 under our Amended and Restated 2012 Stock Incentive and Award Plan (the “Plan) also provide for “double-trigger” vesting;

Minimum Vesting Period Requirement: We require a minimum vesting period of at least one year for all types of awards granted under the Plan, with an exception for awards covering up to 5% of the Plan’s share reserve;

Share Repricing. We prohibit repricing of underwater stock options and other awards without shareholder approval; and

No Dividends or Dividend Equivalents on Unearned Performance Share Units. Performance share awards do not earn or pay dividends until the shares are earned, and effective for awards granted after December 27, 2017, dividends and dividend equivalents on time based awards are required to be deferred until vesting of the underlying awards.

 

      

 

  

 

 

Talent Management. We engage in an ongoing, rigorous review of executive talent and succession plans for key operating and corporate roles.

 

 

 

WHAT WE DO NOT DO

 

 

      

 

  

 

No Significant Perquisites. The benefits our executive officers receive in the form of health insurance, life insurance, and Company matching contributions to the 401(k) Plan are the same benefits generally available to all of our employees. Our executive officers are reimbursed for airline club membership (up to two); financial, estate, and tax planning services (up to $5,000 a year); and executive physicals.

 

 

      

 

  

 

No Above-Market or Preferential Earnings. We do not pay above-market or preferential earnings on non-qualified deferred compensation.

 

 

      

 

  

 

No Hedging, Pledging or Short Sales Transactions Permitted. We prohibit directors and executive officers from pledging Nordson common shares as collateral. Also prohibited are trading in derivative securities of Nordson’s common shares, engaging in short sales of Nordson securities, or purchasing any other financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of any Nordson securities.

 

 

      

 

  

 

No Change-in-Control Severance Tax Gross-Ups. For executive officers elected after November 1, 2015, we have eliminated tax gross up on any severance benefits.

 

We urge you to read the “Executive Compensation: Compensation Discussion and Analysis” of the Proxy Statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives. Also, we encourage you to review the Summary Compensation Table and related compensation tables and narrative of this Proxy Statement, which provide detailed information on the compensation of our named executive officers.

 

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We are asking our shareholders to indicate their support for compensation paid to our named executive officers as described in this Proxy Statement by voting “FOR” the following resolution at the 2019 Annual Meeting:

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of our named executive officers, as disclosed in the Company’s Proxy Statement for the 2019 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the executive compensation tables, and related narrative.”

This advisory resolution, commonly referred to as a “Say-on-Pay” resolution, is being presented to our shareholders for a vote pursuant to Section 14A of the Exchange Act and is non-binding on the Board. Although non-binding, the Board and the Compensation Committee will carefully review and consider the voting results when evaluating our executive compensation program.

 

RECOMMENDATION REGARDING PROPOSAL 3:

THE BOARD OF DIRECTORS RECOMMENDS THAT, ON AN ADVISORY BASIS, YOU VOTE

“FOR” THE APPROVAL OF

THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.

 

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EXECUTIVE COMPENSATION:

COMPENSATION DISCUSSION AND ANALYSIS

All references in this Compensation Discussion and Analysis section of the Proxy Statement to “year” or “years” are references to fiscal years unless otherwise noted. Our fiscal year ends October 31.

This Compensation Discussion and Analysis (“CD&A”) describes our executive compensation philosophy and program, the compensation decisions made under this program, and the specific factors we considered in making those decisions. This CD&A focuses on the compensation of our named executive officers for 2018:

 

 

  Name

 

  

 

Title

 

  Michael F. Hilton

  

President and Chief Executive Officer

  Gregory A. Thaxton

  

Executive Vice President, Chief Financial Officer

  John J. Keane

  

Executive Vice President

  Gregory P. Merk

  

Executive Vice President

  Jeffrey A. Pembroke

  

Executive Vice President

This CD&A is presented in five parts:

Part I:    Executive Summary.    In this section we discuss: (a) highlights of our financial and operating performance that supported, in part, compensation awarded to our named executive officers for 2018; (b) our compensation objectives, including our pay-for-performance philosophy; (c) Mr. Hilton’s compensation for 2018; and (d) how compensation was tied to performance.

Part II:    Setting Executive Compensation.    In this section we explain our processes and procedures and the roles the Compensation Committee, management, and the Compensation Committee’s independent compensation consultant have in setting our executive compensation program.

Part III:    Key Components of Our Executive Compensation Program.    In this section we provide details of the key components of the compensation we pay to our named executive officers, including base salary, annual cash incentive award, long-term incentive award, and other equity-based awards. We also discuss and analyze actions taken with respect to these components in 2018.

Part IV:    Other Components of Our Executive Compensation Program.    In this section we provide details of other components of the compensation we provide to our named executive officers, including perquisites, welfare and retirement benefits, and change-in-control benefits.

Part V:    Policies Related to Executive Compensation.    In this section we review the policies we have adopted that relate to our executive compensation program, including our equity award practices, clawback policy, prohibition against pledging shares or engaging in the hedging of Nordson common shares, and shareholder ownership guidelines for executive officers.

In this CD&A we use the terms “the Committee,” “we,” “us,” and “our” interchangeably in reference to the Compensation Committee, or in the proper context, Nordson Corporation.

This CD&A contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from the results, performance or achievements expressed or implied thereby. For a detailed discussion of these risks, see Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Annual Report. Shareholders should note that statements contained in this CD&A regarding our company and business group performance targets and goals should not be interpreted as management’s expectations, estimates of results or other guidance.

 

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PART I: EXECUTIVE SUMMARY

2018 Financial Performance

Fiscal year 2018 was a year of strong financial performance. The tables below present FY2016 – FY2018 reported results for the three primary drivers of incentive compensation for the named executive officers – Diluted Earnings per Share, Return on Total Capital, and Revenue. The Compensation Committee elected to exclude any financial benefits the Company received as a result of the Tax Cuts and Jobs Act that was passed in 2017. As a result, all calculations for executive compensation in this section, except for the graph below (see footnote), exclude the financial benefit to the Company as a result of the Tax Cuts and Jobs Act.

 

LOGO    LOGO    LOGO

Diluted Earnings per Share* Return on Total Capital* Revenue (Billions)

 

*

This data includes the benefits inured to the Company from the Tax Cuts and Jobs Act that was passed in 2017. The Company’s 2018 data, excluding the benefits from the Tax Cuts and Jobs Act and utilizing a more normalized effective tax rate, are: Diluted Earnings per Share is $5.70 and Return on Total Capital is 14%.

Compensation Objectives

We provide a straightforward, uncomplicated compensation structure for our named executive officers, one which is designed to support three primary objectives:

 

 

  Objective

 

  

 

How Objective is Achieved

 

 

     Alignment with Shareholder Interests

  

 

A substantial portion of our executive compensation program is provided in the form of equity-based long-term awards, which directly tie to share price appreciation.

 

We impose share ownership requirements, which encourage our executives to maintain a meaningful equity interest in the Company.

 

 

  Pay-for-Performance

  

 

Our incentive awards are based on performance against a balanced mix of long-standing, consistent and pre-established financial measures as well as quantitative operating performance measures.

 

 

  Talent Retention

  

 

Total direct compensation opportunities generally are targeted to approximate the median of the peer group that we compete with for talent.

 

The vesting periods for equity-based compensation (performance share units, stock options and restricted shares) support this objective.

 

 

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Mr. Hilton’s Compensation

The compensation paid to our Chief Executive Officer, Mr. Hilton, is consistent with our “pay-for-performance” compensation philosophy that applies to all of our named executive officers. Considering Mr. Hilton’s tenure, experience, and performance, his total target direct compensation approximates the 75th percentile of other chief executive officers in our peer group. Mr. Hilton’s actual annual and long-term incentive awards are aligned with our earnings per share growth, return on total capital, and revenue growth.

During its November 20, 2017 meeting, the Compensation Committee, with input from its independent executive compensation consultant, Exequity LLP, established Mr. Hilton’s 2018 total target direct compensation, taking into account a number of factors, including a competitive market review, tenure and experience, relative internal pay equity, the Board’s assessment of Mr. Hilton’s multi-year performance, and the Company’s overall financial and operating performance:

 

 

2018 Compensation Element

 

  

 

Value

 

  Base Salary

   $925,000 (5.7% increase over 2017)

  Annual Cash Incentive Award Target Opportunity

   $925,000 (100% of base salary, same target percentage as 2017)

  2018-2020 Performance Share Incentive Award

  Target Opportunity

  

13,400 share units

$1,654,230 grant date fair value

  Stock Options

  

55,800 shares

$1,942,599 grant date fair value

  Restricted Shares

  

6,700 shares

$855,389 grant date fair value

The combination of target payout opportunity for the Annual Cash Incentive Award and Performance Share Incentive Award plus the grant date fair value of restricted share and stock option awards represented approximately 85% of Mr. Hilton’s target total direct compensation for 2018, which further reinforces our pay-for-performance culture.

During its November 26, 2018 meeting, shortly after our 2018 fiscal year ended, the Board reviewed Mr. Hilton’s performance for 2018. In assessing Mr. Hilton’s performance, the Board considered Mr. Hilton’s impact on the Company’s one-year operating plan and longer-term strategic plans. The Board concluded that Mr. Hilton delivered outstanding performance with respect to both his short and long-term goals. In particular, the Board noted the following:

 

   

The Company’s strong financial and operating performance, including achieving multiple record financial metrics, and top percentile performance among the peer group companies;

 

   

Mr. Hilton’s leadership of the Company, specifically the progress made toward strengthening the Company’s overall long-term growth profile through organic initiatives, acquisitions, and driving continuous improvement through the global organization; and

 

   

Continued development and execution on senior leadership and management succession plans.

Based on the Board’s assessment and reflective of the performance noted above, the Compensation Committee, without Mr. Hilton present during its deliberations, and consistent with its “pay-for-performance” philosophy, took the following actions with respect to Mr. Hilton’s 2018 incentive compensation:

 

 

Incentive Award

 

  

 

Payout

 

  

 

Percent of Target

 

  2018 Annual Cash Incentive

   $1,082,250    117.0%

  2016-2018 Performance Share Incentive

 

  

34,095 shares(1)

 

  

185.3%

 

 

(1)

Settlement of the Performance Share Incentive Award occurred on January 3, 2019. Based on the closing price of our common shares on January 3, 2019 ($112.76 per share), value of the payout in dollars was $3,844,552.

 

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Except for excluding the financial benefits the Company received from the Tax Cuts and Jobs Act, no discretion was exercised by the Compensation Committee to increase or decrease the formulaic incentive award payouts to Mr. Hilton.

How Compensation Correlates to Performance

Our executive compensation program is structured so that a significant portion of the compensation paid to our named executive officers is dependent upon the performance of our business. The program is not overly weighted toward cash incentive compensation and does not otherwise have the potential to threaten long-term shareholder value by promoting unnecessary or excessive risk-taking by our executive officers.

