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

 

SCHEDULE 14A
(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.  )

 

Filed by the registrant
Filed by a party other than the registrant

Check the appropriate box:

  Preliminary proxy statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive proxy statement
  Definitive additional materials
  Soliciting material pursuant to Rule 14a-12

 

ESCO TECHNOLOGIES INC.

(Name of Registrant as Specified in Its Charter)

 

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

 

Payment of filing fee (Check the appropriate box):

  No fee required.

  Fee paid previously with preliminary materials.
  Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

 

 

 

 

 

 

ESCO Technologies Inc.
9900A Clayton Road
St. Louis, MO 63124

Bryan Sayler
Chief Executive Officer and President

 

 

 

 

 

 

  December 19, 2023
   
   

Dear Fellow Shareholders,

 

I am pleased to invite you to attend our 2024 Annual Meeting of Shareholders of ESCO Technologies Inc., to be held on Wednesday, February 7, 2024 at the Renaissance Austin Hotel, 9721 Arboretum Boulevard, Austin, Texas 78759, at 8:00 a.m. Central Time.

 

The accompanying Notice of Annual Meeting and Proxy Statement describe the items of business that will be discussed and voted on at the Meeting. We value your input and encourage you to review this material as well as our Annual Report for fiscal 2023 and to vote your shares of common stock. You have a choice of voting online, by telephone, by returning the enclosed proxy card by mail, or at the Meeting.

 

In fiscal 2023, broad end-market strength enabled us to deliver record-breaking financial results. Robust demand in our commercial aerospace and utility end-markets helped us achieve double digit organic revenue growth. While overall economic constraints have eased in many areas, our teams continued to work diligently throughout the year to navigate the continuing impacts of inflation, labor shortages, and aerospace supply chain constraints. With our commitment to driving operational efficiency and improved returns on invested capital, we leveraged our revenue growth in 2023 to deliver increased profitability.

 

Our technology-oriented businesses serve a diverse array of thriving end markets with clear momentum and secular growth drivers. Our engineering expertise helps us address some of today’s most difficult technical challenges and has us well-positioned to realize long-term growth. We are excited about the future and our ability to deliver innovative solutions to meet the needs of our customers. We appreciate your investment in ESCO and are committed to driving sustained shareholder value creation as we continue to grow the Company.

 

On behalf of the Board of Directors and all of us at ESCO, thank you for your ongoing support.

 

Sincerely,

 

 

Bryan Sayler

Chief Executive Officer and President

 

   
Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Notice of Annual Meeting of Shareholders

 

St. Louis, Missouri 

December 19, 2023

 

 

To the Shareholders of ESCO Technologies Inc.:

 

The 2024 Annual Meeting of the shareholders of ESCO Technologies Inc. will be held on Wednesday, February 7, 2024 at the Renaissance Austin Hotel, 9721 Arboretum Boulevard, Austin, Texas 78759, beginning at 8:00 a.m. Central Time, for the following purposes:

 

1. To elect Janice L. Hess and Bryan H. Sayler as directors of the Company to serve for three-year terms expiring in 2027;

 

2. An advisory vote to approve the compensation of the Company’s executive officers; and

 

3. To ratify the appointment of the Company’s independent registered public accounting firm for the 2024 fiscal year.

  

   
  Your Board of Directors recommends that you vote:
  FOR each nominee for director, and
  FOR Proposals 2 and 3.
     

 

Shareholders of record at the close of business on December 1, 2023 are entitled to vote at the Meeting.

 

Information about each of the above Proposals, as well as instructions for voting and additional relevant information concerning the Company, are set forth in the accompanying Proxy Statement and in the “Important Notice Regarding the Availability of Proxy Materials” sent to all shareholders entitled to vote at the Meeting beginning on or about December 19, 2023.

 

By Order Of The Board Of Directors,

 

 

 

David M. Schatz

Senior Vice President, General Counsel and Secretary

 

 

 

   
  This Notice, the Proxy Statement attached to this Notice and our Annual Report to Shareholders for the fiscal year ended September 30, 2023 are available electronically at www.envisionreports.com/ESE and on our website at www.escotechnologies.com.
   
  Even if you plan to attend the Meeting in person, PLEASE VOTE:
   
  Electronically via the Internet at www.investorvote.com/ESE; or
  By telephone within the United States, U.S. territories or Canada at 1 800 652 VOTE (8683); or
  If you requested paper or e-mail copies of the proxy materials, please complete, sign, date and return the proxy card.
     

 

   
Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Proxy Statement Table of Contents

 

 

Proxy Statement Summary 1
Meeting Information 1
Proposals and Board Recommendations 1
Nominees for Director 2
Director Diversity and Tenure 2
Company Overview and Business Highlights 2
Executive Compensation Highlights 3
Governance Highlights 3
   
Voting 5
How to Vote 5
Required Vote 5
   
Proposal 1: Election of Directors 7
Nominees for Terms Ending in 2027 7
Directors Continuing in Office 8
Board of Directors 11
Diversity and Tenure 12
Committees 13
Corporate Governance Information 15
Director Compensation 17
   
Proposal 2: Advisory Vote to Approve Executive Compensation 21
Summary of Executive Compensation Program 21
Compensation Committee Report 22
Compensation Discussion and Analysis 22
2023 Summary Compensation Table 34
2023 Grants of Plan-Based Awards 36
Outstanding Equity Awards at Fiscal 2023 Year-End 37
2023 Option Exercises and Stock Vested 38
Pension Benefits 38
Employment Agreements 39
Potential Payments Upon Termination or Change in Control 40
Pay Ratio Disclosure 44
Pay Versus Performance 45

 

 

Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm 50
Pre-Approval of Audit and Permitted Non-Audit Services 50
Auditor Fees and Services 50
Change in Independent Registered Public Accounting Firm for 2022 51
Audit and Finance Committee Report 52
   
Other Information 53
Securities Ownership of Directors and Executive Officers 53
Securities Ownership of Certain Beneficial Owners 53
Shareholder Proposals 54
Forward-Looking Statements 55
   
Appendix A 56
Participants in the 2022 Mercer Benchmark Database/Total Remuneration Survey — Executive 56

 

   
Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Proxy Statement Summary

 

This Proxy Statement relates to the 2024 Annual Meeting of the shareholders of ESCO Technologies Inc., sometimes referred to herein as the Company, we, our or us. Our stock is listed on the New York Stock Exchange (NYSE), where our ticker symbol is “ESE”.

 

This Proxy Statement is provided pursuant to the rules of the Securities and Exchange Commission (SEC) in connection with our Management’s solicitation of votes for the Meeting.

 

This Summary highlights certain information relating to the Meeting and the items to be voted on at the Meeting. For additional information, including important business, compensation and corporate governance matters, please refer to the following sections of this Proxy Statement and to our 2023 Annual Report on Form 10-K. Unless otherwise noted, all references to 2023 in this Proxy Statement refer to our fiscal year ended September 30, 2023.

 

MEETING INFORMATION

 

 

Date and Time Location Record Date Voting
Wednesday, February 7, 2024,
at 8:00 a.m. Central Time
The Renaissance Austin Hotel
9721 Arboretum Boulevard
Austin, Texas 78759
Close of business on December 1, 2023 Shareholders of record as of the record date are entitled to vote. Each share of common stock is entitled to one vote on each of the director nominees and one vote on all other matters to be considered at the Meeting.

 

How to Vote:

 

Via the Internet By Telephone By Mail At the Meeting
       
Go to
www.investorvote.com/ESE
1-800-652-VOTE (8563)
in the U.S. or Canada
Follow the instructions on
your proxy card

Attend in person and vote by
ballot

 

PROPOSALS AND BOARD RECOMMENDATIONS

 

 

Proposal See Page Required Vote
(See “Voting” on page 5)
Board’s Voting
Recommendation
1. Election of Directors 7 To be elected, a nominee must receive a majority of the votes cast

FOR

each director nominee

2. Say on Pay – Advisory Vote to Approve Executive Compensation 21 To be approved, this proposal must receive a majority of the votes cast FOR
3. Ratification of Appointment of Independent Registered Public Accounting Firm 50 To be approved, this proposal must receive a majority of the votes cast FOR

 

 

Management is not aware of any other matters that will be presented at the Meeting. However, if any other proposal is properly presented for a vote at the Meeting, other than the election of directors and the other proposals described in this Proxy Statement, the proxy holders will vote on it in their own discretion.

 

   
1Proxy Statement SummaryNotice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

NOMINEES FOR DIRECTOR

 

 

The following table provides summary information about our director nominees, each of whom is a current director of the Company:

 

Nominee Primary Occupation Independent Board Committees Key Attributes/Qualifications
Janice L. Hess Retired President, Engineered Systems Segment of Teledyne Technologies Incorporated (diversified multinational company serving industrial markets requiring advanced technology and high reliability) Yes Audit, Governance Four decades of operational, financial and leadership experience as well as demonstrated performance in growing markets similar to those served by the Company
Bryan H. Sayler Chief Executive Officer and President of the Company No Executive Nearly 30 years of management experience at the Company across several of its core businesses

 

 

DIRECTOR DIVERSITY AND TENURE

 

 

Diversity is one of the factors that our Governance Committee considers in identifying the pool of director search candidates. The Board appreciates the benefits diversity brings and strives to assemble a Board with not only a variety of business and professional backgrounds, but also diversity in areas such as race, ethnicity and gender.

 

 

 

COMPANY OVERVIEW AND BUSINESS HIGHLIGHTS

 

 

We are:

 

A global provider of highly engineered filtration and fluid control products and integrated propulsion systems for the aviation, navy, space and process markets worldwide, as well as composite-based products and solutions for navy, defense and industrial customers;

 

An industry leader in radio frequency test and measurement solutions for the wireless, electronics, medical, automotive and defense industries; and

 

A leading provider of diagnostic instruments, software and services for the benefit of industrial power users and the electric utility and renewable energy industries.

 

   
2Proxy Statement SummaryNotice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

We conduct our business through a number of wholly-owned direct and indirect subsidiaries. Our business is focused on generating predictable and profitable long-term growth through continued innovation and expansion of our product offerings across each of our business segments. Our corporate strategy is centered on a multi-segment approach designed to enhance the strength and sustainability of sales and earnings growth by providing lower risk through diversification

 

In 2023, strength across our end markets enabled us to achieve record orders and double-digit sales growth. We leveraged that growth to deliver higher profit margins and diluted EPS that increased 13 percent to $3.58 per share. With a solid balance sheet and substantial liquidity, we remain well positioned to fund future product development and capital investments to drive organic growth as well as acquisitions to add to our technology-driven portfolio of products and services.

 

The following are only selected measures of Company performance. For complete financial information, please see the audited financial statements included in our 2023 Annual Report to Shareholders.

 

 

Net Sales   Net Earnings   Diluted Earnings Per Share
$956M   $92.5M   $3.58
Record Sales
+11% over prior year
  +12% over prior year   +13% over prior year
         
Entered Orders   Ending Backlog   Leverage Ratio
$1,033M   $772M   0.54X
Record Orders
+8% over prior year
  Record Ending Backlog
+11% over prior year
  $640M of liquidity at year end

 

 

GOVERNANCE HIGHLIGHTS

 

 

  All directors other than the CEO are independent

 

All committee chairs are independent

 

Each director attended at least 75% of Board and committee meetings

 

Independent directors hold executive sessions during each Board meeting

 

Board conducts self-assessments annually

 

The full Board exercises oversight responsibility for material risks, and delegates oversight of other risks to the appropriate committees

 

Three of our eight directors are diverse in gender and/ or ethnicity

 

 

Robust clawback policy for executive compensation plans

 

Competitive share ownership guidelines for directors and executive officers

 

Executive compensation driven by pay for performance

 

Annual shareholder vote on executive compensation

 

Executive officers and directors may not hedge or pledge company shares

 

Independent directors review CEO performance annually

 

Average tenure of independent directors is 9.9 years

 

Median age of independent directors is 64 years

 

 

EXECUTIVE COMPENSATION HIGHLIGHTS

 

 

Our compensation objective is to develop and maintain an industry-competitive compensation program that attracts, retains, motivates and rewards our executive officers and other senior officers and key executives. The compensation program is designed to emphasize performance-based compensation in alignment with our business strategy.

 

   
3Proxy Statement SummaryNotice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Our compensation programs are designed to maximize shareholder value by allocating a significant portion of executive compensation to performance-based pay that is dependent on the achievement of our performance goals. Our annual cash incentive program and equity-based Performance Share Unit awards (PSUs) utilize a variety of key strategic and financial performance metrics and are designed to reward positive financial performance and limit unnecessary risk taking. Stock ownership guidelines align the interests of executives and shareholders by ensuring that executives bear the economic risk of share ownership.

 

For 2023, our Human Resources and Compensation Committee used the performance metrics “Adjusted EPS” and “Cash Flow from Operating Activities,” to determine cash incentive plan compensation earned during fiscal 2023 and thereby incent the participants and align cash incentive compensation with business objectives. Adjusted EPS is a non-GAAP measure, and the factors used in the calculation of the 2023 adjustment differed slightly from those used to calculate the 2022 adjustment; for a detailed description and a reconciliation to the nearest GAAP measure, see 2023 Cash Incentive Metrics in the Compensation Discussion and Analysis section.

 

Our long-term equity incentive (LTI) program includes Restricted Share Units (RSUs) which fully vest over a period of 3½ years and, since 2022, PSUs with a three-year performance period, as described in the Compensation Discussion and Analysis section below.

 

The following charts summarize the 2023 pay mix for the CEO and the other named executive officers, with 75% of the CEO’s target direct compensation at risk and 63% of the average of the other named executive officers’ target direct compensation at risk. Target direct compensation is defined as the sum of the executive officer’s base salary, annual cash incentive award, and annual long term incentive awards, in each case calculated at the target level approved by the Committee.

 

 

   
4Proxy Statement SummaryNotice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Voting

 

Whether or not you expect to be present in person at the Meeting, please vote in advance using one of the voting methods described in the Important Notice Regarding the Availability of Proxy Materials sent to the shareholders on or about December 19, 2023, which contained instructions on how to access the proxy materials and vote electronically via the Internet, by telephone, by mail, or in person. That Notice also contained instructions on how to request a paper or e-mail copy of the proxy materials, including the Company’s 2023 Annual Report to Shareholders, this Proxy Statement, and a proxy card. The 2023 Annual Report to Shareholders and this Proxy Statement are also available for review on the Company’s website, www.escotechnologies.com.

 

You may vote on each proposal, by proxy or by voting in person or via the Internet or by telephone, in which case your shares will be voted in accordance with your choices.

 

You may abstain from voting on any one or more proposals, or withhold authority to vote for any one or more directors, which will have the effect described under Required Vote below.

 

You may return a properly executed proxy form without indicating your preferences, in which case the proxies will vote the shares according to the Board’s recommendations.

 

You will have the right to revoke your proxy at any time before it is voted by giving written notice of revocation to the Secretary of the Company, or by duly executing and delivering a proxy bearing a later date, or by attending the Meeting and casting a contrary vote in person.

