DEF 14A - 2018 Proxy Statement (filing version)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

__________________________



SCHEDULE 14A
(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

__________________________





 

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Preliminary Proxy Statement



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Definitive Proxy Statement



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Soliciting Material Pursuant to §240.14a-12



MSC INDUSTRIAL DIRECT CO., INC.

(Name of Registrant as Specified In Its Charter)



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



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Picture 19













































Notice of 2019 Annual Meeting

and 2018 Proxy Statement









































Tuesday, January 29, 2019

9:00 a.m., local time

The Hilton Long Island/Huntington

598 Broad Hollow Road

Melville, New York 11747

 


 

TABLE OF CONTENTS

 



Picture 20





Notice of 2019 Annual Meeting of Shareholders



To the shareholders of MSC Industrial Direct Co., Inc.:



NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of MSC Industrial Direct Co., Inc., a New York corporation, will be held on January 29, 2019 at 9:00 a.m., local time, at the Hilton Long Island/Huntington, 598 Broad Hollow Road, Melville, New York 11747, for the following purposes:



1.

to elect nine directors to serve for one-year terms;

2.

to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2019;

3.

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

4.

to consider and act upon such other matters as may properly come before the annual meeting or any adjournments or postponements thereof.

Only shareholders of record at the close of business on December 11, 2018 are entitled to vote at the annual meeting and any adjournments or postponements thereof.



All shareholders are cordially invited to attend the annual meeting.  However, to assure your representation at the annual meeting, you are urged to vote on the Internet, by telephone or by completing, signing and dating the enclosed proxy card as promptly as possible, and returning it in the postage-paid envelope provided.  Any shareholder attending the annual meeting may vote in person even if he or she has already voted on the Internet, by telephone or by returning a proxy.



By Order of the Board of Directors,



Picture 1

Steve Armstrong

Senior Vice President, General Counsel and
Corporate Secretary

Melville, New York

December 19, 2018

Review the Proxy Statement and Vote in One of Four Ways

LOGO

Via the Internet

Visit www.proxyvote.com

LOGO

By Mail

Sign, date and return your proxy card or voting instruction form

LOGO

By Telephone

Call the telephone number on your proxy card, voting instruction form or notice

LOGO

In Person

Attend the annual meeting at the Hilton Long Island/Huntington, 598 Broad Hollow Road, Melville, New York 11747



IMPORTANT: The prompt return of proxies will ensure that your shares will be voted.  A self-addressed envelope is enclosed for your convenience.  No postage is required if mailed within the United States.



IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 29, 2019

Our Proxy Statement and Annual Report are available online at:

https://materials.proxyvote.com/553530

 


 

TABLE OF CONTENTS

 

We are furnishing this proxy statement to you in connection with the solicitation of proxies by our Board of Directors to be used at our 2019 annual meeting of shareholders, or at any adjournments or postponements thereof.  This proxy statement describes the matters to be presented at the meeting and related information that will help you vote at the meeting.  References in this proxy statement to “the company,” “we,” “us,” “our” and similar terms mean MSC Industrial Direct Co., Inc.



We have elected to take advantage of the “notice and access” rule of the Securities and Exchange Commission (which we refer to as the SEC) that allows us to furnish proxy materials to shareholders online.  We believe that electronic delivery expedites the receipt of proxy materials, while significantly lowering costs and reducing the environmental impact of printing and mailing full sets of proxy materials.  As a result, on or about December 19, 2018, we mailed to our shareholders of record as of the close of business on December 11, 2018, either (i) a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy materials online and how to request paper copies of our proxy materials or (ii) a printed set of proxy materials, which includes the notice of annual meeting, this proxy statement, our 2018 annual report to shareholders and a proxy card.  If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the materials unless you specifically request one.  If your shares are held in the MSC Industrial Direct 401(k) Plan, you will receive a printed set of proxy materials and the enclosed proxy will serve as a voting instruction card for the trustee of the MSC Industrial Direct 401(k) Plan, T. Rowe Price Trust Company, who will vote all shares of Class A common stock of the company allocated to your 401(k) account in accordance with your instructions.  If you hold your shares through a broker, bank or other nominee, rather than directly in your own name, your intermediary will either forward to you printed copies of the proxy materials or will provide you with instructions on how you can access the proxy materials electronically.



 

 


 

TABLE OF CONTENTS

 

Table of Contents





 

2018 Proxy Statement Summary

Annual Meeting

Meeting Agenda and Voting Matters

Board Nominees

Corporate Governance Highlights

Fiscal Year 2018 Company Performance

Fiscal Year 2018 Compensation Decisions

Compensation Summary

Ratification of Appointment of Independent Registered Public Accounting Firm (Proposal No. 2)

Approval, on an Advisory Basis, of the Compensation of Named Executive Officers (Proposal No. 3)

ELECTION OF DIRECTORS (PROPOSAL NO. 1)

Board and Committee Evaluations; Qualifications of Nominees

2019 Nominees for Director

Director Qualifications

14 

CORPORATE GOVERNANCE

15 

Director Independence

15 

Board Committees and Attendance

16 

Board Committees

17 

Board Leadership Structure; Executive Sessions of the Independent Directors

22 

Role of the Board in Risk Oversight

22 

Corporate Governance Guidelines

23 

Director Attendance at Shareholder Meetings

23 

Non-Executive Director Stock Ownership Guidelines

23 

Overview of Director Compensation

24 

Fiscal Year 2018 Director Compensation

24 

Changes in Fiscal Year 2019 Director Compensation

25 

Non-Executive Director Summary Compensation in Fiscal Year 2018

26 

Code of Ethics and Code of Business Conduct

27 

Corporate Social Responsibility

27 

Shareholder Communications Policy

27 

Section 16(a) Beneficial Ownership Reporting Compliance

27 

Written Related Person Transactions Policy

28 

Related Person Transactions

28 

EXECUTIVE OFFICERS

29 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROPOSAL NO. 2)

32 

Principal Accountant Fees and Services

32 

Audit Committee Pre-Approval Policy

32 

AUDIT COMMITTEE REPORT

33 

COMPENSATION DISCUSSION AND ANALYSIS

35 

Executive Summary

35 

Compensation Philosophy and Objectives

37 

Alignment with Compensation Best Practices

39 

Shareholder Engagement and “Say on Pay” Vote

40 

Compensation Committee

40 

How Compensation Decisions Are Made

41 

Role of Executive Officers in Compensation Decisions

41 

Compensation Consultant

41 

Fiscal Year 2018 Executive Compensation

42 

Competitive Positioning

51 

Executive Incentive Compensation Recoupment Policy

53 

Executive Stock Ownership Guidelines

54 

Federal Income Tax Deductibility of Executive Compensation

54 

COMPENSATION RISK ASSESSMENT

55 

COMPENSATION COMMITTEE REPORT

56 

EXECUTIVE COMPENSATION

57 

Summary Compensation Table

57 

Fiscal Year 2018 All Other Compensation

58 

Fiscal Year 2018 Grants of Plan-Based Awards

59 

Outstanding Equity Awards at 2018 Fiscal Year-End Table

61 

Fiscal Year 2018 Option Exercises and Stock Vested

63 

Pension Benefits and Nonqualified Deferred Compensation

63 

Potential Payments Upon Termination or Change in Control

64 

Potential Payments Upon Termination or Change in Control Table as of August 31, 2018

67 

Indemnification Agreements; Directors and Officers Liability Insurance

70 

CEO PAY RATIO

71 

APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF NAMED EXECUTIVE OFFICERS (PROPOSAL NO. 3)

72 

EQUITY COMPENSATION PLAN INFORMATION

73 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

74 

Security Ownership of Certain Beneficial Owners

74 

Security Ownership of Management

77 

SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING

79 

INFORMATION ABOUT THE MEETING

79 

OTHER MATTERS

82 





 

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2018 Proxy Statement Summary



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



Annual Meeting





 

 

Date and Time

 

9:00 a.m., January 29, 2019

Location

 

The Hilton Long Island/Huntington, 598 Broad Hollow Road, Melville, New York 11747

Record Date

 

December 11, 2018

Voting

 

Record and beneficial shareholders as of the record date are entitled to vote.  Holders of our Class A common stock and our Class B common stock vote together as a single class, with each holder of Class A common stock entitled to one vote per share of Class A common stock and each holder of Class B common stock entitled to ten votes per share of Class B common stock.



Meeting Agenda and Voting Matters





 

 

 

 

Proposal

 

Board Voting
Recommendation

 

Page Reference
(for more detail)

Election of nine directors

 

FOR EACH
NOMINEE

 

Page 8

Ratification of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2019

 

FOR

 

Page 32

Approval, on an advisory basis, of the compensation of our named executive officers

 

FOR

 

Page 72



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Board Nominees





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Committee Memberships

Name

 

Age

 

Director
Since

 

Principal Occupation

 

Independent

 

AC

 

CC

 

N&CGC

Jonathan Byrnes

 

70

 

2010

 

Senior Lecturer at Massachusetts Institute of Technology

 

 

 

 

 

Roger Fradin

 

65

 

1998

 

Operating Executive with The Carlyle Group

 

 

 

 

 

Erik Gershwind

 

47

 

2010

 

President and Chief Executive Officer of the company

 

 

 

 

 

 

 

 

Louise Goeser

 

65

 

2009

 

Chief Executive Officer of LKG Enterprises

 

 

 

 

 

C

Mitchell Jacobson
(Board Chair)

 

67

 

1995

 

Non-executive Chairman of the Board of Directors of the company

 

 

 

 

 

 

 

 

Michael Kaufmann

 

56

 

2015

 

Chief Executive Officer of Cardinal Health, Inc.

 

 

 

 

 

Denis Kelly

 

69

 

1996

 

Investment Banker at Scura Paley Securities LLC

 

 

 

C

 

 

Steven Paladino

 

61

 

2015

 

Executive Vice President and Chief Financial Officer of Henry Schein, Inc.

 

 

 

 

 

Philip Peller
(Lead Director)

 

79

 

2000

 

Independent Director; Retired Partner of Arthur Andersen LLP

 

 

C

 

 

 



_____________________________



 

AC

Audit Committee

CC

Compensation Committee

N&CGC

Nominating and Corporate Governance Committee

C

Chairperson

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Corporate Governance Highlights



Independence

   

7 out of our 9 director nominees are independent.

   

The independent directors meet regularly in private executive sessions without management.

   

We have an independent Lead Director, who serves as the presiding director at the executive sessions of the independent directors.

   

All committees of our Board are composed exclusively of independent directors.

Board Oversight of Risk Management

   

Our Board is responsible for the oversight of the company’s risk management and reviews our major financial, operational, compliance, cybersecurity, reputational and strategic risks, including steps to monitor, manage and mitigate such risks.

Stock Ownership Requirements

   

Each of our non-executive directors must own a minimum number of shares equal to five times his or her base annual retainer within five years of joining our Board.

   

Our Chief Executive Officer must own at least six times his annual base salary in our common stock.

   

Within five years of attaining the position, each of our Executive Vice Presidents must own at least three times his or her annual base salary in our common stock, each of our Senior Vice Presidents must own at least two times his or her annual base salary in our common stock and each of our Vice Presidents must own at least one time his or her annual base salary in our common stock.

Board Practices and Accountability; Annual Evaluations; Annual Elections

   

Our Nominating and Corporate Governance Committee annually reviews the performance of our Board and Board committees.

   

Our Board and each Board committee conduct annual written self-evaluations to help ensure that our Board and each Board committee have the appropriate scope of activities.

   

All directors stand for election annually.

Board Refreshment Process; Board and Board Committee Compositon

   

Our Nominating and Corporate Governance Committee annually reviews the composition of our Board and Board committees.

   

The annual written self-evaluations conducted by our Board and each Board committee also ensure that our Board and Board committees have the appropriate number and mix of members, skills and experience.

   

Most recently, we elected Messrs. Kaufmann and Paladino as independent directors in fiscal year 2016 to ensure that our Board continues to be comprised of members with diverse and critical skills.

   

Each of our independent directors is a member of no more than two of our Board committees, thereby enhancing committee member focus on committee matters.

Regular Board Reviews of Executive Succession

   

Our Board regularly reviews senior level promotion and succession plans and is responsible for succession planning for the CEO position.

   

Our Board has contingency plans in place for emergencies such as the departure, death, or disability of the CEO or other executive officers.

Other Corporate Governance Practices

   

We maintain a clawback policy to recoup incentive compensation in the event of a significant financial restatement (whether or not a covered officer engaged in misconduct), as well as in cases of breach of non-competition and other covenants.



   

We are committed to shareholder engagement and maintain a formal investor relations outreach program.

   

We have published on our website a corporate social responsibility report.

 



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Fiscal Year 2018 Company Performance

In fiscal year 2018, we generated strong operating results in a strengthening macro-economic environment.  At the same time, we completed the company’s transition from a spot buy supplier to a mission critical partner on manufacturing floors across North America.  By focusing on products and services that are technical and high-touch, we have cemented our leadership in metalworking and gained solid traction in the Class C VMI space.  We also established a new platform in OEM fasteners.  Most recently, we transitioned our sales force to deliver upon the new, more complex and high-touch role that we play for our customers to enable our customers to achieve higher levels of growth, productivity and profitability.  Our operating performance in fiscal 2018 was highlighted by the following achievements:

·

diluted earnings per share increased to $5.80 from $4.05 in fiscal 2017;

·

we continued to build stronger partnerships with our customers, providing deep technical expertise across the industries that we serve, and optimizing our customers’ operations with inventory management and other supply chain solutions;

·

we generated $339.7 million of cash from operations in fiscal 2018;

·

we paid out $125.4 million in cash dividends, increasing our dividend per share twice during fiscal 2018; and

·

we completed the acquisition of All Integrated Solutions in April 2018.

Net sales increased 10.9% to $3.20 billion in fiscal 2018 from $2.89 billion in fiscal 2017.  Average daily sales (ADS), including acquisitions, increased 10.5% in fiscal 2018, as compared to fiscal 2017.  Even as our operating expenses increased due to the acquisitions of DECO Tool Supply in our fourth quarter of fiscal 2017 and All Integrated Solutions in our third quarter of fiscal 2018, our operating expenses as a percentage of sales decreased to 30.4% of net sales for fiscal 2018, compared to 31.4% of net sales for fiscal 2017, with productivity and leverage contributing to this favorable outcome.  Operating income in fiscal 2018 was $420.6 million, representing an increase of 11.0% from operating income of $379.0 million in fiscal 2017.  For fiscal 2018, the company achieved diluted earnings per share of $5.80 versus $4.05 in fiscal 2017. 

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Fiscal Year 2018 Compensation Decisions

Consistent with our pay-for-performance compensation philosophy, the Compensation Committee of our Board took the following key actions with respect to NEO compensation for fiscal 2018:

·

Bonus Payouts Above Target.  Based on company performance against target performance goals and achievement levels of each NEO’s individual goals and objectives under our performance bonus plan, and the Committee’s determination of the appropriate individual performance multiplier, payouts under our performance bonus plan were 113.3% of target for Mr. Gershwind, 107.1% for Messrs. Jilla, Jones and Armstrong, and 117.8% of target for Mr. Baruch.