For incentive compensation awards that are based on the Company’s performance, our specific decisions setting performance measures and goals and other actions impacting executive compensation focus on certain areas that are tied directly to our business plan and are what we believe are the most critical value drivers of the business, such as revenue and earnings growth and return on total capital.

The Annual Cash Incentive Award payout is tied to diluted earnings per share growth and return on total capital. The Performance Share Incentive Award payout is based on cumulative diluted earnings per share growth and cumulative revenue growth over a three-year period. The Performance Share Incentive Award payout is also impacted by share price performance, as the payout value (in dollars) is based on the settlement date share price.

 

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The graph below compares Nordson’s total shareholder return* for the ten year period ended October 31, 2018 with that of the S&P MidCap 400 Index, the S&P MidCap 400 Industrial Machinery Index, and the median return of our peer group companies (assuming the reinvestment of all dividends).

 

 

COMPARISON OF CUMULATIVE RETURN

LOGO

 

*

We define Total Shareholder Return (“TSR”) as: (share price end of period – share price start of period + dividends paid) / share price start of period.

ASSUMES $100 INVESTED ON NOVEMBER 1, 2008

ASSUMES DIVIDENDS REINVESTED

FISCAL YEAR ENDED OCTOBER 31, 2018

 

                       

Company/Market/Peer Group

 

2008

   

2009

   

2010

   

2011

   

2012

   

2013

   

2014

   

2015

   

2016

   

2017

   

2018

 

  Nordson Corporation

  $ 100.00     $ 149.23     $ 226.27     $ 274.10     $ 356.22     $ 439.17     $ 471.10     $ 443.80     $ 632.04     $ 807.21     $ 788.83  

  S&P MidCap 400

  $ 100.00     $ 118.18     $ 150.84     $ 163.74     $ 183.57     $ 245.03     $ 273.58     $ 282.95     $ 300.65     $ 371.23     $ 375.02  

  S&P MidCap 400 Ind. Machinery

  $ 100.00     $ 123.61     $ 160.67     $ 182.73     $ 199.57     $ 277.07     $ 293.61     $ 245.77     $ 288.44     $ 413.70     $ 404.98  

  Peer Group

  $ 100.00     $ 108.45     $ 133.57     $ 150.02     $ 171.39     $ 238.19     $ 262.44     $ 252.27     $ 259.27     $ 388.10     $ 399.03  

Source: Zack’s Investment Research

We place significant emphasis on long-term growth in our share price, and believe the information provided in the graph and tables above to be important in understanding our compensation philosophy and its role in the achievement of our long-term objectives.

 

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PART II: SETTING EXECUTIVE COMPENSATION

Role of the Shareholder Say-on-Pay Vote

The Committee believes that the results of the advisory “say-on-pay” shareholder vote represent an affirmation of our current pay practices and philosophies and, as a result, no significant changes were made to our executive compensation pay practices for 2018. The Committee will continue to consider the outcome of the say-on-pay vote when making future compensation decisions for the named executive officers. The results of our say-on-pay vote for the past five years are as follows:

 

 

  Annual Meeting Year

 

  

 

  FOR Vote (%)  

 

2014

       97.90

2015

       98.50

2016

       98.97

2017

       98.11

2018

       97.70

At the 2017 Annual Meeting, the Company’s shareholders voted in favor of an annual frequency for holding our “say-on-pay” vote, which the Board subsequently approved. The next shareholder vote on the frequency of our advisory “say-on-pay” vote is expected to be held at our 2023 Annual Meeting.

Role of the Compensation Committee

The Committee is made up entirely of independent directors as defined by our Governance Guidelines and Nasdaq listing standards and has responsibility for establishing our executive compensation program and for making compensation decisions under the program. In fulfilling its duties and responsibilities for 2018, the Committee sought input, advice, and recommendations from an independent executive compensation consultant as well as recommendations from our Chief Executive Officer, Mr. Hilton. At all times, however, the Compensation Committee exercised independent judgment in making executive compensation decisions.

Role of the Executive Compensation Consultant

The Committee retained Exequity LLP (“Exequity”) as the executive compensation consultant reporting directly to the Committee. Exequity provides research, data analyses, survey information, and design expertise in developing compensation programs for our executive officers. In addition, Exequity informs the Committee of regulatory developments and market trends related to executive compensation practices. The Committee has assessed the independence of Exequity in light of SEC rules and Nasdaq listing standards and concluded that no conflict of interest would prevent Exequity from independently and objectively advising the Committee.

Role of Executive Management

Mr. Hilton and Ms. Shelly Peet, Executive Vice President, Human Resources & Information Systems, provide additional information and analysis as requested by the Committee. More specifically, Mr. Hilton and Ms. Peet provided support for Committee meetings and made recommendations about designs for and, if warranted, changes to our Annual Cash Incentive Award and long-term equity-based awards. In addition to the responsibilities above, Mr. Hilton also: (a) provided to the Board of Directors a self-assessment of his performance for the fiscal year; (b) provided an assessment of each executive officer’s performance; and (c) recommended annual base salary adjustments, payouts of Annual Cash Incentive Awards and Performance Share Incentive Awards, and equity awards for executive officers other than himself.

 

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Setting Goals and Compensation

In order to focus on delivering growth and value for shareholders over time and to communicate consistently with investors and other stakeholders, we take a longer term approach to incentive compensation wherein our incentive plan targets remain consistent for a multi-year period of time, which is more aligned with our five year strategic plan cycle. We annually assess measures and performance goals (threshold, target, and maximum) to validate they are set appropriately based on internal and external factors, such as historic peer performance, long-term growth projections for Nordson, our own past and current performance, and market conditions and expectations.

The most heavily weighted component of our annual review of incentive goals is the historical performance of our peers, particularly our proxy peers, though we also review a group of mid-cap industrial peers for reference. For each corporate measure, we review the one-, three-, and five-year median performance of our peers in comparison to our performance goals. In general, if our performance goals fall outside a corridor around the median peer performance for two consecutive years, we further evaluate the appropriateness of our goals.

Using two consecutive years outside our range of peer median performance for a metric as our guideline, we complete a full review to determine whether we should make a change. We look at additional internal and external data to develop our recommendation.

 

   

Nordson expected future performance based on our five-year strategic plan: This allows us to assess whether our future expected performance continues to align with existing incentive targets and therefore would indicate that our goals should stay as-is, or whether our five-year plan expected performance projections are more in line with the movement in peer performance, and suggest we consider an adjustment.

 

   

Nordson historic performance: Our historic performance is reviewed along with projected future performance to help us assess whether we believe targets should be changed.

 

   

Other external factors: Consideration of economic conditions, investor and shareholder expectations, pay for performance alignment, and other factors also contribute to our final recommendation as to whether or not our target should be adjusted.

Based on a qualitative analysis of all factors, and considering input from the independent executive compensation consultant, the Compensation Committee may change goals or to retain the targets currently in place.

 

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Peer Group and Compensation Surveys

Our compensation peer group for 2018, which was developed in consultation with Exequity, consisted of the 18 publicly-traded companies listed below. The Committee believes the listed companies serve as the appropriate peer group because they have revenues generally within the range of 0.5x — 2.0x Nordson’s revenue; a global scope and business complexity; a focus on precision industrial manufacturing; innovation and technology; global growth strategies; and profiles or business models similar to Nordson’s, based on industries or diverse markets served. The Committee regularly reviews the peer group and makes appropriate modifications from time to time so that the group closely resembles our competitive market for executive talent.

 

  Company

 

  

 

Revenue*
($MMs)

 

 

   

 

Market Cap

As of Dec. 2017
($MMs)

 

 

 

  Actuant Corporation

 

   $

 

1,096

 

 

 

  $

 

1,517

 

 

 

  Albany International Corp.

 

   $

 

864

 

 

 

  $

 

1,976

 

 

 

  AMETEK Inc.

 

   $

 

4,300

 

 

 

  $

 

16,749

 

 

 

  Barnes Group Inc.

 

   $

 

1,436

 

 

 

  $

 

3,392

 

 

 

  Chart Industries Inc.

 

   $

 

989

 

 

 

  $

 

1,442

 

 

 

  Donaldson Company, Inc.

 

   $

 

2,372

 

 

 

  $

 

6,359

 

 

 

  Entegris, Inc.

 

   $

 

1,343

 

 

 

  $

 

4,306

 

 

 

  Esterline Technologies Corp.

 

   $

 

2,002

 

 

 

  $

 

2,220

 

 

 

  FLIR Systems, Inc.

 

   $

 

1,800

 

 

 

  $

 

6,460

 

 

 

  Graco, Inc.

 

   $

 

1,475

 

 

 

  $

 

7,615

 

 

 

  IDEX Corporation

 

   $

 

2,287

 

 

 

  $

 

10,083

 

 

 

  ITT Corporation

 

   $

 

2,585

 

 

 

  $

 

4,697

 

 

 

  Keysight Technologies, Inc.

 

   $

 

3,189

 

 

 

  $

 

7,791

 

 

 

  Lincoln Electric Holdings, Inc.

 

   $

 

2,624

 

 

 

  $

 

6,022

 

 

 

  Roper Technologies, Inc.

 

   $

 

4,607

 

 

 

  $

 

26,512

 

 

 

  Teradyne, Inc.

 

   $

 

2,137

 

 

 

  $

 

8,213

 

 

 

  Watts Water Technologies, Inc.

 

   $

 

1,457

 

 

 

  $

 

2,594

 

 

 

  Woodward, Inc.

 

   $

 

2,099

 

 

 

  $

 

4,688

 

 

 

75th Percentile

 

   $

 

2,532

 

 

 

  $

 

7,747

 

 

 

Average

 

   $

 

2,148

 

 

 

  $

 

6,813

 

 

 

Median

 

   $

 

2,050

 

 

 

  $

 

5,359

 

 

 

25th Percentile

 

   $

 

1,442

 

 

 

  $

 

2,793

 

 

 

  Nordson Corporation

 

   $

 

2,067

 

 

 

  $

 

8,454

 

 

 

 

*

Revenue values are as of the most recent fiscal year end prior to or before December 2017.

Prior to the date that 2018 compensation was set, CLARCOR, Inc. was acquired by Parker-Hannifin (NYSE: PH) and it ceased to be an independent public entity and was removed from our peer group. Where peer group proxy data was not available, and as a reference and a primary source of data for the functional leaders, we utilized survey data published by Aon Hewitt for the position or positions that most closely match the job description of each named executive officer or executive officer position.