 

 

HOW TO VOTE

 

 

Via the Internet By Telephone By Mail At the Meeting
       
Go to
www.investorvote.com/ESE
1-800-652-VOTE (8563)
in the U.S. or Canada
Follow the instructions on
your proxy card

Attend in person and vote by
ballot

 

 

REQUIRED VOTE

 

 

At the Meeting, shareholders will be entitled to cast one vote for each share held by them of record on the record date. There is no cumulative voting with respect to the election of directors. The Company has no non-voting shares.

 

The affirmative vote of the holders of a majority of the shares represented in person or by proxy at the Meeting and entitled to vote on the matter in question will be required to elect directors, to approve each of the individual proposals described in this Proxy Statement, and to approve any other matters properly brought before the Meeting.

 

The Company’s Corporate Governance Guidelines provide that an incumbent director who fails to obtain a majority vote must promptly offer his or her resignation to the Chair, and the remaining directors shall meet to consider whether it is in the best interests of the Company to accept the resignation or to permit the incumbent to remain on the Board for such period of time as the Board may determine or until a successor is elected and qualified.

 

Shares represented by proxies which are marked “Withhold” authority to vote for the election of one or more of the nominees for election as directors or marked “Abstain” on any one or more of the other individual proposals described in this Proxy Statement will be counted for the purpose of determining the number of shares represented by proxy at the Meeting, but proxies so marked will have the same effect as if the shares were voted against such nominee or nominees or such proposals.

 

   
5VotingNotice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

 

Under the Rules of the NYSE, the proposal to approve the appointment of independent registered public accountants is considered a “discretionary” item, which means that brokerage firms may vote in their discretion on this matter on behalf of clients who have not furnished voting instructions at least 10 days before the date of the Meeting. In contrast, the election of directors and the other items on the Meeting agenda are “non-discretionary” items, which means that brokerage firms that have not received voting instructions from their clients on these proposals may not vote on them. These so-called “broker non-votes” will, if the underlying shares are otherwise represented at the Meeting, be considered to be present for purposes of determining a quorum, but will be treated as not entitled to vote on such non-discretionary or matters; they will therefore not be considered in determining the number of votes necessary for approval and will have no effect on the outcome of the votes for directors or the other matters to be considered at the Meeting.

 

If your shares are held by a broker, it is important that you provide voting instructions to your broker so that your votes will be counted.

 

   
6VotingNotice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Proposal 1: Election of Directors

 

The Board of Directors recommends a vote FOR all nominees.

 

The Board is divided into three classes, with the terms of office of each class ending in successive years. The terms of directors Bryan H. Sayler and James M. Stolze will expire at the Meeting. However, Mr. Stolze has decided to retire from the Board when his current term expires at the 2024 Annual Meeting and is not standing for re-election. In order to rebalance the three classes of directors, and with the consent of director Janice L. Hess, whose current term would not have expired until 2025, the Board reclassified Ms. Hess into the same class as Mr. Sayler and Mr. Stolze, with a term expiring in 2024, and has nominated Ms. Hess and Mr. Sayler for election to new three-year terms expiring at the 2027 Annual Meeting. The Board also decided to reduce the number of directors from eight to seven upon the expiration of Mr. Stolze’s term. As a result, after the 2024 Annual Meeting the Board will have two directors with terms expiring in 2027, three directors with terms expiring in 2026, and two directors with terms expiring in 2025.

 

If elected, the nominees would serve until the expiration of their terms and until their successors have been elected and qualified. Proxies cannot be voted for more than the number of Board nominees. Should any one or more of the nominees become unable or unwilling to serve (which is not expected), the proxies unless marked to the contrary will be voted for such other person or persons as the Board may recommend.

 

 

NOMINEES FOR TERMS ENDING IN 2027

 

 

Janice L. Hess

 

 

●  Age: 64 

●  Director since 2022 

●  Term expires 2024
(see discussion above) 

●  Board Committees: Audit, Governance 

●  Qualifies as an audit committee financial expert under SEC rules

 

Ms. Hess’s four decades of operational, financial and leadership experience, commitment to continuous improvement, as well as demonstrated performance in growing traditional, adjacent and emerging markets similar to those served by the Company, make her well-qualified to assist the Board in guiding Company strategy at the highest levels.

 

Principal Occupation and Business Experience 

2014–2022: President, Engineered Systems Segment of Teledyne Technologies Incorporated (diversified multinational company providing enabling technologies for industrial growth markets requiring advanced technology and high reliability; the Engineered Systems Segment provides innovative systems engineering and integration and advanced technology development, and is a U.S. Government contractor serving defense, space, energy and maritime markets) 

 

2000–2014: Held a number of other positions with Teledyne, including Executive Vice President and Chief Financial Officer of Engineered Systems 

 

1984–2000: Held positions of increasing responsibility with Intergraph Corporation (now Hexagon AB), a multinational corporation, including Vice President, Finance and Administration and Chief Financial Officer, Computer Systems

 

Other Experience and Education 

B.S.B.A. from Auburn University; staff accountant with PricewaterhouseCoopers LLP from 1981 to 1983

 

   
7Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Bryan H. Sayler

 

 

 

●  Age: 57 

●  Director since 2023 

●  Board Committees: Executive 

 

Mr. Sayler’s nearly 30 years of experience at the Company across several of its core businesses as well as his current position as Chief Executive Officer and President make him uniquely qualified to provide the Board of Directors with valuable insights and perspectives concerning all areas of the Company’s business.

 

Principal Occupation and Business Experience

2023–Present: Chief Executive Officer, President and a director of the Company

 

1995–2022: Held various positions of increasing responsibility within the Company, including as President of the Utility Solutions Group and Doble Engineering from 2016-2022

 

Other Experience and Education

B.A. in Pre-Seminary from Southeastern College; M.B.A. from Baylor University

 

DIRECTORS CONTINUING IN OFFICE

 

 

Patrick M. Dewar

 

 

●  Age: 63 

●  Director since 2017 

●  Term expires 2026 

●  Board Committees: Audit (Chair), Compensation 

●  Qualifies as an audit committee financial expert under SEC rules

 

Mr. Dewar’s extensive strategic and operational experience in the aerospace and defense markets makes him well-qualified to assist in guiding Company strategy at the highest levels.

 

Principal Occupation and Business Experience

2016–present: Chief Executive of The Trenton Group, LLC (investment and strategy consulting firm focused on security, aerospace and defense technology companies)

 

2013–2016: Executive Vice President of Lockheed Martin International and Chairman of Lockheed Martin Global, Inc.

 

2010–2013: Senior Vice President, Strategy and Business Development for Lockheed Martin Corporation

 

Prior to 2010: Held various positions with Lockheed Martin and GE Aerospace

 

Other Public Company Directorships Within Past Five Years

2018–present: Butler America Aerospace, LLC, a subsidiary of HCL Technologies Ltd. (provider of engineering, design IT and support services primarily to US aerospace and defense markets)

 

Other Experience and Education

M.S. in Electrical Engineering, Drexel University; B.S. in Engineering, Swarthmore College. Member of the Council on Foreign Relations; senior adviser to numerous investment firms on aerospace and defense matters

 

   
8Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Vinod M. Khilnani

 

 

●  Age: 71 

●  Director since 2014 

●  Term expires 2026

●  Board Committees: Audit, Compensation (Chair) 

●  Qualifies as an audit committee financial expert under SEC rules 

 

As a former public company executive, Mr. Khilnani brings to the Board of Directors a wealth of management experience and business knowledge regarding operational, financial and corporate governance issues, as well as extensive international experience with global operations.

 

Principal Occupation and Business Experience 

2013: Executive Chairman of the Board of Directors of CTS Corporation (designer, manufacturer and seller of electronic components and sensors) 


2009–2013: Chairman and Chief Executive Officer of CTS 


2007–2009: President and Chief Executive Officer of CTS

2001–2007: Senior VP and CFO of CTS

 

Other Public Company Directorships Within Past Five Years: 

2009–present: Materion Corporation (manufacturer of highly engineered advanced materials, performance alloys and composites, and precision coatings for global markets)


2013–2023: 1st Source Corporation (bank holding company) 


2014–2021: Gibraltar Industries (manufacturer and distributor of products for the building markets)

 

Other Experience and Education 

M.B.A. from the University of New York at Albany; B.A. in Business Administration from Delhi University 

 

Leon J. Olivier

 

 

●  Age: 75 

●  Director since 2014 

●  Term expires 2025 

●  Board Committees: Governance (Chair) 

 

Mr. Olivier’s broad utilities industry experience in all aspects of strategy and operations, including conventional and nuclear generation, renewable energy development (hydro, wind and solar), electric and gas transmission, distribution and development, and Smart Grid strategy and design, and including his extensive experience in senior leadership and management roles, makes him well qualified to serve on the Board of Directors and to assist in guiding strategy at the highest levels.

 

Principal Occupation and Business Experience 

2014–2020: Executive Vice President, Enterprise Energy Strategy and Business Development, of Eversource Energy (formerly Northeast Utilities) (public utility holding company engaged in generation, transmission and distribution of electricity and distribution of natural gas to customers in Connecticut, Massachusetts and New Hampshire)

2007–2014: Executive Vice President and Chief Operating Officer of Eversource Energy

 

Other Experience and Education 

M.B.A. from Northeastern University; served in the U.S. Navy submarine service; former director of Essex Financial Services, Essex, CT 

 

   
9Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Robert J. Phillippy

 

  

●  Age: 63 

●  Director since 2014 

●  Term expires 2026 

●  Chair of the Board

●  Board Committees: Executive, Compensation, Governance

 

 

Along with his experience as chief executive officer of a publicly held technology company, Mr. Phillippy brings to the Board of Directors extensive experience in mergers and acquisitions as well as in new product innovation and international business development; and as independent Chair of the Board he provides valuable insights and perspectives regarding all areas of the Company’s business.

 

Principal Occupation and Business Experience 

2016–present: Executive consultant to technology companies on a range of strategic, operational and organizational issues

 

2007–2016: President, Chief Executive Officer and a director of Newport Corporation (developer, manufacturer and supplier of lasers, optics and photonics technologies, products and systems for scientific research, microelectronics, defense and security, life and health sciences and industrial markets worldwide)

 

2004–2007: President and Chief Operating Officer of Newport Corporation

 

1996–2004: Held various executive management positions with Newport Corporation 

 

1984–1996: Held various sales and marketing management positions at Square D Company (now Schneider Electric) (electrical equipment manufacturer)

 

Other Public Company Directorships Within Past Five Years 

2018–present: Materion Corporation (manufacturer of highly engineered advanced materials, performance alloys and composites, and precision coatings for global markets)

2018–present: Kimball Electronics (manufacturing solutions provider of durable electronics and other products for a variety of industries globally) 

 

Other Experience and Education 

M.B.A. from Northwestern University’s Kellogg School of Management; B.S. in Electrical Engineering from the University of Texas at Austin 

 

   
10Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Gloria L. Valdez

 

 

●  Age: 61 

●  Director since 2019 

●  Term expires 2025 

●  Board Committees: Compensation, Governance

 

Ms. Valdez’s extensive strategic and operational experience in the defense markets as well as her management and financial expertise allow her to provide valuable assistance to the Board in guiding the Company’s strategy at the highest levels.

 

Principal Occupation and Business Experience 

2021–Present: Member of the Naval Shipbuilding Expert Advisory Panel providing advice to the Commonwealth of Australia on its National Naval Shipbuilding Enterprise 

 

2015–2018: Deputy Assistant Secretary of the Navy within the Office of the Assistant Secretary of the Navy (ASN) for Research, Development and Acquisition (executive oversight of all naval shipbuilding programs, major ship conversions, and maintenance, modernization and disposal of in-service ships) 

 

1986–2015: Served in a number of other civilian positions within the Navy Department including as Executive Director for the Program Executive Office for submarines (responsible for civilian management, design, acquisition and construction for submarine platform and undersea systems), Director of the Investment and Development division within the Office of the ASN for Financial Management and Comptroller, and Director for Naval and Commercial Construction in the Office of the ASN for Ship Programs; also served as Budget Director for U.S. Immigration and Customs Enforcement within the Department of Homeland Security

 

Other Experience and Education 

M.S. in management from Florida Institute of Technology; B.S. in Mechanical Engineering from the University of New Mexico; recipient of the Department of the Navy’s Distinguished, Superior and Meritorious Civilian Service Awards; recipient in 2014 of the Pioneer award from Great Minds in STEM; sponsor of the Virginia Class submarine USS Vermont (SSN 792) commissioned in 2020

 

 

BOARD OF DIRECTORS

 

Responsibilities

 

The Company’s Board of Directors is ultimately responsible for the conduct of the business of the Company in accordance with ethical and honorable business practices and applicable laws, to justify the confidence that the shareholders have placed in the Company by their investment in its shares. Among the Board’s core responsibilities are to:

 

Oversee the conduct of the Company’s business in order to evaluate whether the business is being properly managed

 

Review and, where appropriate, approve the Company’s major strategic and financial plans and goals, and evaluate results compared to those plans and goals

 

Oversee the Company’s global risk management framework

 

Review and approve significant indebtedness, significant capital allocations including dividends and stock repurchase plans, and significant transactions not arising in the ordinary course of business

 

Review management’s determinations of principal considerations related to the auditing and accounting principles and practices used in the preparation of the Company’s financial statements; review and approve the Company’s financial controls and reporting systems; and review and approve the Company’s financial statements and financial reporting

 

Select individuals for election to the Board and evaluate the performance of the Board and Board committees

 

Select, evaluate and compensate the CEO and monitor the same decisions with respect to other executive officers; approve and evaluate compensation plans for senior management in conjunction with the Compensation Committee

 

Oversee the conduct of the Company’s Environmental, Social and Governance (ESG) program including annually reviewing the Governance Committee’s ESG program assessment

 

   
11Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Composition and Recent Changes

 

The Board is currently comprised of eight directors divided into three classes, with the terms of office of each class ending in successive years. In anticipation of former director Victor L. Richey’s retirement as Chief Executive Officer and President on December 31, 2022, the Board increased the size of the Board from eight to nine members effective January 1, 2023 and elected Bryan H. Sayler, the Company’s incoming Chief Executive Officer and President, to fill the position thereby created. Upon Mr. Richey’s retirement as a director on June 30, 2023, the Board decreased the size of the Board from nine to eight members, eliminated the position of Lead Director, and elected director Robert J. Phillippy as Chair of the Board. There have been no other changes in the composition of the Board since the beginning of fiscal 2023.

 

In November, 2023, in anticipation of director James M. Stolze’s retirement upon the expiration of his term at the 2024 Annual Meeting, the Board approved the further changes described on page 7 above.

 

Independence

 

Mr. Sayler is the only Board member who is a member of the Company’s management. The Board of Directors has affirmatively determined that none of the other seven, non-management directors has any material relationship with the Company other than in his or her capacity as a director and shareholder, and that therefore all of these directors are, and at all times during their service in fiscal 2023 were, independent as defined under the Company’s Corporate Governance Guidelines and the listing standards of the NYSE.

 

Meetings

 

The Board of Directors held four meetings during fiscal 2023. All of the directors attended, either in person or by video conference call, at least 75% of the meetings of the Board and of each of the committees on which they served which were held during their periods of service. The Company’s policy requires that all directors attend the Annual Meeting of Shareholders, except for absences due to causes beyond the reasonable control of the director. All of the directors attended the 2023 Annual Meeting held in Westlake Village, California.