·

CEO Total Cash Compensation Approximated Market 75th Percentile; Other NEOs At or Below Market Median.  Total actual cash compensation for Mr. Gershwind approximated the 75th percentile of the competitive market data developed by our independent compensation consultant.  Messrs. Jilla’s, Jones’ and Baruch’s total cash compensation approximated the 50th percentile of the competitive market data, and Mr. Armstrong’s total cash compensation approximated the 25th percentile of the competitive market data.

·

CEO Total Direct Compensation (“TDC”) Below Market 25th Percentile; Other NEOs Generally At or Below Market Median.  We calculate TDC as the sum of fiscal year end base salary, actual annual performance bonuses and long-term equity awards (and in the case of Mr. Jilla, we also annualize his special new hire grant of restricted shares made in fiscal 2015 over its five-year vesting period, which is consistent with the market data methodology).  For fiscal 2018, Mr. Gershwind’s TDC was 7.8% below the 25th percentile of the competitive market data; Mr. Jilla’s TDC approximated the 50th percentile; Mr. Jones’ TDC was between the median and 75th percentile; Mr. Armstrong’s TDC approximated the 25th percentile; and Mr. Baruch’s TDC approximated the 50th percentile of the competitive market data.

Please see “Compensation Discussion and Analysis” beginning on page 35 of this proxy statement.

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Compensation Summary



The following table shows the compensation for the following individuals for the fiscal years ended September 1, 2018 and September 2, 2017.  For an explanation of the amounts in the table below, please see “Summary Compensation Table” on page 57 of this proxy statement.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name and Principal Position

 

Year

 

Salary
($)

 

Stock
Awards
($)

 

Option
Awards
($)

 

Non-Equity
Incentive Plan
Compensation
($)

 

All Other
Compensation
($)

 

Total
($)

Erik Gershwind

 

2018

 

740,723 

 

1,099,992 

 

899,995 

 

1,700,063 

 

20,746 

 

4,461,519 

President and
Chief Executive Officer

 

2017

 

719,148 

 

825,003 

 

675,002 

 

1,723,180 

 

19,442 

 

3,961,775 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rustom Jilla

 

2018

 

505,169 

 

412,487 

 

337,500 

 

389,083 

 

21,462 

 

1,665,701 

Executive Vice President
and Chief Financial Officer

 

2017

 

490,510 

 

443,316 

 

362,700 

 

322,654 

 

20,956 

 

1,640,136 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Douglas Jones

 

2018

 

414,647 

 

302,480 

 

247,499 

 

243,417 

 

14,129 

 

1,222,172 

Executive Vice President and
Chief Supply Chain Officer

 

2017

 

388,430 

 

338,818 

 

277,204 

 

201,272 

 

13,196 

 

1,218,920 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steve Armstrong

 

2018

 

410,264 

 

261,247 

 

213,738 

 

220,635 

 

20,469 

 

1,126,353 

Senior Vice President,
General Counsel and
Corporate Secretary

 

2017

 

398,359 

 

242,308 

 

198,221 

 

161,009 

 

20,366 

 

1,020,263 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven Baruch(1)

 

2018

 

348,668 

 

219,935 

 

179,989 

 

227,665 

 

11,628 

 

987,885 

Executive Vice President
and Chief Strategy 
& Marketing Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_____________________________

(1)

Mr. Baruch was not a named executive officer for fiscal year 2017.  Therefore, no compensation information for fiscal year 2017 appears in the table for Mr. Baruch.



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Ratification of Appointment of Independent Registered Public Accounting Firm (Proposal No. 2)



Our Audit Committee has appointed the firm of Ernst & Young LLP to serve as our independent registered public accounting firm for fiscal year 2019.  Our Board considers it desirable for shareholders to pass upon the selection of the independent registered public accounting firm.  Our Board recommends that you vote “FOR” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2019.  Please see “Ratification of Appointment of Independent Registered Public Accounting Firm (Proposal No. 2)” beginning on page 32 of this proxy statement.



Approval, on an Advisory Basis, of the Compensation of Named Executive Officers (Proposal No. 3)



As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are providing our shareholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC.  This vote is advisory, which means that this vote on executive compensation is not binding on the company, our Board or our Compensation Committee.  Based on company and individual performance, our Compensation Committee believes that compensation levels for fiscal year 2018 were appropriate and consistent with the philosophy and objectives of the company’s compensation programs.  Our Board recommends that you vote “FOR” the approval, on an advisory basis, of the compensation of our named executive officers as disclosed in this proxy statement.  Please see “Approval, on an Advisory Basis, of the Compensation of Named Executive Officers (Proposal No. 3)” on page 72 of this proxy statement.



 

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Picture 26



Proxy Statement for the Annual Meeting
of Shareholders to be held on January 29, 2019



ELECTION OF DIRECTORS (PROPOSAL NO. 1)



Nine directors will be elected at our 2019 annual meeting of shareholders for a term of one year expiring at our 2020 annual meeting, and will serve until their respective successors have been elected, or until their earlier resignation or removal.  Each of the nominees for director was previously elected as a director of the company by our shareholders.



Each nominee has indicated that he or she is willing to serve as a member of our Board, if elected, and our Board has no reason to believe that any nominee may become unable or unwilling to serve.  In the event that a nominee should become unavailable for election for any reason, the shares represented by a properly executed and returned proxy will be voted for any substitute nominee who shall be designated by the current Board.  There are no arrangements or understandings between any director or nominee for director and any other person pursuant to which such person was selected as a director or nominee for director of the company.



Our Nominating and Corporate Governance Committee has reviewed the qualifications and independence of the nominees for director and, with each member of the Nominating and Corporate Governance Committee abstaining as to himself or herself, has recommended each of the other nominees for election to our Board.





Board and Committee Evaluations; Qualifications of Nominees



Our Nominating and Corporate Governance Committee annually reviews the composition and performance of our Board and Board committees and is responsible for recruiting, evaluating and recommending candidates to be presented for appointment, election or reelection to serve as members of our Board.  Our Board and each Board committee conduct annual written self-evaluations to help ensure that our Board and Board committees have the appropriate number and mix of members, skills and experience and the appropriate scope of activities.  These self-evaluations also provide Board and Board committee members with insight for enhancing the effectiveness of their meetings.  In evaluating our Board, our Nominating and Corporate Governance Committee has considered that our directors have a wide range of experience as senior executives of large publicly traded companies, and in the areas of investment banking, accounting, business education and business management consulting.  In these positions, they have also gained industry experience and knowledge in core management skills that are important to their service on our Board, such as business-to-business distribution, supply chain management, mergers and acquisitions, strategic and financial planning, financial reporting, compliance, risk management, intellectual property matters and leadership development.  Several of our directors also have experience serving on the boards of directors and board committees of other public companies, which provides them with an understanding of current corporate governance practices and trends and executive compensation matters.  Our Nominating and Corporate Governance Committee also believes that our directors have other key attributes that are important to an effective board of directors, including the highest professional and personal ethics and values, a broad diversity of business experience and expertise, an understanding of our business, a high level of education, broad-based business acumen and the ability to think strategically.



In furtherance of our ongoing self-evaluations by our Board and Board committees and in order to ensure that our Board continues to be comprised of board members with diverse and critical skills, we elected two new independent directors, Messrs. Kaufmann and Paladino, on September 24, 2015.  In addition, with the election of Messrs. Kaufmann and Paladino, we reviewed and changed our Board committee composition so that each of our independent directors is a member of no more than two of our Board committees, thereby enhancing committee member focus on committee matters.



In addition to the qualifications described above, our Nominating and Corporate Governance Committee also considered the specific skills and attributes described in the biographical details that follow in determining whether each individual nominee should serve on our Board.



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2019 Nominees for Director





 

 

 

 

 

 

Nominee

 

Principal Occupation

 

Age

 

Director Since

Jonathan Byrnes

 

Senior Lecturer at Massachusetts Institute of Technology

 

70

 

March 2010

Roger Fradin

 

Operating Executive with The Carlyle Group

 

65

 

July 1998

Erik Gershwind

 

President and Chief Executive Officer of the company

 

47

 

October 2010

Louise Goeser

 

Chief Executive Officer of LKG Enterprises

 

65

 

January 2009

Mitchell Jacobson
(Board Chair)

 

Non-executive Chairman of the Board of Directors of the company

 

67

 

October 1995

Michael Kaufmann

 

Chief Executive Officer of Cardinal Health, Inc.

 

56

 

September 2015

Denis Kelly

 

Investment Banker at Scura Paley Securities LLC

 

69

 

April 1996

Steven Paladino

 

Executive Vice President and Chief Financial Officer of Henry Schein, Inc.

 

61

 

September 2015

Philip Peller
(Lead Director)

 

Independent Director; Retired Partner of Arthur Andersen LLP

 

79

 

April 2000







 

Jonathan Byrnes

Business Experience

Dr. Byrnes has been a Senior Lecturer at MIT since 1992.  In this capacity, he has taught graduate courses in Supply Chain Management and Integrated Account Management and programs for business executives, and he has supervised thesis research.  He has been president of Jonathan Byrnes & Co., a consulting company, since 1976, and Founding Chairman of Profit Isle, Inc., a software company, since 2009.  Dr. Byrnes earned a doctorate at Harvard University, and is a former President of the Harvard Alumni Association. He also served a two-year term on Harvard University’s Advisory Committee on Shareholder Responsibility.

Specific Skills and Attributes

Dr. Byrnes is a recognized expert in the areas of supply chain and integrated account management, areas which are critical to industrial distribution.  Dr. Byrnes provides our Board with key perspectives relating to our operations and business strategy.



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Roger Fradin

Business Experience

Mr. Fradin has served as an Operating Executive with The Carlyle Group, a global alternative asset manager, since February 2017. Mr. Fradin served as Vice Chairman of Honeywell International Inc. from April 2014 until February 2017, after previously serving as the President and Chief Executive Officer of the Automation and Control Solutions Division of Honeywell International Inc. from January 2004 until April 2014.  Previously, he was President and CEO of the Security and Fire Solutions Division of Honeywell International Inc.  From 1987 until 2000, Mr. Fradin served as the President of the ADEMCO Group.

Specific Skills and Attributes

Mr. Fradin’s operational expertise and broad experience as a senior executive of a major diversified technology and manufacturing company makes him a valued asset to the Board.  In addition, he provides critical insight and perspective relating to our customer base.

Other Directorships

Mr. Fradin was appointed chairman of the board of directors of Resideo Technologies, Inc. on November 1, 2018 and a director of GS Acquisition Holdings Corp. in June 2018.  Mr. Fradin is also a director and member of the Audit and Finance Committees of Pitney Bowes Inc., and a director and member of the Audit and Finance Committees of Harris Corporation.  During the past five years, Mr. Fradin previously served as a director of Signode Industrial Group (a private company) until it was acquired by Crown Holdings, Inc. in April 2018.







 

Erik Gershwind

Business Experience

Mr. Gershwind was appointed our President and Chief Executive Officer in January 2013.  From October 2009 to October 2011, Mr. Gershwind served as our Executive Vice President and Chief Operating Officer and from October 2011 to January 2013, he served as our President and Chief Operating Officer.  Mr. Gershwind was elected by the Board to serve as a director in October 2010.  Previously, Mr. Gershwind served as our Senior Vice President, Product Management and Marketing from December 2005 and our Vice President of Product Management from April 2005.  From August 2004 to April 2005, Mr. Gershwind served as Vice President of MRO and Inventory Management.  Mr. Gershwind has held various positions of increasing responsibility in Product, e-Commerce and Marketing.  Mr. Gershwind joined the company in 1996 as manager of our acquisition integration initiative.

Specific Skills and Attributes

Mr. Gershwind has held senior management positions responsible for key business functions of the company and is a key contributor to our current strategy and success.  In addition, as our Chief Executive Officer, he brings critical perspectives to our Board on our strategic direction and growth strategy.

Family Relationship

Mr. Gershwind is the nephew of Mitchell Jacobson, our Non-executive Chairman of the Board, and the son of Marjorie Gershwind Fiverson, Mr. Jacobson’s sister.  Mr. Jacobson and Ms. Gershwind Fiverson are also our principal shareholders.  There are no other family relationships among any of our directors or executive officers.



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Louise Goeser

Business Experience

Ms. Goeser is the Chief Executive Officer of LKG Enterprises, a private advisory firm that she founded in October 2018. Ms. Goeser previously served as President and Chief Executive Officer of Grupo Siemens S.A. de C.V., where she was responsible for Siemens Mesoamérica, from March 2009 until her retirement in May 2018. Siemens Mesoamérica is the Mexican, Central American and Caribbean unit of multinational Siemens AG, a global engineering company operating in the industrial, energy and healthcare sectors. Ms. Goeser previously served as President and Chief Executive Officer of Ford of Mexico from January 2005 to November 2008.  Prior to this position, she served as Vice President, Global Quality for Ford Motor Company from 1999 to 2005. Prior to 1999, Ms. Goeser served as General Manager, Refrigeration and Vice President, Corporate Quality at Whirlpool Corporation and held various leadership positions with Westinghouse Electric Corporation.

Specific Skills and Attributes

Ms. Goeser has extensive experience in senior executive positions and as a director of large public companies, and she possesses the knowledge and expertise necessary to contribute an important viewpoint on a wide variety of governance and operational issues, as well as the reporting and other responsibilities of a public company.

Other Directorships

Ms. Goeser was appointed a director of Watts Water Technologies, Inc. in March 2018. During the last five years, Ms. Goeser previously served as a director and a member of the Audit Committee and the Compensation, Governance and Nominating Committee of Talen Energy Corporation and as a director and member of the Compensation, Governance and Nominating Committee of PPL Corporation.







 

Mitchell Jacobson

Business Experience

Mr. Jacobson was appointed our President and Chief Executive Officer in October 1995 and held both positions until November 2003.  He continued as our Chief Executive Officer until November 2005.  Mr. Jacobson was appointed our Chairman of the Board in January 1998 and became Non-executive Chairman of the Board effective January 1, 2013.  Previously, Mr. Jacobson was President and Chief Executive Officer of Sid Tool Co., Inc., our predecessor company and current wholly-owned and principal operating subsidiary from June 1982 to November 2005.

Specific Skills and Attributes

Mr. Jacobson has been instrumental to our past and ongoing growth, which reflects the values, strategy and vision that Mr. Jacobson contributes.  His leadership as Chairman, experience in industrial distribution and strategic input are critically important to our Board.  In addition, as one of our principal shareholders, Mr. Jacobson provides critical insight and perspective relating to the company’s shareholders.

Family Relationship

Mr. Jacobson is the uncle of Erik Gershwind, our President and Chief Executive Officer and a director of the company, and the brother of Marjorie Gershwind Fiverson, Mr. Gershwind’s mother.  There are no other family relationships among any of our directors or executive officers.

Other Directorships

Mr. Jacobson was appointed a director of Ambrosia Holdings, L.P. in August 2017.  Mr. Jacobson previously served as a director of HD Supply Holdings, Inc. from October 2007 to December 2013.



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Michael Kaufmann

Business Experience

Mr. Kaufmann has served as Chief Executive Officer of Cardinal Health, Inc. since January 2018.  He previously served as Chief Financial Officer of Cardinal Health, Inc. from November 2014 to December 2017 and as Chief Executive Officer of the Pharmaceutical Segment of Cardinal Health, Inc. from August 2009 to November 2014.  Previously, he was Group President for the Medical distribution businesses of Cardinal Health, Inc. from April 2008 until August 2009.  Mr. Kaufmann served in other executive positions with Cardinal Health, Inc. from 1990 through 2008, and prior to that he worked for almost six years in public accounting with Arthur Andersen.