 

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Allocation of Executive Compensation

Our executive compensation program does not prescribe a specific formula for the mix of base salary and annual and long-term incentive components so that we have flexibility in developing an appropriate compensation mix. The table below reflects the approximate allocation mix at target among the three elements of total target direct compensation — base salary, Annual Cash Incentive Award opportunity, and long-term equity-based incentive award opportunity — for our named executive officers at the time we set compensation for 2018:

 

 

LOGO

Hilton Thaxton KeaneMerkPembrokeLong-Term Incentive70.6%Annual Cash Incentive 14.7%Base Salary 14.7%56.2%18.0%25.8%56.9%17.7%25.3%51.8%19.0%29.2%49.6%19.9%30.6%

85% of the total direct compensation for Mr. Hilton and approximately 69% - 75% for the other named executive officers is delivered through awards that link pay to financial and operational performance. Incentive payouts under our Annual Cash Incentive Award are based on growth in diluted earnings per share, return on capital, and operating unit results. Equity-based compensation consists of performance share units, non-qualified stock options, and service-based restricted shares, all of which align compensation with the long-term interests of our shareholders.

 

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PART III: KEY COMPONENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

The table below summarizes the components and objectives of our 2018 compensation program for executive officers, including our named executive officers, and the actions taken by the Compensation Committee relative to each component.

 

 

  Component

 

 

 

Link to Compensation
Objectives

 

 

 

2017 Committee Actions –
Executive Compensation
Program

 

  Base Salary

Fixed cash element of total direct compensation.

  Provides market-competitive salaries to attract and retain exceptional executive talent.   Base salary increases for our named executive officers other than the CEO ranged from 3.0% to 4.6%. The CEO’s increase was 5.7%.

  Annual Cash Incentive Award

Cash payments tied to year-over-year growth in earnings per share and return on total capital.

  Provides incentive to achieve and exceed critical business objectives, with payouts based on attainment of pre-established corporate financial and business unit operational measures.   Payouts of Annual Cash Incentive Awards to our named executive officers other than the CEO ranged from 106.5% to 144.5% of target. The CEO’s payout was 117.0% of target.

  Long-Term Incentive Awards

Includes performance share units, stock options, and restricted shares.

  Provides strong incentive to meet or exceed pre-established long-term financial goals, which align with long-term shareholder interests; and to attract, retain, and motivate executive talent.   Payouts for the 2016-2018 Performance Share Incentive Award to our named executive officers, including the CEO, were 185.3% of target.

Below is a depiction of the elements of the pay components outlined above. A detailed discussion of these elements is found under the captions “Key Components of Our Executive Compensation Program” and “Other Components of Our Executive Compensation Program” in Parts III and IV of this Compensation Discussion and Analysis, respectively.

 

LOGO

Base Salary (fixed)Cash Incentive (variable; 0-200% of target; target varies by position)Long-Term Incentives (variable)PerquisitesCorporate Measures (50% of total payout)Operating Unit Measures (50% of total payout)Restricted Stock (20% of total target LTI)Stock Options (40% of total target LTI)Performance Shares (40% of total target LTI)Executive Physical Tax Assistance / Financial Planning (up to $5K) 2 Airline Club MembershipsProfitability: EPS GrowthReturn on Total CapitalRevenue Op. Profit Op. Margin DSI Asset TurnsProfitability: 3-year Cumulative EPS (50% of total payout)Growth: 3-year Cumulative Revenue (50% of total payout)

Base Salary

The Committee determines annually the base salaries of our executive officers, including whether to award base salary increases from the previous year and, if so, the magnitude of the increase, based on the following factors:

 

   

level of experience and responsibility;

 

   

Company, business segment, and individual performance during the prior year;

 

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market and survey data;

 

   

internal pay equity;

 

   

the Committee’s assessment of other elements of compensation provided to the executive officer; and

 

   

our Chief Executive Officer’s recommendation for all executive officers other than himself.

2018 Actions and Analysis

Considering Exequity’s input and analysis and the recommendations of our Chief Executive Officer, we set individual base salaries of our named executive officers for 2018 at a level consistent with the general objective of paying total target direct compensation to approximate the median of our peer group; however, each executive officer’s position relative to median may vary depending on a consideration of factors such as tenure, experience, future potential, internal pay equity, and performance.

The following table reflects the annualized base salaries of our named executive officers for 2018 and 2017 (year-end):

 

       

 

  Name

 

  

 

Base Salary
2018 ($)

 

  

 

Base Salary
2017 ($)

 

  

 

 Increase in Base 

Salary (%)

 

  Michael F. Hilton

 

      

 

925,000

 

 

      

 

875,000

 

 

      

 

5.7

 

 

  Gregory A. Thaxton

 

      

 

470,000

 

 

      

 

450,000

 

 

      

 

4.4

 

 

  John J. Keane

 

      

 

455,000

 

 

      

 

435,000

 

 

      

 

4.6

 

 

  Gregory P. Merk

 

      

 

420,000

 

 

      

 

403,000

 

 

      

 

4.2

 

 

  Jeffrey A. Pembroke

 

      

 

415,000

 

 

      

 

403,000

 

 

      

 

3.0

 

 

Annual Cash Incentive Award

Purpose

The purpose of the Annual Cash Incentive Award is to drive high-performance results year-over-year based on the achievement of pre-established quantitative performance goals which focus our executives on key business strategies and align the interests of our executive officers with our shareholders. Through the Annual Cash Incentive Award, executive officers are provided the opportunity to earn a significantly higher payout if target performance is exceeded but bear the risk of a lower payout if target performance is not achieved, and no payout if threshold performance is not achieved.

Measures

Performance and payouts under the Annual Cash Incentive Award are determined based on quantitative corporate financial measures — diluted earnings per share growth and return on total capital — and quantitative operating measures. As noted above, the Compensation Committee voted to exclude from the executive compensation analysis, including calculation of the 2018 annual incentive awards, all financial benefits the Company received as a result of the Tax Cuts and Jobs Act passed in 2017.

We consider diluted earnings per share growth and return on total capital to be measures critical to our success. We believe these measures offer the proper balance between growth and profitability. We also believe that achieving greater return on total capital and earnings per share growth over time will drive improved shareholder return and foster maximum value for our assets. More specifically:

 

   

Diluted earnings per share growth measures the rate at which management has succeeded in increasing the profits per unit of ownership by shareholders. Earnings per share growth is easily compared among peers and the measure is commonly used by the investment community to evaluate performance. The formula we utilize for diluted earnings per share is net income divided

 

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by weighted average common diluted shares outstanding. For this year’s calculations, we utilized a more normalized effective tax rate in calculating the diluted earnings per share and excluded the benefits of the Tax Cuts and Jobs Act.

 

   

Return on total capital measures the amount of profitability per unit of capital invested by management to generate earnings. We have adopted a definition of return on total capital that is consistent with financial disclosure in our Report on Form 10-K: the sum of net income (loss) plus after-tax interest expense on debt as a percentage of the sum of average of quarterly debt (net of cash) plus average quarterly shareholders’ equity over five accounting periods.

For named executive officers that have responsibility for certain corporate functions (including our Chief Executive Officer and Chief Financial Officer), the corporate financial measures account for 50% of any payout with a weighted average of the business unit quantitative operating measures accounting for the other 50% of the payout. For the operating unit named executive officers, the corporate financial measures account for 50% of any payout with the respective operating unit’s quantitative operating measures accounting for the other 50% of the payout.

Effect of Currency Fluctuation

The Committee, after considering a number of factors, including peer and survey group practices and receiving input from Exequity, has determined that management should be held accountable for some, but not all, of the effect of currency fluctuation on corporate financial and operating unit performance results. Accordingly, in determining Annual Cash Incentive Award payouts, the Committee adopted a policy whereby management will be held accountable for the first 10% of the impact on payouts due to currency fluctuation. Under the policy, payout rates (as a percent of target) for the Annual Cash Incentive Award are calculated at actual foreign currency rates and currency neutral rates for the U.S. Dollar during the fiscal year. The difference between total payout rates under these two translation methods is all currency related, and the Committee has determined that the first 10% of this difference should not affect final payouts. The final payout includes a currency adjustment equal to the difference between these two payout rates less 10%, which represents a corridor or range of fluctuation in currency rates for which management is accountable. We believe this policy is appropriate because it requires management to respond to currency fluctuations within a specified range. However, it does not unfairly benefit or harm management if currency impact is beyond what may be considered normal and not under management’s control.

As an example of the policy in practice, if the difference between the two payout percentage rates is equal to or less than +/- 10 percentage points, the Annual Cash Incentive Award payout will be based on the calculation at actual currency rates, with no adjustment. When the payout percentage at actual currency rates is more than 10 percentage points lower than the payout percentage rate at currency neutral rates, the final payout will be based on the currency neutral calculation adjusted downward by 10 percentage points. Conversely, when the payout percentage rate at actual currency rates is more than 10 percentage points higher than the payout percentage rate at currency neutral rates, the final payout rate will be based on the currency neutral calculation adjusted upward by 10 percentage points.

Foreign Currency Translation Methodology

For purposes of applying the currency adjustment policy, current year financial statements and supplemental schedules are retranslated at prior year exchange rates using the same methodology as disclosed in Note 1 in the “Notes to Consolidated Financial Statements” section of our Form 10-K for 2018 to determine the currency neutral result, with the exception that we do not attempt to re-measure gains and losses, based on a retranslation at prior year exchange rates, from foreign currency transactions, including forward contracts, of Nordson’s subsidiaries and the United States parent, in order to include the effect in net income. All currency rates are determined from published sources. Monthly average rates are the average of daily spot rates of currency exchange. The annual measurement period is the sum of each month translated at monthly average rates.

 

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2018 Actions and Analysis

During our November 20, 2017 meeting, and taking into consideration Exequity’s analysis of the peer group annual incentive opportunities, we set a target payout opportunity for our named executive officers as well as the threshold and maximum payout opportunity as a percentage of annualized base salaries. The following table reflects the payout opportunities as a percentage of base salary:

 

      Incentive Amount as a
Percentage (%) of Base Salary

 

   Name

 

  

 

Threshold

 

  

 

Target

 

  

 

Maximum  

 

 

  Michael F. Hilton

 

  

 

50.0

 

  

 

100

 

  

 

200

 

 

  Gregory A. Thaxton

 

  

 

35.0

 

  

 

  70

 

  

 

140

 

 

  John J. Keane

 

  

 

35.0

 

  

 

  70

 

  

 

140

 

 

  Gregory P. Merk

 

  

 

32.5

 

  

 

  65

 

  

 

130

 

 

  Jeffrey A. Pembroke

 

  

 

32.5

 

  

 

  65

 

  

 

130

 

We then established quantitative corporate financial performance measures and goals, which measures account for 50% of the Annual Cash Incentive Award payout (if any):

 

 

   Measure

 

  

 

Threshold

 

  

 

Target

 

  

 

Maximum

 

  

 

Weighting   

 

 

  Diluted Earnings Per Share Growth

 

  

 

0%

 

  

 

8%

 

  

 

20%

 

  

 

50%

 

 

  Return on Total Capital

 

  

 

8.0%

 

  

 

11.5%

 

  

 

16%

 

  

 

50%

 

 

*

Straight line interpolation applies to performance between designated goals.