 

DIVERSITY AND TENURE

 

Diversity is one of the factors that the Governance Committee considers in identifying the pool of director search candidates. The Board appreciates the benefits diversity brings and strives to assemble a Board with not only a variety of business and professional backgrounds, but also diversity in areas such as race, ethnicity and gender.

 

 

   
12Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

COMMITTEES

 

The members of the Board of Directors are appointed to various committees. The standing committees of the Board are the Executive Committee, the Audit and Finance Committee (Audit Committee), the Nominating and Corporate Governance Committee (Governance Committee), and the Human Resources and Compensation Committee (Compensation Committee).

 

Each Committee operates under a written charter adopted by the Board of Directors. The charters are posted on the Company’s website, www.escotechnologies.com, under the Investor Center/Committees & Charters tab, and a copy of each Committee’s charter is available in print to any shareholder who requests it.

 

Executive Committee

 

CURRENT MEMBERS

 

●   Phillippy

●   Sayler

 

1 meeting in fiscal 2023

 

  May exercise the powers of the Board between Board meetings, subject to limitations specified in the committee charter
  May not:
    Declare dividends
    Amend the Bylaws
    Approve, propose or recommend for approval any action requiring approval by the shareholders
    Elect directors or fill vacancies on the Board
    Change the membership or composition of committees
         

Audit Committee

 

The Audit Committee assists the Board in fulfilling its oversight responsibilities for the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the qualifications, independence and performance of the Company’s independent public accounting firm (the Accounting Firm); and the performance of the Company’s internal audit function.

 

CURRENT MEMBERS

 

●   Dewar (Chair)

●   Hess

●   Khilnani

●   Stolze

 

4 meetings in fiscal 2023

 

  Appoints, retains and oversees the Accounting Firm and its performance of the annual audit
  Annually evaluates the qualifications, independence and performance of the Accounting Firm
  Reviews the scope of the Accounting Firm’s work and approves its annual audit fees and any non-audit service fees
  Reviews the Company’s internal controls with the Accounting Firm and the internal audit executive, and reviews with the Accounting Firm any problems it may have encountered during the annual audit
  Discusses the Company’s Form 10-K and 10-Q reports with management and the Accounting Firm before filing; reviews and discusses earnings press releases
  Discusses major financial risk exposures with management
  Reviews management’s assessment and oversight of information security, cybersecurity and IT risks, breaches (if any), and any preventive or remedial actions taken on a quarterly basis
  Reviews the annual internal audit plan and associated resource allocation
  Retains the outside firm overseeing the Company’s internal audit function and evaluates its performance and the results of the annual internal audit
  Reviews the Company’s reports to shareholders with management and the Accounting Firm and receives certain assurances from management
  Issues the Committee Report required to be included in this Proxy Statement pursuant to the regulations of the SEC (see Audit and Finance Committee Report on page 52)
       

   
13Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

The Board of Directors has determined that all members of the Committee are financially literate and have accounting or related financial management expertise, as those terms are defined under the Company’s Corporate Governance Guidelines and the applicable listing standards of the NYSE, and are “audit committee financial experts” within the meaning of Item 407(d)(5)(ii) of SEC Regulation S-K.

 

Governance Committee

 

The Governance Committee assists the Board in fulfilling its Corporate Governance responsibilities.

 

CURRENT MEMBERS

 

●   Olivier (Chair)

●   Hess

●   Phillippy

●   Valdez

 

4 meetings in fiscal 2023 

 

  Identifies individuals qualified to become Board members and recommends them for election to the Board at the Annual Meeting of shareholders or for appointment to fill vacancies occurring between Annual Meetings (see Director Candidates and Nominations below)
  Reviews the size of the Board and recommends any appropriate changes to the Board
  Reviews the composition of Board committees and recommends any appropriate changes to the Board
  Develops and recommends to the Board effective corporate governance guidelines
  Reviews the Company’s corporate governance and compliance programs
  Assists the Board in its oversight of the Company’s ESG program and annually provides an assessment of the program for the Board
  Oversees the Company’s ethics programs
  Reviews any conflicts of interest involving Related Persons, and oversees and administers the Company’s policy on Related Person transactions
  Leads the Board in its annual review of the Board’s performance
       

Director Candidates and Nominations.

To be considered for nomination to the Board, candidates must be persons of the highest integrity, have extensive and varied business experience and have demonstrated their ability to interact effectively with associates and peers. They preferably will also have experience and expertise in business areas related to the Company and its technologies, industries and customers. In addition, the Committee will seek out candidates with the ability to interact constructively with the existing Board membership, in order to enable the Board to act in the long-term interests of the Company’s shareholders. While the Committee has not established specific minimum qualifications for candidates, it may establish specific membership criteria as appropriate from time to time if the Board determines there is a need for specific skills and industry experience.

 

Although the Committee does not have a formal policy on diversity, it seeks the most qualified candidates without regard to race, color, national origin, gender, religion, disability or sexual orientation. However, the Committee appreciates the benefits that diversity, including gender diversity, brings to a board of directors, and both the Committee and the full Board are committed to requiring the inclusion of women and underrepresented minorities in the initial pool of director search candidates.

 

The Committee may identify new candidates for nomination based on recommendations from Company management, employees, non-management directors, shareholders and other third parties. It also has the authority to engage third party search firms to identify candidates, and it has done so from time to time. Consideration of a new candidate typically involves the Committee’s review of information pertaining to such candidate and a series of internal discussions, and may proceed to interviews with the candidate. New candidates are evaluated based on the above-described criteria in light of the specific needs of the Board and the Company at the time. Incumbent directors whose terms are set to expire are evaluated based on the above-described criteria, as well as a review of their overall past performance on the Board of Directors.

 

The Committee will consider director candidates recommended by shareholders, and will evaluate such individuals in the same manner as other candidates proposed to the Committee. All candidates must meet the legal, regulatory and exchange requirements applicable to members of the Board of Directors. Shareholders who wish to recommend individuals for consideration as director candidates for the 2025 Annual Meeting of Shareholders should notify the Committee no later than August 31, 2024 in order to allow time for their recommendations to be considered by the Committee. Submissions are to be addressed to the Nominating and Corporate Governance Committee, c/o David M. Schatz, Corporate Secretary, ESCO Technologies Inc., 9900A Clayton Road, St. Louis, MO 63124-1186, which submissions will then be forwarded to the Committee. The Committee is not obligated to nominate any such individual for election.

 

   
14Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Compensation Committee

 

The Compensation Committee’s basic responsibility is to assure that the Company’s directors, key executives and other senior officers are compensated in a manner consistent with and in furtherance of Company strategy, competitive practices, and the requirements of the appropriate regulatory bodies.

 

CURRENT MEMBERS

 

●   Khilnani (Chair)

●   Dewar

●   Phillippy

●   Stolze

●   Valdez

 

5 meetings in fiscal 2023 

  Reviews and approves corporate goals and objectives relevant to the compensation of the Chief Executive Officer; evaluates the Chief Executive Officer’s performance in light of these goals and objectives, and determines the Chief Executive Officer’s compensation based upon the evaluation in conjunction with the full Board
  Approves and evaluates the compensation plans for senior management
  Reviews, approves and evaluates incentive compensation plans, equity-based plans and other compensation plans, to ensure that they provide compensation and incentives consistent with the strategy of the Company and competitive practice
  Reviews and approves the compensation of the Company’s non-management directors in conjunction with the full Board
  Reviews, approves and evaluates material benefit programs, including material new programs and material changes to existing programs
  Reviews the performance and development of, and succession planning for, Company senior management
  Oversees the Company’s Charitable Contributions Program
  Reviews and discusses with management the Company’s annual Compensation Discussion and Analysis, and recommends its inclusion in the Company’s annual proxy statement and the Company’s Form 10-K filed with the SEC (see Compensation Committee Report on page 22)

 

Compensation Committee Interlocks and Insider Participation.

During fiscal 2023, none of the members of the Compensation Committee (i) was an officer or employee of the Company; (ii) was formerly an officer of the Company; or (iii) had any other relationship requiring disclosure under any paragraph of Item 404 or under Item 407(e)(4) of SEC Regulation S-K. In addition, during fiscal 2023, none of the Company’s executive officers served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of the Company’s Board of Directors or the Compensation Committee.

 

CORPORATE GOVERNANCE INFORMATION

 

The Board’s Role in Risk Oversight

 

The Company’s management is responsible for managing the Company’s risks on a day-to-day basis, and has adopted an ongoing enterprise risk management process that it uses to identify and assess Company risks. Management has identified risks in four general areas: Financial and Reporting; Legal and Compliance; Operational; and Strategic. Periodically, management advises the Board and the appropriate Board committee of the risks identified; management’s assessment of those risks at the business unit and corporate levels; its plans for the management of these identified risks or the mitigation of their effects; and the results of the implementation of those plans.

 

While the Board as a whole has responsibility for and is involved in the oversight of management’s risk management processes, plans and controls, some of the identified risks are given further review by the Board committee most closely associated with the identified risks. For example, the Audit Committee provides additional review of the risks in the areas of accounting and auditing, liquidity, credit, tax, information security and cybersecurity. Similarly, the Compensation Committee provides additional review of risks in the area of compensation and benefits and human resource planning. The Governance Committee devotes additional time to the review of risks associated with corporate governance, ethics, legal and ESG issues.

 

   
15Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Governance Policies and Management Oversight

 

The Board of Directors has adopted Corporate Governance Guidelines to guide its actions, as well as a Code of Business Conduct and Ethics applicable to all of the Company’s directors, officers and employees. Additionally, the Board has adopted a Code of Ethics for Senior Financial Officers applicable to the Company’s Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller and persons performing similar duties. These documents are posted on the Company’s web site, www.escotechnologies.com, under the Investor Center/Governance Documents tab, and a copy of any of these documents is also available in print to any shareholder who requests it.

 

Upon Mr. Richey’s retirement as a director on June 30, 2023 the Board eliminated the position of Lead Director and elected independent director Robert J. Phillippy as Chair of the Board.

 

Insider Trading and Clawback Policies

 

In furtherance of the Corporate Governance Guidelines and the Codes of Business Conduct and Ethics, and in coordination with applicable securities-related laws and regulations, the Board of Directors has adopted robust policies regarding Insider Trading, including prohibitions against hedging and (for certain senior Company officials) pledging transactions involving Company stock, and policies permitting the Company to “claw back” all or part of the values of certain Company equity awards to executives or senior personnel in certain cases. Further information about these policies is set forth under Insider Trading Policy; Anti-Hedging and Anti-Pledging Policies and Clawback Policy beginning on page 32.

 

Cybersecurity

 

Global information technology security threats and targeted computer crime are increasing in frequency and sophistication. As these risks increase, the Company has enhanced its use of technologies and internal controls to protect our systems, networks and data. The Company’s cybersecurity program includes employee training and testing, information security policies and procedures, third-party monitoring of our networks and systems, and maintenance of backup and other protective systems. Governmental authorities, including the United States government, have increasingly focused on cybersecurity requirements for government contractors. The Company’s subsidiaries that serve in these capacities are increasingly focused on cybersecurity as they seek to comply with the US Department of Defense Cybersecurity Maturity Model Certification (CMMC) program and related governmental mandates.

 

The Audit Committee annually reviews the major financial risk exposures including cyber security and policies or controls management has implemented to manage and mitigate risks, and quarterly reviews management’s assessment and oversight of cyber security and information technologies risks and any required remediation actions. The full Board annually reviews the Company’s cybersecurity initiatives.

 

Succession Planning

 

The Compensation Committee of the Board conducts an annual review of the Company’s long-term succession plan for the CEO. Having this succession plan in place enabled the Board to name Mr. Sayler as Mr. Richey’s successor promptly after Mr. Richey notified the Board of his decision to retire. Additionally, the Board has in place an emergency succession plan for the CEO in order to minimize the uncertainty associated with an emergency succession event.

 

Independence and Related Person Determinations

 

All of the Company’s directors except Mr. Sayler are and will be independent of Company management. Additionally, all of the members of the Audit Committee, the Compensation Committee and the Governance Committee are independent as defined by the New York Stock Exchange and set forth in the Company’s Corporate Governance Guidelines.

 

The Company has implemented a written policy not only to ensure that all non-management directors meet the independence standards defined under the Company’s Corporate Governance Guidelines and the listing standards of the NYSE but to ensure that all Company transactions in which a “Related Person” has or will have a direct or indirect interest will be at arm’s length and on terms generally available to an unaffiliated third-party under the same or similar circumstances. “Related Persons” include the Company’s directors, director nominees and executive officers, holders of 5% or more of the Company’s stock, and the immediate family members of each. The policy contains procedures requiring Related Persons to notify the

 

   
16Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Company of any such transaction and for the Governance Committee to review the material facts of the proposed transaction and determine whether to approve or disapprove the transaction. The Committee will consider whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances. If advance Committee approval is not feasible or is not obtained, the policy requires submission of the transaction to the Committee after the fact, and the Committee is empowered to approve, ratify, amend, rescind or terminate the transaction. In such event, the Committee will also request the General Counsel to evaluate the Company’s controls and procedures to ascertain whether any changes to the policy are recommended.

 

The Company has developed and implemented processes and controls to obtain information about Related Person transactions for the purpose of determining, based on the facts and circumstances, whether a Related Person has a direct or indirect material interest in the transaction. Pursuant to these processes and controls, all directors and executive officers must annually complete, sign and submit a Directors’ and Officers’ Questionnaire and a Conflict of Interest Questionnaire that are designed to identify Related Person transactions and both actual and potential conflicts of interest, and are required to update their responses in the event of any changes. Additionally, the holders of 5% or more of the Company’s shares (all of whom are institutional investors), are annually requested to respond to certain questions designed to identify direct or indirect material interests by such 5% or more shareholder in any transactions with the Company.

 

Based on its review and processes, the Company has determined that there has been no transaction since the beginning of the Company’s 2023 fiscal year, and there is no transaction currently proposed, in which the Company was or is to be a participant and in which any Related Person had or will have a direct or indirect material interest.

 

Communications with Directors

 

Interested parties desiring to communicate concerns regarding the Company to the Chair of the Board or to the non management Directors as a group may direct correspondence to: Mr. Robert J. Phillippy, Chair, ESCO Technologies Board of Directors, ESCO Technologies Inc., 9900A Clayton Road, St. Louis, MO 63124-1186. Alternatively, interested parties who wish to communicate with an individual director or any group of directors may write to such director(s) at ESCO Technologies Inc., 9900A Clayton Road, St. Louis, MO 63124-1186, Attn: Secretary. All such letters will be forwarded promptly to the relevant director(s).

 

DIRECTOR COMPENSATION

 

The responsibilities and the substantial time commitment of a director at a public company require that the Company provide reasonable compensation to incentivize the directors’ performance and ensure their willingness to continue to serve. The Company strives to engage and retain well-qualified directors with significant experience at companies of similar size and complexity. To ensure this is achieved, the Company regularly reviews the compensation provided to its directors. The Company’s non-employee directors are compensated pursuant to the Sub-Plan for Compensation of Non-Employee Directors under the 2018 Omnibus Incentive Plan (the Director Compensation Plan) based upon their respective levels of Board participation and responsibilities. The Compensation Committee obtains competitive market and peer data and periodically retains a compensation consultant to evaluate the competitiveness of its director compensation. The Committee approves the directors’ compensation, but any changes are ratified by the full Board. As an employee of the Company, Mr. Sayler does not receive compensation for his service as a director.