Specific Skills and Attributes

Mr. Kaufmann’s operational expertise and broad experience as a senior executive of a major healthcare services and products company makes him a valued asset to the Board.  His knowledge of the distribution business and supply chain management expertise provide the Board with critical insights.  In addition, having previously served as a chief financial officer of a large public company, Mr. Kaufmann brings additional finance and accounting expertise to our Board. Mr. Kaufmann qualifies as an “audit committee financial expert” as defined by applicable SEC rules.

Other Directorships

Mr. Kaufmann is also a director of Cardinal Health, Inc.







 

Denis Kelly

Business Experience

Mr. Kelly is an Investment Banker at Scura Paley Securities LLC, a private investment banking firm which he co-founded in 2001.  From 1993 to 2000, he was a Managing Director of Prudential Securities Inc.  Previously, he served as the President of Denbrook Capital Corporation, a merchant banking firm, from 1991 to 1993.  From 1980 to 1991, Mr. Kelly held various positions at Merrill Lynch, including Managing Director of Mergers and Acquisitions and Managing Director of Merchant Banking.  Mr. Kelly began his investment banking career at Lehman Brothers in 1974.

Specific Skills and Attributes

Mr. Kelly’s varied investment banking career, including extensive mergers and acquisitions experience, along with his service on other public and private boards of directors provide the Board with expertise in finance, business development and corporate governance.

Other Directorships

Mr. Kelly is also a director of Weight Watchers International, Inc. and Chairman of its Audit Committee.



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Steven Paladino

 

Business Experience

Mr. Paladino has served as Executive Vice President and Chief Financial Officer of Henry Schein, Inc. since 2000.  Prior to his current position, from 1993 to 2000, Mr. Paladino was Senior Vice President and Chief Financial Officer, from 1990 to 1992, he served as Vice President and Treasurer and, from 1987 to 1990, he served as Corporate Controller of Henry Schein, Inc. Before joining Henry Schein, Inc., Mr. Paladino was employed as a Certified Public Accountant for seven years, most recently with the international accounting firm of BDO Seidman LLP (now known as BDO USA, LLP).

Specific Skills and Attributes

Mr. Paladino brings to the Board extensive financial, accounting and distribution industry expertise.  Mr. Paladino’s skills in corporate finance and accounting provide the Board with expertise and depth in public company accounting issues, and his distribution-related experience provide the Board with critical knowledge and perspectives. Further, his experience as a public company director provides the Board with additional knowledge and perspectives on corporate governance matters. Mr. Paladino qualifies as an “audit committee financial expert” as defined by applicable SEC rules.

Other Directorships

Mr. Paladino is also a director of Henry Schein, Inc.







 

Philip Peller

 

Business Experience

Mr. Peller, who has served as our Lead Director since December 2007, was a partner of Andersen Worldwide S.C. and Arthur Andersen LLP from 1970 until his retirement in 1999.  He served as Managing Partner of Practice Protection and Partner Affairs for Andersen Worldwide S.C. from 1998 to 1999 and as Managing Partner of Practice Protection from 1996 to 1998.  He also served as the Managing Director of Quality, Risk Management and Professional Competence for Arthur Andersen’s global audit practice.

Specific Skills and Attributes

Mr. Peller’s extensive experience in global audit, financial, risk and compliance matters provides invaluable expertise to our Board.  In addition, Mr. Peller’s accounting background and experience allow him to provide the Board with unique insight into public company accounting issues and challenges, and also qualify him as an “audit committee financial expert” as defined by applicable SEC rules.



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Director Qualifications



The chart below demonstrates how our Board’s nominees for election at our 2019 annual meeting of shareholders provide the skills, experiences and perspectives that our Nominating and Corporate Governance Committee and our Board consider important for an effective board of directors.





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Industry Knowledge

 

Business Management Experience

 

Financial/Accounting
Experience

Name

 

Business to
Business
Distribution 

 

Supply
Chain
Management

 

Senior
Executive
Management

 

Public
Company
Corporate
Governance
and
Compensation

 

Mergers and
Acquisitions

 


Financial
Literacy

 

Financial
Reporting

Jonathan Byrnes

 

 

 

 

 

 

 

 

 

 

Roger Fradin

 

 

 

 

 

 

 

Erik Gershwind

 

 

 

 

 

 

 

 

Louise Goeser

 

 

 

 

 

 

 

 

 

Mitchell Jacobson

 

 

 

 

 

 

 

Michael Kaufmann

 

 

 

 

 

 

 

Denis Kelly

 

 

 

 

 

 

 

 

 

Steven Paladino

 

 

 

 

 

 

 

Philip Peller

 

 

 

 

 

 

 

 

 







The Board recommends a vote “FOR” the re-election of each of
Ms. Goeser and Messrs. Byrnes, Fradin, Gershwind, Jacobson, Kaufmann, Kelly, Paladino and Peller.

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CORPORATE GOVERNANCE



Director Independence



Pursuant to New York Stock Exchange listing standards, a majority of the members of our Board must be independent.  The Board must determine that each independent director has no material relationship with the company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company).  The Board follows the criteria set forth in Section 303A of the New York Stock Exchange listing standards to determine director independence.  Our independence criteria are also set forth in Section 1.1 of our Corporate Governance Guidelines, a copy of which is available on our website at www.mscdirect.com/corporategovernance.   In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independence determination.



The Board undertakes a review of director independence on an annual basis and as events arise which may affect director independence.  Based upon this review, the Board determined that Ms. Goeser and Messrs. Byrnes, Fradin, Kaufmann, Kelly, Paladino and Peller are independent in accordance with Section 303A.02 of the New York Stock Exchange listing standards and Rule 10A-3 promulgated under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, as well as under our Corporate Governance Guidelines.



In evaluating the independence of Ms. Goeser, the Board considered that Ms. Goeser (i) served as President and Chief Executive Officer of Grupo Siemens S.A. de C.V., an affiliate of Siemens AG, which is a customer and supplier of our company, until her retirement in May 2018 and (ii) is a director of Watts Water Technologies, Inc., which is a customer and supplier of our company.  Sales to and purchases from such companies were made in the ordinary course of business and amounted to significantly less than 0.5% of the recipient company’s gross revenues during its most recent fiscal year.



In evaluating the independence of Mr. Byrnes, the Board considered that Mr. Byrnes is a Senior Lecturer at MIT, which is a customer of our company.  Sales to MIT were made in the ordinary course of business and amounted to significantly less than 0.5% of our gross revenues during our most recent fiscal year.



In evaluating the independence of Mr. Fradin, the Board considered that Mr. Fradin (i) served as a director of Signode Industrial Group, which was a customer and supplier of our company, until it was acquired by Crown Holdings, Inc. in April 2018, (ii) is a director of Pitney Bowes Inc., which is a customer of our company and (iii) is a director of Harris Corporation, which is a customer of our company.  Sales to and purchases from such companies were made in the ordinary course of business and amounted to significantly less than 0.5% of the recipient company’s gross revenues during its most recent fiscal year.



In evaluating the independence of Mr. Kaufmann, the Board considered that Mr. Kaufmann is the Chief Executive Officer of Cardinal Health, Inc., which is a customer of our company.  Sales to Cardinal Health, Inc. were made in the ordinary course of business and amounted to significantly less than 0.5% of our gross revenues during our most recent fiscal year.



In evaluating the independence of Mr. Paladino, the Board considered that Mr. Paladino is the Executive Vice President and Chief Financial Officer of Henry Schein, Inc., which is a customer and supplier of our company.  Sales to and purchases from Henry Schein, Inc. were made in the ordinary course of business and amounted to significantly less than 0.5% of the recipient company’s gross revenues during its most recent fiscal year.



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Board Committees and Attendance



The standing committees of our Board are the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The table below provides the current membership of our Board and each of these committees and the number of meetings held by our Board and each of these committees during fiscal year 2018.





 

 

 

 

 

 

 

 

Name

 

Board

 

Audit
Committee

 

Compensation
Committee

 

Nominating
and Corporate
Governance
Committee

Jonathan Byrnes

 

LOGO

 

LOGO

 

 

 

LOGO

Roger Fradin

 

LOGO

 

 

 

LOGO

 

LOGO

Erik Gershwind

 

LOGO

 

 

 

 

 

 

Louise Goeser

 

LOGO

 

 

 

LOGO

 

LOGO

Mitchell Jacobson

 

LOGO

 

 

 

 

 

 

Michael Kaufmann LOGO

 

LOGO

 

LOGO

 

LOGO

 

 

Denis Kelly

 

LOGO

 

LOGO

 

LOGO

 

 

Steven Paladino LOGO

 

LOGO

 

LOGO

 

LOGO

 

 

Philip Peller LOGO

 

Picture 42

 

LOGO

 

 

 

LOGO

Fiscal Year 2018 Meetings

 

8

 

7

 

7

 

4



LOGO Lead Director     LOGO Chairperson   LOGO Audit Committee Financial Expert   LOGO Member



During fiscal year 2018, each of our current directors attended at least 75% of the aggregate number of meetings of our Board and of the committees of our Board on which he or she is a member.

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Board Committees



Audit Committee



Principal Functions



The principal functions of the Audit Committee are to:



·

assist in Board oversight of (i) the preparation and integrity of our financial statements, (ii) our compliance with our ethics policies and legal and regulatory requirements, (iii) our independent registered public accounting firm’s qualifications, performance and independence, and (iv) the performance of our internal audit function;

·

appoint (and be responsible for terminating) our independent registered public accounting firm;

·

recommend to the Board that the audited financial statements be included in our Annual Report on Form 10-K for filing with the SEC;

·

oversee risk management practices for our major financial risk exposures and the steps that have been taken to monitor and mitigate such exposures;

·

oversee cybersecurity risks and the company’s overall cybersecurity risk management program;

·

prepare an annual Audit Committee report to be included in our annual proxy statement; and

·

undertake an annual evaluation of its performance.

Composition and Charter



The Audit Committee is currently comprised of Messrs. Byrnes, Kaufmann, Kelly, Paladino and Peller, each of whom the Board has determined to be independent under both the rules of the SEC and the listing standards of the New York Stock Exchange and to meet the financial literacy requirements of the New York Stock Exchange. Mr. Peller is the Chairperson of the Audit Committee.  The Board has determined that each of Messrs. Peller, Kaufmann and Paladino qualifies as an “audit committee financial expert” within the meaning of the rules of the SEC.



The Audit Committee is directly responsible for the appointment, termination, compensation, retention and oversight of the work of our independent auditors.  The Audit Committee has adopted a written charter, a copy of which is available on our website at www.mscdirect.com/corporategovernance.  The Audit Committee has the authority to engage independent counsel and other advisors as it deems necessary to carry out its duties.  We are obligated to provide appropriate funding for the Audit Committee for these purposes.



Policy on Service on Other Audit Committees



Under our corporate governance guidelines, members of the Audit Committee may not serve as members of an audit committee for more than three public companies, including the Audit Committee of our Board.

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Compensation Committee



Principal Functions



The principal functions of the Compensation Committee are to:



·

review and approve corporate goals and objectives relevant to the compensation of our Chief Executive Officer;

·

evaluate our Chief Executive Officer’s performance in light of those goals and objectives;

·

determine and approve our Chief Executive Officer’s compensation level based on its evaluation of his performance;

·

set the compensation levels of all of our other executive officers, including with respect to our incentive compensation plans and equity-based plans;

·

review and recommend to the Board for approval any change in control agreements or severance plans or agreements with our Chief Executive Officer and our other executive officers;

·

recommend to our Board the compensation of our non-executive directors;

·

have the sole responsibility to retain and terminate the compensation consultant;

·

administer our equity incentive plans;

·

oversee risk management practices for risks relating to our overall compensation structure, including review of our compensation practices, in each case with a view toward assessing associated risks;

·

prepare a Compensation Committee report on executive compensation to be included in our annual proxy statement; and

·

undertake an annual evaluation of its performance.

Composition and Charter



Our Compensation Committee is currently comprised of Ms. Goeser and Messrs. Fradin, Kaufmann, Kelly and Paladino, each of whom is an independent director.  Mr. Kelly is the Chairperson of the Compensation Committee.  The Compensation Committee has adopted a written charter, a copy of which is available on our website at www.mscdirect.com/corporategovernance.



Delegation of Authority



The Compensation Committee does not delegate its responsibilities to any other directors or members of management.  Under our 2015 Omnibus Incentive Plan, the Compensation Committee is permitted to delegate its authority under such plan to a committee of one or more directors or one or more officers, in all cases to the extent permitted under applicable law, including New York Stock Exchange listing requirements.  However, as a matter of policy, the Compensation Committee authorizes all grants of awards under the 2015 Omnibus Incentive Plan.



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Compensation Processes and Procedures



The Compensation Committee makes all compensation decisions for our executive officers.  In fiscal year 2018, the views and recommendations of Mitchell Jacobson, our Chairman of the Board, and Erik Gershwind, our President and Chief Executive Officer, were considered by the members of the Compensation Committee in its review of the performance and compensation of individual executives.  The views and recommendations of Mr. Jacobson and Mr. Gershwind will continue to be considered by the members of the Compensation Committee in its review of the performance and compensation of individual executives.  In fiscal year 2018, Mr. Jacobson also provided input on Mr. Gershwind’s compensation.  In addition, the Compensation Committee obtains input from Mr. Gershwind on the compensation of the other named executive officers and other executive officers and senior officers.  Our Human Resources department and our Senior Vice President and Chief People Officer, Kari Heerdt, assist the Chairperson of the Compensation Committee in developing the agenda for Compensation Committee meetings and work with the Compensation Committee in developing agenda materials for the committee’s review, including coordinating and presenting management’s proposals and recommendations to the Compensation Committee with respect to executive and non-executive director compensation.  Ms. Heerdt and Mr. Gershwind regularly attend Compensation Committee meetings, excluding portions of meetings where their own compensation is discussed.  The Compensation Committee considers, but is not bound by, management’s proposals and recommendations with respect to executive compensation.



The Compensation Committee has the authority to retain and terminate any third-party compensation consultant and to obtain advice and assistance from internal and external legal, accounting and other advisors.  In connection with compensation decisions made by the Compensation Committee for fiscal year 2018, the Compensation Committee relied on competitive market data and analysis prepared by its independent compensation consultant, Frederic W. Cook & Co., Inc., a compensation consulting firm that we refer to in this proxy statement as FW Cook.  FW Cook provides research, market data and survey information and makes recommendations to the Compensation Committee regarding our executive compensation programs and our non-executive director compensation programs.  FW Cook advises the Compensation Committee on the competitiveness of our compensation arrangements and provides input, analysis and recommendations for the compensation paid to our named executive officers, other executives and non-management directors.  FW Cook provides data and analysis with respect to public companies having similar characteristics (including size, profitability, geography, business lines and growth rates) to those of our company.  As discussed under “Compensation Risk Assessment” on page 55 of this proxy statement, FW Cook also updated and confirmed the comprehensive risk assessment of our incentive-based compensation plans which FW Cook conducted in 2016 (and prepares on a triennial basis) to assist the Compensation Committee in its compensation risk assessment.  The Compensation Committee considers, but is not bound by, the consultant’s recommendations with respect to executive and non-executive director compensation.