Operating unit performance measures and respective weighting were set through a collaborative effort between the Committee and Mr. Hilton:

 

 

 

Measure

 

  

Weighting (%)         

 

 

Revenue Growth (year-over-year)

 

  

 

 

 

 

20                 

 

 

 

 

Operating Profit Growth (year-over-year)

 

    

 

40                 

 

 

 

Operating Margin (as % of revenue)

 

    

 

20                 

 

 

 

Asset Turns (% achieved)

 

    

 

10                 

 

 

 

Days of Inventory

 

     10                   

Individual operating unit performance goals and results are not disclosed in this CD&A because we believe that the disclosure would result in competitive harm to us by potentially disrupting our customer, vendor and supplier relationships and providing our competitors with insight into our business strategies beyond what is disclosed publicly. We also do not believe that the disclosure of individual operating unit performance goals and results for 2018 is material to an understanding of our 2018 executive compensation program as covered by this Proxy Statement.

 

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Determining Payout Amounts

Determination of the Annual Cash Incentive Award payout is a two-step process:

Step 1: Calculation of the Payout Rate (as a % of Target) on an Actual Currency and Currency Neutral Basis

Prior to applying the currency adjustment policy described above, the Committee first certified performance and calculated payouts as a percentage of target for the corporate financial measures:

Actual Currency — Performance Unadjusted for Effect of Currency Fluctuation, and

Currency Neutral — Performance Adjusted for Effect of Currency Fluctuation

The results are reflected in the following table:

 

   Measures   

Target

Performance

   Performance
at Actual
Currency
 

Payout at
Actual
Currency

(% of Target)

  

Performance
at Currency

Neutral

 

Payout at  

Currency  

Neutral  

(% of Target)  

 

 

  Diluted Earnings Per Share Growth

 

  

 

$5.49

 

  

 

$5.70*

 

 

 

134.4

 

  

 

$5.41*

 

 

 

 

 

 

90.2       

 

 

 

 

 

  Return on Total Capital

 

  

 

11.5%

 

  

 

13.7%*

 

 

 

148.9

 

  

 

13.1%*

 

 

 

 

 

 

135.6       

 

 

 

 

 

  Combined Corporate Factor

 

           

 

141.6

 

      

 

 

 

 

112.9       

 

 

 

 

 

*

As noted on Page 33, this data excludes the benefits from the Tax Cuts and Jobs Act.

The Committee next certified the operating units’ results, at actual currency and at currency neutral. The range of results, as a percent of target, were:

Operating Unit Results

 

 

   Currency Calculation Method

 

  

 

% of Target (Range)

 

 

  Actual Currency

 

  

 

50.7 – 185.5

 

 

  Currency Neutral

  

 

41.5 – 158.1

Step 2: Calculation of Payouts to Named Executive Officers Applying the Currency Adjustment Policy

For named executive officers who have responsibility for certain corporate functions (including our Chief Executive Officer and Chief Financial Officer), the corporate financial measures account for 50% of any payout with a weighted average of the business unit quantitative operating measures accounting for the other 50% of the payout. For the operating unit named executive officers, the corporate financial measures account for 50% of any payout with the respective operating unit’s quantitative operating measures accounting for the other 50% of the payout.

 

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Following the process outlined in Step 1, the Committee determined the combined factor payouts, as a percent of target, and applied the currency adjustment policy. The results are presented in the tables below:

Actual Currency:

 

  Named Executive Officer   

Target

Payout
Opportunity ($)

  

Corporate
Factor

(% of Target))

  

Operating Unit
Factor

(% of Target)

  

Combined  

Factor  

Payout  

(% of Target)  

 

 

  Michael F. Hilton

 

  

 

925,000

 

  

 

141.6

 

  

 

127.6 (Weighted)

 

  

 

 

 

 

134.6       

 

 

 

 

  Gregory A. Thaxton

 

  

 

329,000

 

  

 

141.6

 

  

 

127.6 (Weighted)

 

  

 

 

 

 

134.6       

 

 

 

 

  John J. Keane

 

  

 

318,500

 

  

 

141.6

 

  

 

95.1

 

  

 

 

 

 

118.4       

 

 

 

 

  Gregory P. Merk

 

  

 

273,000

 

  

 

141.6

 

  

 

185.5

 

  

 

 

 

 

163.6       

 

 

 

 

  Jeffrey A. Pembroke

 

  

 

269,750

 

  

 

141.6

 

  

 

157.3

 

  

 

 

 

 

149.5       

 

 

 

Currency Neutral:

 

  Named Executive Officer   

Target

Payout
Opportunity ($)

  

Corporate
Factor

(% of Target)

  

Operating Unit
Factor

(% of Target)

  

Combined  

Factor  

Payout  

(% of Target)  

 

 

  Michael F. Hilton

 

  

 

925,000

 

  

 

112.9

 

  

 

101.0 (Weighted)

 

  

 

 

 

 

107.0       

 

 

 

 

  Gregory A. Thaxton

 

  

 

329,000

 

  

 

112.9

 

  

 

101.0 (Weighted)

 

  

 

 

 

 

107.0       

 

 

 

 

  John J. Keane

 

  

 

318,500

 

  

 

112.9

 

  

 

80.0

 

  

 

 

 

 

96.5       

 

 

 

 

  Gregory P. Merk

 

  

 

273,000

 

  

 

112.9

 

  

 

114.3

 

  

 

 

 

 

113.6       

 

 

 

 

  Jeffrey A. Pembroke

 

  

 

269,750

 

  

 

112.9

 

  

 

156.0

 

  

 

 

 

 

134.5       

 

 

 

 

Under the currency adjustment policy, because the payout calculation at actual currency was higher than payout at currency neutral by more than ten percentage points, final payouts were adjusted upward by ten percentage points from the currency neutral calculation, reflecting the Committee’s position that payouts should be affected by only the first ten percentage points of the impact of currency fluctuation:

 

  Named Executive Officer

  

Target Payout
Opportunity ($)

  

Actual  

Payout ($)  

 

 

  Michael F. Hilton

 

  

 

925,000

 

  

 

 

 

 

1,082,250  

 

 

 

 

  Gregory A. Thaxton

 

  

 

329,000

 

  

 

 

 

 

384,930  

 

 

 

 

  John J. Keane

 

  

 

318,500

 

  

 

 

 

 

339,203  

 

 

 

 

 

  Gregory P. Merk

 

  

 

273,000

 

  

 

 

 

 

337,428  

 

 

 

 

  Jeffrey A. Pembroke

 

  

 

269,750

 

  

 

 

 

 

389,789  

 

 

 

 

Except for excluding the financial benefits the Company received from the Tax Cuts and Jobs Act, no discretion was exercised to increase or decrease the formulaic incentive award payouts to the named executive officers.

 

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Long-Term Incentive Awards

Our long-term incentive awards are delivered through a combination of three forms of equity: (i) incentive-based performance share units; (ii) stock options; and (iii) service-based restricted shares. This combination of awards balances the opportunity between performance share units, which are earned based on multi-year financial performance, and stock options and restricted shares, the value of which is based on performance of our common shares.

The Committee begins the process of determining equity awards by comparing our equity compensation programs to those of our peer group. The Committee also reviews market compensation data based on survey data provided by Aon Hewitt.

In reaching a final decision on the mix and amount of equity compensation our named executive officers should receive, the Committee takes numerous factors into consideration. As referenced above, market alignment and competitiveness are key factors the Committee considers in setting equity compensation levels. Other factors considered are current industry trends, practices among our peer group, and the behaviors the awards are intended to drive. In addition to these factors, the Committee places significant weight on the dilutive impact equity issuances have on our shareholders. In assessing dilution, the Committee considers the annualized effect of equity compensation by analyzing the equity “burn rate” over one- and three-year periods. Burn rate, in its simplest form, is determined by dividing the projected number of shares to be issued to employees by the weighted average number of shares outstanding. The Committee also considers the aggregate impact of all past equity compensation grants by looking at the company’s equity compensation “overhang.” Overhang is determined by dividing all outstanding equity grants and shares available for future grants by the total number of shares outstanding. The resulting percentage provides the Committee with insight into the long-term cost of the Company’s equity compensation programs.

Approximate allocation of the three equity components (as a percent of the long-term incentive compensation opportunity) is as follows:

 

  Equity Form    % of Opportunity  

 

  Performance Share Units

 

  

 

40

 

 

  Stock Options

 

  

 

40

 

 

  Restricted Shares

 

  

 

20

 

Performance Share Incentive Award

A portion of each named executive officer’s total direct compensation opportunity is in the form of performance share units which are settled in unrestricted Nordson Common Stock at time of payout.

Purpose

The purpose of the Performance Share Incentive Award is to drive high-performance results over a longer period (three years) based on the achievement of pre-established quantitative performance goals which focus our executives on key business strategies and align the interests of our executive officers with our long-term shareholders. Executive officers are provided the opportunity to earn a significantly higher payout if target performance is exceeded but bear the risk of a lower payout if target performance is not achieved, and no payout if threshold performance is not achieved.

 

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Measures and Goals

In selecting the quantitative performance measures and goals, the Committee considers whether the measures are appropriately aligned with those in the Annual Cash Incentive Award so that the overall compensation design does not unintentionally encourage our executive officers to take unnecessary or excessive risk or actions that are inconsistent with our year-over-year and long-term objectives. Performance and payouts under the Performance Share Incentive Award are determined based on quantitative corporate financial measures — cumulative diluted earnings per share growth and cumulative revenue growth. We believe these measures offer the proper balance between growth and profitability over a longer term. More specifically:

 

   

Cumulative diluted earnings per share growth measures the rate at which management has succeeded in growing profits on a sustained basis over a three-year period. We believe it is the constant percentage by which diluted earnings per share would need to grow over a base period amount during a three-year period such that the sum of diluted earnings per share calculated at such a constant growth rate for such three years is equal to the sum of the actual diluted earnings per share earned over the same three-year period. We believe it is a superior measure of sustained earnings growth because it is influenced by the earnings performance during each year of the performance period rather than simply a compound growth rate that compares the final year’s earnings to the base period amount.

 

   

Cumulative revenue growth measures the rate at which management has succeeded in growing revenue on a sustained basis over a three-year period. We believe it is the constant percentage by which revenue would need to grow over a base period amount during a three-year period such that the sum of revenue growth calculated at such a constant growth rate for such three years is equal to the sum of the actual revenue growth over the same three-year period. We believe it is a superior measure of sustained revenue growth because it is influenced by revenue performance during each year of the performance period rather than simply a compound growth rate that compares the final year’s revenues to the base period amount. While the growth in profits and profitability are of primary importance, management is also expected to grow the size and scale of the enterprise and cumulative revenue growth is an effective measure of their success in doing so.

As noted above, the Compensation Committee voted to exclude from the executive compensation analysis, including calculation of the 2018 long term incentive awards, all financial benefits the Company received as a result of the Tax Cuts and Jobs Act passed in 2017.

Effect of Foreign Currency Fluctuation

The Committee has determined that the currency adjustment policy described in the “Annual Cash Incentive Award” section above should also apply to the determination of Performance Share Incentive Award payouts.

Foreign Currency Translation Methodology

In certifying the results for the financial performance measures employed in calculating the Performance Share Incentive Award, the Committee applies the same methodology described in the “Annual Cash Incentive Award” section above, with the revenue and earnings per share at currency neutral rates reflecting the cumulative effect of differences from actual exchange rates over the three-year versus one-year performance period.

 

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2018 Actions and Analysis

During its November 23, 2015 meeting, the Committee established quantitative performance measures and goals for the 2016-2018 Performance Share Incentive Award. These measures are equally-weighted.

 

  Measure    Threshold    Target    Maximum  

  Cumulative Diluted Earnings Per Share Growth

 

   4%

 

   8%

 

   14%  

 

  Cumulative Revenue Growth

   5%    7%    11%  

Determination of Payout Amounts

Determination of the Performance Share Incentive Award payouts is a two-step process:

Step 1: Calculation of the Payout Rate (as a % of Target) on an Actual Currency and Currency Neutral Basis

Prior to applying the Currency Adjustment Policy described above, the Committee first certified performance for the Cumulative Earnings per Share Growth and Cumulative Revenue measures:

 

   

Actual Currency – performance unadjusted for the effect of currency fluctuation, and

 

   

Currency Neutral – performance adjusted for the effect of currency fluctuation.

Following this certification process, the Committee calculated the payouts as a percent of target. The results are reflected in the following table:

 

  Measures

 

  

Target

Performance

 

  

Performance
at Actual
Currency

 

  

 

Payout at
Actual
Currency

(% of Target)

 

  

Performance
at Currency
Neutral

 

  

 

Payout at
Currency
Neutral

(% of Target)

 

 

 Cumulative Diluted Earnings
 per Share Growth

 

  

 

$12.10

 

  

 

$15.51^

 

  

 

100%

 

  

 

$15.85^

 

  

100%

 

 

 Cumulative Revenue

 

  

 

$5,809*

 

  

 

$6,130.7*

 

  

 

85.3%

 

  

 

$6,174.9*

 

  

 

90.2%

 

 

 Combined Factor

 

            

 

185.3%

 

        190.2%

 

^

As noted on Page 33, this data excludes the benefits from the Tax Cuts and Jobs Act.

*

millions

Step 2: Calculation of Payouts to Named Executive Officers Applying the Currency Adjustment Policy

Under the currency adjustment policy, because the difference between the two payout percentage rates is equal to or less than +/- 10 percentage points, the final payouts for the 2016-2018 performance period are based on the calculation at actual currency rates, with no adjustments:

 

  Named Executive Officer    Target Payout
Opportunity (# of
Shares)
    

 

Post-Currency
Adjustment Policy
Combined Factor
Payout

(% of Target)

    

Payout

(# of Shares)

 

 

 Michael F. Hilton

 

  

 

 

 

 

18,400

 

 

 

  

 

 

 

 

185.3

 

 

 

 

  

 

 

 

 

34,095

 

 

 

 

 Gregory A. Thaxton

 

  

 

 

 

 

4,800

 

 

 

  

 

 

 

 

185.3

 

 

 

 

  

 

 

 

 

8,894

 

 

 

 

 John J. Keane

 

  

 

 

 

 

4,800

 

 

 

  

 

 

 

 

185.3

 

 

 

 

  

 

 

 

 

8,894

 

 

 

 

 Gregory P. Merk

 

  

 

 

 

 

3,400

 

 

 

  

 

 

 

 

185.3

 

 

 

 

  

 

 

 

 

6,300

 

 

 

 

 Jeffrey A. Pembroke

 

  

 

 

 

 

1,800

 

 

 

  

 

 

 

 

185.3

 

 

 

 

  

 

 

 

 

3,335

 

 

 

 

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Except for excluding the financial benefits the Company received from the Tax Cuts and Jobs Act, no discretion was exercised by the Compensation Committee to increase or decrease the formulaic incentive award payouts to the named executive officers.

In-Progress Performance Share Incentive Awards

The following tables summarize the key elements and share payout amounts for the named executive officers on a cumulative basis at threshold, target, and maximum performance for the 2017-2019 and 2018-2020 Performance Share Incentive Awards.

2017-2019 Performance Share Incentive Award

 

 

   Performance Measure

 

  

Threshold

 

    

Target

 

    

Maximum

 

 

 

  Cumulative Diluted Earnings Per Share Growth

 

  

 

 

 

 

4%    

 

 

 

  

 

 

 

 

8%  

 

 

 

  

 

 

 

 

14%    

 

 

 

 

  Cumulative Revenue Growth

 

  

 

 

 

 

5%    

 

 

 

  

 

 

 

 

7%  

 

 

 

  

 

 

 

 

11%    

 

 

 

 

   Grant Date   

 

Grant Date

Share
Price

  

Threshold
Payout

(# Shares)

  

Target
Payout

(# Shares)

  

Maximum
Payout

(# Shares)

  

Target Earned

Date

   Actual Payout

 

  11/21/2016

 

  

 

$107.65  

 

  

 

13,240  

 

  

 

26,480  

 

  

 

52,960  

 

  

 

October 31, 2019

 

  

 

Not determined

 

2018-2020 Performance Share Incentive Award

 

 

   Performance Measure

  

 

Threshold

  

 

Target

  

 

Maximum 

 

  Cumulative Diluted Earnings Per Share Growth

 

  

 

2%

 

  

 

8%  

 

  

 

14%

 

 

  Cumulative Revenue Growth

 

  

 

2%

 

  

 

5%  

 

  

 

8%

 

 

   Grant Date   

 

Grant Date

Share
Price

  

Threshold
Payout

(# Shares)

  

Target
Payout

(# Shares)

  

Maximum
Payout

(# Shares)

  

Target Earned

Date

     Actual Payout  

 

  11/20/2017

 

  

 

$127.67

 

  

 

11,950  

 

  

 

23,900  

 

  

 

47,800  

 

  

 

 

 

 

October 31, 2020

 

 

 

 

  

 

 

 

 

Not determined

 

 

 

 

Stock Options

Stock options align the interests of the named executive officers with those of shareholders because the stock options only have value if the price of the Company’s stock increases after the stock options are awarded. Stock options vest in 25% increments over a four-year period (on the first four anniversaries of the grant date) and generally expire ten years from the grant date. We fix the exercise price of an option at the fair market value on the grant date. Stock options are a valuable retention tool because our option awards vest over a four-year period and unvested options are forfeited if an executive officer voluntarily terminates employment.

We granted stock options to our executive officers on November 20, 2017, at the same time we granted stock options to other key employees under our Key Employee Stock Option Program. We have historically granted stock options during the Compensation Committee’s November meeting, which is scheduled at this time of year, to permit us to verify prior fiscal year performance results, to determine incentive award payouts, and to set compensation and performance measures and goals for the next fiscal year.

 

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The following table provides the number of stock options granted to our named executive officers for 2018:

 

   Named Executive Officer    Options Granted (#)     

 

Grant Date
Fair Value ($) (1)

 

 

  Michael F. Hilton

 

  

 

 

 

 

55,800    

 

 

 

  

 

 

 

 

1,942,599    

 

 

 

 

  Gregory A. Thaxton

 

  

 

 

 

 

12,500    

 

 

 

  

 

 

 

 

435,170    

 

 

 

 

  John J. Keane

 

  

 

 

 

 

12,500    

 

 

 

  

 

 

 

 

435,170    

 

 

 

 

  Gregory P. Merk

 

  

 

 

 

 

9,000    

 

 

 

  

 

 

 

 

313,322    

 

 

 

 

  Jeffrey A. Pembroke

 

  

 

 

 

 

8,400    

 

 

 

 

  

 

 

 

 

292,434    

 

 

 

 

(1)

The grant date fair value was determined using the Black-Scholes option pricing model. The actual value of stock option awards will be determined by the value of our common shares on the date of exercise.

Restricted Shares

Restricted shares are designed to align executive officers’ interest with that of our long-term shareholders. The Committee also views these service-based awards as an important management succession planning, retention, and recognition tool, tying our executive officers’ compensation to the goal of increasing the value of our shareholders’ investment. Restricted shares generally will vest over a three-year period and cannot be transferred until vesting. Restricted shares provide participants with dividends and voting rights beginning on the grant date.

We granted restricted shares to executive officers on November 20, 2017. The share price on the grant date was the closing price on November 20, 2017 – $127.67. The following table provides information regarding the 2018 restricted share awards:

 

   Named Executive Officer   

 

Restricted
Shares
Granted (#)

     Grant     
Date     
Value ($)     
 

 

  Michael F. Hilton

 

  

 

 

 

 

6,700    

 

 

 

  

 

 

 

 

855,389     

 

 

 

 

  Gregory A. Thaxton

 

  

 

 

 

 

1,600    

 

 

 

  

 

 

 

 

204,272     

 

 

 

 

  John J. Keane

 

  

 

 

 

 

1,600    

 

 

 

 

  

 

 

 

 

204,272     

 

 

 

 

  Gregory P. Merk

 

  

 

 

 

 

1,200    

 

 

 

  

 

 

 

 

153,204     

 

 

 

 

  Jeffrey A. Pembroke

 

  

 

 

 

 

1,000    

 

 

 

 

  

 

 

 

 

127,670     

 

 

 

 

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PART IV: OTHER COMPONENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

In addition to base salary, the Annual Cash Incentive Award, and long-term equity-based incentive awards, we offer other forms of compensation, including: (i) executive perquisites; (ii) welfare and retirement benefits; and (iii) change-in-control benefits.

Executive Perquisites

We provide limited and modest perquisites to each of our executive officers to promote the business objectives described below. We also use these perquisites to provide a competitive executive compensation program, which allows us to attract and retain top executive talent.

 

   

Business Clubs.    We do not reimburse any executive officer for fees or dues associated with personal country club memberships. We reimburse Mr. Hilton for one private business club membership to encourage entertainment of business colleagues and customers, engaging in social interaction with peers from other companies, local leadership in the community, and holding business meetings at a convenient offsite location. In addition, we provide all executive officers with memberships in up to two airline travel clubs that allow them to be more productive when traveling on commercial airlines.

 

   

Financial, Estate, and Tax Planning and Preparation.    We pay for financial, estate, and tax planning and preparation fees and expenses. The maximum amount is $5,000 for each named executive officer per calendar year. We provide this perquisite to assist our executive officers in obtaining financial counseling, enabling them to concentrate on business matters rather than on personal financial planning.

 

   

Executive Physicals.    We pay for annual physicals for our executive officers. We provide this benefit to preserve our investment in our executive officers by encouraging them to maintain healthy lifestyles and be proactive in their preventative healthcare.

 

   

Relocation Expense Reimbursement.    We maintain a general relocation policy under which the Company provides reimbursement for certain relocation expenses to new employees and to employees whose job function requires relocation. We believe it is important to maintain market competitive relocation benefits in order to fill positions that are critical to Nordson’s business needs.

 

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Welfare and Retirement Benefits

The following summarizes the welfare and retirement benefits available to our named executive officers:

 

 

Qualified Defined Contribution 401(k) Plan

 

 

•  Our executive officers are eligible to participate in a Company-sponsored 401(k) tax-qualified retirement savings plan for all U.S.-based employees.

 

•  We match employee contributions $0.50 on the dollar for the first 6% of contributed compensation. Employee contributions to the 401(k) Plan vest immediately, while matching contributions vest in increments based on years of service, with participants being fully vested after three years of service.

 

 

Non-Qualified Deferred Compensation Plan

 

 

•  We maintain a non-qualified, unfunded, and unsecured deferred compensation plan for the benefit of eligible management employees whose benefits under the 401(k) Plan are limited by the benefit restrictions of Section 415 of the Internal Revenue Code.

 

•  Participants are able to defer up to 100% of their base salary and Annual Cash Incentive Award payout, and up to 90% of their Performance Share Incentive Award payout.

 

 

Defined Benefit Pension Plan

 

•  Our executive officers participate in a Company-sponsored tax-qualified pension plan for U.S.-based salaried employees. The pension plan is designed to work together with social security benefits to provide employees with 30 years of service retirement income that is approximately 55% of eligible compensation, subject to the Internal Revenue Code maximum monthly benefit.

 

 

Excess Defined Benefit Pension Plan

 

 

•  We maintain a supplemental executive retirement benefit restoration plan which is an unfunded, non-qualified plan that is designed to provide retirement benefits to U.S.-based eligible participants as a replacement for those retirement benefits limited by regulations under the Internal Revenue Code.

 

•  Together, the defined benefit pension plan and excess defined benefit pension plan are intended to provide executive officers with retirement income at a level equivalent to that provided to other employees under the defined benefit pension plan.

 

 

Severance Agreements

Mr. Hilton is the only executive for which we have any obligation to pay severance other than following a change-in-control. As part of the negotiated employment agreement with Mr. Hilton and consistent with an agreement we had with his predecessor, we agreed to provide Mr. Hilton with a cash severance and other benefits in the event his employment is terminated by us without “Cause” or Mr. Hilton terminates his employment with us for “Good Reason” (each such term as defined in Mr. Hilton’s employment agreement).

Upon a termination by us without Cause or by Mr. Hilton for Good Reason, in addition to payment of any accrued and unpaid compensation and benefits, Mr. Hilton is entitled to post-termination payments and benefits as follows:

 

   

an amount equal to two (2) times the sum of his annual base salary and the greater of (x) ninety percent (90%) of his annual base salary or (y) his target cash incentive opportunity;

 

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a pro-rata payout of his Annual Cash Incentive Award, based on actual performance;

 

   

a pro-rata payout of long-term performance share awards granted to Mr. Hilton for any performance period(s) not completed on the date of termination, based upon actual performance in each such applicable performance period, as determined at the end of the applicable performance period;

 

   

full vesting of restricted share awards; and

 

   

continuation of health care and welfare benefits for a period of twenty-four (24) months following the date of termination.

We will not gross-up any tax imposed upon any payment received by Mr. Hilton under his employment agreement.

Change-in-Control

We believe that the occurrence, or potential occurrence, of a change-in-control transaction in which we are the target could create substantial uncertainty regarding the continued employment of our executive officers. Therefore, we have entered into change-in-control retention agreements with our executive officers that provide severance and other benefits in the event of a qualifying termination following a change-in-control. The primary purpose of these agreements is to keep senior executives focused on pursuing all corporate transaction activity that is in the best interests of shareholders, regardless of whether those transactions may result in their own job loss. The Committee has determined that change-in-control retention agreements executed after November 1, 2015 will not provide for “gross-up” payments to cover any federal excise taxes that may be owed on change-in-control severance payments and benefits. Change-in-control retention agreements executed prior to November 1, 2015, which do provide for a gross-up for any excess federal excise taxes that may be owed on change in control-related severance payments and benefits, remain in effect.

Severance and Other Benefits

Severance benefits payable under change-in-control retention agreements are conditioned upon the occurrence of a “double trigger” event (meaning there must be both a change-in-control of the Company and, within the following 24 months, a termination of employment by either the Company without Cause, or by the officer for Good Reason, as defined in the respective change-in-control retention agreements). We opted for a double-trigger, rather than a “single trigger” that provides for severance payments solely on the basis of a change-in-control, since a double trigger is consistent with the purpose of encouraging the continued employment of the executive following a change-in-control.

In the event of a change-in-control and a qualifying termination of employment, an executive officer will be entitled to receive:

 

   

accrued but unpaid compensation, including a pro-rata payout of the Annual Cash Incentive Award;

 

   

a lump sum payment in an amount equal to two (2) times the sum of (x) annual base salary in effect at the time of termination of employment plus (y) target Annual Cash Incentive Award opportunity for the year in which termination of employment occurs;

 

   

continuation of coverage for the executive officer and his or her eligible spouse and dependents under the Company’s group health plans for 24 months following termination of employment or until the date he or she becomes covered under similar benefit plans;

 

   

professional outplacement services; and

 

   

two additional years of age and two additional years of service credit under the Company-sponsored qualified and non-qualified pension plans, the benefit being paid from the Excess Defined Benefit Pension Plan.

 

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Treatment of Share-based Awards

To provide our executive officers with the same opportunity as our shareholders to realize the value created by a change-in-control, the shareholder-approved Amended and Restated 2012 Nordson Corporation Share and Incentive Award Plan historically has provided for full vesting of all outstanding share-based Awards upon a change-in-control. However, effective for awards granted under that plan after December 27, 2017, equity awards generally will vest on a “double-trigger” basis, in the event of a change-in-control and a qualifying termination of the participant’s employment.

 

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PART V: POLICIES RELATED TO EXECUTIVE COMPENSATION

Equity Award Policy

We grant equity on a consistent schedule, generally at the first Committee meeting following the end of the fiscal year. We do not grant performance share units, stock options, or restricted shares to our executive officers in anticipation of the release of significant earnings announcements or other material non-public information likely to result in changes to the price of our common shares. Similarly, we do not time the release of material non-public information based on equity award grant dates. Awards generally are effective on the date that we grant the award. The Committee may also make occasional grants of stock options and other equity-based awards at other times to recognize, retain or recruit executive officers and key employees. We have delegated limited authority to Mr. Hilton to grant equity awards, excluding awards made to executive officers. Equity awards granted by Mr. Hilton in any quarter will be effective the first day of the month following public disclosure of quarterly earnings for that quarter.

Incentive Compensation Forfeiture (Clawback) Policy

We have a formal “clawback” policy for incentive awards that is broader in its reach than that imposed by Section 304 of the Sarbanes-Oxley Act. Under the policy, we may require our executive officers to repay cash-based incentive compensation and/or equity incentive awards in the event of a material restatement of the consolidated financial statements of the Company, other than any restatement required pursuant to a change in applicable accounting rules. Recovery is limited to amounts paid or realized by an executive officer during the three-year period preceding the date that we are required to prepare a restatement.

Additionally, our Board of Directors, upon the Committee’s recommendation, may, to the extent permitted by law and to the extent it determines that it is in our best interests to do so, require reimbursement or payment by the executive officer to the Company of equity-based compensation and performance-based compensation in an amount determined by the Board of Directors to be attributable to: (i) conduct that violates our Code of Ethics and Business Conduct, or (ii) willful misconduct or fraud that causes harm to the Company.

The Committee will revise the policy as appropriate once final rules are issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Share Ownership Guidelines

We require share ownership by our executive officers to emphasize our executive compensation program’s objective of aligning the individual financial interests of our executive officers with the investment interests of our long-term shareholders. We require our executive officers to own the following multiples of base salary in the equivalent number of common shares:

 

Chief Executive Officer

   5 times base salary  

President (other than the Chief Executive Officer)

  

 

3 times base salary  

Chief Financial Officer

   3 times base salary  

Other Executive Officers

  

2 times base salary  

 

The number of shares required to be held varies according to our common share price movement. Newly elected executive officers will have up to five years to meet the ownership requirements after their election.

Executive officers who have not satisfied the share ownership requirements by the end of the five-year period or who have not shown progress (as subjectively determined by the Committee) toward the required ownership level prior to the end of such five-year period will be expected to retain 100% of the shares acquired through exercise of options, lapse of transfer restrictions on restricted shares or

 

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Performance Share Incentive Award payouts, net of shares withheld to cover the taxes due, until the share ownership requirement is achieved or there is progress towards the ownership requirement. We review the share ownership of each executive officer compared to the applicable share ownership guidelines, including the number of vested stock options, share equivalent units in deferred compensation plans and share ownership in the Nordson Corporation Employee Stock Ownership Plan and 401(k) Plan, each of which count as valid forms of share ownership under the ownership guidelines. As of October 31, 2018, all named executive officers, except Jeffrey Pembroke, met or exceeded their respective ownership guidelines. Mr. Pembroke was named an executive officer in November 2015 and is required to meet the share ownership requirement by November 2020.

Anti-Pledging/Anti-Hedging Policy

We prohibit directors and executive officers from pledging Nordson common shares as collateral. Also prohibited are trading in derivative securities of Nordson’s common shares, engaging in short sales of Nordson securities, or purchasing any other financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of Nordson securities.

Tax and Accounting Treatment of Executive Compensation

The Committee takes into account the tax and accounting treatment of executive compensation arrangements when structuring our executive compensation program. One of those considerations is Section 162(m) of the Internal Revenue Code, which sets a limit of $1 million on the amount we can deduct for compensation paid to our “covered employees”. Historically, compensation meeting the requirements of “qualified performance-based compensation” under Section 162(m) did not count toward the $1 million limit. However, the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, made a number of changes to Section 162(m), generally effective for taxable (fiscal) years beginning after December 31, 2017, including the repeal of the “qualified performance-based compensation” exemption and the expansion of the definition of “covered employees” (for example, by including both the chief financial officer and certain former named executive officers as covered employees).

Our general philosophy has been to attempt to qualify compensation for tax deductibility under Section 162(m) of the Internal Revenue Code, wherever we deem appropriate, recognizing that, under certain circumstances, the limitations may be exceeded. Historically, treatment as “qualified performance-based compensation” has been sought to the extent practicable and only to the extent that it is consistent with our overall compensation objectives. However, due to uncertainties regarding the scope of relief under the Tax Cuts and Jobs Act, there can be no guarantee that any compensation paid to our covered employees in excess of $1 million will be or remain exempt from Section 162(m).

In any event, the Committee retains full discretion to construct compensation packages that will best attract, retain, and reward successful executive officers. Therefore, the Committee may award compensation that is not fully deductible under Section 162(m) if the Committee believes it will contribute to the achievement of our business objectives. Moreover, given the nature of the changes to Section 162(m) under the recent Tax Cuts and Jobs Act, the Compensation Committee expects that, after Nordson’s 2018 fiscal year, the tax-deductible portion of our executive compensation program will decrease.

 

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COMPENSATION COMMITTEE REPORT

We have reviewed and discussed with management the Compensation Discussion and Analysis that appears in this Proxy Statement. Based on such review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s definitive Proxy Statement on Schedule 14A and incorporated by reference into the Company’s 2018 Annual Report, each as filed with the SEC.

Compensation Committee,

Mary G. Puma, Chair

Lee C. Banks

Michael J. Merriman, Jr.

Victor L. Richey, Jr.

January 18, 2019

The above Compensation Committee Report does not constitute soliciting material and should not be deemed filed with the SEC or subject to Regulation 14A or 14C (other than as provided in Item 407 of Regulation S-K) or to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that the information in this Report be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act. If this Report is incorporated by reference into the Company’s Annual Report on Form 10-K, such disclosure will be furnished in such Annual Report on Form 10-K and will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act as a result of furnishing the disclosure in this manner.

 

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RISKS RELATED TO EXECUTIVE COMPENSATION POLICIES AND PRACTICES

The Committee believes that the design of the executive compensation program as outlined in the “Compensation Discussion and Analysis” above places emphasis on long-term incentives and competitive base salaries. While the Annual Cash Incentive Award is tied to short-term performance, the Committee concluded that emphasis on long-term incentives appropriately balances risk and management’s motivations for our long-term success, including share price performance, with the interests of our long-term shareholders. Although our executive compensation program is designed to pay-for-performance and provide incentive-based compensation, the incentive-driven elements of our executive compensation program contain various mitigating features that are designed to discourage management from taking unnecessary risks in managing the business that could maximize short-term results at the expense of long-term value.

The Committee has the authority to set performance measures and goals, monitor performance, and to exercise negative discretion in determining incentive award payouts to our executive officers.

We believe that our compensation policies and practices do not encourage our executive officers to take excessive or unnecessary risks and are not reasonably likely to have a material adverse effect on the Company.

The table below summarizes the risk mitigation factors applicable to the primary elements of the Company’s executive compensation program.

 

 

 

Base Salary Risk Mitigation Factors

 

Fixed Amount.    Base salary does not encourage risk-taking as it is a fixed amount.

 

Small Percentage of Total Compensation.    Base salary is a relatively small percentage of total direct compensation for executive officers.

 

 

 

Annual Cash Incentive Award Risk Mitigation Factors

 

Multiple Performance Factors.    The Annual Cash Incentive Award features multiple quantitative performance measures that encourage executives to focus on the overall strength of the business rather than a single financial measure.

 

Award Cap.    Awards payable to any individual are capped.

 

Management Processes.    Board and management processes are in place to oversee risks associated with the Annual Cash Incentive Award, including, but not limited to, monthly and quarterly business performance reviews by management and regular business performance reviews by the Board of Directors and the Audit Committee.

 

Clawback Provision.    Robust forfeiture (“clawback”) terms accompany cash-based incentive awards for our executive officers.

 

 

Long-Term Equity Compensation Risk Mitigation Factors

 

 

Share Ownership Guidelines.    Share ownership guidelines align the executive interests with those of our long-term shareholders.

 

Vesting Schedule Overlaps.    The vesting schedules for long-term incentives overlap and, therefore, reduce an executive officer’s motivation to maximize performance in any one period.

 

Service-based Vesting.    Service-based vesting aligns with long-term shareholder interests.

 

Anti-Hedging/Anti-Pledging Policy.    The Company’s anti-hedging policy prohibits directors and our executive officers from purchasing any financial instrument that is designed to hedge or offset any decrease in the market value of our common stock, including prepaid variable forward contracts, equity swaps, collars, and exchange funds. Our anti-pledging policy prohibits our directors and executive officers from pledging our common stock as collateral.

 

Clawback Provision.    Robust forfeiture (“clawback”) terms accompany equity-based awards for our executive officers.

 

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SUMMARY COMPENSATION FOR FISCAL YEAR 2018

All references in this section to years are references to fiscal years unless otherwise noted. Our fiscal year ends October 31.

The following narratives, tables, footnotes, and supplemental tables present the components of compensation for our named executive officers for the fiscal year ended October 31, 2018. The individual components of the compensation reflected in the Summary Compensation Table (“SCT”) for 2018 and the prior two fiscal years are:

 

   

Salary.    Base salary earned by a named executive officer. Any amount of base salary deferred by a named executive officer is identified in footnote 1 to the “Non-Qualified Deferred Compensation” table.

 

   

Bonus.    We did not award any discretionary cash bonus to any named executive officer.

 

   

Stock Awards.    The awards disclosed in the “Stock Awards” column consist of restricted share awards and performance share awards for the 2018-2020, 2017-2019, and 2016-2018 performance periods. The calculations are based upon the grant date fair value of restricted shares and performance share units as calculated under FASB ASC Topic 718 for 2018, 2017, and 2016. Details about the performance share incentive awards made during 2018 are included in the narrative accompanying the “Grants of Plan-Based Awards” table below. For performance share awards, grant date fair value disclosed in the SCT is based on the level at which the award is expected to pay out, rather than at the maximum possible payout. The maximum payout appears in a footnote to the table.

 

   

Option Awards.    The awards disclosed in the “Option Awards” column consist of option awards for our common stock. The award amounts represent the grant date fair value of stock options as calculated under FASB ASC Topic 718. Details about the option awards made during 2018 are included in the narrative accompanying the “Grants of Plan-Based Awards” table.

 

   

Non-Equity Incentive Plan Compensation.    The amounts disclosed under the “Non-Equity Incentive Plan Compensation” column represent compensation earned under the Annual Cash Incentive Award. Further information concerning the Annual Cash Incentive Award may be reviewed in Part III of the Compensation Discussion and Analysis section of this Proxy Statement under the caption “Key Components of Our Executive Compensation Program.”

 

   

Change in Pension Value and Non-Qualified Deferred Compensation Earnings.    The amounts disclosed in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” column represent any actuarial increase during the fiscal year in the pension value provided under our qualified defined benefit pension plan and non-qualified excess defined benefit pension plan. We do not pay above-market or preferential rates on the non-qualified deferred compensation of our named executive officers. A narrative discussion of our defined benefit pension plan and excess defined benefit pension plan accompanies the “Pension Benefits” table.

 

   

All Other Compensation.    The amounts disclosed in the “All Other Compensation” column include the combined value of each named executive officer’s perquisites, our matching contributions to the qualified deferred compensation 401(k) plan and non-qualified deferred compensation plan and other noted payments.

 

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Summary Compensation Table

In this section we provide certain tabular and narrative information regarding the compensation of our principal executive and financial officers and our three other most highly compensated executive officers for 2018.

 

  Name and

  Principal Position

 

 

Fiscal
Year

 

   

Salary

(1) $

 

   

Bonus
$

 

   

Stock
Awards

(2) $

 

   

Option
Awards
(3) $

 

   

Non-Equity
Incentive Plan
Compensation
(4) $

 

   

Change in
Pension Value

& Non-
Qualified
Deferred
Compensation
Earnings (5) $

 

   

All Other
Compensation
(6) $

 

   

Total $

 

 

  Michael F. Hilton

    2018       925,000             2,509,619       1,942,599       1,082,250       454,746       82,876       6,997,090  

  President and Chief

    2017       875,000             2,347,868       1,829,045       1,103,375       505,485       87,542       6,748,315  

  Executive Officer

 

   

 

2016

 

 

 

   

 

850,000

 

 

 

   

 

 

 

 

   

 

1,897,868

 

 

 

   

 

1,416,040

 

 

 

   

 

1,380,400

 

 

 

   

 

775,637

 

 

 

   

 

108,904

 

 

 

   

 

6,428,849

 

 

 

  Gregory A. Thaxton

    2018       470,000             586,967       435,170       384,930       47,260       37,854       1,962,181  

  Executive Vice President,

    2017       450,000             567,270       423,951       397,215       407,504       42,123       2,288,063  

  Chief Financial Officer

 

   

 

2016

 

 

 

   

 

435,000

 

 

 

   

 

 

 

 

   

 

495,096

 

 

 

   

 

334,559

 

 

 

   

 

494,508

 

 

 

   

 

618,576

 

 

 

   

 

41,600

 

 

 

   

 

2,419,339

 

 

 

  John J. Keane

    2018       455,000             586,967       435,170       339,203             32,662       1,848,855  

  Executive Vice President

    2017       435,000             567,270       423,951       395,850       161,304       38,577       2,021,952  
   

 

2016

 

 

 

   

 

420,000

 

 

 

   

 

 

 

 

   

 

495,096

 

 

 

   

 

334,559

 

 

 

   

 

448,056

 

 

 

   

 

473,781

 

 

 

   

 

43,015

 

 

 

   

 

2,214,507

 

 

 

  Gregory P. Merk

    2018       420,000             430,967       313,322       337,428             24,764       1,394,239  

  Executive Vice President

    2017       403,000             425,453       302,822       351,799       364,368       23,766       1,871,208  
   

 

2016

 

 

 

   

 

380,000

 

 

 

   

 

 

 

 

   

 

350,693

 

 

 

   

 

260,645

 

 

 

   

 

411,996

 

 

 

   

 

483,320

 

 

 

   

 

26,570

 

 

 

   

 

1,913,224

 

 

 

  Jeffrey A. Pembroke

    2018       415,000             380,743       292,434       389,789       37,374       38,794       1,554,134  

  Executive Vice President

                   
                                                                         

 

 

(1)

This column includes amounts of base salary deferred into the 2005 Deferred Compensation Plan. These deferrals are noted in footnote 1 to the “Non-Qualified Deferred Compensation” table.

 

(2)

This column represents the grant date fair value of restricted shares and performance share units as calculated under FASB ASC Topic 718. The grant date fair value disclosed for performance share awards is based on target performance. The maximum performance share award amount with respect to each of the named executive officers is shown in the table below. The assumptions made in valuing share awards reported in this column for 2018 are discussed in Note 14 Stock-based Compensation in the “Notes to Consolidated Financial Statements” section of our Form 10-K for 2018.