 

The compensation for non-employee directors is based on a calendar year and is paid or awarded, as the case may be, on and as of the first NYSE trading day after each Annual Meeting of Shareholders.

 

   
17Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Components of 2023 and 2024 Director Compensation

 

Cash Compensation1 2023 2024
Annual Retainer (all non-management directors) $50,000 $50,000
Lead Director (through June 2023) $25,0001 N/A
Chair of the Board (beginning July 2023) $85,0002 $85,000
Committee Chairs:    
Audit $12,5003 $12,500
Compensation $10,000 $10,000
Governance $8,000 $8,000

 

Equity Compensation 2023 2024
Restricted Share Award (all non-management directors)2 $180,000 $180,000

 

1 Mr. Stolze received the full Lead Director annual retainer for 2023 in February 2023.

 

2 Mr. Phillippy received a prorated Board Chair retainer for the last six months of 2023 in the amount of $42,500.

 

3 Mr. Phillippy received the full Audit Committee Chair annual retainer for 2023 in February 2023; Mr. Dewar received a prorated Audit Committee Chair retainer for the last six months of 2023 in the amount of $6,250.

 

The annual equity award consists of a number of restricted share units (RSUs) equal to $180,000 divided by the NYSE closing price of the common stock on the award date, rounded to the nearest whole share and vesting one year after the award date. The equity award for calendar 2023 was made on February 6, 2023 and will vest on February 6, 2024. Based on the February 6, 2023 NYSE closing stock price of $99.74 it amounted to 1,805 RSUs per director.

 

During the vesting period, each director’s RSU account accrues an additional number of unvested RSUs equivalent to the quarterly dividends that would have been paid on a like number of shares of common stock, divided by the NYSE closing price on the dividend date; and on the vesting date the accrued RSUs vest and are converted into a whole number of shares of common stock plus cash equal to the value of any fractional shares, based on the NYSE closing price on the vesting date.

 

2024 Compensation.

The Compensation Committee reviewed the non-management directors’ annual compensation program in August 2023, and based on its recommendations the Board determined to make no changes in the program for calendar 2024.

 

Election to Defer Compensation.

Directors may elect in advance to defer receipt of all of their cash compensation and/or all of their stock compensation. If deferral is elected, the deferred amounts are credited to the director’s deferred compensation account in common stock equivalents. If cash compensation is deferred, the number of common stock equivalents credited is equal to the amount deferred divided by the NYSE closing price of the common stock as of the date on which the deferral occurs (or if that is not a trading day, then the last preceding trading day). If stock compensation is deferred, the number of common stock equivalents credited is equal to the number of shares whose receipt is deferred. Common stock equivalents in the director’s deferred compensation account have no voting rights, but earn dividend equivalents on each dividend payment date equal to the dividends payable on a like number of shares of common stock; and the dividend equivalents earned are credited to the director’s deferred compensation account as additional common stock equivalents valued at the NYSE closing price on the dividend date. A director’s deferred compensation account becomes distributable when the director leaves the Board, or at such other date as may be specified by the director consistent with the terms of the Director Compensation Plan; distribution will be accelerated in certain circumstances, including a change in control of the Company. The account is distributable at the election of the director either in cash or in shares; however, any stock portion which has been deferred may only be distributed in shares. During fiscal 2023, Mr. Dewar, Ms. Hess and Mr. Olivier deferred receipt of their cash compensation and stock compensation, as described in the footnotes to the Fiscal 2023 Compensation table below. In addition, Mr. Phillippy’s, Mr. Stolze’s and Ms. Valdez’s stock compensation from certain prior years continued to be deferred pursuant to prior deferral elections which they had terminated as to future compensation.

 

   
18Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Director Stock Ownership Guidelines.

Directors are subject to stock ownership guidelines. Under these guidelines, within five years after their appointment to the Board each non-management director is expected to acquire and hold shares or common stock equivalents having a total cash value equal to at least five times the annual cash retainer. All directors currently exceed the ownership guidelines.

 

Extended Compensation Plan for Certain Directors.

Under the Company’s Directors’ Extended Compensation Plan, a plan for non-management directors who began Board service prior to April 2001, Mr. Stolze is eligible to receive for life an annual benefit of $20,000 beginning after his service as a director ceases. In the event of his subsequent death, 50% of the benefit will be paid to his surviving spouse for life; if Mr. Stolze dies before retirement, 50% of the benefit, determined as if the director had retired on the date of death, will be paid to his surviving spouse in a lump sum. The plan permits Mr. Stolze to elect to receive the actuarial equivalent of the benefit in a single lump sum after retirement; and in compliance with section 409(a) of the Internal Revenue Code, Mr. Stolze has made this election.

 

Fiscal 2023 Compensation.

The following table sets forth the compensation of the Company’s non-management directors for fiscal 2023. As executive officers, Mr. Richey and Mr. Sayler did not receive any additional compensation for their services as directors; their compensation is described under Proposal 2: Advisory Vote on Executive Compensation beginning on page 21.

 

          Change in    
          Pension    
          Value and    
          Nonqualified    
  Fees Earned     Non-Equity Deferred    
  or Paid Stock Option Incentive Plan Compensation All Other  
Name in Cash Awards1 Awards Compensation Earnings2,3 Compensation Total
Patrick M. Dewar $             56,3114 $             180,483 $                 5,026 $             241,820
Janice L. Hess 50,0805 180,812 427 231,319
Vinod M. Khilnani 60,0616 180,483 0 240,544
Leon J. Olivier 58,0617 180,483 10,214 248,758
Robert J. Phillippy 105,0618 180,483 6,051 291,595
James M. Stolze 75,0619 180,483 6,094 261,638
Gloria L. Valdez 50,06110 180,483 2,364 232,908

 

1 Dollar amounts represent (i) the aggregate fair values of the 1,805 RSUs awarded to the respective directors on February 6, 2023, based on the NYSE closing price of the underlying common stock of $99.74 on that date; plus (ii) the values of the dividend equivalents accrued on the respective directors’ unvested RSUs held during 2023 as of the respective dividend dates. See Components of 2023 and 2024 Director Compensation above.

 

2 Dollar amounts represent the values of the dividend equivalents accrued as of the respective dividend dates during 2023 on the elective deferred stock compensation accounts of Mr. Dewar, Ms. Hess, Mr. Olivier, Mr. Phillippy, Mr. Stolze and Ms. Valdez. See Components of 2023 and 2024 Director Compensation above.

 

3 Includes, for Mr. Stolze, the changes in actuarial present value of his accumulated benefits under the Directors’ Extended Compensation Plan, described above, during fiscal 2023. See Extended Compensation Plan for Certain Directors above. For fiscal 2023, overall pension values decreased for Mr. Stolze in the amount of ($17,372), partly due to the effect of changes in actuarial assumptions from the preceding year. The change in pension value for Mr. Stolze due to assumption changes was ($9,550). Pursuant to SEC regulations, the amounts in the table do not include these decreases. Because Mr. Stolze has elected to receive his benefit in the form of a lump sum, the present value has been calculated based on the August 2023 417(e) lump sum segment rates and the 2023 417(e) IRS prescribed mortality table.

 

4 Represents cash retainer of $50,000, prorated Audit Committee Chair fee of $6,250 and $61 in exchange for vested fractional RSUs; however, Mr. Dewar elected to defer receipt of his cash compensation and to receive in lieu of cash a total of approximately 566 RSUs having the same aggregate value on their respective issue dates.

 

   
19Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

5 Represents cash retainer of $50,000 and $80 in exchange for vested fractional RSUs; however, Ms. Hess elected to defer receipt of her cash compensation and to receive in lieu of cash a total of approximately 502 RSUs having the same aggregate value on their respective issue dates.

 

6 Represents cash retainer of $50,000, committee chair fee of $10,000, and $61 in exchange for vested fractional RSUs.

 

7 Represents cash retainer of $50,000, committee chair fee of $8,000, and $61 in exchange for vested fractional RSUs; however, Mr. Olivier elected to defer receipt of his cash compensation and to receive in lieu of cash a total of approximately 582 RSUs having the same aggregate value on their respective issue dates.

 

8 Represents cash retainer of $50,000, committee chair fee of $12,500, prorated Board Chair fee of $42,500 and $61 in exchange for vested fractional RSUs.

 

9 Represents cash retainer of $50,000, lead director cash retainer of $25,000 and $61 in exchange for vested fractional RSUs.

 

10 Represents cash retainer of $50,000 and $61 in exchange for vested fractional RSUs.

 

   
20Proposal 1 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Proposal 2: Advisory Vote to Approve Executive Compensation

 

The Board of Directors recommends a vote FOR this Proposal.

 

Pursuant to Section 14(a) of the Securities Exchange Act of 1934, the Board of Directors is again soliciting an advisory (non-binding) shareholder vote, commonly referred to as “Say-on-Pay”, to approve the compensation of the executive officers whose compensation is disclosed in this Proxy Statement (the named executive officers or NEOs). At our 2023 Annual Meeting, over 99% of the shares represented and entitled to vote on the Say on Pay proposal, and over 92% of all outstanding shares, were voted in support of the Say-on-Pay proposal. Also, based on the preference of over 93% of the votes cast on the frequency of the Say-on-Pay proposals, we plan to continue to hold a Say-on-Pay vote every year.

 

The Board of Directors strongly endorses our executive compensation program and recommends that the shareholders vote in favor of the following Resolution:

 

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers as disclosed in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table, and the other related tables and narrative disclosure.”

 

Shareholders are encouraged to review the Compensation Discussion and Analysis section below as well as the Summary Compensation Table and the other related tables and narrative disclosure referred to in the proposed Resolution, which provide details about our executive compensation program as well as specific information about the compensation of our named executive officers.

 

This vote is not intended to address any specific item of compensation, but rather the overall compensation of the named executive officers as described in this Proxy Statement. Although the vote is non-binding, the Board of Directors and the Compensation Committee value the opinions of the shareholders, and to the extent there is a significant vote against the above resolution the Company will consider the shareholders’ concerns and the Committee will evaluate what actions (if any) may be necessary to address those concerns.

 

SUMMARY OF EXECUTIVE COMPENSATION PROGRAM

 

Our executive compensation program is designed to attract, motivate, and retain executive officers who are critical to our success. The Committee believes that the program constitutes a balanced, competitive approach to compensation that supports our compensation objectives through performance-based compensation that aligns the interests of executives with those of our shareholders.

 

The Compensation Committee reviews our compensation program at least annually to ensure that it achieves the desired goals of aligning our executive compensation structure with shareholders’ interests and current market practices.

 

What We Do:   What We Don’t Do:
         
Pay for performance philosophy   (GRAPHIC)  No excessive perquisites
         
Significant portion of compensation is at-risk   (GRAPHIC)  No tax gross-ups on perquisites
         
Competitive stock ownership guidelines   (GRAPHIC)  No tax gross-ups on change in control severance
         
Robust clawback policy   (GRAPHIC)  No hedging or pledging of Company stock
         
Double-trigger change-in-control equity vesting   (GRAPHIC)  No repricing or exchange of equity-based awards without shareholder approval
     
Independent compensation consultant  

 

   
21Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

COMPENSATION COMMITTEE REPORT

 

The Human Resources and Compensation Committee is responsible for determining the compensation of the Chief Executive Officer and President as well as other senior officers and key executives of the Company. The Committee has reviewed and discussed with management the Company’s disclosures under the section captioned Compensation Discussion and Analysis beginning immediately following this Compensation Committee Report.

 

Based on such review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the Securities and Exchange Commission.

 

The Human Resources and Compensation Committee

 

Vinod M. Khilnani, Chair
Patrick M. Dewar
Robert J. Phillippy
James M. Stolze
Gloria L. Valdez

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis discusses the compensation of the following NEOs.

 

Bryan H. Sayler, Chief Executive Officer & President

 

Christopher L. Tucker, Senior Vice President & Chief Financial Officer

 

David M. Schatz, Senior Vice President, General Counsel & Secretary

 

2023 Performance Highlights

 

Net Sales   Diluted Earnings Per Share   Entered Orders
$956M   $3.58   $1,033M
Record Sales
+11% over prior year
  +13% over prior year   Record Orders & Ending Backlog Orders +8% / Backlog +11% over prior year

 

Entered orders exceeded $1 billion for the first time

 

Record sales increased 11% over the prior year

 

Leveraged revenue growth to drive higher profit margins

 

Returned $21 million to shareholders through dividends and the repurchase of outstanding shares of common stock

 

2023 Performance Related to Executive Compensation

 

The Compensation Committee established two performance metrics, “Adjusted EPS” and “Cash Flow from Operating Activities,” to determine incentive plan compensation earned during fiscal 2023 and thereby incent the participants and align cash incentive compensation with business objectives. Adjusted EPS is a non-GAAP measure, and the factors used in the calculation of the 2023 adjustment differed slightly from those used to calculate the 2022 adjustment; for a detailed description and a reconciliation to the nearest GAAP measure, see 2023 Cash Incentive Metrics, below.

 

   
22Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Pay for Performance

 

Our compensation programs are designed to maximize shareholder value by allocating a significant portion of executive compensation to at-risk pay. Our annual cash incentive program and equity-based PSUs utilize a variety of key strategic and financial performance metrics and are designed to reward positive financial performance and limit unnecessary risk taking. Stock ownership guidelines align the interests of executives and shareholders by ensuring that executives bear the economic risk of share ownership.

 

Compensation Objective

 

The Compensation Committee’s objective is to develop and maintain industry-competitive compensation packages to attract, retain, motivate and reward our executive officers and other senior officers and key executives. Compensation programs are designed to be consistent with those of other companies engaged in similar industries and/or of similar size with which we are likely to compete for talent to enable us to employ and retain a high-quality management team. The Committee seeks to use performance-based compensation to maximize the alignment of executive compensation with the long-term interests of our shareholders.

 

The Committee sets compensation levels based on the skills, experience and performance of each executive officer, taking into account the benchmarking described below and compensation recommendations made by the CEO (except with respect to his own position). The Committee’s pay for performance philosophy is reflected in the annual compensation review. The Committee also considers tally sheets which provide, for each executive officer, a recap of each principal element of compensation as well as benefits, perquisites, equity awards, and stock ownership and potential ownership. The tally sheets also reflect the incremental compensation which would be payable as a result of various termination scenarios and each element of pay or benefits impacted. The Committee retains the discretion to adjust all elements of compensation as it deems appropriate, subject to the requirements of shareholder-approved plans.