During fiscal year 2018, the Compensation Committee reviewed the independence of FW Cook, its other advisors and the individuals employed by such advisors who furnish services to us, which included a consideration of the factors required by New York Stock Exchange listing standards.  Based on its review, the Compensation Committee determined that FW Cook, its other advisors and the individuals employed by such advisors who furnish services to us are independent and that their service does not raise any conflicts of interest that would prevent them from providing independent and objective advice to the committee.



Compensation Committee Interlocks and Insider Participation 



During fiscal year 2018, Ms. Goeser and Messrs. Fradin, Kaufmann, Kelly and Paladino served as members of our Compensation Committee.  None of the members of the Compensation Committee was, during or prior to fiscal year 2018, an officer of the company or any of our subsidiaries or had any relationship with us other than serving as a director and as a de minimis shareholder.  In addition, none of our directors has interlocking or other relationships with other boards, compensation committees or our executive officers that would require disclosure under Item 407(e)(4) of Regulation S-K.



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Nominating and Corporate Governance Committee



Principal Functions



The principal functions of the Nominating and Corporate Governance Committee are to:



·

identify individuals qualified to become members of our Board consistent with criteria approved by our Board;

·

review the qualifications and independence of the nominees for director;

·

recommend to our Board nominees for membership on our Board (only those candidates recommended by the Nominating and Corporate Governance Committee will be considered by our Board as nominees for director);

·

develop and recommend to our Board corporate governance principles and other corporate governance policies that are applicable to our company;

·

review and approve any related party transactions between the company and any officer, director, principal shareholder or immediate family member or other affiliate of such persons proposed to be entered into and, if appropriate, ratify any such transaction previously commenced and ongoing;

·

oversee the evaluation of our Board, Board Committees and our management;

·

oversee risk management practices for risks relating to governance and compliance matters;

·

assist in Board oversight of our compliance with our ethics policies; and

·

undertake an annual evaluation of its performance.

Composition and Charter



Our Nominating and Corporate Governance Committee is currently comprised of Ms. Goeser and Messrs. Byrnes, Fradin and Peller, each of whom is an independent director.  Ms. Goeser is the Chairperson of the Nominating and Corporate Governance Committee.  The Nominating and Corporate Governance Committee has adopted a written charter, a copy of which is available on our website at www.mscdirect.com/corporategovernance.



Policy Regarding Shareholder Nominations for Director



The Nominating and Corporate Governance Committee of our Board believes that the best director candidates will be those who have a number of qualifications, including independence, knowledge, judgment, integrity, character, leadership skills, education, experience, financial literacy, standing in the community and an ability to foster a diversity of backgrounds and views and to complement our Board’s existing strengths.  There are no specific, minimum or absolute criteria for Board membership.  The Nominating and Corporate Governance Committee seeks to achieve a balance and diversity of knowledge, experience and capability on our Board, while maintaining a sense of collegiality and cooperation that is conducive to a productive working relationship within the Board and between the Board and management.  The Nominating and Corporate Governance Committee also believes that it is important for directors to have demonstrated an ethical and successful career.  Such a career may include:



·

experience as a senior executive of a publicly traded corporation, a management consultant, an investment banker, a partner at a law firm or registered public accounting firm or a professor at an accredited law or business school;

·

experience in the management or leadership of a substantial private business enterprise, educational, religious or not-for-profit organization; or

·

such other professional experience as the Nominating and Corporate Governance Committee determines qualifies an individual for Board service. 

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At all times, the Nominating and Corporate Governance Committee will make every effort to ensure that our Board and its committees include at least the required number of independent directors, as that term is defined by applicable standards promulgated by the New York Stock Exchange and the SEC.  In addition, prior to nominating an existing director for re-election to our Board, the Nominating and Corporate Governance Committee will consider and review such existing director’s attendance and performance, independence, experience, skills and contributions as an existing director to our Board.



The Nominating and Corporate Governance Committee may employ third-party search firms to identify director candidates, if so desired.  The Nominating and Corporate Governance Committee will review and consider recommendations from a wide variety of contacts, including current executive officers, directors, community leaders and shareholders, as a source for potential director candidates.



The Nominating and Corporate Governance Committee will consider qualified director candidates recommended by shareholders in compliance with our procedures and subject to applicable inquiries.  The Nominating and Corporate Governance Committee does not have different standards for evaluating nominees depending on whether they are proposed by our directors or by our shareholders.  Any shareholder may recommend a nominee for director at least 120 calendar days prior to the one-year anniversary of the date on which our proxy statement was released to shareholders in connection with the previous year’s annual meeting, by writing to Corporate Secretary, MSC Industrial Direct Co., Inc., 75 Maxess Road, Melville, NY 11747, and providing the following information:



·

the name, company shareholdings and contact information of the person making the nomination;

·

the candidate’s name, address and other contact information;

·

any direct or indirect holdings of our securities by the nominee;

·

any information required to be disclosed about directors under applicable securities laws and/or stock exchange requirements;

·

information regarding related party transactions with the company and/or the shareholder submitting the nomination;

·

any actual or potential conflicts of interest; and

·

the nominee’s biographical data, current public and private company affiliations, employment history and qualifications and status as “independent” under applicable securities laws and stock exchange requirements.

All of these communications will be reviewed by our Senior Vice President, General Counsel and Corporate Secretary and forwarded to Ms. Goeser, the Chairperson of the Nominating and Corporate Governance Committee, for further review and consideration in accordance with this policy.  Any such shareholder recommendation should be accompanied by a written statement from the candidate of his or her consent to be named as a candidate and, if nominated and elected, to serve as a director.

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Board Leadership Structure; Executive Sessions of the Independent Directors



Our Board functions collaboratively and emphasizes active participation and leadership by all of its members.  Our Board currently consists of nine directors, each of whom, other than Messrs. Gershwind and Jacobson, is independent under our Corporate Governance Guidelines and the applicable rules of the New York Stock Exchange.  Mr. Gershwind has served as our President and Chief Executive Officer since January 1, 2013 and as a member of our Board since 2010.  Mr. Jacobson, who is one of our principal shareholders, was appointed our Chairman of the Board in January 1998 and became Non-executive Chairman of the Board effective January 1, 2013.  Mr. Jacobson previously served as our President from October 1995 through November 2003, and as our Chief Executive Officer from October 1995 through November 2005.  The Board has separated the roles of Chairman and Chief Executive Officer since 2005 and has appointed a non-management, lead director since 2007.



Our Board of Directors believes that the most effective Board leadership structure for our company at the present time is for the roles of Chief Executive Officer and Chairman of the Board to be separated.  Under this structure, our Chief Executive Officer is generally responsible for setting the strategic direction for our company and for providing the day-to-day leadership over our operations, and our Chairman of the Board sets the agenda for meetings of the Board and presides over Board meetings.  In addition, our independent directors meet at regularly scheduled executive sessions without members of management present.  Mr. Peller, who has served as our Lead Director since 2007, serves as the presiding director at the executive sessions of the independent directors.  The Lead Director also has such other duties and responsibilities as determined by the Board from time to time.  Those additional duties and responsibilities include:



·

making recommendations to the Board regarding the structure of Board meetings;

·

recommending matters for consideration by the Board;

·

determining appropriate materials to be provided to the directors;

·

serving as an independent point of contact for shareholders wishing to communicate with the Board;

·

assigning tasks to the appropriate Board committees with the approval of the Nominating and Corporate Governance Committee; and

·

acting as a liaison between management and the independent directors. 

Our Board retains the authority to modify this leadership structure as and when appropriate to best address our unique circumstances at any given time and to serve the best interests of our shareholders.





Role of the Board in Risk Oversight



Our Board’s role in risk oversight involves both the full Board and its committees.  The full Board is responsible for the oversight of risk management and reviews our major financial, operational, cybersecurity, compliance, reputational and strategic risks, including steps to monitor, manage and mitigate such risks.  In addition, each of the Board committees is responsible for oversight of risk management practices for categories of risks relevant to their functions.  For example, the Audit Committee discusses with management our major financial risk exposures and the steps that have been taken to monitor and mitigate such exposures, including with respect to risk assessment and risk management.  The Audit Committee is also responsible for oversight of cybersecurity risks, as well as the company’s overall cybersecurity risk management program.  Similarly, the Nominating and Corporate Governance Committee has oversight responsibility over governance and compliance matters and the Compensation Committee has oversight responsibility for our overall compensation structure, including review of its compensation practices, in each case with a view to assessing associated risks.  Please see “Compensation Risk Assessment” on page 55 of this proxy statement.



The Board as a group is regularly updated on specific risks in the course of its review of corporate strategy, business plans and reports to the Board by management and its respective committees.  The Board believes that its leadership structure supports its risk oversight function by providing a greater role for the independent directors in the oversight of our company.

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Corporate Governance Guidelines



We have adopted Corporate Governance Guidelines, which are available on our website at www.mscdirect.com/corporategovernance.





Director Attendance at Shareholder Meetings



We encourage attendance by the directors at our annual meeting of shareholders.  All of our current directors attended the annual meeting held on January 25, 2018, either in person or by telephone.





Non-Executive Director Stock Ownership Guidelines



To more closely align the interests of our non-executive directors with those of our shareholders, our Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, adopted stock ownership guidelines for all of our non-executive directors in 2011.  The ownership guidelines provide for each of our non-executive directors to own a minimum number of shares having a value equal to five times his or her base annual cash retainer (i.e., a value equal to $210,000 for directors whose tenure began before the adoption of the guidelines and a value equal to $250,000 for Messrs. Kaufmann and Paladino).  All shares held by our non-executive directors, including unvested restricted stock units, count toward this guideline.  The guidelines provide for our non-executive directors to reach this ownership level within the later of five years from the date on which the guidelines were adopted or five years from the date on which the director is first appointed or elected.  Once a non-executive director has attained his or her minimum ownership requirement, he or she must maintain at least that level of ownership.  If a non-executive director has not satisfied his or her proportionate minimum stock ownership guideline, the director must retain an amount equal to 100% of the net shares received as a result of the exercise of stock options or the vesting of restricted stock units.  All of our non-executive directors are in compliance with their current stock ownership guidelines.





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Overview of Director Compensation



Our Compensation Committee is responsible for reviewing and making recommendations with respect to the compensation of our non-executive directors.  Our Compensation Committee’s policy is to engage a compensation consultant every year to conduct a full review and benchmarking (using the same peer group used to benchmark executive compensation) of our non-executive directors’ compensation in order to ensure that our directors’ compensation is in line with peer companies competing for director talent.  In fiscal year 2018, our Compensation Committee engaged FW Cook as its compensation consultant.



The key objective of our non-executive directors’ compensation program is to attract and retain highly qualified directors with the necessary skills, experience and character to oversee our management.  In addition, our compensation program is designed to align the interests of our Board with the long-term interests of our shareholders.  The compensation program is also designed to recognize the time commitment, expertise and potential liability required of active Board membership.  We compensate our non-executive directors with a mix of cash and equity-based compensation.  Directors who are also executives of the company do not receive any compensation for their service on our Board.





Fiscal Year 2018 Director Compensation



For the fiscal year ended September 1, 2018, we paid each non-executive director the following compensation:



·

a retainer per director for service on our Board of $50,000 per year (which increased to $55,000 per year in August 2018);

·

a fee for attendance at a Board meeting of $2,000 per meeting;

·

a fee for attendance at a committee meeting of $1,700 per meeting;

·

an additional retainer for the chairperson of the Audit Committee of $20,000 per year;

·

an additional retainer for the chairperson of the Compensation Committee of $12,500 per year;

·

an additional retainer for the chairperson of the Nominating and Corporate Governance Committee of $10,000 per year; and

·

an annual grant of restricted stock units representing shares having an aggregate fair market value of $115,000 on the date of grant to each director upon his or her election or reelection to our Board; 50% of these shares vest on the first anniversary of the date of grant and 50% vest on the second anniversary of the date of grant.

In the event that a director ceases to provide services to the company by virtue of his or her death, disability or retirement (which means cessation of services with approval of the Board), the vesting of outstanding restricted stock units will accelerate and the shares underlying the restricted stock units will become fully vested.  In addition, in the event of a change in control of the company, the vesting of all outstanding restricted stock units held by the director will accelerate, and all shares underlying restricted stock units will become fully vested.  A change in control of the company for purposes of the 2015 Omnibus Incentive Plan is described above under the section entitled “Executive Compensation – Potential Payments Upon Termination or Change in Control –Change in Control Arrangements.



In October 2014, our Compensation Committee recommended, and our Board approved, a change in the non-executive compensation for Mr. Jacobson. Due to the level of his stock ownership, Mr. Jacobson and the company would need to make a filing and he would need to pay a filing fee under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in connection with the annual equity grant. Under these circumstances, our Board, upon the recommendation of our Compensation Committee, decided that it was appropriate to pay Mr. Jacobson cash in lieu of the annual equity grant, such amount to be paid quarterly in arrears.

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Director compensation is paid quarterly in arrears.  The cash compensation of directors who serve less than a full quarter is pro-rated for the number of days actually served.  Directors who are appointed between annual shareholder meetings receive a pro-rated equity award upon appointment to our Board.  In addition, we reimburse our non-executive directors for reasonable out-of-pocket expenses incurred in connection with attending in-person Board or Board committee meetings and for fees incurred in attending continuing education courses for directors that are approved in advance by the company.



In July 2018, FW Cook conducted a competitive analysis of our non-executive directors’ compensation using the same peer group used to benchmark executive compensation.  Based on this analysis, FW Cook concluded that, on a normalized basis, the average total annual compensation per non-executive director (excluding our Non-Executive Chairman) in fiscal year 2018 was slightly below the median of the peer group and the relative mix of cash and equity components of such compensation was aligned with the median of the peer group.





Changes in Fiscal Year 2019 Director Compensation



In August 2018, in consultation with FW Cook, our Compensation Committee recommended, and our Board approved, an increase in the retainer per director for service on our Board from $50,000 to $55,000 per year and an increase in the aggregate fair market value of the shares underlying the annual grant of restricted stock units from $115,000 to $120,000.

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Non-Executive Director Summary Compensation in Fiscal Year 2018



The following table presents the compensation paid to our non-executive directors in respect of fiscal year 2018 for their services as directors.  Mr. Gershwind, as an executive officer of the company, did not receive compensation for his services as a director of the company in fiscal year 2018.







 

 

 

 

 

 

 

 

Name

 

Fees Earned
or Paid
in Cash
($) (1)

 

Stock
Awards
($) (2)(3)

 

All Other
Compensation
($) (4)

 

Total
($)

Jonathan Byrnes (5)

 

88,429 

 

115,032 

 

 —

 

203,461 

Roger Fradin (5)

 

88,429 

 

115,032 

 

 —

 

203,461 

Louise Goeser (5)

 

98,429 

 

115,032 

 

 —

 

213,461 

Mitchell Jacobson (5)

 

179,329 

 

 —

 

249,500 

 

428,829 

Michael Kaufmann (5)

 

93,529 

 

115,032 

 

 —

 

208,561 

Denis Kelly (5)

 

106,029 

 

115,032 

 

 —

 

221,061 

Steven Paladino (5)

 

89,829 

 

115,032 

 

 —

 

204,861 

Philip Peller (5)

 

108,429 

 

115,032 

 

 —

 

223,461 

_____________________________

(1)

Reflects annual cash Board and Board committee retainers, Board meeting fees, standing Board committee meeting fees and other Board committee meeting fees earned by our non-executive directors for services provided during fiscal year 2018.  Also includes Mr. Jacobson’s $115,000 cash payment in lieu of the annual equity grant.

(2)

The amounts in this column do not reflect compensation actually received by our non-executive directors nor do they reflect the actual value that will be recognized by the non-executive directors.  Instead, the amounts reflect the grant date fair value of restricted stock unit awards calculated in accordance with FASB ASC Topic 718.  The grant date fair value of restricted stock unit awards was calculated using the closing market price of our Class A common stock as reported on the New York Stock Exchange on the date of grant.  Dividends are not paid on unvested restricted stock units.  Dividend equivalent units accrue on unvested restricted stock units and vest at the same time as the underlying restricted stock units.

(3)

M. Goeser and Messrs. Byrnes, Fradin, Kaufmann, Kelly, Paladino and Peller each received a grant of 1,161 restricted stock units on January 25, 2018 following our 2018 annual meeting of shareholders. One-half of these restricted stock units will vest on January 25, 2019 and the remaining one-half of these restricted stock units will vest on January 25, 2020.

(4)

As our Non-executive Chairman of the Board, Mr. Jacobson continues to participate in our 401(k) plan (which includes company matching contributions of 50% up to the first 6% of his contributions) and our group term life insurance program. In addition, we provide Mr. Jacobson with access to an employee of the company to serve as his personal administrative assistant. We incurred payroll and fringe benefit costs for Mr. Jacobson’s personal assistant in fiscal year 2018 of $155,358 and made $92,642 in tax gross-up payments to Mr. Jacobson to reimburse him for income taxes in respect of the fiscal year 2018 compensation attributed to him for the use of the personal administrative assistant. Mr. Jacobson received $1,500 in 401(k) matching funds from the company during fiscal year 2018.

(5)

The table below shows the aggregate number of unvested stock awards held by our non-executive directors as of September 1, 2018, which number includes dividend equivalent units accrued on restricted stock units through that date.







 

 

Name

 

Stock Awards
(Number of Underlying Shares)

Jonathan Byrnes

 

1,753

Roger Fradin

 

1,753

Louise Goeser

 

1,753

Mitchell Jacobson

 

Michael Kaufmann

 

1,753

Denis Kelly

 

1,753

Steven Paladino

 

1,753

Philip Peller

 

1,753



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Code of Ethics and Code of Business Conduct



We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer and senior financial officers and a Code of Business Conduct that applies to all of our directors, officers and associates.  The Code of Ethics and the Code of Business Conduct are available on our website at www.mscdirect.com/corporategovernance.  We intend to disclose on our website, in accordance with all applicable laws and regulations, amendments to, or waivers from, our Code of Ethics and our Code of Business Conduct.





Corporate Social Responsibility



Our purpose is to provide greater value to our stakeholders, which include our associates, customers, owners, suppliers and communities, by helping them achieve their potential and greater success.  We express that purpose through our “Built to Make You Better” brand promise, and we sum up our values and guiding principles in four simple words: Do the right thing.  Information about our sustained effort to “do the right thing” is contained in our 2018 Corporate Social Responsibility Report, which is focused on stakeholder categories frequently used by investors and other organizations to evaluate corporate social responsibility commitment and performance: (i) environment, (ii) community & society, (iii) associates, (iv) suppliers, (v) customers, and (vi) shareholders.  Our 2018 Corporate Social Responsibility Report is available on our website at www.mscdirect.com/corporategovernance.  





Shareholder Communications Policy



Any shareholder or other interested party who desires to communicate with our Chairman of the Board, Lead Director or non-management members of our Board may do so by writing to: Board, c/o Philip Peller, Lead Director of the Board, MSC Industrial Direct Co., Inc., 75 Maxess Road, Melville, NY 11747.  Communications may be addressed to the Chairman of the Board, the Lead Director, an individual director, a Board committee, the non-management directors or the full Board.





Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Exchange Act requires our executive officers, directors and persons who own beneficially more than 10% of our Class A common stock to file initial reports of ownership and reports of changes in ownership with the SEC.  Based solely on our review of the copies of such forms furnished to us and written representations from our executive officers, directors and such beneficial owners, we believe that all filing requirements of Section 16(a) of the Exchange Act were timely complied with during the fiscal year ended September 1, 2018.

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Written Related Person Transactions Policy



We have adopted a written related person transactions policy detailing the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise questions as to whether such transactions are consistent with the best interest of the company and our shareholders.  The Nominating and Corporate Governance Committee must review and approve any related person transaction proposed to be entered into and, if appropriate, ratify any such transaction previously commenced and ongoing.  The Nominating and Corporate Governance Committee may delegate its authority under the policy to the Chairperson of the Nominating and Corporate Governance Committee, who may act alone.  The Chairperson will report to the Nominating and Corporate Governance Committee at the next meeting any approval made pursuant to such delegated authority.  Based on its consideration of all of the relevant facts and circumstances, the Nominating and Corporate Governance Committee will decide whether or not to approve any related person transaction.



Under our related person transactions policy, any relationship, arrangement or transaction between the company and (a) any director, executive officer or any immediate family member of either a director or an executive officer, (b) any beneficial owner of more than 5% of our Class A common stock or (c) any entity in which any of the foregoing is employed or is a partner, principal or owner of a 5% or more ownership interest, is deemed a related person transaction, subject to certain exceptions, including (i) transactions available to all associates generally, (ii) transactions involving less than $25,000 in any 12-month period when aggregated with all similar transactions during such period, (iii) transactions involving executive compensation approved by our Compensation Committee or director compensation approved by our Board and (iv) certain charitable contributions.





Related Person Transactions



Other than compensation arrangements, including those described under the sections entitled “Executive Compensation” beginning on page 57 of this proxy statement and “Director Compensation” beginning on page 24 of this proxy statement, and the agreement described below, since the beginning of fiscal year 2018, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we have been or will be a participant:



·

in which the amount involved exceeded or will exceed $120,000; and

·

in which any director, nominee, executive officer, beneficial owner of more than 5% of our Class A common stock or our Class B common stock or any member of their immediate family had or will have a direct or indirect material interest.

Stock Purchase Agreement



On July 25, 2018, we entered into a stock purchase agreement with Mitchell Jacobson, our Chairman, Erik Gershwind, our President and Chief Executive Officer, and three other beneficial owners (collectively, the “Sellers”) of our Class B common stock, as amended on July 30, 2018 and August 29, 2018 (the “Stock Purchase Agreement”). Pursuant to the Stock Purchase Agreement, in connection with our existing share repurchase authorization, each Seller agreed to sell or cause to be sold by trusts or other entities on whose behalf such Seller acted, and we agreed to purchase, a pro rata number of shares of Class A common stock, such that the Sellers’ aggregate percentage ownership in the company would remain substantially the same. Shares purchased under the Stock Purchase Agreement were purchased each month at a price per share equal to the volume weighted average market price that we paid for shares repurchased during the previous month from holders of our Class A common stock under our share repurchase authorization.  The Stock Purchase Agreement was approved by our Nominating and Corporate Governance Committee as well as the disinterested members of our Board.  Pursuant to the Stock Purchase Agreement, we purchased an aggregate of 283,239 shares of our Class A common stock from the Sellers and/or such trusts or other entities for an aggregate purchase price of approximately $23.4 million. On October 29, 2018, we entered into a termination agreement with the Sellers pursuant to which the Stock Purchase Agreement was terminated.

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EXECUTIVE OFFICERS



The following individuals are our executive officers as of the date of this proxy statement:





 

 

 

 

 

 

Name of Officer

 

Position

 

Age

 

Executive Officer
Since

Erik Gershwind

 

President and Chief Executive Officer

 

47

 

December 2005

Rustom Jilla

 

Executive Vice President and Chief Financial Officer

 

57

 

July 2015

Douglas Jones

 

Executive Vice President and Chief Supply Chain Officer

 

54

 

December 2005

Steve Armstrong

 

Senior Vice President, General Counsel and Corporate Secretary

 

60

 

October 2008

Steven Baruch

 

Executive Vice President and Chief Strategy & Marketing Officer

 

50

 

March 2016

Charles Bonomo

 

Senior Vice President and Chief Information Officer

 

53

 

July 2007

Kari Heerdt

 

Senior Vice President and Chief People Officer

 

51

 

August 2014

Gregory Polli

 

Senior Vice President, Category Management

 

55

 

March 2016

David Wright

 

Senior Vice President, Sales

 

50

 

March 2016



Erik Gershwind



Please refer to the section entitled “Election of Directors (Proposal No. 1)” beginning on page 8 of this proxy statement for the biographical data for Mr. Gershwind.



Rustom Jilla



Mr. Jilla was appointed our Executive Vice President and Chief Financial Officer in July 2015.  From April 2013 through September 2014, Mr. Jilla served as Chief Financial Officer of Dematic Group, a global provider of warehouse logistics and inventory management solutions.  From September 2002 to April 2013, he served as Chief Financial Officer of Ansell Limited, a global leader in protective solutions, publicly traded on the Australian Securities Exchange. Prior to that, Mr. Jilla served as Vice President, Financial Operations at PerkinElmer Inc., and earlier spent 12 years at The BOC Group, a multinational industrial gas company that was acquired by Linde AG in 2006, where he held various Product Management and Finance leadership roles.  He began his career in auditing with Coopers & Lybrand (now PricewaterhouseCoopers LLP).



Douglas Jones



Mr. Jones was appointed our Executive Vice President and Chief Supply Chain Officer in October 2014, having previously served as our Executive Vice President, Global Supply Chain Operations since October 2009.  Previously, he was our Senior Vice President, Supply Chain Management from April 2008 until October 2009 and our Senior Vice President of Logistics from December 2005 until April 2008.  Mr. Jones joined our company in July 2001, as Vice President of Fulfillment.  Prior to joining our company, he served as Vice President, Distribution Operations for the Central Region of the United States, at Fisher Scientific from 1998 to 2001.  Prior to his role at Fisher Scientific, Mr. Jones was part of the management team at McMaster-Carr Supply Company, based in Chicago.  During his tenure with McMaster-Carr, Mr. Jones held various managerial positions of increasing responsibility in fulfillment, finance, purchasing and inventory management.



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Steve Armstrong



Mr. Armstrong was appointed our Senior Vice President, General Counsel and Corporate Secretary in October 2012.  Previously, he served as our Vice President, General Counsel and Corporate Secretary from October 2008 until October 2012.  From 2006 to 2008, he was a legal consultant based in New York, New York performing services for Thomson Reuters and NBC Universal.  Mr. Armstrong was the Executive Vice President and General Counsel of the Home Shopping Network in Tampa, Florida from 2002 to 2006.  From 2000 to 2002, he was the Senior Vice President and General Counsel of Agilera, Inc., a technology company in Denver, Colorado.  Prior to 2000, Mr. Armstrong was the Vice President, General Counsel & Secretary of Samsonite Corporation and a partner in the law firms Paul Hastings, and Baker and Hostetler.



Steven Baruch



Mr. Baruch was appointed our Executive Vice President and Chief Strategy & Marketing Officer in August 2017.  Previously, he served as our Senior Vice President, Strategy and Marketing, a position he held from July 2015 until August 2017.  Prior to that, he served as our Vice President of Digital & Strategy, a position he held from 2014 until July 2015, and as our Vice President of eCommerce from November 2010 until May 2014.  Mr. Baruch began his career with our company in May 2008.  Prior to joining our company, Mr. Baruch served as Senior Vice President of Sales and Managed Services for Adecco where he was responsible for leading B2B sales and marketing with focus on digital, web and eCommerce strategy and execution.  Previously, he held various executive positions at global electronics distributor Arrow Electronics, including Director of Sales, Marketing, and Public Relations for arrow.com.



Charles Bonomo



Mr. Bonomo was appointed our Senior Vice President and Chief Information Officer in August 2011.  Previously, he served as our Vice President and Chief Information Officer from July 2007 through August 2011.  From 1999 through 2007 he served as Vice President at Arrow Electronics, Inc., including in the position of Vice President of Infrastructure and Operations from January 2006 to July 2007, and as Vice President and Chief Architect from July 2003 through January 2006.  Previously, he was the Director of Clinical Technology at Mount Sinai Medical Center from 1996 to 1998, rising to Vice President and Chief Information Officer of NYU Health System in 1998.  Prior to 1996, he held various positions of increasing responsibility at J.P. Morgan in the United States and Europe and at Grumman Aerospace Corp., where he designed and tested software for the F14 Tomcat aircraft.



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Kari Heerdt



Ms. Heerdt was appointed our Chief People Officer in August 2014.  Previously, Ms. Heerdt served as Partner, Strategic Account Executive at Aon Hewitt, the global talent, retirement and health business of Aon Plc (NYSE: AON), where she oversaw one of Aon Hewitt’s largest clients. Prior to that, Ms. Heerdt was a Senior Consultant at Hewitt in the Corporate Restructuring and Change, Talent and Organization Consulting practice, later becoming the Senior Manager, Operations for Cerberus Capital Management, a leading investment management firm, before becoming the Senior Vice President, Human Resources for two of Cerberus’ portfolio companies, Mervyn’s LLC and Talecris Biotheraputics, Inc.  Ms. Heerdt served as Senior Vice President, Human Resources for Mervyn’s LLC from April 2005 until January 2008.



Gregory Polli



Mr. Polli was appointed our Senior Vice President, Category Management in July 2015.  Previously, he served as our Vice President, Product Management from November 2005 to July 2015, our Vice President, Metalworking from November 2002 to November 2005, our Vice President, Metalworking Merchandising from April 2002 to November 2002 and our Vice President, Product from October 1999 to April 2002.  Prior to that, Mr. Polli held various positions of increasing responsibility at our company in product management and merchandising since joining our company in 1988.



David Wright



Mr. Wright was appointed our Senior Vice President, Sales in July 2015.  Previously, Mr. Wright served as our Vice President, Field Sales from February 2008 to July 2015, our Vice President, North Region from May 2006 to February 2008 and our National Director of Sales from August 2001 to May 2006.  Prior to that, Mr. Wright held various positions of increasing responsibility at our company in sales since joining our company in 1998.  Mr. Wright will resign from his position as Senior Vice President, Sales, effective January 2019.



There are no arrangements or understandings between any executive officer and any other person pursuant to which the executive officer was, or is to be, selected as an officer of our company.

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RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROPOSAL NO. 2)



Our Audit Committee has appointed the firm of Ernst & Young LLP, which has been our independent registered public accounting firm since 2002, to serve as our independent registered public accounting firm for fiscal year 2019.  Although shareholder ratification of the Audit Committee’s action in this respect is not required, our Board considers it desirable for shareholders to pass upon the selection of the independent registered public accounting firm.  If the shareholders disapprove of the selection, our Audit Committee intends to reconsider the selection of Ernst & Young LLP as our independent registered public accounting firm.



Ernst & Young LLP has advised us that neither it nor any of its members has any direct or material indirect financial interest in our company.  We expect that a representative from Ernst & Young LLP will be present at the annual meeting.  This representative will have the opportunity to make a statement if he or she so desires and is expected to be available to respond to appropriate questions.





Principal Accountant Fees and Services



For the fiscal years ended September 1, 2018 and September 2, 2017, Ernst & Young LLP billed us for their services the fees set forth in the table below.  All audit and permissible non-audit services reflected in the fees below were pre-approved by the Audit Committee in accordance with established procedures.







 

 

 

 

 



 

 

 

 

 



Fiscal Year



2018 

 

2017 

Audit fees (1)

$

1,435,000 

 

$

1,695,000 

Audit-related fees (2)

$

182,000 

 

$

142,000 

Tax fees (3)

$

108,000 

 

$

47,000 

All Other Fees

 

 —

 

 

 —

Total

$

1,725,000 

 

$

1,884,000 

_____________________________

(1)

Reflects audit fees for professional services rendered by Ernst & Young LLP for the audit of our annual financial statements, audit of management’s assessment of internal control over financial reporting and the effectiveness of internal control over financial reporting and related opinions, review of financial statements included in our quarterly reports on Form 10-Q, services that were provided in connection with statutory and regulatory filings or engagements and advice on compliance with financial accounting and reporting standards.  These fees were lower in fiscal year 2018 as compared to fiscal year 2017 primarily due to the higher level of audit work in fiscal year 2017 related to the implementation of SAP financial software.

(2)

Reflects audit-related fees for assurance and related services by Ernst & Young LLP that were reasonably related to the performance of the audit or review of our financial statements.  The nature of the services performed for these fees was the audit of our 401(k) plan in fiscal years 2018 and 2017 and due diligence services provided in connection with acquisitions in fiscal years 2018 and 2017.

(3)

Reflects tax fees for professional services rendered by Ernst & Young LLP for tax compliance, tax advice and tax planning.  The nature of the services performed for these fees was for assistance in United Kingdom and United States federal and state tax compliance and state and local tax consultation and tax advice provided in connection with our equity compensation plans.





Audit Committee Pre-Approval Policy



The Audit Committee is required to pre-approve all audit and non-audit services provided by our independent registered public accounting firm and is not permitted to engage the independent registered public accounting firm to perform any non-audit services proscribed by law or regulation.  The Audit Committee may delegate pre-approval authority to the Chairperson of the Audit Committee, in which case decisions taken are to be presented to the full Audit Committee at its next meeting.



The Audit Committee of the Board has considered whether, and has determined that, the provision of non-audit services by Ernst & Young LLP is compatible with maintaining auditor independence.





The Board recommends a vote “FOR” the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2019.

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AUDIT COMMITTEE REPORT



The information contained under this “Audit Committee Report” shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any filings under the Securities Act of 1933, as amended, which we refer to as the Securities Act, or under the Exchange Act, except to the extent that we specifically incorporate this information by reference into any such filing.



The Audit Committee oversees the company’s financial accounting and reporting processes and systems of internal controls on behalf of our Board.  Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls.  The Audit Committee is directly responsible for the appointment, termination, compensation, retention and oversight of the work of our independent auditors.  The Audit Committee consists of the five directors named below, each of whom is an independent director as defined by applicable SEC rules and NYSE listing standards.



Each year the Audit Committee evaluates the qualifications, performance and independence of our independent registered public accounting firm and determines whether to reengage the current firm. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the independent registered public accounting firm, its capabilities, its technical expertise, its knowledge of our operations and the appropriateness of its fees for audit and non-audit services. Based on this evaluation, the Audit Committee appointed Ernst & Young LLP as our independent registered public accounting firm to examine our consolidated financial statements and internal controls over financial reporting for fiscal year 2018.  In addition, the Audit Committee is directly involved in selecting the lead audit engagement partner whenever a rotational change is required, normally every five years.  Our company’s lead audit engagement partner was most recently changed for the fiscal year 2017 audit.



Our financial and senior management supervise our systems of internal controls and the financial reporting process.  Our independent registered public accounting firm performs an independent audit of our consolidated financial statements in accordance with generally accepted auditing standards and expresses an opinion on these consolidated financial statements.  In addition, our independent registered public accounting firm expresses its own opinion on the company’s internal control over financial reporting.  The Audit Committee monitors these processes.



The Audit Committee has reviewed and discussed with both the management of the company and our independent registered public accounting firm our audited consolidated financial statements for the fiscal year ended September 1, 2018, as well as management’s assessment and our independent registered public accounting firm’s evaluation of the effectiveness of our internal controls over financial reporting.  Our management represented to the Audit Committee that our audited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.



The Audit Committee discussed with our internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits.  The Audit Committee met with the company’s Director of Internal Audit and the independent registered public accounting firm, with and without management present, to discuss the results of their audits, their evaluations of our internal controls, including internal control over financial reporting, and the overall quality of our financial reporting.

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The Audit Committee also discussed with our independent registered public accounting firm the matters required to be discussed by our independent registered public accounting firm with the Audit Committee under the rules adopted by the Public Company Accounting Oversight Board.  The Audit Committee has also received the written disclosures and the letter from our independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independence of that firm.  The Audit Committee has also considered whether the provision of non-audit services by our independent registered public accounting firm is compatible with maintaining the independence of the auditors.  The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm.  All audit and permissible non-audit services performed by our independent registered public accounting firm during fiscal year 2018 and fiscal year 2017 were pre-approved by the Audit Committee in accordance with established procedures.



Based on the reviews and discussions referred to above, the Audit Committee recommended to our Board (and our Board approved) that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended September 1, 2018, which was filed with the SEC on October 30, 2018.



Submitted by the Audit Committee of the Board,



Philip Peller (Chairperson)

Jonathan Byrnes

Michael Kaufmann

Denis Kelly

Steven Paladino

 

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COMPENSATION DISCUSSION AND ANALYSIS



In this section, we discuss the material elements of our compensation programs and policies, including the objectives of our compensation programs and the reasons why we pay each element of our executives’ compensation.  Following this discussion, you will find a series of tables containing more specific details about the compensation earned by or awarded to the following individuals, whom we refer to as the named executive officers or NEOs.  This discussion focuses principally on compensation and compensation practices relating to the NEOs for our 2018 fiscal year.



Name

 

Position

Erik Gershwind

 

President and Chief Executive Officer

Rustom Jilla

 

Executive Vice President and Chief Financial Officer

Douglas Jones

 

Executive Vice President and Chief Supply Chain Officer

Steve Armstrong

 

Senior Vice President, General Counsel and Corporate Secretary

Steven Baruch

 

Executive Vice President and Chief Strategy & Marketing Officer



Executive Summary



Fiscal 2018 Performance Highlights



In fiscal year 2018, we generated strong operating results in a strengthening macro-economic environment.  At the same time, we completed the company’s transition from a spot buy supplier to a mission critical partner on manufacturing floors across North America.  By focusing on products and services that are technical and high-touch, we have cemented our leadership in metalworking and gained solid traction in the Class C VMI space.  We also established a new platform in OEM fasteners.  Most recently, we transitioned our sales force to deliver upon the new, more complex and high-touch role that we play for our customers to enable our customers to achieve higher levels of growth, productivity, and profitability.  Our operating performance in fiscal 2018 was highlighted by the following achievements:



·

diluted earnings per share increased to $5.80 from $4.05 in fiscal 2017;

·

we continued to build stronger partnerships with our customers, providing deep technical expertise across the industries that we serve, and optimizing our customers’ operations with inventory management and other supply chain solutions;

·

we generated $339.7 million of cash from operations in fiscal 2018;

·

we paid out $125.4 million in cash dividends, increasing our dividend per share twice during fiscal 2018; and

·

we completed the acquisition of All Integrated Solutions (“AIS”) in April 2018.

Net sales increased 10.9% to $3.20 billion in fiscal 2018 from $2.89 billion in fiscal 2017.  Average daily sales (ADS), including acquisitions, increased 10.5% in fiscal 2018, as compared to fiscal 2017.  Even as our operating expenses increased due to the acquisitions of DECO Tool Supply in our fourth quarter of fiscal 2017 and AIS in our third quarter of fiscal 2018, our operating expenses as a percentage of sales decreased to 30.4% of net sales for fiscal 2018, compared to 31.4% of net sales for fiscal 2017, with productivity and leverage contributing to this favorable outcome.  Operating income in fiscal 2018 was $420.6 million, representing an increase of 11.0% from operating income of $379.0 million in fiscal 2017.  For fiscal 2018, the company achieved diluted earnings per share of $5.80 versus $4.05 in fiscal 2017. 



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Fiscal 2018 Compensation Highlights



Consistent with our pay-for-performance compensation philosophy, the Compensation Committee of our Board (referred to in this discussion as the Committee) took the following key actions with respect to NEO compensation for fiscal 2018:



·

Bonus Payouts Above Target.  Based on company performance against target performance goals and achievement levels of each NEO’s individual goals and objectives (G&Os) under our performance bonus plan, and the Committee’s determination of the appropriate individual performance multiplier, payouts under our performance bonus plan were 113.3% of target for Mr. Gershwind, 107.1% for Messrs. Jilla, Jones and Armstrong, and 117.8% of target for Mr. Baruch.

·

CEO Total Cash Compensation Approximated Market 75th Percentile; Other NEOs At or Below Market MedianTotal actual cash compensation for Mr. Gershwind approximated the 75th percentile of the competitive market data developed by our independent compensation consultant.  Messrs. Jilla’s, Jones’ and Baruch’s total cash compensation approximated the 50th percentile of the competitive market data, and Mr. Armstrong’s total cash compensation approximated the 25th percentile of the competitive market data.

·

CEO Total Direct Compensation (“TDC”) Below Market 25th Percentile; Other NEOs Generally At or Below Market Median.  We calculate TDC as the sum of fiscal year end base salary, actual annual performance bonuses and long-term equity awards (and in the case of Mr. Jilla, we also annualize his special new hire grant of restricted shares made in fiscal 2015 over its five-year vesting period, which is consistent with the market data methodology).  For fiscal 2018, Mr. Gershwind’s TDC was 7.8% below the 25th percentile of the competitive market data; Mr. Jilla’s TDC approximated the 50th percentile; Mr. Jones’ TDC was between the median and 75th percentile; Mr. Armstrong’s TDC approximated the 25th percentile; and Mr. Baruch’s TDC approximated the 50th percentile of the competitive market data.

The table below illustrates how our compensation is aligned with our performance by showing the total cash compensation and total direct compensation for each of our NEOs in fiscal 2018 and the competitive positioning of our NEOs’ total cash compensation and total direct compensation against the competitive market data:





 

 

 

 

 

 

 

 

Named
Executive Officer

 

Fiscal 2018
Total Cash
Compensation
($) (1)

 

Competitive
Positioning(2)
of Total Cash
Compensation

 

Fiscal 2018
Total Direct
Compensation
($) (3)

 

Competitive
Positioning(2)
of Total Direct
Compensation

Erik Gershwind

 

2,448,753 

 

approx. 75th
percentile

 

4,448,740 

 

<25th
percentile

Rustom Jilla

 

893,010 

 

approx. 50th
percentile

 

1,742,993 

 

approx. 50th
percentile

Douglas Jones

 

656,702 

 

approx. 50th
percentile

 

1,206,681 

 

between 50th &
75th percentiles

Steve Armstrong

 

632,699 

 

approx. 25th
percentile

 

1,107,684 

 

approx. 25th
percentile

Steven Baruch

 

579,065 

 

approx. 50th
percentile

 

978,989 

 

approx. 50th
percentile

____________________________

(1)

Total cash compensation is calculated as the sum of (i) base salary in effect as of the fiscal year end and (ii) actual annual performance bonus.

(2)

Please see “―Competitive Positioning” beginning on page 51 for information about our peer companies and our competitive market data. 

(3)

Total direct compensation is calculated as the sum of (i) base salary (see Note 1 above), (ii) actual annual performance bonus (see Note 1 above) and (iii) long-term equity awards granted in fiscal 2018 (and, in the case of Mr. Jilla, also includes 20% of the grant date value of his special new hire grant of restricted shares made in fiscal 2015).



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Compensation Philosophy and Objectives



We believe that the quality, skills and dedication of our executive officers are critical factors affecting the company’s performance and, therefore, long-term shareholder value.  Our key compensation goals for our associates, including the NEOs, are to:



·

create a performance driven culture based on personal accountability by linking rewards to company and individual performance;

·

provide a market competitive compensation opportunity to enable the company to attract, retain and motivate highly talented associates; and

·

align our executives’ interests with those of our shareholders.

Accordingly, in determining the amount and mix of compensation, the Committee seeks to provide a market competitive compensation package, structure annual and long-term incentive programs that reward achievement of performance goals that directly correlate to the enhancement of sustained, long-term shareholder value, and promote executive retention.



The following table provides information about the key elements of our 2018 compensation programs:





 

 

 

Compensation Element

Description

 

Key Objectives

Base Salary

Fixed Annual Cash

Attract and retain highly talented executives

Recognize day-to-day contributions and responsibilities

Targeted at or below the median of our competitive market data

Competitive positioning may vary based upon executive’s experience and individual performance

Annual Performance Bonus

Variable Annual Cash

Pay-for-performance program that rewards achievement of two key short-term company financial metrics tied to organic revenue growth and operating margin, and individual goals and objectives (G&Os)

“At risk” since there is no payout for any measure where the company or the individual fails to achieve the threshold level for such measure

Maximum payout of 200% of target realized only if company and executive achieve superior performance for all company financial and individual measures

Committee retains discretion to reduce annual bonus payouts

Long-Term Incentive Compensation

Variable Equity (stock options and restricted stock units (RSUs))

Aligns our executives’ interests with our shareholders

Promotes retention

RSUs vest 20% on each of the 1st through 5th anniversaries of grant

Stock options vest 25% on each of the 1st through 4th anniversaries of grant

Welfare Benefits and Perquisites

Generally tracks broad-based benefits

No supplemental life insurance, financial planning, country club memberships or special health benefits

Retirement

401(k) plan

Executives participate on the same basis as our associates

No pension or supplemental retirement plans; no deferred compensation arrangements



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The Committee does not maintain policies for allocating among short-term and long-term compensation or among cash and non-cash compensation.  Instead, the Committee maintains flexibility and adjusts different elements of compensation based upon its evaluation of the company’s key compensation goals.  As a general matter, the Committee seeks to utilize equity-based awards to motivate executives to enhance long-term shareholder value and manage the dilutive effects of equity compensation through the company’s share repurchase program.



While compensation levels may differ among NEOs based on competitive factors and the role, responsibilities and performance of each NEO, there are no material differences in the compensation philosophies, objectives or policies for our NEOs.  However, as an executive assumes more responsibility, a greater percentage of total target cash compensation is allocated to annual performance bonus compensation, and a greater percentage of total direct compensation is allocated to equity compensation.  The Committee does not maintain a policy regarding internal pay equity, but the Committee considers internal pay equity as part of its overall review of our compensation programs.





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Alignment with Compensation Best Practices 



The Committee reviews our compensation programs, competitive market data and best practices in the executive compensation area.  In past years, the Committee has recommended, and our Board has approved, changes in our compensation policies and practices to align with best practices.  Key features of our compensation programs that the Committee believes align with best practices in executive compensation are as follows:





 

 

 

 

 

 

 



HIGHLIGHTS OF EXECUTIVE COMPENSATION PRACTICES

What We Do

 

 

What We Don’t Do

 

 

 

 

 

 

 

 

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We benchmark executive compensation against market data developed by FW Cook, our independent compensation consultant.  Peer companies are reviewed by the Committee annually to assure their appropriateness for benchmarking executive compensation.

 

 

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We do not provide employment agreements. No NEO has an employment agreement.

 

 

 

 

 

 

 

 

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We generally target the fixed and variable elements of our executives’ compensation at the median of the market data.

 

 

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We do not provide unusual or excessive perquisites.



 

 

 

 

 

 

 

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We use a pay-for-performance executive compensation model, with a significant portion of executive compensation at-risk and/or long-term.

 

 

g139712cai002.gif

 

Our change in control agreements and executive change in control severance plan do not provide for tax “gross-ups.”

g139712cai001.gif

 

We grant RSUs and stock options with extended vesting periods, which promote retention and motivate our executives to create sustained, long-term shareholder value.

 

 

g139712cai002.gif

 

We do not have “single trigger” accelerated vesting of equity awards upon a change in control.

 

 

 

 

 

 

 

 

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We regularly review senior level promotion and succession plans, including for the CEO position. 

 

 

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We do not maintain executive pension plans or supplemental executive retirement plans, nor do we provide our executives with deferred compensation arrangements.



 

 

 

 

 

 

 

g139712cai001.gif

 

We maintain a reasonable share burn rate. During fiscal year 2018, our burn rate was 1.08%; our 3-year average burn rate for fiscal 2016 through fiscal 2018 was 1.21%.

 

 

g139712cai002.gif

 

Our equity incentive plans expressly prohibit option repricing (including cash buyouts) of underwater options and share recycling for options and stock appreciation rights.



 

 

 

 

 

 

 

g139712cai001.gif

 

We maintain a clawback policy to recoup incentive compensation in the event of a significant financial restatement (whether or not a covered officer engaged in misconduct), as well as in cases of breach of non-competition and other covenants.

 

 

g139712cai002.gif

 

We prohibit our associates and non-executive directors from engaging in hedging transactions in company stock, trading options or other derivatives, or pledging or holding company shares in margin accounts.  We strictly limit pledging of company stock as collateral for non-margin account loans.

 

 

 

 

 

 

 

 

g139712cai001.gif

 

We maintain a formal investor relations outreach program to solicit the views of institutional shareholders on a variety of topics, including executive compensation, and consider shareholder advisory votes and views in determining our executive compensation policies.

 

 

 

 

 

 

 

 

 

 

 

 

 

g139712cai001.gif

 

We maintain stock ownership guidelines for executives, other senior officers and non-executive directors.

 

 

 

 

 





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Shareholder Engagement and “Say on Pay” Vote



We are committed to engaging with our shareholders.  We maintain a formal investor relations outreach program to solicit the views of institutional shareholders on a variety of topics, including executive compensation.  As part of this program, our senior management and investor relations team regularly meet with institutional investors.  During fiscal year 2018, our senior management and investor relations team met with many institutional investors, including all of our top 25 investors with actively managed funds, through investor conferences, investor roadshows, in-person meetings and telephone conferences.



We are also committed to continued engagement between shareholders and the company through the formal “say on pay” advisory vote on executive compensation.  At our 2018 Annual Shareholders Meeting held on January 25, 2018, the advisory vote received the support of 98.7% of the votes cast at the annual meeting.  In its review of our executive compensation programs, the Committee carefully considered the results of the 2018 advisory vote on executive compensation.  As previously disclosed, we plan to hold the “say on pay” advisory vote on an annual basis.  In addition, we continually monitor the views of our major institutional shareholders to assure alignment of our compensation practices with our institutional shareholders’ standards.  The Committee will consider feedback from our shareholders along with the results of the “say on pay” advisory vote as it completes its annual review of each pay element and the total compensation packages for our NEOs with respect to the next fiscal year.





Compensation Committee



The Committee is directly responsible for determining, in consultation with our Board, the goals and objectives of our executive compensation programs and for the ongoing review and evaluation of our compensation programs to determine whether our compensation programs are achieving their intended objectives.  The Committee also evaluates the design and mix of our compensation programs and makes adjustments, as appropriate, to achieve our compensation philosophy.  In consultation with our Board, the Committee has primary responsibility for overseeing and approving all compensation matters relating to, and setting the compensation levels of, the NEOs and our other executive officers and senior officers.  The Committee also administers our equity compensation plans. Members of management and independent consultants provide input and recommendations to the Committee, but decisions are ultimately made by the Committee. 

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How Compensation Decisions Are Made



Each August, the Committee receives a formal presentation from FW Cook, its independent compensation consultant, on the competitiveness of the company’s compensation programs, as well as its alignment with the company’s compensation objectives.  Based on the benchmarking data prepared by the Committee’s independent compensation consultant and the consultant’s evaluation of the company’s compensation programs, our Human Resources department, with input from our Chief Executive Officer and Chief Financial Officer, compiles management’s recommendations for our annual performance bonus plan and equity award grants for the upcoming fiscal year.  The Committee generally meets in September to review and consider the preliminary management recommendations and makes its final compensation decisions at its October meeting when the company’s fiscal year financial results are being considered by our Board.  At its October meeting, the Committee also reviews achievement of the prior fiscal year’s annual performance bonus plan financial metrics and each NEO’s G&Os, and approves the annual bonus payouts.  Base salary adjustments are made for our executive officers and other senior officers at the time of their individual performance reviews. Depending on company or individual circumstances, the Committee also may make other compensation decisions during the year. 





Role of Executive Officers in Compensation Decisions



As part of its process, the Committee meets with our Chief Executive Officer and our Chairman to obtain recommendations with respect to the structure of our compensation programs and compensation decisions, including the performance of individual executives.  The Committee obtains our Chairman’s input on the compensation of our Chief Executive Officer, and our Chief Executive Officer provides the Committee with input on the compensation of the other NEOs and other executive officers and senior officers.  Our Human Resources department collects and analyzes relevant data, including comparative compensation data prepared by FW Cook, which is used by the Committee to inform compensation decisions.





Compensation Consultant



The Committee has the sole authority to retain and terminate any third-party compensation consultant and to obtain advice and assistance from internal and external legal, accounting and other advisors.  Since 2009, the Committee has relied on competitive market data and analysis prepared by its independent compensation consultant, FW Cook.  To assist the Committee with its compensation decisions, FW Cook recommends to the Committee peer companies and general industry survey data for benchmarking, and provides competitive compensation data, benchmarking and analysis relating to the compensation of our Chief Executive Officer and other executives and senior officers based on such market data.  Please see the section below “―Competitive Positioning” beginning on page 51 for information about our peer companies and our competitive market data.  FW Cook also furnishes the Committee with competitive compensation data and analysis for non-executive directors.  In addition, FW Cook assists the Committee with its risk assessment of our compensation programs, and advised on the methodology used for our 2018 CEO pay ratio disclosure.  FW Cook has not provided any other services to the company and will not provide any other services to the company without the approval of the Committee.



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Fiscal Year 2018 Executive Compensation

Summary of Fiscal Year 2018 Compensation Decisions



The Committee believes that management skillfully executed our business plan to complete the company’s transition from a spot buy supplier to a mission critical partner on manufacturing floors across North America.  Management also established a new platform in OEM fasteners with the acquisition of AIS and transitioned our sales force to deliver upon the new, more complex and high-touch role that we play for our customers to enable our customers to achieve higher levels of growth, productivity, and profitability.  Our results in fiscal 2018 reflected a strengthening macro-economic environment, as well as strong execution by management.  Organic revenue growth and adjusted operating margin, as computed for purposes of our annual performance bonus plan, exceeded target levels.  The Committee determined that each NEO achieved or exceeded his individual goals, and overall individual performance for each NEO was good or strong.



Based on company and individual performance, the Committee believes that compensation levels for fiscal year 2018 were appropriate and consistent with the philosophy and objectives of the company’s compensation programs.  The following summarizes fiscal 2018 compensation results:



·

base salaries generally approximated the median of the competitive market data, with the exception of Mr. Gershwind, whose base salary remained below the market 25th percentile;

·

based on company performance against target performance goals and achievement levels of each NEO’s individual goals and objectives (G&Os) under our performance bonus plan, and the Committee’s determination of the appropriate individual performance multiplier, payouts under our performance bonus plan were 113.3% of target for Mr. Gershwind, 107.1% for Messrs. Jilla, Jones and Armstrong, and 117.8% of target for Mr. Baruch;

·

total cash compensation for Mr. Gershwind approximated the 75th percentile of the competitive market data; total direct compensation for Mr. Gershwind was 7.8% below the 25th percentile of the competitive market data; and

·

total cash compensation for Messrs. Jilla, Jones and Baruch approximated the 50th percentile of the competitive market data; total direct compensation for Messrs. Jilla and Baruch also approximated the 50th percentile of the competitive market data, while total direct compensation for Mr. Jones was between the 50th percentile and 75th percentiles of the competitive market data; total cash compensation and total direct compensation for Mr. Armstrong approximated the 25th percentile of the competitive market data.

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Elements of Compensation



We allocate compensation among the following components for our NEOs:



·

base salary;

·

annual performance bonuses;

·

stock-based compensation in the form of stock options and RSUs; and

·

other benefits.

Base Salary



Base salaries for our executive officers are established based on the scope of their responsibilities and considering competitive market compensation paid by other companies for similar positions, as well as salaries paid to the executives’ peers within the company.  Base salaries are reviewed each year in connection with the executives’ performance evaluations and may be adjusted based on competitive market data, individual performance and promotions or changed responsibilities.  The Committee seeks to target base salary levels at or below the market median.  However, in individual cases, base salary levels may differ based upon the executive’s experience, individual performance and other considerations.  In fiscal 2018, all NEO base salaries were increased approximately 3.0%, consistent with the overall budget for base salary increases for executive and senior officers, except that Mr. Jilla’s base salary remained the same due to executive base salary increases (other than the CEO’s) moving to a common review date in November.  Mr. Gershwind’s base salary was increased from $726,884 to $748,690, effective January 1, 2018, and remains below the market 25th percentile.  Mr. Jilla’s base salary remained at $503,928, approximating the median of the market data.  Mr. Jones’ base salary was increased from $400,083 to $413,285, approximating the market median.  Mr. Armstrong’s base salary was increased from $400,062 to $412,064, between the 25th percentile and median of the market data.  Mr. Baruch’s base salary was increased from $340,000 to $351,400, approximating the median of the market data.



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Annual Performance Bonus Program



For fiscal year 2018, we measured financial performance under our annual performance bonus plan based on two financial metrics – organic revenue growth percentage and operating margin, weighted at 37.5% each.  These were the same financial metrics that we used for our annual performance bonus plan in fiscal year 2017.  In fiscal year 2017, we changed the design of our annual performance bonus plan to reward performance relative to the Metalworking Business Index (“MBI”).  As we have noted, a high percentage of our sales are to the U.S. manufacturing sector, and therefore a high correlation exists between trends in our customers’ activity and changes in the MBI Index.  As previously disclosed, we determined that setting payout levels for financial metrics in different MBI scenarios does not appropriately measure and reward company performance.  As a result, our performance bonus plan for fiscal 2018 fixed payout levels based on achievement of financial metrics measured against our fiscal 2018 operating plan and is not relative to the MBI.



As in previous years, the remaining 25% of the target bonus opportunity was based on the achievement of individual G&Os.  In addition, award opportunities were subject to an individual performance multiplier.  Maximum bonus payouts are capped at 200% of target.



Bonus award opportunities are designed to provide market based, competitive award opportunities with target amounts designed to result in total cash compensation approximating the median of the market data and payouts at stretch performance designed to result in total cash compensation approximating the 75th percentile of the market data.  The Committee retains discretion to reduce annual bonus payouts below the amounts otherwise payable under the performance bonus program where it determines that bonus amounts are not reflective of company and individual performance.  For threshold, target and maximum dollar amounts of performance bonus opportunities under our performance bonus program for the NEOs, please see the Fiscal Year 2018 Grants of Plan-Based Awards table on page 59 of this proxy statement.



Company Financial Metrics



Company financial metrics are established by the Committee based on the company’s business plan, as reviewed and approved by the Committee, and consistent with analysts’ consensus expectations.  For fiscal 2018, company financial metrics were:



·

organic revenue growth (year-over-year); and

·

operating margin.

The Committee continued with the same financial metrics as in prior fiscal years because these two financial metrics remain two of the most important drivers of value creation for our shareholders and the Committee believes there is a benefit in keeping consistency in metrics year to year. 



In setting award opportunities, the plan provides for four payout levels based on achievement of company financial metrics, as follows:



·

threshold – payout at 25% of target based on minimum level of performance;

·

target – payout at target based on achievement at target levels, which are aligned with our budget;

·

stretch performance – payout at 125% of target based on achievement of stretch goals that represent market leading performance, and intended to provide total cash compensation levels approximating the 75th percentile of the market data; and

·

maximum – payout at 160% of target based on superior performance.

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The following table sets forth the payout level opportunities available for our NEOs in fiscal 2018 for each company financial metric as a percentage of the target award (with each financial metric having a weighting of 37.5%) based on different levels of performance.   No payout for any financial metric is made if the threshold performance level for that financial metric is not achieved.  For performance between the different payout levels indicated below, straight-line interpolation is used to arrive at the actual payout: 





 

 

 

 

 

 



 

Organic
Revenue
Growth
(%)

 

Operating
Margin (%)

 

Payout of
Each Metric
as a % of
Target

Threshold

 

5.2 

 

12.3 

 

9.4 

Target

 

9.3 

 

13.1 

 

37.5 

Stretch

 

11.3 

 

13.5 

 

46.9 

Maximum

 

13.3 

 

14.1 

 

60.0 



Actual Financial Performance vs. Target Goals



The table below shows the actual performance for the company financial metrics versus target:





 

 

 

 

 

 



 

Target

 

Actual

 

Payout of
Each Metric
as a % of
Target

Organic Revenue Growth (%)

 

9.3

 

9.7

 

39.3

Operating Margin (%)

 

13.1

 

13.3

 

42.7



In calculating year-over-year organic revenue growth, we did not include post-acquisition sales of AIS, which we acquired on April 30, 2018.  In addition, we adjusted for fiscal 2018 having one additional sales day, which had the effect of decreasing our year-over-year organic revenue growth from 10.1% to 9.7%.  In calculating operating margin, we excluded the results of AIS, as well as acquisition-related costs incurred, which had the effect of increasing operating margin from 13.1% to 13.3%.  Consistent with prior practice, the Committee set the targets to exclude these items to achieve comparability and the incentive purpose of the annual performance bonus program.



Individual Goals and Objectives (G&Os)



Achievement of individual G&Os has a 25% weighting in our performance bonus plan.  Individual G&Os are established annually and include strategic initiatives with both financial and non-financial goals. Executives are evaluated based upon achievement of these goals.  At the end of each year, our CEO evaluates performance against the pre-established individual objectives for officers other than himself and submits a recommendation to the Committee. The Committee evaluates our CEO’s performance against his pre-established individual objectives.  Based on the Committee’s evaluation of the CEO and the CEO’s recommendations, the Committee determines and approves the achievement and payout level of the G&Os for each executive officer.  The following table sets forth the payout level opportunities for our NEOs as a percentage of the target award for the individual G&Os based on different levels of performance.  No payout is made if the threshold (partially meets) performance level is not achieved:





 

 

Individual G&Os Performance Levels

 

Payout as a
% of Target

Partially meets

 

18.75

Achieves

 

25.0

Exceeds

 

31.25

Greatly Exceeds

 

40.0



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Achievement of Individual G&Os



For fiscal 2018, the Committee determined that Mr. Gershwind exceeded achievement of his individual G&Os, resulting in a payout of 31.25% of target, and each other NEO achieved his individual G&Os, resulting in a payout of 25% of targetThe Committee considered each NEO’s individual performance goals and performance, including the following:



·

Erik Gershwind - Drove the fiscal 2018 operating plan to continue to grow market share, cement our leadership position in our core business of metalworking, as well as to gain solid traction in the Class C VMI space.  Established a new platform in OEM Fasteners through our acquisition of AIS.  Built upon our success in inventory management channels by continued expansion of vending and VMI. Redesigned our sales force to better serve our customers as a mission critical partner.  Migrated our sales force from one designed to sell a spot buy value proposition to one that is prepared to deliver upon the new, more complex and high-touch role that we play for our customers to enable them to achieve higher levels of growth, productivity and profitability.

·

Rustom Jilla –  Built plan and drove business to grow operating margin.  Cultivated our M&A pipeline and completed AIS acquisition.  Improved operating discipline across our company with project pre-investment evaluations, tighter project management including DECO integration, operating expense controls and by driving accountability.  Continued to strengthen our Finance team and develop talent.  Served as a spokesperson to the investor community.

·

Douglas Jones – Implemented next phase of multi-year IT Roadmap on-time and on-budget, including SAP success factors and new sales force compensation system.  Optimized consolidation of internal managed inventory and vending supply solutions to improve service, efficiency and profitability of supply chain.  Provided customers with technology tools to optimize their supply chain costs, drive competitive advantage and leverage their data.  Focused on succession planning.

·

Steve Armstrong – Negotiated and successfully closed the acquisition of AIS.  Positioned our company to leverage knowledge gained from current acquisition to develop repeatable formula for future acquisitions.  Resolved successfully several major contract disputes.  Continued to develop a succession plan and bench strength.

·

Steven Baruch – Developed pricing strategies and launched related tools to positively impact revenue and gross margin. Reorganized Marketing and Category Management functions to align with our Strategic Plan, provide leverage opportunities and better position us for succession planning. Successfully led our Direct Marketing function.

Individual Performance Multiplier



Payout levels based on achievement of the company financial metrics and individual G&Os are subject to an individual performance multiplier.  We designed our performance bonus plan with this individual performance multiplier to provide greater weighting based on individual performance, consistent with our performance based compensation philosophy.  The individual performance multiplier evaluation differs from the evaluation of individual G&Os and is based on an evaluation of the executive’s overall leadership and effectiveness.  Based on the Committee’s evaluation of the CEO and the CEO’s recommendations, the Committee determines and approves the individual performance multiplier for each executive officer.  The individual performance multiplier is as follows:





 

 

Performance

 

Payout

Does Not Meet

 

0%

Partial

 

50%

Good

 

100%

Strong

 

110%

Outstanding

 

125%



As set forth in the following section, the Committee determined an individual performance multiplier of 100% for each of the NEOs other than Mr. Baruch whose individual performance multiplier was determined to be 110%.



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Fiscal 2018 Performance Bonuses for NEOs



The following table summarizes the computations for the NEOs’ performance bonuses for fiscal 2018:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

NEO

 

Target Bonus
Amount
(A) ($)

 

Financial
Metrics
(B) ($)

 

Individual
G&Os
(C) ($)

 

Individual
Performance
Multiplier
(D)

 

2018
Actual
Bonus
(E)= (B+C)xD ($)

 

2018
Actual
Bonus

As % Target

Erik Gershwind

 

1,500,000 

 

1,231,313 

 

468,750 

 

100% 

 

1,700,063 

 

113.3 

Rustom Jilla

 

363,332 

 

298,250 

 

90,833 

 

100% 

 

389,083 

 

107.1 

Douglas Jones

 

227,307 

 

186,590 

 

56,827 

 

100% 

 

243,417 

 

107.1 

Steve Armstrong

 

206,032 

 

169,127 

 

51,508 

 

100% 

 

220,635 

 

107.1 

Steven Baruch

 

193,270 

 

158,651 

 

48,317 

 

110% 

 

227,665 

 

117.8 





The Committee retains discretion to reduce annual bonus payouts below the amounts otherwise payable under the performance bonus program where it determines that bonus amounts are not reflective of company and individual performance.  The Committee did not make any such adjustments for fiscal year 2018.



Annual bonus awards for the NEOs were made under our shareholder-approved 2015 Omnibus Incentive Plan.  Awards under the plan were made at levels of 1% of EBIT for our CEO and 0.6% of EBIT for other executive officers, subject to the Committee’s exercise of discretion to reduce the actual payouts.  Consistent with the Committee’s policy, the Committee exercised its discretion to reduce the payouts under the awards so that actual payouts were equal to the payouts determined under our 2018 annual performance bonus program.



The Committee believes that bonuses awarded under our annual performance bonus program appropriately reflected the company’s performance and appropriately rewarded the performance of the NEOs.



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Long-Term Stock-Based Compensation



The Committee grants stock options and RSUs under our 2015 Omnibus Incentive Plan to provide competitive compensation, promote retention, and align the interests of our executives with those of our shareholders.  We believe that providing combined grants of stock options and RSUs effectively focuses our executives on delivering long-term value to our shareholders.  Stock options motivate our executives to increase shareowner value because the options only have value to the extent the price of MSC stock on the date of exercise exceeds the stock price on the date of grant, and thus compensation is realized only if the company’s stock price increases over the term of the award.  RSUs reward and retain the executives by offering them the opportunity to receive MSC shares on the date the restrictions lapse so long as they continue to be employed by the company.  Dividends are not paid on unvested RSUs; instead, dividend equivalent units accrue on unvested RSUs and vest at the same times as the underlying RSUs.  The Committee does not have a fixed policy on allocating between options and RSU awards, but seeks to balance the retentive value of RSU awards which have a more stable value as compared with options.  The mix of fiscal year 2018 grants was 55% RSUs and 45% stock options, based on their respective grant date values.



The Committee’s policy is for stock options to vest in four equal increments on each of the first four anniversary dates of the date of grant, which is longer than the median 3-year vesting period of our peer companies, and for stock options to have terms of seven years.  For grants of RSUs, the Committee’s policy provides for vesting in five increments of 20% on each of the first through fifth anniversaries of the grants, which also is longer than the median 3-year vesting period of our peer companies.  The Committee believes that this aspect of our equity compensation package promotes executive retention and management stability, and fosters focus on long-term growth aligned with building shareholder value.



In granting equity awards, the Committee takes into consideration the dilutive effect on earnings to our shareholders once the shares are issued or vested, and we seek to mitigate this effect by repurchasing shares from time to time under the company’s share buyback program. We also evaluate and benchmark the company’s annual equity grants as a percentage of outstanding shares and the fully diluted overhang of outstanding equity awards plus shares available for grant.  Our burn rate (or the number of shares of Class A common stock subject to equity awards granted during the fiscal year as a percentage of the weighted-average outstanding shares of common stock) for fiscal 2018 was 1.08%, between the median and 75th percentiles of our peer companies; our 3-year average burn rate for fiscal 2016 through fiscal 2018 was 1.21%, above the 75th percentile of our peer companies.  Our fully diluted equity overhang as of the fiscal 2018 year end was between the 25th percentile and the median of our peer companies.  Our fully diluted overhang attributable to grants outstanding as of the fiscal 2018 fiscal year end also was between the 25th percentile and the median of our peer companies.



As discussed below under “Change of Control Arrangements,” the vesting of unvested stock options, restricted stock and RSUs only accelerates if there is both a change in control of the company and if such awards are not continued, assumed or substituted in connection with the transaction or if there is a termination of employment without cause (or for executives with change in control agreements or who participate in our executive change in control severance plan, a termination by the executive for good reason) within one year (two years for executives with change in control agreements or who participate in our executive change in control severance plan) following the change in control.  Because there is no acceleration of awards unless there is both a change in control and either the awards would be terminated or the grantee’s employment is terminated following the change in control, our outstanding equity awards are subject to “double trigger” accelerated vesting.



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Equity Grants During Fiscal Year 2018  



The number of stock options and RSUs granted to the NEOs in fiscal year 2018, and the grant-date fair value of these awards determined in accordance with FASB ASC Topic 718, are shown in the Fiscal Year 2018 Grants of Plan-Based Awards table on page 59 of this proxy statement.  Equity awards granted in October 2017 were benchmarked against the competitive market data and resulted in target total direct compensation approximating the 25th percentile for Mr. Gershwind, approximating the median for Messrs. Jilla and Baruch, between the median and 75th percentile for Mr. Jones, and between the 25th percentile and the median for Mr. Armstrong.



Administration of Equity Award Grants



The Committee grants options with exercise prices set at the market price on the date of grant, based on the closing market price on the date of grant.  Our current policy is that options and RSU awards to executive officers and other senior officers are granted on an annual basis at the October meeting of the Committee, which occurs when our Board reviews annual financial results and when the Committee completes its annual compensation review process.  The approval process specifies:



·

the individual receiving the grant;

·

the dollar value of options, with the number of options to be determined based on a Black-Scholes valuation; and

·

the dollar value of RSUs, with the number of RSUs to be determined based on the closing price of our shares on the date of grant.

Grants for associates other than officers also are approved by the Committee, and the Committee does not delegate authority for making grants to any member of management.  Our current policy provides that off-cycle grants and promotion and new hire grants may be approved at regularly scheduled or special Committee meetings.  We do not time our equity award grants relative to the release of material non-public information.



Hedging Policy; Pledging



Under our insider trading policy, short-selling, margin transactions, trading in exchange-traded options and engaging in hedging transactions such as prepaid variable forward contracts are prohibited with respect to our common stock.  Our insider trading policy also prohibits pledging company shares in margin accounts.  Associates and directors may only pledge company shares as collateral for a loan outside of a margin account up to 10% of their ownership of company shares (excluding options and unvested RSUs and restricted shares), provided that shares required to be held pursuant to our stock ownership guidelines may not be pledged.  Our Nominating and Corporate Governance Committee retains discretion to permit limited exceptions to the 10% restriction.  None of our executive officers or directors currently has pledged any company shares.



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Benefits and Perquisites



We provide our executives with certain health and insurance benefits, as well as travel and other perquisites.  Our executives can participate in our 401(k) plan (which includes company matching contributions of 50% up to the first 6% of a participant’s contributions), our Associate Stock Purchase Plan and our health benefit and insurance programs on the same basis as our associates.  We also provide our executives with either a car allowance or a leased vehicle.



We do not provide any other executive perquisites such as supplemental life insurance, financial planning, country club membership, or special health benefits.



Change of Control Arrangements



Our current NEOs, other than Mr. Baruch, are parties to “change in control” severance agreements, and Mr. Baruch participates in our executive change in control severance plan. For a description of our executives’ change in control agreements, please see the section entitled “Executive Compensation — Potential Payments Upon Termination or Change in Control” beginning on page 64 of this proxy statement.



We believe that such arrangements are important to promote the stability of our business and our key personnel during the transition period surrounding a change in control transaction, and to keep our executives focused on the business rather than on their employment prospects.  These arrangements serve to assure the retention of key executives in order to successfully execute a change of control transaction. To this end, the change of control benefits only are provided if the executive remains with the company through the change of control and if there is a termination of employment without cause or by the executive for good reason, commonly referred to as a “double trigger.”  Please see the section entitled “Executive Compensation — Potential Payments Upon Termination or Change in Control — Change in Control Arrangements” beginning on page 64 of this proxy statement. 



As discussed in more detail in the section entitled “Executive Compensation — Potential Payments Upon Termination or Change in Control — Equity Award Plans” on page 65 of this proxy statement, since January 2006, all stock options and RSU and restricted stock awards have been made under our 2005 and 2015 Omnibus Incentive Plans.  Under our Omnibus Incentive Plans, in the event of a change in control transaction pursuant to a merger agreement, outstanding stock options and restricted stock and RSU awards shall be continued, assumed or substituted if so provided in the merger agreement.  If the merger agreement does not provide for continuation, assumption or substitution of equity awards, the vesting of outstanding options shall accelerate and the restrictions applicable to all restricted stock and RSU awards shall lapse.  In addition, following any change in control, if an associate’s employment is terminated without cause within one year following the change in control, vesting shall also accelerate.  For executive officers with change in control agreements or who participate in our executive change in control severance plan, the protection period is extended to two years and vesting also accelerates in cases of termination by the executive for good reason.  The Committee believes that these provisions provide our Board with appropriate flexibility to address the treatment of options and restricted stock and RSU awards in a merger or similar transaction that is approved by our Board, while providing appropriate protections to our executives and other associates in transactions which are not approved by our Board.  Because there is no acceleration of awards unless there is both a change in control and either the awards are terminated or the grantee’s employment is terminated following the change in control, our outstanding equity awards are subject to “double trigger” accelerated vesting.



Executive Severance Plan



Under our Executive Severance Plan, adopted in October 2016, Vice Presidents, Senior Vice Presidents and Executive Vice Presidents of the Company are eligible to receive certain severance benefits in the event of limited qualifying termination events.  Please see the section entitled “Executive Compensation — Potential Payments Upon Termination or Change in Control — Executive Severance Plan” on page 66 of this proxy statement.



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Competitive Positioning



In determining the amounts of base salary, performance bonus plan opportunities and stock-based compensation for the NEOs, and other executive officers and senior officers, the Committee reviewed and benchmarked the compensation levels of the NEOs and other executive officers and senior officers against competitive market data developed by FW Cook.  Market data developed by FW Cook was comprised of peer group compensation data for the CEO, CFO and three other most highly compensated executives, as reported in the proxy statements of peer companies, together with compensation data by functional position derived from two third-party general industry surveys, with the peer data and industry surveys each weighted one-third for the NEOs.  Survey data for each position was based on functional matches and interpolated using MSC’s revenue.



In developing our peer group of companies, FW Cook consults with the company’s Human Resources department and the Committee to identify companies similar in size and business mix.  In addition, by balancing the peer company data with compensation data from two broad general industry surveys, the Committee believes that the benchmarking data is more representative of the market place for executive talent and less subject to distortion. 



Peer companies and the two broad general industry survey sources were the same as used for fiscal 2017.  In this Compensation Discussion and Analysis, references to our NEOs’ actual fiscal 2018 compensation in relation to the market data are based on the market data presented by FW Cook to the Committee in August 2018.  The Committee believes that the competitive market data compiled by FW Cook provides an appropriate benchmarking resource.



The fiscal 2018 peer group is listed in the chart below, together with comparative information about revenue, net income, market capitalization, total assets and number of employees compiled by FW Cook based on publicly available information: 

(Dollars in millions)



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Company

 

Revenue(1)

 

Net
Income(1),(2)

 

Total
Assets(3)

 

Market
Cap(4)

 

Employees(5)

 Anixter International Inc.

 

$

8,132 

 

$

105 

 

$

4,502 

 

$

2,413 

 

8,900 

 Applied Industrial Technologies, Inc.

 

 

3,073 

 

 

142 

 

 

2,286 

 

 

2,983 

 

6,634 

 Beacon Roofing Supply, Inc.

 

 

5,772 

 

 

80