 

  Named Executive Officer

 

  

Fiscal
Year

 

  

Maximum
Payout (# of Units)

 

  

 Maximum     

 Grant Date Fair     

 Value Payout     

 

  Michael F. Hilton

   2018    26,800    $3,308,460    
     2017    29,800    $3,091,750    
     2016

 

   36,800

 

   $2,490,992    

 

  Gregory A. Thaxton

   2018      6,200    $   765,390    
     2017      7,200    $   747,000    
     2016

 

     9,600

 

   $   649,824    

 

  John J. Keane

   2018      6,200    $   765,390    
     2017      7,200    $   747,000    
     2016

 

     9,600

 

   $   649,824    

 

  Gregory P. Merk

   2018      4,500    $   555,525    
     2017      5,400    $   560,250    
     2016

 

     6,800

 

   $   460,292    

 

  Jeffrey A. Pembroke

   2018      4,100    $   506,145    
                

 

(3)

This column represents the grant date fair value of the stock option award as calculated under FASB ASC Topic 718 as of the respective grant date for each award. The grant date fair value was determined using the Black-Scholes valuation model. For additional information regarding such awards, see the “Grants of Plan-Based Awards” table below. The aggregate grant date fair value may not correspond to the actual value that may be recognized by the named executive officer. The actual amount, if any, realized upon the exercise of stock options will depend upon the market price of our common shares relative to the exercise price per share at the time of exercise.

 

Nordson Corporation – 2019 Proxy Statement

  |  61


Table of Contents

The table below lists the assumptions used to estimate the grant date fair value of stock options awarded to the named executive officers and included in this column as of October 31, 2018:

 

  Fiscal Year   Number of Shares
Awarded
  Exercise Price   Expected Life
(in years)
  Dividend Yield   Volatility    Risk-Free Rate 

 

  2014

 

    76,000

 

  $  71.75

 

  6.1

 

  1.03%

 

  0.4419

 

  1.78%

 

 

  2015

 

    85,900

 

  $  79.66

 

  6.1

 

  1.10%

 

  0.3919

 

  1.84%

 

 

  2016

 

  127,800

 

  $  70.91

 

  6.2

 

  1.54%

 

  0.3037

 

  1.90%

 

 

  2017

 

  104,900

 

  $107.65

 

  6.2

 

  1.17%

 

  0.2918

 

  2.01%

 

 

  2018

 

    98,200

 

  $127.67

 

  6.2

 

  0.97%

 

  0.2670

 

  2.20%

 

The assumptions listed above differ slightly from those presented in Note 14 Stock-based Compensation in the “Notes to Consolidated Financial Statements” section of our Form 10-K for 2018. The assumptions in Note 14 represent awards to all executive officers and key employees and grant dates during each year.

See the “Grants of Plan-Based Awards” table for information with respect to the stock options awarded in 2018 and the “Outstanding Equity Awards” table for information with respect to the stock options awarded prior to 2018.

 

(4)

The amounts in this column represent the total non-equity incentive plan compensation we recognized in the respective fiscal year under our Annual Cash Incentive Award and also include the portion of the Annual Cash Incentive Award payout that was deferred by our named executive officers. These deferrals are noted in footnote 1 to the “Non-Qualified Deferred Compensation” table.

 

(5)

The amounts entered in this column include the aggregate change in the actuarial present value of the named executive officer’s accumulated benefits under the Nordson Corporation Salaried Employees Defined Benefit Pension Plan and Excess Defined Benefit Pension Plan. There were no above-market or preferential earnings on non-qualified deferred compensation. The present value amounts of the accumulated benefits were determined using assumptions discussed in Note 6 Retirement, Pension and other Post-retirement Plans in the “Notes to Consolidated Financial Statements” section of our Form 10-K for 2018.

The following table provides further details to the increases by plan for 2018:

 

  Named Executive Officer    Change in Pension
Plan Value ($)
  Change in Excess
 Pension Plan Value ($) 

 

  Michael F. Hilton

 

      

 

37,095

 

 

     

 

417,651

 

 

 

  Gregory A. Thaxton

 

      

 

(45,626

 

)

 

     

 

  92,886

 

 

 

  John J. Keane

 

      

 

(35,831

 

)

 

     

 

  35,684

 

 

 

  Gregory P. Merk

 

      

 

(2,794

 

)

 

     

 

(129,449

 

)

 

 

  Jeffrey A. Pembroke

 

      

 

(18,955

 

)

 

     

 

  56,329

 

 

 

(6)

The following tables describe each component of the “All Other Compensation” column in the Summary Compensation Table:

 

  Named Executive Officer Total
Perquisites
($) (a)

Company
Contributions to

Tax-Qualified and
Non-Qualified
Plans
($)

Dividends
Related to
Share-
Based
Plans ($)
Company
Match of
Charitable
Contributions
($)

Total All
Other
 Compensation 

($)

 

  Michael F. Hilton

 

 

 

9,800

 

 

 

 

49,927

 

 

 

 

18,419

 

 

 

 

4,730

 

 

 

 

82,876

 

 

 

  Gregory A. Thaxton

 

 

 

6,637

 

 

 

 

21,628

 

 

 

 

  4,500

 

 

 

 

5,089

 

 

 

 

37,854

 

 

 

  John J. Keane

 

 

 

6,681

 

 

 

 

21,481

 

 

 

 

  4,500

 

 

 

 

      —

 

 

 

 

32,662

 

 

 

  Gregory P. Merk

 

 

 

  875

 

 

 

 

20,554

 

 

 

 

  3,335

 

 

 

 

      —

 

 

 

 

24,764

 

 

 

  Jeffrey A. Pembroke

 

 

 

4,518

 

 

 

 

16,951

 

 

 

 

  2,325

 

 

 

 

15,000

 

 

 

 

38,794

 

 

 

  (a)

Total perquisites for 2018:

 

  Named Executive Officer Financial
Planning
($)
Business
and Airline
Club Dues
($)
Executive
Physicals
($)

Total
 Perquisites 

($)

 

  Michael F. Hilton

 

 

 

5,000

 

 

 

 

4,800

 

 

 

 

 

 

 

 

9,800

 

 

 

  Gregory A. Thaxton

 

 

 

4,000

 

 

 

 

1,250

 

 

 

 

1,387

 

 

 

 

6,637

 

 

 

  John J. Keane

 

 

 

4,300

 

 

 

 

 

 

 

 

2,381

 

 

 

 

6,681

 

 

 

  Gregory P. Merk

 

 

 

875

 

 

 

 

 

 

 

 

 

 

 

 

875

 

 

 

  Jeffrey A. Pembroke

 

 

 

2,400

 

 

 

 

 

 

 

 

2,118

 

 

 

 

4,518

 

 

 

62  |   Nordson Corporation – 2019 Proxy Statement


Table of Contents

GRANTS OF PLAN-BASED AWARDS

We granted the following awards to our executive officers in 2018:

 

   

Annual Cash Incentive Awards — The Compensation Committee establishes quantitative corporate financial and operating unit measures and performance goals at the beginning of a fiscal year. Any payouts are determined by actual fiscal year performance against the pre-established corporate financial and business operating performance measures for our named executive officers that lead our businesses. These awards are referred to in the following table as “ACIA.”

 

   

Performance Share Incentive Awards — The Compensation Committee establishes performance share incentive awards for executive officers based on three-year cumulative performance measures. The award is in the form of performance share units which are settled in unrestricted Nordson common shares on a one-for-one basis or share equivalent units on a one-for-one basis for payouts that are deferred. The payout will vary based upon the actual level of performance over a three-year period. However, the threshold performance level must be achieved before any payout is made. These awards are referred to in the following table as “PSIA.”

 

   

Restricted Share Awards — Restricted shares are awarded subject to restrictions on transferability. The shares may be voted but not sold or transferred during the restriction period. Cash dividends are paid on the restricted shares during the restriction period. Restricted shares vest on a pro-rata basis annually each year for three years following the date of award. These awards are referred to in the following table as “RS.”

 

   

Stock Option Awards — Stock options have a term of ten years, become exercisable over a four-year period at the rate of 25% per year beginning one year from the grant date, and have an exercise price equal to the closing price of our common shares on the grant date. Under the terms of award, the exercise price and tax-withholding obligations may be paid with previously owned common shares or with shares acquired upon exercise. Information with respect to each of these awards on an award-by-award basis is set forth in the table below. These awards are referred to in the following table as “Options.”

 

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Table of Contents

Grants of Plan-Based Awards

The following table and footnotes present the components of the plan-based awards made to our named executive officers during 2018.

Grants of Plan-Based Awards Table

 

                

 

Estimated Future Payouts Under
Non-equity
Incentive Plan Awards (1)

   

 

Estimated Future Payouts
Under Equity
Incentive Plan Awards (2)

   

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

(#)

   

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#)

   

Exercise
or Base
Price of
Option
Awards

($/sh)

   

Grant
Date

Fair Value
of Stock
and
Option
Awards (3)

($)

 

   Name

 

 

Plan

 

 

Grant Date

 

   

Threshold

($)

 

   

Target

($)

 

   

Maximum

($)

 

   

Threshold

(#)

 

   

Target

(#)

 

   

Maximum

(#)

 

 

  Hilton

  ACIA     11/20/2017       462,500       925,000       1,850,000                                            
    PSIA     11/20/2017                         6,700       13,400       26,800                         1,654,230  
    RS     11/20/2017                                           6,700                   855,389  
    Options     11/20/2017                                                 55,800     $ 127.67       1,942,599  

 

  Thaxton

  ACIA     11/20/2017       164,500       329,000       658,000                                            
    PSIA     11/20/2017                         1,550       3,100       6,200                         382,695  
    RS     11/20/2017                                           1,600                   204,272  
    Options     11/20/2017                                                 12,500     $ 127.67       435,170  

 

  Keane

  ACIA     11/20/2017       159,250       318,500       637,000                                            
    PSIA     11/20/2017                         1,550       3,100       6,200                         382,695  
    RS     11/20/2017                                           1,600                   204,272  
    Options     11/20/2017                                                 12,500     $ 127.67       435,170  

 

  Merk

  ACIA     11/20/2017       136,500       273,000       546,000                                            
    PSIA     11/20/2017                         1,125       2,250       4,500                         277,763  
    RS     11/20/2017                                           1,200                   153,204  
    Options     11/20/2017                                                 9,000     $ 127.67       313,322  

 

  Pembroke

  ACIA     11/20/2017       134,875       269,750       539,500                                            
    PSIA     11/20/2017                         1,025       2,050       4,100                         253,073  
    RS     11/20/2017                                           1,000                   127,670