 

Executive Compensation Program Highlights

 

Pay for performance philosophy A significant portion of NEO pay is at-risk in order to align pay with business strategy and shareholder interests
At-risk annual cash incentive Based on achievement of specified Company performance metrics
Long-term equity incentive compensation (LTI) Incorporates long-term Company performance metrics, and retention factors such as delayed vesting
Limited perquisites Perquisites are appropriate to the position and not excessive
No tax gross-ups No tax gross-up on any perquisites or severance benefits
Competitive stock ownership policy NEO stock ownership requirement is based on a multiple of base salary
Clawback policy Cash incentive and equity awards may be reclaimed by the Company in case of malfeasance or accounting restatements due to noncompliance with financial reporting requirements
No hedging or pledging NEOs must retain the risks of Company stock ownership
Double trigger vesting NEO change in control agreements and stock awards contain double trigger vesting provisions
Independent compensation consultant The Compensation Committee retains its own independent compensation consultant
Strong say-on-pay support Over 99% of the shares voting at the 2023 Annual Meeting supported the Company’s executive compensation program

 

   
23Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

The following table summarizes the 2023 target direct compensation pay mix for the CEO and other NEOs, with approximately 75% of the CEO’s target direct compensation at risk and 63% of the average of the other NEOs’ target direct compensation at risk. Target direct compensation is defined as the sum of the executive officer’s base salary, annual cash incentive award, and annual long term equity incentive awards, in each case calculated at the target level specified by the Compensation Committee. Because of the Company’s change in CEOs during 2023, the chart for the CEO is based on the compensation of the new CEO, Mr. Sayler.

 

 

Compensation Consultant and Benchmarking

 

The Compensation Committee is authorized by its charter to employ independent compensation and other consultants. The Committee has typically engaged a nationally recognized compensation consulting firm (Compensation Consultant) every other year to assist the Committee in evaluating executive compensation. The Compensation Consultant provides information, research and analysis pertaining to executive compensation as requested by the Committee, including updates on market trends, survey data and analysis for market review. The Committee also from time to time engages our primary outside counsel, Bryan Cave Leighton Paisner LLP (BCLP) to advise it on selected executive compensation issues.

 

The Committee conducts a peer and market review every two years; the most recent review was in 2022, as described below.

 

2022 Compensation Report (Fiscal 2023 Compensation Review)

In the summer of 2022, the Committee engaged Pay Governance LLC as the Compensation Consultant to provide a compensation report (the 2022 Compensation Report) for the Committee’s fiscal 2023 compensation review. One of the elements of the 2022 Compensation Report was the 2022 Mercer Benchmark Database/Total Remuneration Survey – Executive (the Mercer Survey), a broad-based survey of management compensation, as the primary source for benchmarking its executive compensation levels. A broad market survey provides decision-quality data that is generally reliable and consistent year-over-year. The Company was a participant in the Mercer Survey. A list of all of the participating companies included in the Mercer Survey is attached as Appendix A to this Proxy Statement.

 

For its 2022 Compensation Report, the Compensation Consultant also provided proxy data from the peer group described below (2022 Peer Group) to be used in conjunction with the Mercer Survey in order to add context to the decision-making process and provide a supplemental perspective on the market. Peer group proxy data provides transparent line-by-line information for each company in the peer group, and provides the ability to review industry trends and compensation design practices as well as pay-for-performance alignment. The 2022 Peer Group was based on the SIC codes assigned to the Company’s subsidiaries and represented companies in the following industries in which the Company participates:

 

   
24Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Industrial valves
General industrial machinery
Radio and television communications equipment
Printed circuit boards
Instruments to measure electricity
Services not elsewhere classified

 

Companies in the above industries were then filtered for revenue size in order to determine the 2022 Peer Group. The following is a list of the companies in the 2022 Peer Group, with their ticker symbols:

 

Ameresco, Inc. (AMRC)* Kaman Corporation (KAMN)
Badger Meter, Inc. (BMI) MACOM Technology Solutions Holdings Inc. (MTSI)
Barnes Group Inc. (B)* Mueller Water Products, Inc. (MWA)
Chart Industries, Inc. (GTLS) National Instruments Corporation (NATI)*
CIRCOR International, Inc. (CIR) Powell Industries, Inc. (POWL)*
Comtech Telecommunications Corp. (CMTL) SPX Technologies Inc.
CTS Corporation (CTS) Standex International Corporation (SXI)
FARO Technologies, Inc. (FARO)* Tri Mas Corporation (TRS)*
Franklin Electric Co., Inc. (FELE) Viavi Solutions Inc. (VIAV)*
Helios Technologies (HLIO)  

 

* These companies did not report compensation data for the General Counsel position in their proxy materials.

 

Fiscal 2023 Benchmarking.

For its compensation review for fiscal 2023, the Committee reviewed each principal element of compensation (base salary, cash incentive and LTI), as well as total cash compensation (base salary and cash incentive), and total direct compensation (target cash compensation and LTI) for each of the Company’s executive officer positions, and compared them against the benchmark range from the Compensation Report. For all three of the NEOs, the benchmark range for each element of compensation in the Compensation Report is the median plus or minus 15%. For fiscal 2023, the Committee utilized the benchmark ranges from the Compensation Report in determining the competitiveness of the executives’ compensation. The Committee also compared relative Company performance against the performance of the companies in the 2022 Peer Group to test the overall reasonableness of pay for performance.

 

The Committee used the Compensation Report described above as a guideline and frame of reference in determining appropriate compensation levels and incentives for the executive officers; however, the Committee does not make its decisions according to a formula, and the Committee exercises considerable judgment and discretion in making them. The complexity and composition of the Company does not lend itself to comparisons with a readily ascertainable peer group, and while matching by SIC codes can provide some measure of comparability, there are wide variations in the type and complexity of these companies. The Committee therefore considers the benchmark ranges to be only a guide, and makes individual determinations of compensation for each of the executive officers based on numerous factors including the comparative responsibilities of the executive officers and the Committee’s assessments of individual and Company performance.

 

Compensation Consultant Independence.

In August 2023, the Committee assessed the independence of Pay Governance and BCLP in line with the SEC’s compensation consultant independence factors, and determined there were no conflicts of interest. The Committee will continue to review their independence status annually and will keep the compliance letters on file.

 

   
25Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Principal Elements of Compensation Program

 

The principal elements of the 2023 compensation program for executive officers (base salary, annual cash incentive and long-term equity incentive) are reflected in the Summary Compensation Table on page 34. Each of these elements is described in detail in the corresponding sections below.

 

Pay Element Form 2023 Metrics Objectives
Base Salary Cash Benchmarked to market median, subject to adjustment for individual factors such as experience and performance Attract and retain qualified executives
Annual Incentive Plan (PCP) Cash 100% based on financial results: Drive profitability, growth and progress
    70% based on Adjusted EPS against strategy
    30% based on Cash Flow from  
      Operating Activities  
Long-Term Equity Incentive (LTI) Performance Share Units (PSUs) Awards vest after 3-year Align NEOs’ efforts with creation of
    performance period long-term shareholder value
    60% based on EBITDA growth  
    40% based on Return on  
      Invested Capital  
    Potential for modification based  
      on rTSR  
  Restricted Share Units (RSUs) 2023 awards vest after 3½ years Retention, ownership and full alignment with the shareholder experience
Benefits Consistent with other similarly situated personnel  

 

We do not believe that any risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on the Company. Any such risk is mitigated by the multiple elements of the compensation programs, including base salary, annual cash incentive programs, and LTI awards which are earned over multiple years. This structure encourages decision-making that is in the best long-term interests of the Company and our shareholders.

 

Total Direct Compensation.

The executive officers receive total direct compensation consisting of cash compensation (base salary plus annual cash incentive compensation) and long-term equity incentive compensation. Each of these elements is described in detail in the corresponding sections below.

 

The Committee sets target levels for total direct compensation based on the skills, experience, breadth of their role, and performance of each executive officer, taking into account the benchmarking described above and compensation recommendations made by the CEO (except with respect to his own position). The Committee also considers the Company’s performance. For fiscal 2023, the Committee increased the executive officers’ total direct compensation as described in detail below. Total direct compensation for fiscal 2023 was within the benchmark ranges for Mr. Tucker and Mr. Schatz. Mr. Sayler’s total direct compensation was below the benchmark range, which is typical for a recently promoted CEO.

 

Base Salaries.

Base salaries are designed to attract, retain, motivate and reward competent, qualified, experienced executives, although we emphasize performance-based compensation for the executive officers.

 

Fiscal 2023 base salaries for the executive officers other than Mr. Sayler were set by the Committee in the first quarter of fiscal 2023; Mr. Sayler’s base salary was set prior to the commencement of his employment in January 2023. Annual base salaries for the executive officers for fiscal 2023 and fiscal 2022 were as follows:

 

   
26Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Base Salaries1

 

Officer FY 2023 Base Salary FY 2022 Base Salary Percent Increase from FY 2022
Bryan H. Sayler $ 715,0002 $ N/A N/A
Victor L. Richey 898,1003 898,100 0.0%
Christopher L. Tucker 570,000 522,000 9.2%
David M. Schatz 394,000 357,000 10.4%

 

1 Amounts shown are annualized, and are as of the beginning of fiscal 2023; the actual amounts paid are set forth in the Summary Compensation Table.

 

2 Effective January 1, 2023, upon becoming CEO.

 

3 Reduced to $650,000 effective January 1, 2023.

 

Base Salary Changes for Fiscal 2024.

For fiscal 2024 the Committee determined that increases in base salary of 5.6%, 5% and 3% were warranted for Mr. Sayler, Mr. Tucker and Mr. Schatz, resulting in base salaries of $755,000, $598,500 and $405,800, respectively.

 

Annual Cash Incentive

The Committee uses annual performance-based cash incentives to compensate the executive officers. The Committee establishes at-risk performance targets for the executive officers using financial and operational goals linking compensation to overall Company performance. The annual cash incentive targets for fiscal 2023 and fiscal 2022 were as follows:

 

Target Cash Incentive Compensation1

 

Officer FY 2023 Target Cash Incentive FY 2022 Target Cash Incentive Percent Increase from FY 2022
Bryan H. Sayler $ 715,0002 $ N/A N/A
Victor L. Richey 959,5003 $ 959,500 0.0%
Christopher L. Tucker 373,000 348,000 7.2%
David M. Schatz 176,000 153,000 15.0%

 

1 Amounts shown are annual targets and are as of the beginning of fiscal 2023; the actual amounts paid are set forth in the Summary Compensation Table.

 

2 Scored based on the performance of the Utility Solutions Group for the first quarter of fiscal 2023 and on total company performance for the remaining three quarters of fiscal 2023.

 

3 Prorated for the first quarter of fiscal 2023, then reduced to $487,500 prorated from the beginning of the second quarter of fiscal 2023 until his retirement at the end of the third quarter of fiscal 2023.

 

The fiscal 2023 cash incentive targets for the executive officers were established pursuant to our Performance Compensation Plan (PCP) authorized under the 2018 Omnibus Incentive Plan. This at risk plan closely links the executive officers’ pay to our financial results and provides compensation variability in the form of reduced payments when performance is below targets and higher compensation when performance exceeds targets. The PCP has a fixed target with a payout range based on performance. The Committee has discretion to either increase or decrease the actual cash incentive payouts.

 

Annual Cash Incentive Changes for Fiscal 2024.

For fiscal 2024, the Committee determined that the cash incentive targets will be set as a percent of base salary in line with market practices. The 2024 cash incentive targets for Mr. Sayler, Mr. Tucker and Mr. Schatz are $755,000 (100% of 2024 base salary), $389,000 (65% of 2024 base salary), and $202,900 (50% of 2024 base salary), respectively. The metrics to be used for determining the amounts of the 2024 cash incentive payouts are described under Fiscal 2024 Changes to Cash Incentive Metrics, below.

 

   
27Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Total Target Cash Compensation

The target percentages of total cash compensation represented by base salary and by the PCP target varied for fiscal 2023 based on the position, as follows:

 

Target Total Cash Compensation – Fiscal 20231

 

  Base Salary Cash Incentive Target (PCP)  
       Percent of Target  
Officer   Percent of Target Total
Cash Compensation
  Total Cash
Compensation
Target Total Cash
Compensation
Bryan H. Sayler $ 715,0002 50% $ 715,0002 50% $ 1,430,0002
Victor L. Richey 898,1002 48% 959,5002 52% 1,857,6002
Christopher L. Tucker 570,000 60% 373,000 40% $943,000
David M. Schatz 394,000 69% 176,000 31% $570,000

 

1 Amounts shown are as of the beginning of fiscal 2023; the actual amounts paid are set forth in the Summary Compensation Table.

 

2 Amounts shown are as of the beginning of fiscal 2023; for adjustments during the year see “Base Salaries” above.

 

The higher at-risk target percentage for the CEO as compared to the other executive officers is based on our at risk philosophy and the greater responsibilities of the CEO. Similarly, the CFO has a higher at-risk percentage as compared to the General Counsel. Near the beginning of each fiscal year, after reviewing our business plans for the fiscal year, the Committee determines the key short-term business metrics on which senior management should focus in order to drive results and approves the cash incentive target for each executive officer. Because of the broad responsibilities of the executive officers, their criteria are tied to Company-wide metrics. The Committee then determines the percentage of the cash incentive target which should be tied to each of the metrics and the performance target for each metric, and approves the threshold and maximum multipliers which will be applied to each of the performance targets to determine the payment under the plan. If performance is below the threshold for a metric, there is no payout for that metric.

 

2023 Cash Incentive Metrics.

During the first quarter of fiscal 2023 the Committee approved two metrics for achievement of the fiscal 2023 PCP incentive targets, based on the annual operating plan reviewed by the Board of Directors. The first metric in 2023 was “Adjusted EPS,” weighted at 70% of the total PCP target opportunity; Adjusted EPS is a non-GAAP financial measure. Fiscal 2023 Adjusted EPS of $3.70 equaled GAAP diluted EPS of $3.58 excluding $0.12 per share of after-tax charges consisting of executive management transition costs, acquisition inventory step-up charges, restructuring charges, and acquisition related costs.

 

The second metric in fiscal 2023 was “Cash Flow from Operating Activities,” weighted at 30% of the total PCP target opportunity; Cash Flow from Operating Activities is a GAAP financial measure. Fiscal 2023 Cash Flow from Operating Activities was $76.9 million.

 

The Committee approved the following targets for the two fiscal 2023 cash incentive metrics. It believes that the selected metrics and the performance benchmarks for each metric, and the threshold and maximum multipliers, provided meaningful incentives for 2023 performance.

 

   
28Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

2023 PCP Targets and Results

 

    2022 Benchmarks    
  Weight (% of       Actual Value Actual % of Payout
Metric Target Incentive) Threshold Target Maximum Achieved Earned (unweighted)
Adjusted EPS 70% $2.98 $3.50 $3.85 $3.70 157.1%
Cash Flow from Operating Activities (millions) 30% $100.6 $118.3 $136.0 $76.9 0%1
% of Target Earned   30%1 100% 200%    
Weighted % of Total Target Earned         110%

 

1 If performance is below the threshold for a metric, there is no payout for that metric.

 

The Summary Compensation Table on page 34 reflects the actual payouts to the executive officers under the PCP for fiscal 2023.

 

Fiscal 2024 Changes to Cash Incentive Metrics.

 

In line with its practice in recent years, the Committee determined to allocate 100% of the executive officers’ cash incentive compensation opportunity to the PCP, and approved the following performance criteria for fiscal 2024:

 

“Adjusted EPS,” weighted at 70% of the total target opportunity and consisting of earnings per share excluding certain defined non-recurring gains and charges expected to be realized or incurred in fiscal 2024 (this is a non-GAAP measure); and

 

“Cash Flow from Operating Activities,” weighted at 30% of the total target opportunity (this is a GAAP measure).

 

As in 2023, the potential cash incentive compensation for fiscal 2024 will range from 0 to 2.0 times the target opportunity for both Adjusted EPS and Cash Flow from Operating Activities, depending on actual 2024 performance.

 

Long-Term Equity Incentive Compensation.

 

The Company’s annual LTI award program consists of a combination of performance-based share unit (PSU) awards (since fiscal 2022) and time-vested restricted share unit (RSU) awards (since fiscal 2021), with each type weighted at 50% of the LTI opportunity. For fiscal 2023, PSU grants were made in the first quarter of the fiscal year to align with the Company’s fiscal year goal-setting process, and RSU grants were made in the third quarter of the fiscal year in line with historic LTI grant timing.

 

We do not coordinate LTI grants with the release of material non-public information. Company-wide equity grants, including equity grants to our executive officers, are made at regular meetings of the Compensation Committee. We also do not grant stock options or other awards which require a payment by the recipient in order to realize the value of the award.

 

Restricted Share Units (RSUs).

 

RSUs are time-vested awards. The terms of the awards are similar to those in recent prior RSU awards, but with the following material changes approved by the Compensation Committee for the 2023 RSU awards:

 

The awards will vest in three equal portions approximately 18, 30 and 42 months after the month in which they are granted; for the 2023 awards, vesting will occur on the last NYSE trading days in November 2024, 2025 and 2026, at which time they will be converted into a like number of shares of Company common stock, and such shares will be paid out to the participant (after statutory tax withholdings) on the following business day.

 

On each regular quarterly dividend date occurring from the award date to and including the vesting date, the Company will accrue for the benefit of the recipient an amount equal to the cash dividend which would have been paid on a number of shares of Company common stock equal to the number of unconverted RSUs. The amount accrued with respect to each vested portion of the award will be paid out in cash at the time that portion of the award is distributed; but, if or to the extent the award does not vest or for any reason is not distributed, a like portion of the accrued amount will be canceled and not paid.

 

   
29Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Performance Share Units (PSUs).

 

PSUs awarded in fiscal 2023 will vest after a three-year performance period ending with fiscal 2025. If earned, they will be converted into a number of shares of Company common stock based on achievement of the performance goals. The award distribution in shares may be less than or greater than the number of PSUs awarded depending on the degree to which the Company has achieved specified performance goals. Straight-line interpolation will be used to score between threshold, target and maximum performance levels. For the fiscal 2023 PSU awards, the Committee approved further aligning the performance measures with shareholders, by continuing the use of EBITDA as a performance measure, with a 60% weighting, adding Return on Invested Capital (ROIC) as a performance measure, with a 40% weighting, but also adding relative Total Shareholder Return (rTSR) as a modifier:

 

EBITDA Performance Goals — 60% of PSU award value

 

    Below Threshold Threshold Target Maximum
Cumulative Company EBITDA for the three year performance period1 Performance Level (in millions) <$469.1 $ 469.1 $ 551.9 $ 717.5
Payout2 0% 50% 100% 200%

 

ROIC Performance Goals — 40% of PSU award value

 

    Below Threshold Threshold Target Maximum
Company ROIC for 20253 Performance Level (in percentages) <8.5% 8.5% 10.0% 13.0%
Payout2 0% 50% 100% 200%

 

1 The EBITDA target was set by the Committee to represent a challenging performance incentive based on annual percentage increases over actual 2022 EBITDA and is not intended as guidance or a prediction of actual results.

 

2 Subject to adjustment as described below.

 

3 The ROIC target was set by the Committee to represent a challenging performance incentive and is not intended as guidance or a prediction of actual results.

 

After applying the above performance metrics, the resulting number of PSUs may be subject to increase or decrease based on the Company’s Total Shareholder Return (TSR) over the performance period compared to the TSR of the companies in a peer group based on the S&P SmallCap 600 Industrials Index. If the Company’s relative TSR (rTSR) is below the 25th percentile or above the 75th percentile, the resulting number of shares will be decreased by 20% or increased by 20%, respectively; if the Company’s rTSR is from the 25th percentile to the 75th percentile, no adjustment will be made. In no event will the award payout be greater than 200% of the target.

 

For more information about the fiscal 2023 LTI awards, see Grants of Plan-Based Awards on page 36.

 

LTI Changes for 2024

For the fiscal 2024 LTI awards to Mr. Sayler and the other executive officers, the Committee set the value as a percentage of base salary in line with market practices, resulting in fiscal 2024 target LTI values as of the grant date of $1,510,000 (200% of base salary), $598,500 (100% of base salary) and $304,400 (75% of base salary) for Mr. Sayler, Mr. Tucker and Mr. Schatz, respectively.

 

The Committee determined that the LTI awards for fiscal 2024 would be provided in the same two forms as in fiscal 2023 and that the grant date target value would be divided equally between PSUs and RSUs as they were in fiscal 2023. The fiscal 2024 PSUs were granted in November 2023 and will vest after a three-year performance period beginning with fiscal 2024, at which time they will be converted into a currently undeterminable number of shares of Company common stock, which may be less than or greater than the number of PSUs awarded, within certain specified threshold and maximum limits, depending on the degree to which the Company has achieved one or more specified performance goals. If the performance is less than the threshold goal for a particular performance measure, there will be no payout of that portion of the PSUs dependent on that measure. The fiscal 2024 RSU awards were also granted in November 2023 and will vest in three equal portions approximately 12, 24 and 36 months after the month in which they are granted; for the 2024 awards, vesting will occur on the last trading days in November of 2024, 2025 and 2026.

 

   
30Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Other Compensation Elements

 

Perquisites.

The Company also provides limited perquisites to the executive officers, which have historically included country club membership, an annual physical, financial planning and an auto allowance. The Committee annually reviews the types and value of the perquisites provided to the executive officers as part of its overall review of executive compensation. The Committee determined the perquisites paid in fiscal 2023 to be reasonable.

 

Certain of these perquisites are treated as taxable income. Effective January 1, 2021, we ceased reimbursing our executive officers for the income taxes due on these perquisites (“tax gross-ups”), and effective for fiscal 2023 we ceased providing auto allowances and country club benefits for our executive officers other than country club initiation fee benefits for Mr. Sayler and Mr. Tucker based on their employment terms at hire.

 

Retirement Benefits.

Like our other employees, the executive officers are eligible for retirement benefits provided through a matched defined contribution (401(k)) program. Our former defined benefit pension plan was terminated in February 2020, and the executive officers received lump sum distributions in liquidation of their plan accounts. Upon his retirement in 2023, Mr. Richey received a lump-sum benefit under our supplemental executive retirement plan (SERP), the accrual of benefits under which had ended in December 2003. See Pension Benefits, below.

 

Severance Plan.

Severance provisions in the event of a change of control benefit a company by allowing executives who are parties to such arrangements to focus on continuing business operations and the success of a potential business combination rather than seeking alternative employment, thereby providing stability to a corporation during a potentially uncertain period. Accordingly, the Company has adopted a Severance Plan, last amended in November 2020, which prescribes the compensation and benefits to be provided in the event of a change of control to certain executives, including the CEO and the other executive officers.

 

Our change of control arrangements were designed to provide executives with severance payments and certain other benefits in the event that their employment is terminated in connection with a change of control transaction. The Severance Plan includes a “double trigger,” which means that it provides severance benefits only if there is both (1) a change of control of the Company, and (2) the Company (or any successor) terminates the employee’s employment without cause within 36 months following a change of control, or the employee terminates his or her employment for good reason within 36 months following a change of control, or the Company terminates the employee’s employment within 90 days before a change of control at the request of a third party who, at such time, had taken steps reasonably calculated to effect the change of control.

 

For purposes of the Severance Plan, “change of control” means any of the following (subject to the specific definitions in the Severance Plan): (i) the acquisition by any person or group of at least 20% of the then-outstanding shares of the Company’s common stock; or (ii) a change in a majority of the members of the Board of Directors that is not approved by the incumbent Board; or (iii) the approval by the shareholders of either a reorganization, merger or consolidation after which the shareholders will not own at least a majority of the Company’s common stock and voting power, or a liquidation or dissolution of the Company, or the sale of all or substantially all of the Company’s assets.

 

If the Severance Plan is triggered, the executive will be entitled to all accrued but unpaid compensation, a pro rata cash bonus for the year of separation and benefits through the date of separation, as well as a lump sum cash payment which is designed to replicate the cash compensation (base salary and cash incentive), plus certain benefits, that the executive would have received had he or she remained employed for two years. These payments and benefits would only be paid as a result of a double-trigger event. The determination of the appropriate level of payments and benefits to be provided in the event of a change of control termination involved consideration of several factors. The two-year multiple was determined based on a survey of the Company’s peers at the time the Severance Plan was adopted by the Company, and is deemed to be reasonable. The Committee considered that a high-level executive, who is more likely to lose his or her job in connection with a change of control than other employees, may require more time than other employees in order to secure an appropriate new position, and, unless that executive was provided with change of control benefits, he or she may be motivated to start a job search early if a change of control is anticipated, to the detriment of the Company. Thus, the existence of the Severance Plan provides an incentive for the executive to remain with the Company until a change of control actually occurs. In addition, payments are not provided under the Severance Plan unless there has been not only a change of control but also a qualifying termination of employment, thus providing an acquirer the opportunity to retain the Company’s management team during or after a transition period.

 

   
31Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

For further information about the Severance Plan, and a sample calculation of the cash compensation and benefits to be provided to our executive officers under the Severance Plan, based on certain stated assumptions, see Potential Payments Upon Termination or Change in Control beginning on page 40.

 

In addition, pursuant to the executive officers’ severance agreements as well as their LTI award agreements, in the event of a change of control, all LTI awards are to be assumed by the acquirer or successor entity and converted to an equivalent agreement. If for any reason the awards will not or cannot be assumed, they will be paid out in cash.

 

Employment Agreements.

In 2021, we entered into new employment and compensation agreements with each of our then executive officers, and in December 2022, we entered into a new employment and compensation agreement with Mr. Sayler effective January 1, 2023, consistent with the financial terms of his accepted offer letter and otherwise substantially on the same terms as the current employment agreements with the other executive officers. The agreements provide for payment of an annual base salary, participation in our cash incentive plans, eligibility for participation in our LTI plans and benefit plans and programs applicable to senior executives, and continuance of certain perquisites. For more information about the terms of these agreements, including specifics regarding the cash compensation and benefits provided in the event of a qualifying separation, and for a sample calculation based on certain stated assumptions, see Employment Agreements on page 39, and Potential Payments Upon Termination or Change in Control beginning on page 40.

 

The Compensation Committee periodically assesses the reasonableness of the executive officers’ employment agreements to consider whether any changes are appropriate.

 

Limit on Deductibility of Certain Compensation

 

Section 162(m) of the Internal Revenue Code prohibits publicly held companies, including the Company, from deducting salaries and other compensation paid to an executive officer to the extent that the total exceeds $1 million during the tax year. Certain compensation based upon the attainment of performance goals set by the Compensation Committee was formerly able to qualify for an exclusion from this limitation, but this exclusion has been eliminated. However, the Committee intends to continue its practice of utilizing shareholder-approved metrics for our cash incentive plans when appropriate, although it reserves the right to use other award provisions that are tailored to achieving our financial and business objectives if it determines that the awards and performance metrics are appropriate and consistent with our business needs.

 

Stock Ownership Guidelines

 

The Compensation Committee has established stock ownership guidelines for the executive officers. The guidelines set the minimum level of ownership at a multiple of annual base salary as follows:

 

Title Multiple of Base Salary
CEO and President 5x
Other Executive Officers 3x

 

Executive officers are expected to be in compliance with the ownership guidelines within five years of their appointments, and they are required to hold 100% of all after-tax stock distributions received from compensation awards until the guideline amounts are reached and thereafter as needed to maintain ownership of at least the guideline amounts. Mr. Tucker and Mr. Schatz currently exceed the ownership guidelines, and Mr. Sayler, who became an executive officer in January 2023, is expected to meet the guidelines within the five-year period.

 

Insider Trading Policy; Anti-Hedging and Anti-Pledging Policies

 

Our Insider Trading Policy prohibits any employee from trading in Company securities while in possession of material non-public information. In addition, the Insider Trading Policy strictly prohibits our directors, officers and employees from engaging in transactions in Company securities involving puts, calls or other derivative securities on an exchange or in any other organized market, selling Company securities “short”, or entering into hedging or similar arrangements (such as exchange funds) involving Company securities. The Insider Trading Policy also prohibits our directors, officers, corporate office employees, and other designated employees in management positions from pledging Company securities as collateral

 

   
32Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

for a loan or holding Company securities in a margin account. These policies are intended to ensure that the executive officers, as well as other Company personnel in positions of authority, cannot offset or hedge against declines in the price of the Company stock they own or have a personal interest in the price of their shares which may be different from the interests of other shareholders generally.

 

Clawback Policy

 

Our Code of Business Conduct and Ethics reaffirms the importance of high standards of business ethics. Adherence to these standards by all employees is the best way to ensure compliance and secure public confidence and support. All employees are responsible for their actions and for conducting themselves with integrity. Any failure on the part of any employee to meet any of the standards embodied in this Code will be subject to disciplinary action, including potential dismissal.

 

Since 2010, we have had in effect a robust Compensation Recovery Policy (Clawback Policy), and effective in October 2023 we adopted a Supplement to the Clawback Policy designed to comply with the enhanced clawback-related listing standards adopted in 2023 by the NYSE. The Clawback Policy provides that when appropriate, and in accordance with applicable law, the Company may recover any “Recoverable Compensation” received during a prescribed period of up to three years if an executive or other senior officer of the Company or any of our affiliates:

 

Engages in intentional misconduct resulting in a financial restatement or in any increase in his or her incentive or equity income, or

 

Engages in activity that competes with the Company or its affiliated companies, or

 

Solicits customers or hires or assists anyone else in soliciting or hiring employees of the Company or its affiliates after termination of employment or engages in the unauthorized disclosure or use of the Company’s confidential information resulting in harm to the Company or its affiliates, in any case in violation of agreements entered into by such employee prohibiting such actions.

 

“Recoverable Compensation” is defined to include any equity and incentive compensation received, earned or distributed to or for the benefit of an executive or senior officer, including amounts and shares under any equity or compensation plan or employment agreement. The Clawback Policy specifies that to the extent compensation is recovered from an individual as a result of a financial restatement such amounts will be excluded from “Recoverable Compensation.”

 

As supplemented, the Clawback Policy also provides in the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the federal securities laws, the Board shall require prompt reimbursement or forfeiture of any excess Incentive-Based Compensation, as defined in the Supplemental Clawback Policy, received by a Company executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement, in addition to any transition period (that results from any change in the Company’s fiscal year) within or immediately following such three completed fiscal years.

 

Recoupment and clawback provisions are included in all equity awards and performance compensation plan agreements for certain participants, and these provisions will be added to all new non-base compensation awards. The Clawback Policy does not prevent us from taking other actions as appropriate, if warranted, based on the misconduct outlined above.

 

The Clawback Policy, including the 2023 Supplement, is set forth as Exhibits 97.1 and 97.2 to our 2023 Annual Report on Form 10-K, filed with the SEC on November 29, 2023.

 

During fiscal 2023, there was no financial restatement which would have required action under the Clawback Policy to recover any Recoverable Compensation, and at the end of fiscal 2023 there was no outstanding balance of Recoverable Compensation resulting from a financial restatement in any prior year.

 

CEO Transition

 

In anticipation of Mr. Richey’s retirement as an executive officer effective January 1, 2023, in November 2022 the Compensation Committee approved and the Board ratified certain changes in Mr. Richey’s compensation by amendment to Mr. Richey’s Employment Agreement effective December 31, 2022, providing that: (i) Mr. Richey would remain as an employee and director of the Company during a transition period, which ended June 30, 2023; (ii) effective January 1, 2023, Mr. Richey’s base salary would be adjusted to an annual rate of $650,000, prorated over the length of the transition period;

 

   
33Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

(iii) Mr. Richey would continue to participate in the PCP until the end of the transition period, with his 2023 cash incentive target remaining at the 2022 figure of $959,500 prorated for the first quarter of fiscal 2023, and then reduced to $487,500 prorated until the end of the transition period; and (iv) Mr. Richey would also receive a one-time award of 17,241 RSUs on January 3, which vested upon his retirement on June 30, 2023 and was distributed in shares on July 3, 2023, subject to a non-compete covenant ending two years after the distribution date and other conditions, including potential clawbacks, similar to those in the Company’s standard RSU awards. These terms are reflected in the fiscal 2023 compensation tables which follow this section.

 

 

2023 SUMMARY COMPENSATION TABLE

 

The following table contains compensation information for fiscal 2023 and the preceding two fiscal years for all services rendered in all capacities to the Company and its subsidiaries by the executive officers. Because Mr. Sayler became an executive officer during 2023, under SEC regulations 2023 was the first year for which his compensation was required to be reported.

 

                    Change in        
                    Pension        
                    Value &        
                    Nonqualified        
Name and               Non-Equity Deferred        
Principal Fiscal             Incentive Plan Compensation All Other    
Position Year Salary Bonus Stock Awards1 Compensation2 Earnings3 Compensation4   Total
Bryan H. 2023 $ 621,1255 $ 0 $ 1,492,7175 $ 947,375 $ 0 $ 586,424 $ 3,647,641
Sayler N/A                            
Chief N/A                            
Executive                              
Officer and                              
President                              
Christopher 2023 $ 570,000 $ 0 $ 845,059 $ 410,300 $ 0 $ 113,274 $ 1,938,633
L. Tucker 2022   522,000   0   730,600   549,840   0   52,103   1,854,543
Senior Vice 2021   221,1546   1,335,0006   346,493   149,5006   0   22,187   2,074,334
President                              
and Chief                              
Financial                              
Officer                              
David M. 2023 $ 394,000 $ 0 $ 308,530 $ 193,600 $ 0 $ 33,342 $ 929,472
Schatz 2022   357,000   0   356,259   241,740   0   48,210   1,003,209
Senior Vice 2021   296,7807       168,047   77,3427   0   25,412   567,581
President,                              
General                              
Counsel and                              
Secretary                              
Victor L. 2023 $ 549,5258 $ 0 $ 1,499,9678 $ 534,7478 $ 30,608 $ 62,306 $ 2,677,153
Richey 2022   898,100   0   2,963,694   1,516,010   0   74,911   5,452,716
Former 2021   898,100   0   2,462,845   710,030   6,405   84,362   4,161,742
Chairman,                              
Chief                              
Executive                              
Officer and                              
President                              

 

1 Represents the aggregate grant date fair values of equity-based awards based on the fair market value of the underlying Common Stock on the respective grant dates as calculated in accordance with applicable accounting rules. Such amounts do not represent the actual value that will be realized by the executive officers at the time of distribution. Awards shown are grants of time-vested RSUs and performance-based PSUs to Mr. Sayler, Mr. Tucker and Mr. Schatz, and a PARS award granted to Mr. Richey in 2021. For more information, see Principal Elements of Compensation – Long-Term Equity Incentive Compensation in the Compensation Discussion and Analysis section, and Grants of Plan-Based Awards, below.

 

   
34Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

2 Reflects the performance-based cash awards earned for the fiscal year indicated under the PCP, including cash dividends of $2,759 earned on Mr. Richey’s January 3, 2023 RSU (see Note 8 below). For more information, see Principal Elements of Compensation – Cash Incentive Plans in the Compensation Discussion and Analysis section, and Grants of Plan-Based Awards, below.

 

3 Amounts represent the changes in actuarial present value of the accumulated pension benefits for Mr. Richey under the Company’s defined benefit pension plan until its termination in 2020 and under the Company’s supplemental executive retirement plan (SERP) for each fiscal year shown. These changes in value include the effects of changes in actuarial assumptions from year to year. For fiscal 2023, Mr. Richey’s SERP value increased, partly due to the effect of changes in actuarial assumptions from the preceding year. The fiscal 2023 change in Mr. Richey’s SERP value due to assumption changes was $15,247. For fiscal 2022, Mr. Richey’s SERP value decreased in the amount of $68,500, due in part to the effect of changes in actuarial assumptions from the preceding year which reduced the value by $93,214. Pursuant to SEC regulations, the amount in the table does not reflect the overall decreases in Mr. Richey’s SERP value. For fiscal 2021, Mr. Richey’s SERP value increased, partly due to the effect of changes in actuarial assumptions from the preceding year. The fiscal 2021 change in Mr. Richey’s SERP value due to assumption changes was $0. For additional information, including the actuarial assumptions used in fiscal 2023 and information about the termination of the Company’s defined benefit pension plan, see Pension Benefits, below. There were no non-qualified deferred compensation earnings.

 

4 Comprised of the amounts provided in the table below:

 

      Defined            
      Contribution   Employee        
      Savings Plan   Stock Purchase        
      Company   Plan Company   Perquisites and    
Name and Principal Position Fiscal Year   Contributionsa   Contributionsb   Otherc   Total
Bryan H. Sayler 2023 $ 14,954 $ 1,648 $ 569,822 $ 586,424
Chief Executive Officer and N/A                
President N/A                
Christopher L. Tucker 2023 $ 13,200 $ 5,691 $ 94,383 $ 113,274
Senior Vice President and Chief 2022   12,200   5,217   34,686   52,103
Financial Officer 2021   6,923   1,731   13,533   22,187
David M. Schatz 2023 $ 13,281 $ 6,350 $ 13,711 $ 33,342
Senior Vice President, General 2022   12,497   3,567   32,146   48,210
Counsel and Secretary 2021   8,961   3,501   12,950   25,412
Victor L. Richey 2023 $ 13,000 $ 2,267 $ 47,039 $ 62,306
Former Chairman, Chief Executive 2022   12.200   3,592   59,119   74,911
Officer and President 2021   11,600   3,589   69,173   84,362

 

a See Defined Contribution Plan on page 39.

 

b The Company matches 20% of employees’ contributions to its Employee Stock Purchase plan.

 

c Includes car allowance, financial planning, Company cost related to the personal use of clubs, and premiums for group variable universal life (GVUL) insurance which the Company offers to a number of senior managers at ESCO and its participating subsidiaries. Mr. Sayler’s figure for 2023 includes compensation of $538,495 for reimbursement of moving expenses related to his transition to CEO, grossed up for taxes, and a country club initiation fee which the Company had agreed to pay at the time Mr. Sayler commenced his employment. Mr. Tucker’s figure for 2023 includes $88,000 as the personal portion of a country club initiation fee which the Company had agreed to pay at the time Mr. Tucker commenced his employment. Mr. Richey’s figure for 2021 also includes an annual tax gross-up of $16,809 for taxable club fees and financial planning; the Company generally discontinued tax gross-ups after December 2020. For more information, see Other Compensation Elements – Perquisites in the Compensation Discussion and Analysis section

 

5 Upon becoming an executive officer Mr. Sayler, who was previously a management official of the Company, received an increase in his annualized salary from $339,500 to $715,000, prorated based on his days of service in each position.

 

6 Mr. Tucker received a salary for 2021 at the annualized rate of $500,000 and a 2021 cash incentive at an annualized target of $325,000, guaranteed at a multiple of at least 1.00x; his actual salary and cash incentive target were prorated based on his period of employment during 2021. At the commencement of his employment he also received a transition bonus of $835,000 plus Company common stock valued at $500,000 on the award date, to partially compensate him for equity opportunities he forfeited upon his departure from his prior employer.

 

7 Upon becoming an executive officer Mr. Schatz, who was previously a Vice President and IP Counsel of the Company, received an increase in his annualized salary from $270,700 to $335,000 and an increase in his 2021 cash incentive target from $75,200 to $145,000; his actual salary and cash incentive target were prorated based on his days of service in each position.

 

   
35Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

8 As a result of his retirement as an executive officer on December 31, 2022: (i) Mr. Richey’s base salary was reduced from an annual rate of $898,100 to an annual rate of $650,000, prorated over the length of a transition period which ended June 30, 2023; (ii) Mr. Richey continued to participate in the PCP until the end of the transition period, but for the first quarter of fiscal 2023 his 2023 cash incentive target remained at $959,500, prorated for that quarter, and beginning January 1, 2023 his 2023 cash incentive target was reduced to $487,500, prorated from January 1, 2023 until his retirement on June 30, 2023; and (iii) on January 3, 2023, he received a one-time transition RSU award for 17,241 shares, based on a value of $1,500,000 divided by the $87.00 per share NYSE closing price on that date.

 

2023 GRANTS OF PLAN-BASED AWARDS

 

The following table provides information for fiscal 2023 for the executive officers regarding cash incentive awards under our PCP and awards of RSUs and PSUs under the 2018 Omnibus Incentive Plan. See Principal Elements of Compensation – Cash Incentive Plans and – Long-Term Equity Incentive Compensation in the Compensation Discussion and Analysis section.

 

                        All other      
                      All other option      
      Estimated future payouts under Estimated future payouts under stock awards: Exercise   Grant date
      non-equity incentive plan awards1 equity incentive plan awards2 awards: Number of or base   fair value
                      Number securities price of   of stock
                      of shares underlying option   and option
Name Grant date Threshold   Target   Maximum Threshold Target Maximum of stock3 options awards   awards4
Bryan H. 11/16/2022 $ 214,500 $ 715,000 $ 1,430,000  
Sayler 11/16/2022       4,118 8,235 16,470 $ 779,690
  5/2/2023       7,489   713,028
Christopher 11/16/2022 $ 111,900 $ 373,000 $ 746,000  
L. Tucker 11/16/2022       1,642 3,283 6,566 $ 310,834
  2/2/2023       2,507   250,023
  5/2/2023       2,985     284,202
David M. 11/16/2022 $ 52,800 $ 176,000 $ 352,000  
Schatz 11/16/2022       851 1,702 3,404 $ 161,145
  5/2/2023       1,548   147,385
Victor L. 11/16/20225 $ 287,850 $ 959,500 $ 1,919,000    
Richey 1/3/2023       17,241   $ 1,499,967

 

1 Represent the threshold, target and maximum cash incentive opportunities awarded for fiscal 2023 under the PCP. If performance according to a specific performance measure is less than that necessary to achieve the threshold payout, the payout will be zero for that measure. Actual payouts were made in fiscal 2024 based on fiscal 2023 results and are reported in the column captioned Non Equity Incentive Plan Compensation in the Summary Compensation Table. For more information, see Principal Elements of Compensation – Cash Incentive Plans in the Compensation Discussion and Analysis section.

 

2 Represent the threshold, target and maximum equity incentive opportunities for the PSUs awarded for fiscal 2023 under the Company’s Long-Term Incentive Compensation program. If performance according to a specific performance measure is less than that necessary to achieve the threshold payout, the payout will be zero for that measure. The actual incentive payout will be in shares of common stock based on Company performance over a three-year performance period and will not be determinable until after the close of the performance period. For more information, see Principal Elements of Compensation – Long-Term Equity Incentive Compensation in the Compensation Discussion and Analysis section.

 

3 For Mr. Sayler, Mr. Tucker and Mr. Schatz, these consist of time-vested RSUs vesting in three equal portions approximately 18, 30 and 42 months after the month in which they are granted. For Mr. Richey, this consists of a time vested RSU which vested upon his retirement on June 30, 2023. For more information, see Principal Elements of Compensation – Long-Term Equity Incentive Compensation and CEO Transition in the Compensation Discussion and Analysis section.

 

4 Based on the fair market value on the grant date of a number of shares of common stock equal to the number of RSUs, or in the case of PSUs, the number of shares corresponding to the Target payout, as calculated in accordance with applicable accounting rules. Such amounts do not represent the actual value that will be realized by the executive officers at the time of distribution.

 

   
36Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

5 Figures for Mr. Richey represent the threshold, target and maximum cash incentive opportunities at the time of the initial grant. However, in view of Mr. Richey’s decision to retire as an executive officer, the Company and Mr. Richey agreed that his 2023 cash incentive target would remain at the original 2022 figure of $959,500 prorated for the first quarter of fiscal 2023, and then be reduced to $487,500 prorated until the end of the transition period, which occurred on June 30, 2023.

 

OUTSTANDING EQUITY AWARDS AT FISCAL 2023 YEAR-END

 

The following table provides information as of the end of fiscal 2023 for our executive officers regarding outstanding equity awards, consisting of unvested PARS, unvested RSUs, and unvested PSUs. As of the end of fiscal 2023, no executive officer had any outstanding stock option awards, either exercisable or unexercisable.

 

      Stock Awards
      Number   Market value Number of Market value
      of shares or   of shares or unearned of unearned
      units of stock   units of stock shares, units or shares, units or
      that have not   that have not other rights that other rights that
Name Type of award Grant date vested   vested1 have not vested have not vested1
Bryan H. Sayler PARS 5/1/2020 3,3472 $ 349,561      
  RSU 4/30/2021 1,5823   165,224      
  PSU 11/17/2021       1,0894 $ 113,7354
  RSU 5/5/2022 2,8053   292,954      
  PSU 11/16/2022       4,1184   430,0844
  RSU 5/2/2023 7,4893   782,151     1,1985
Christopher L. RSU 4/30/2021 3,1323 $ 327,106      
Tucker PSU 11/17/2021       1,9954 $ 208,3584
  RSU 5/5/2022 4,8803   509,667      
  PSU 11/16/2022       1,6424   171,4904
  RSU 2/3/2023 2,5073   261,831     4015
  RSU 5/2/2023 2,9853   311,753     4785
David M. Schatz PARS 5/1/2020 2,0082 $ 209,716      
  RSU 4/30/2021 1,5193   158,644      
  PSU 11/17/2021       9724 $ 101,5164
  RSU 5/5/2022 2,3843   248,985      
  PSU 11/16/2022       8514   88,8784
  RSU 5/2/2023 1,5483   161,673     2485
Victor L. Richey PSU 11/17/2021       4,3124 $ 450,3454

 

1 Based on the NYSE closing price of the Company’s common stock of $104.44 on September 29, 2023, the last NYSE trading day of the Company’s 2023 fiscal year.

 

2 PARS awards have a term of five years, and the award (net of withholding taxes) is distributable to the recipient in shares of Company common stock at the end of the term. However, if the Company achieves target stock price stated in the notice of award during the third or fourth years of the term (PARS Performance Periods), then part or all of the award is accelerated, and the accelerated portion (net of withholding taxes) is distributed in shares six months after the end of the PARS Performance Period in which the criteria are first met, but not later than the end of the fifth year. Distribution of PARS award shares may not occur earlier than 3½ years after the initial award date even if the performance criteria are met, except in cases of death, disability, retirement or certain other special circumstances. In all events, the award recipient must remain continuously employed by the Company until the underlying shares are distributed (except that the Committee may in its discretion waive this requirement if termination of employment is due to death, disability, retirement or other circumstance the Committee deems appropriate). Until the underlying shares are actually distributed, dividends are not paid or accrued on the PARS. With respect to the PARS awards granted to Mr. Sayler and Mr. Schatz on May 1, 2020, the specified stock price targets of $80.31 and $85.92 were achieved on August 29, 2022 and November 28, 2022, based on the average closing stock prices over the preceding thirty consecutive trading days; accordingly these awards were accelerated and vested on November 1, 2023 (less a number of shares having a value equal to the amount of required tax withholdings). For more information, see Principal Elements of Compensation – Long-Term Equity Incentive Compensation in the Compensation Discussion and Analysis section.

 

   
37Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

3 Each RSU represents the right to receive one share of Company common stock if the recipient remains continuously employed by the Company until the vesting date. RSUs awarded prior to 2023 will vest approximately 3½ years after the effective award date, except that Mr. Tucker’s February 3, 2023 RSUs will vest November 5, 2025. RSUs awarded in 2023 will vest in thirds approximately 18, 30 and 42 months after the effective award date, on the last trading days in November of 2024, 2025 and 2026. Vested shares will be issued to the participant (less a number of shares having a value equal to the amount of required tax withholdings) on the following business day.

 

4 Represents the number and value of the shares issuable if Company performance over the three-year performance period meets or exceeds the threshold required to earn a minimum non-zero payout for each of two performance components. However, because performance below either threshold will result in a zero payout for that component, the minimum payout is actually zero. The actual payout will not be determinable or estimable until after the close of the performance period. For more information, see Principal Elements of Compensation – Long-Term Equity Incentive Compensation in the Compensation Discussion and Analysis section. However, because Mr. Richey was eligible for retirement under the terms of his award, the target number of PSUs in his award was prorated based on his retirement date compared to the performance period, and the final number of shares issuable on payout will be based on the prorated award’s payout multiplier at the close of the award’s performance period.

 

5 Represents cash dividend equivalents accrued on RSUs awarded beginning in 2023. On each regular quarterly dividend date occurring from the award date to and including the vesting date, the Company accrues for the benefit of the recipient an amount equal to the cash dividend which would have been paid on a number of shares of Company common stock equal to the number of unconverted RSUs. The amount accrued with respect to each vested portion of the award will be paid out in cash at the time that portion of the award is distributed in shares; but, if or to the extent the award does not vest or for any reason is not distributed, a like portion of the accrued amount will be canceled and not paid.

 

2023 OPTION EXERCISES AND STOCK VESTED

 

The following table sets forth information for our executive officers regarding their stock-based awards which vested during 2023. We have not awarded stock options to our executive officers since 2006, and no stock options were outstanding or were exercised during 2023.

 

  Stock Awards
Executive Officer Number of Shares Acquired on Vesting1   Value Realized on Vesting3
David M. Schatz 2,0001 $ 174,820
Victor L. Richey 22,4221   1,959,907
40,5132   4,198,362

 

1 Shares of Common Stock underlying PARS awards granted to Mr. Schatz and Mr. Richey on May 1, 2019, which vested on November 1, 2022. A number of these shares were withheld in lieu of cash payment of applicable withholding taxes, and the remaining shares were distributed on November 2, 2022.

 

2 Shares of Common Stock underlying that portion of PARS and RSU awards granted to Mr. Richey in 2021 and 2022 which vested upon his retirement on June 30, 2023. A number of these shares were withheld in lieu of cash payment of applicable withholding taxes, and the remaining shares were distributed on July 3, 2023.

 

3 Fair market value of the shares of Common Stock underlying the vested awards, based on the NYSE closing prices of $87.41 and $103.63 on November 1, 2022 and June 30, 2023, respectively, the values used by the Company for tax and accounting purposes.

 

PENSION BENEFITS

 

Pension Plan and SERP

 

Beginning in 1990, we had sponsored a defined benefit Pension Plan in which our executive officers as well as other covered employees participated. Because benefits under the Pension Plan were subject to reduction under certain provisions of the Internal Revenue Code, in 1993 we adopted a Supplemental Executive Retirement Plan (SERP) which provides that where such reductions occurred, we would make supplemental post-retirement payments to certain executives, including Mr. Richey.

 

   
38Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

  

The SERP was designed to maintain total pension benefits at the formula level of the Pension Plan. Both the Pension Plan and the SERP were frozen at the end of 2003, with no increase in years of credited service or accumulated benefits accruing to participants after that date.

 

In February 2020, we terminated the Pension Plan and plan assets were distributed to the participants as their choice of either a lump sum payment of their Pension Plan benefits or an annuity issued by a qualified insurance company.

 

Upon reaching age 65 during 2022, Mr. Richey became eligible to receive benefits under the SERP beginning at the termination of his employment, based on 18 years of credited service. Because Mr. Richey elected to receive his accumulated benefits in a lump sum upon his retirement on June 30, 2023, the present value was calculated based on the August 2022 417(e) lump sum segment rates and the 2022 417(e) IRS prescribed mortality table.

 

The following table sets forth Mr. Richey’s status under the SERP as of September 30, 2023.

 

    Number of Years of Present Value of Payments During Last
Name Plan Name Credited Service Accumulated Benefit Fiscal Year
Victor L. Richey SERP 18 $0 $250,444

 

Defined Contribution Plan

 

Our Employee Savings Investment Plan (Defined Contribution Plan) is an employee benefit plan under section 401(k) of the Code, which is offered to substantially all United States employees including the executive officers. The Defined Contribution Plan provides for a Company cash match at a rate of 100% of the contributions by each employee up to 3% of the employee’s eligible compensation, and 50% of any additional contributions by the employee up to 5% of the employee’s eligible compensation, subject to Code contribution limits. The amounts of the Company’s cash match for the accounts of the executive officers in fiscal years 2021, 2022 and 2023 are listed in footnote (4) to the Summary Compensation Table, under the heading Defined Contribution Savings Plan Company Contributions.

 

EMPLOYMENT AGREEMENTS

 

In 2021, we entered into new employment and compensation agreements with each of our then executive officers, and in December 2022, we entered into a new employment and compensation agreement with Mr. Sayler effective January 1, 2023, consistent with the financial terms of his accepted offer letter and otherwise substantially on the same terms as the current employment agreements with the other executive officers.

 

The agreements provide for a base salary, which is subject to annual review by the Compensation Committee but may not be decreased, and an annual cash incentive opportunity in accordance with our cash incentive program. The executive officers are entitled to participate in LTI awards and other compensation programs as determined by the Compensation Committee, as well as in all Company employee benefit programs applicable to senior executives, and the Company agrees to provide certain perquisites, including financial planning and outplacement assistance.

 

Mr. Tucker’s and Mr. Schatz’s agreements provide for initial terms of one year and 24 months, respectively, which have now elapsed. Mr. Sayler’s agreement provides for an initial term of 24 months, which will elapse at the end of February 2025. The agreements provide that they will automatically renew for successive one-year periods unless a specified notice of non-renewal is given by the Company or the executive.

 

The agreements give each party certain termination rights, with post-termination compensation and benefits payable to the executive officer, if any, depending on the reasons for the termination, such as whether the termination is with or without Cause, as defined in the agreements. The following section, Potential Payments Upon Termination or Change in Control, describes the compensation and benefits payable to the current executive officers upon termination of their employment for various reasons.

 

   
39Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

   

The employment agreements prohibit the executives from disclosing confidential information or trade secrets concerning the Company, and for a period of two years from soliciting employees of the Company and from soliciting customers or distributors of the Company. The agreements also require the executive officers to provide limited consulting services on an as-requested basis following termination.

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

Payments/Benefits Upon Change in Control

 

Severance Plan.

We have established a Severance Plan covering the executive officers. Under the Plan, following an occurrence of a Change of Control as defined in the Severance Plan (see Other Compensation Elements – Severance Plan in the Compensation Discussion and Analysis section), each of the executive officers will be entitled to be employed by the Company for a period of three years following the Change of Control, unless terminated earlier in accordance with the Severance Plan. During this employment period the executive officer will: (i) be paid a minimum base salary equal to his or her base salary prior to the Change of Control, (ii) be paid a minimum annual bonus equal to the latest target cash incentive opportunity approved by the Human Resources and Compensation Committee prior to the effective date of the Change of Control (the “Current Cash Incentive Target”), (iii) continue to receive the employee benefits to which he or she was entitled prior to the Change of Control, and (iv) receive annually the value (determined as described under Incentive Plan Awards below) of the last LTI awards issued to him or her prior to the Change of Control, which value may be paid either in cash or in publicly traded stock of the entity which acquired the Company in the Change of Control.

 

If we terminate the executive officer’s employment during this three-year employment period other than for death, disability or Cause as defined in the Severance Plan, or if the executive officer terminates his or her employment during the employment period following certain specified actions by us (Good Reason), such as materially failing to comply with the provisions of the Severance Plan, a material diminution in his or her authority, duties or responsibilities or base salary, or requiring him or her to relocate, he or she will be entitled to receive, among other things, a cash lump sum equal to the aggregate of (i) any unpaid current base salary, (ii) a bonus equal to the Current Cash Incentive Target, prorated for a partial year, and (iii) an amount calculated by multiplying two times the sum of the current annual base salary and the Current Cash Incentive Target. In addition, he or she will receive the continuation of his or her employee benefits for two years.

 

We may amend the Severance Plan, but no amendment adverse to the rights of an executive officer will be effective unless we have given the executive officer notice of the amendment at least one year before a Change of Control occurs.

 

Long-Term Incentive Plan Awards. 

The terms of our PARS, RSU and PSU awards in effect at September 30, 2023 provide that upon a Change of Control (defined in the awards substantially the same as in the Severance Plan) the awards will be assumed by the acquirer or successor entity and converted to an equivalent agreement. If for any reason the awards will not or cannot be assumed, they will be paid out in cash.

 

Payments/Benefits Upon Death or Disability

 

If the executive officer’s employment were to be terminated because of death or disability, under the executive officer’s employment agreement with the Company the executive officer (or his or her beneficiaries) would receive benefits under the Company’s disability plan or the Company’s life insurance plans, as applicable.

 

With respect to PARS, RSU and PSU awards in effect at September 30, 2023, the Committee may, in its sole discretion, make full, pro-rata, or no share distributions, as it may determine, to an executive officer in the event of disability, or to the executive officer’s surviving spouse or beneficiary in the event of death.

 

   
40Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

    

Payments/Benefits Upon Termination by the Employee With Good Reason or by the Company Without Cause

 

The executive officers’ employment agreements provide that if we were to terminate the executive officer’s employment prior to a Change of Control other than for cause, death or disability or if the executive officer were to resign following certain actions by us defined in the agreements as “Good Reason,” including our materially failing to comply with the agreement, materially reducing the executive’s responsibilities or requiring the executive to relocate, we would be required to continue to pay the executive officer’s base salary and cash incentive for two years following termination; however, the executive officer could elect to receive each of these payments in a lump sum on or about March 15 of the calendar year following the calendar year in which the termination occurs. In addition, certain employee benefits would continue after the termination, the executive officer’s accelerated but unvested PARS, RSU and PSU awards would become fully vested and the underlying shares would be distributed, subject to and in accordance with the terms of the Omnibus Plan. These payments and benefits would be conditioned upon the executive officer not soliciting our employees, customers or distributors for a period of two years after termination. In addition, the executive officer would be required to execute our standard severance agreement and release.

 

Payments/Benefits Upon Termination by the Employee Without Good Reason

 

If the executive officer were to resign without Good Reason, the executive officer would not be entitled to payment of continued compensation or benefits, and all outstanding PARS, RSU and PSU awards would be forfeited.

 

Payments/Benefits Upon Termination by the Company for Cause

 

If we were to terminate the executive officer’s employment for Cause, under the employment agreement the executive officer would not be entitled to payment of continued compensation or benefits, and all outstanding PARS, RSU and PSU awards would be forfeited.

 

Incremental Compensation in the Event of Termination as a Result of Certain Events

 

The following tables reflect the additional compensation and benefits to be provided to the executive officers in the event of a termination of employment at, following, or in connection with a Change of Control or for the other listed reasons. The amounts shown assume that the termination was effective as of the close of business on September 30, 2023, the end of our last fiscal year. No PSU awards were earned or vested as of September 30, 2023. The actual amounts to be paid would be determinable only at the time of the actual termination of employment.

 

   
41Proposal 2 Notice of 2024 Annual Meeting & Proxy Statement  //  ESCO Technologies Inc.
   

 

Bryan H. Sayler

 

 

                              Termination by                  
                              Employee for       Termination          
                              Good Reason       by Employee       Termination  
      Change in                       or by Employer       Without       by Employer  
Pay Element     Control       Death       Disability       Without Cause       Good Reason       for Cause  
Cash Compensation:                                                
Base salary   $ 0     $ 0     $ 178,7501     $ 1,430,0002     $                        0     $                        0  
Cash incentive     715,0003       0       0       2,145,0004       0       0  
Severance payment     2,860,0005       0       0       0       0       0  
Total Cash Compensation   $ 3,575,000     $ 0     $ 178,750     $ 3,575,000     $ 0     $ 0  
Long-Term Equity Incentive Awards:                                                
PARS, RSUs and PSUs     2,710,8286       0       0       349,5617       0       0  
Total Awards   $ 2,710,828     $ 0     $ 0     $ 349,561     $ 0     $ 0  
Total Direct Compensation   $ 6,285,828     $ 0     $ 178,750     $ 3,924,561     $ 0     $ 0  
Benefits:8                                                
Broad-based benefits   $ 60,582     $ 0     $ 0     $ 6,738     $ 0     $ 0  
Pension benefits     0       0       0       0       0       0  
Other executive benefits/perquisites     16,000       0       0       23,000       0       0  
Total Benefits   $ 76,582     $ 0     $ 0     $ 29,738     $ 0     $ 0  
Total Incremental Compensation   $ 6,362,410     $ 0     $ 178,750     $ 3,954,299     $ 0     $ 0  

 

Christopher L. Tucker

 

 

                              Termination by                  
                              Employee for       Termination          
                              Good Reason       by Employee       Termination  
      Change in                       or by Employer       Without Good       by Employer  
Pay Element     Control       Death       Disability       Without Cause       Reason       for Cause  
                                                 
Cash Compensation:                                                
Base salary   $ 0     $ 0     $ 142,5001     $ 1,140,0002     $ 0     $ 0  
Cash incentive     373,0003       0       0       1,119,0004       0       0  
Severance payment     1,886,0005       0       0       0       0       0  
Total Cash Compensation   $ 2,259,000     $ 0     $ 142,500     $ 2,259,000     $ 0     $ 0  
                                                 
Long-Term Equity Incentive Awards: