Form DEF 14A TORO CO For: Mar 16

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  ☒                            Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

 

 

 

 

The Toro Company

(Name of registrant as specified in its charter)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

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The Toro Company

 

 

 

NOTICE OF 2021

ANNUAL MEETING AND

PROXY STATEMENT

FOR MARCH 16, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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February 3, 2021

 

Dear Fellow Shareholders:

Fiscal 2020 was a successful year for The Toro Company (“TTC”), despite challenges as a result of the global COVID-19 pandemic.  We achieved growth in our professional segment, primarily from incremental contributions from the Charles Machine Works and Venture Products acquisitions, and record performance from our residential segment. In addition, we saw the successful introduction of our new battery-powered products for residential and professional applications, the expansion of our mass retail channel, increased investment in research and development in key technology areas, strong free cash flow, the continued return of value to shareholders via dividends, and the launch of our first sustainability platform, Sustainability Endures. We owe our successful performance to our team and channel partners, who demonstrated resilience, perseverance and ingenuity in this challenging year. I am beyond proud of what we have accomplished and will remember this year as one that highlighted the way we lived in accordance with the long-standing values of The Toro Company, while caring for one another, working safely, and serving our customers with determination. While the year ahead may hold more uncertainty than in the past, we’ll continue to execute and adapt to changing environments as we maintain a balance of focusing on the short term while never losing sight of our long-term strategic priorities, and we look forward to capitalizing on many exciting growth opportunities in fiscal 2021 and beyond.

It is my pleasure to invite you to join us for The Toro Company 2021 Annual Meeting of Shareholders to be held virtually on Tuesday, March 16, 2021, at 1:30 p.m., Central Daylight Time. Details about the annual meeting, nominees for election to the Board of Directors and other matters to be acted on at the annual meeting are presented in the notice and proxy statement that follow. The annual meeting will be held virtually; information regarding attending the virtual annual meeting can be found on page 1 of the proxy statement. It is important that your shares be represented at the annual meeting, regardless of the number of shares you hold. Accordingly, please exercise your right to vote by following the instructions for voting contained in the Notice Regarding the Availability of Proxy Materials, or the paper or electronic copy of our proxy materials you received for the meeting.

On behalf of your TTC Board of Directors and Management, thank you for your continued support for our company.

Sincerely,

 

 

 

You can help us make a difference by eliminating paper proxy mailings. With your

consent, we will provide all future proxy materials electronically. Instructions for

consenting to electronic delivery can be found on your proxy card or at

www.proxyvote.com. Your consent to receive shareholder materials electronically will

remain in effect until canceled.

 

 

 

 

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We currently are not aware of any other business to be brought before the annual meeting. Shareholders of record at the close of business on January 19, 2021, the record date, will be entitled to vote at the annual meeting or at any adjournment or postponement of the annual meeting. A shareholder list will be made available at our principal executive offices during ordinary business hours beginning March 5, 2021, for examination by any shareholder registered on our stock ledger as of the record date for any purpose germane to the annual meeting.

Your vote is important. A majority of the outstanding shares of our common stock must be present either by attending the virtual meeting or by proxy to constitute a quorum for the conduct of business. Please promptly vote your shares by following the instructions for voting contained in the Notice Regarding the Availability of Proxy Materials or, if you received a paper or electronic copy of our proxy materials, by completing, signing, dating and returning your proxy card or by Internet, telephone or mobile device voting as described on your proxy card.

February 3, 2021

 

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FORWARD-LOOKING INFORMATION

Statements in this proxy statement not based on historical facts are intended to constitute “forward-looking” statements in connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified in this proxy statement by using words such as "expect," "strive," "look forward," "outlook," "guidance," "forecast," "goal," "optimistic," "anticipate," "continue," "plan," "estimate," "project," "believe," "should," "could," "will," "would," "possible," "may," "likely," "intend," "can," "seek," "potential," "pro forma," or the negative thereof and similar expressions or future dates. Although such statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. Accordingly, such statements involve risks and uncertainties that could cause actual results to differ materially from those projected or implied. Reference is made to our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on December 18, 2020, and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K filed with the SEC, for a list of such factors.

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Business Overview

The Toro Company (the “Company,” “TTC,” “we,” “us” and “our”), is a leading worldwide provider of innovative solutions for the outdoor environment including turf and landscape maintenance, snow and ice management, underground utility construction, rental and specialty construction, and irrigation and outdoor lighting solutions. The Toro Company’s global presence extends to more than 125 countries through a family of brands that includes Toro, Ditch Witch, Exmark, BOSS Snowplow, Ventrac, American Augers, Subsite Electronics, HammerHead, Trencor, Unique Lighting Systems, Irritrol, PERROT, Hayter, Pope, Lawn-Boy and Radius HDD. Through constant innovation and caring relationships built on trust and integrity, The Toro Company and its family of brands have built a legacy of excellence by helping customers care for golf courses, sports fields, construction sites, public green spaces, commercial and residential properties and agricultural operations.

Quick Facts About The Toro Company

 

The Toro Company’s Commitment to Sustainability

 

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2021 Annual Meeting of Shareholders

 

Meeting Agenda Voting Matters and Recommendations

How to Cast Your Vote

Your vote is important! Please vote your shares promptly using one of the methods listed below. See page 2 for additional voting information.

Corporate Governance Highlights

Our Board provides oversight of critical matters such as our strategic plans, financial and other controls, risk management, merger and acquisition related activities, and management succession planning. The Board reviews our major governance documents, policies and processes regularly and thoughtfully determines the structures that are appropriate for our Company at the time.

 

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Information About our Board of Directors

 

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Executive Compensation

 

 

2020 Executive Compensation Summary

A significant portion of our executive officers’ target total direct compensation is comprised of short- and long-term variable performance-based, or at risk, compensation to directly link their pay to performance. Short-term variable compensation is in the form of annual cash incentive awards. Long-term variable compensation is in the form of stock options that vest over three years and three-year performance share awards. For fiscal 2020:

 

 

 

 

 

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THE TORO COMPANY

8111 Lyndale Avenue South

Bloomington, Minnesota 55420-1196

PROXY STATEMENT

2021 ANNUAL MEETING OF SHAREHOLDERS

TUESDAY, MARCH 16, 2021

1:30 p.m. Central Daylight Time

The Toro Company Board of Directors is using this proxy statement to solicit your proxy for use at The Toro Company 2021 Annual Meeting of Shareholders. We intend to send a Notice Regarding the Availability of Proxy Materials for the annual meeting and make proxy materials available to shareholders (or for certain shareholders and for those who request, a paper copy of this proxy statement and the form of proxy) on or about February 3, 2021.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on Tuesday, March 16, 2021.

This proxy statement and our 2020 Annual Report, which includes our Annual Report on Form 10-K for the fiscal year ended October 31, 2020, or fiscal 2020, are available at www.thetorocompany.com/proxy.

Pursuant to rules adopted by the SEC, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice Regarding the Availability of Proxy Materials to some of our shareholders. Shareholders have the ability to access our proxy materials on the website referred to in the Notice Regarding the Availability of Proxy Materials (www.proxyvote.com) or request to receive a printed set of our proxy materials. Instructions on how to access our proxy materials over the Internet or request a printed copy of our proxy materials may be found in the Notice Regarding the Availability of Proxy Materials. In addition, shareholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.

When and Where Will the Annual Meeting Be Held?

The annual meeting will be held virtually, on Tuesday, March 16, 2021 at 1:30 p.m. Central Daylight Time, at www.virtualshareholdermeeting.com/TTC2021. In addition to providing a platform that facilitates the safe execution of the annual meeting in the current COVID-19 environment, the Board believes that holding the annual meeting of stockholders in a virtual format provides the opportunity for participation by a broader group of shareholders, while reducing the costs and environmental impact associated with planning, holding and arranging logistics for an in-person meeting.

How Can I Attend the Virtual Annual Meeting?

Shareholders at the close of business on the record date may attend the annual meeting by visiting www.virtualshareholdermeeting.com/TTC2021 and logging in with the 16-digit control number included on your proxy card, voting instruction form or Notice Regarding the Availability of Proxy Materials. On the day of our annual meeting, we recommend that you log into our virtual meeting at least 15 minutes before the scheduled start time to ensure that you can access the meeting. If you have any questions about accessing the virtual meeting website for the annual meeting, please contact Broadridge VSM support at 844-986-0822 / International: 303-562-9302. If you encounter any technical difficulties with the virtual meeting during the log in or meeting time, please call the technical support number that will be posted on the virtual meeting log in page. Rules governing the conduct of the annual meeting will be posted on the virtual meeting platform along with an agenda.

What Are the Purposes of the Annual Meeting?

The purposes of the 2021 Annual Meeting of Shareholders are to vote on the following items described in this proxy statement:

 

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Are There Any Matters To Be Voted On at the Annual Meeting that Are Not Included in this Proxy Statement?

We currently are not aware of any business to be acted upon at the annual meeting other than as described in this proxy statement. If, however, other matters are properly brought before the annual meeting, or any adjournment or postponement of the annual meeting, your proxy includes discretionary authority on the part of the individuals appointed to vote your shares or act on those matters according to their best judgment.

Who Is Entitled to Vote and How Many Shares Must Be Present to Hold the Annual Meeting?

Shareholders of record at the close of business on January 19, 2021, the record date, will be entitled to vote at the annual meeting or any adjournment or postponement of the annual meeting. As of January 19, 2021, there were 108,023,811 outstanding shares of our common stock. Each share of our common stock is entitled to one vote on each matter to be voted on at the annual meeting. Shares of our common stock that are held by us in our treasury are not counted as outstanding shares and will not be voted.

Shareholders entitled to vote at least a majority of the outstanding shares of our common stock as of the record date must be present at the virtual annual meeting or by proxy in order for us to have a quorum for the transaction of business at the annual meeting. Your shares will be counted toward the quorum if you submit a proxy or vote at the annual meeting. Shares represented by proxies marked “abstain” and “broker non-votes” also are counted in determining whether a quorum is present.

How Do I Vote My Shares?

If your shares are registered in your name, you may vote your shares by one of the four following methods:

 

 

If you hold shares as a participant in certain TTC employee benefit plans, you may vote your shares by one
of the four methods noted above. If your shares are held in “street name,” you may receive a separate voting instruction form with this proxy statement or you may need to contact your broker, bank or other nominee to determine whether you will be able to vote electronically using the Internet, telephone or mobile device. On the day of the annual meeting, you may go to www.virtualshareholdermeeting.com/TTC2021, and log in by entering the 16-digit control number found on your voting instruction form. If you do not have your control number, you will be able register as a guest; however, you will not be able to vote or submit questions during the meeting.

 

 

 

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How Does the Board Recommend that I Vote and What Vote is Required for Each Proposal?

How Will My Shares Be Voted?

 

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What Does It Mean If I Receive More Than One Notice or Set of Proxy Materials?

If you hold your shares in more than one account, you may receive multiple copies of the Notice Regarding the Availability of Proxy Materials and/or electronic or paper copies of our proxy materials. If you are a participant in the dividend reinvestment feature of our Direct Stock Purchase Plan, shares registered in your name are combined with shares you hold in that plan. Similarly, where possible, shares registered in your name are combined with shares you hold, if any, as a participant in certain TTC employee benefit plans. However, shares you hold in “street name” (through a broker, bank or other nominee) are not combined with shares registered in your name or held as a participant in TTC employee benefit plans. If you receive more than one Notice Regarding the Availability of Proxy Materials and/or electronic or paper copies of our proxy materials, you must vote separately for each notice, e-mail notification or proxy and/or voting instruction card having a unique control number to ensure that all of your shares are voted.

How Can I Revoke or Change My Vote?

You may revoke your proxy or change your vote at any time before your shares are voted at the annual meeting by one of the following methods:

 

Who Will Count the Votes?

Broadridge Financial Solutions, Inc. has been engaged to tabulate shareholder votes. An agent of Broadridge Financial Solutions, Inc. will act as our independent inspector of elections for the annual meeting.

How Will Business Be Conducted at the Annual Meeting?

The presiding officer at the annual meeting will determine how business at the meeting will be conducted. Only nominations and other proposals brought before the annual meeting in accordance with the advance notice and information requirements of our Amended and Restated Bylaws will be considered, and no such nominations or other proposals were received.

How Can I Ask Questions During the Annual Meeting?

Shareholders may submit questions during a portion of the meeting. If you wish to submit a question during the meeting, log into the virtual meeting platform at www.virtualshareholdermeeting.com/TTC2021 using the 16-digit control number included on your proxy card, voting instruction form or Notice Regarding the Availability of Proxy Materials and follow the instructions to submit a question. Questions pertinent to meeting matters will be answered during the meeting, subject to time limitations.

 

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Number of Directors; Board Structure

Our Restated Certificate of Incorporation provides that our Board of Directors may be comprised of between eight and twelve directors. As provided in our Restated Certificate of Incorporation, our Board is divided into three staggered classes of directors of the same or nearly the same number, with each class elected in a different year for a term of three years. Our current directors and their respective current terms are as follows:

 

After almost 22-years of distinguished service on our Board, Mr. Steinhafel has decided to retire from the Board at the expiration of his term and not stand for reelection at the annual meeting. The Board thanks Mr. Steinhafel for his many years of dedicated service to the Company. In light of Mr. Steinhafel’s retirement from the Board, the Board has voted to reduce its size from eleven to ten directors effective immediately prior to the annual meeting, and thereafter our Board will be comprised of ten directors.

Nominees for Director

The Board has nominated each of Janet K. Cooper, Gary L. Ellis, and Michael G. Vale for election to the Board to serve for a three-year term ending at the 2024 Annual Meeting of Shareholders. Each of the director nominees has consented to serve if elected. Proxies only can be voted for the number of persons named as nominees in this proxy statement, which is three.

If prior to the annual meeting the Board learns that any nominee will be unable to serve for any reason, the proxies that otherwise would have been voted for that nominee will be voted for a substitute nominee as selected by the Board. Alternatively, at the Board’s discretion, the proxies may be voted for that fewer number of nominees as results from the inability of any nominee to serve. The Board has no reason to believe that any of the nominees will be unable to serve.

Information About Director Nominees and Continuing Directors

The following pages provide information about each nominee for election to the Board at the annual meeting and each other continuing member of the Board. We believe that all of our director nominees and continuing directors display:

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All of our continuing directors and director nominees bring to our Board a wealth of executive leadership experience, particularly at companies with international manufacturing operations. The following chart summarizes each continuing director and director nominee’s key experience, qualifications and other attributes.

The information presented on the following pages regarding each director nominee or continuing director also sets forth specific experience, qualifications, attributes and skills that led our Board to conclude that he or she should serve as a director in light of our business and structure.

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Director Nominees for Election to the Board for a Term Ending at the 2024 Annual Meeting

 

 

 

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Continuing Members of the Board – Current Term Ending at the 2022 Annual Meeting

 

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Continuing Members of the Board – Current Term Ending at the 2023 Annual Meeting

 

 

 

 

 

 

 

 

 

 

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Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines, which describe our corporate governance practices and policies and provide a framework for our Board governance. The topics addressed in our Corporate Governance Guidelines include: director qualifications and responsibilities; Board committees; director board limits; director access to officers and employees; director compensation; director independence; related party transactions; director orientation and continuing education; CEO evaluation and management succession; and Board annual self-evaluation. Our Corporate Governance Guidelines provide, among other things, that:

From time to time the Board, upon recommendation of the Nominating & Governance Committee, reviews and updates our Corporate Governance Guidelines as it deems necessary and appropriate. Our Corporate Governance Guidelines can be found on our website at www.thetorocompany.com/corporategovernance.

Board Leadership Structure

Our Corporate Governance Guidelines provide that (i) our Board has no policy with respect to the separation of the offices of the Chairman and the CEO; (ii) our Board believes that this issue is part of the succession planning process and will be reviewed as the Nominating & Governance Committee deems it appropriate; and (iii) (a) if the offices of Chairman and CEO are held by the same person, or (b) the Chairman does not meet the criteria for “independence” as established by applicable law, the rules and regulations of the SEC or the NYSE listing standards, then the Board, upon recommendation of the Nominating & Governance Committee, shall appoint a Lead Independent Director, who shall have such duties as are described in the Corporate Governance Guidelines or otherwise determined by the Board. The Board believes it is appropriate not to have a policy requiring the separation of the offices of the Chairman and the CEO so that the Board may make this determination based on what it believes is best under the current circumstances. However, the Board endorses the concept of an independent, non-employee director being in a position of leadership and, thus, our Corporate Governance Guidelines require a Lead Independent Director when the Chairman is not independent.

Our Board is currently chaired by Richard M. Olson, our Chairman and CEO. Our Lead Independent Director, selected by the Board, is Gary L. Ellis. Our Nominating & Governance Committee and Board believe that our current Board leadership structure ensures a strong and independent Board of Directors, provides effective governance, creates appropriate oversight for the long-term benefit of our shareholders and is appropriate for several reasons, including: (i) Mr. Olson’s extensive knowledge of our Company, our business, operations and industry, obtained through his more than 34 years of service to our Company, which benefit Board leadership and the Board’s decision-making process through his active role as Chairman; (ii) unification of Board leadership and strategic direction as implemented by our Management; and (iii) appropriate balance of risks relating to concentration of authority through the oversight of our independent and engaged Lead Independent Director and Board.

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As our Lead Independent Director, Mr. Ellis (i) assists Mr. Olson in establishing the agendas for Board meetings and the schedule of agenda subjects to be discussed during the year, to the extent such subjects can be foreseen; (ii) presides at regularly scheduled executive sessions of the non-employee directors without Management present; (iii) together with the Chair of the Compensation & Human Resources Committee, communicates to Mr. Olson the results of his annual performance review and compensation; and (iv) together with the Chair of the Nominating & Governance Committee, leads the Board’s annual self-evaluation. With more than 14 years of continuous service on our Board, Mr. Ellis has developed considerable knowledge of our Company, our business and our industry. Mr. Ellis also has significant public company experience. In addition to serving as our Lead Independent Director, Mr. Ellis serves as the Chair of our Finance Committee.

Director Independence

The Board, following consideration of all relevant facts and circumstances and upon recommendation of the Nominating & Governance Committee, has affirmatively determined that each director who served as a member of our Board during fiscal 2020 (Janet K. Cooper, Gary L. Ellis, Jeffrey M. Ettinger, Katherine J. Harless, Jeffrey L. Harmening, D. Christian Koch, Joyce A. Mullen, James C. O’Rourke, Gregg W. Steinhafel and Michael G. Vale) other than Richard M. Olson, our Chairman and CEO, is independent. These determinations were made because each such person has no material relationship with our Company, our Management, our independent registered public accounting firm, or external auditor, our independent external compensation consultant or our external compensation legal advisers, and otherwise meets the independence requirements as established by applicable law, the rules and regulations of the SEC and the NYSE listing standards. The Board based its independence determinations, in part, upon a review by the Nominating & Governance Committee and the Board of certain transactions between us and the employers of certain of our directors, each of which was deemed to be pre-approved under our Corporate Governance Guidelines in that each such transaction was made in the ordinary course of business, at arm’s length, at prices and on terms customarily available to unrelated third party vendors or customers generally, in amounts that are not material to us or such unaffiliated corporation, and in which the director had no direct or indirect personal interest, nor received any personal benefit.

Director Attendance; Executive Sessions

The Board held nine meetings during fiscal 2020. Each incumbent director attended at least 75% of the aggregate total number of meetings held by the Board and all committees on which he or she served. Our Corporate Governance Guidelines provide that the non-employee directors will meet in regularly scheduled executive sessions without Management. At each regular Board meeting held during fiscal 2020 our non-employee directors met in executive session without Management present and such meetings were presided over by our Lead Independent Director.

We expect all of our directors and our director nominees to attend our annual meeting of shareholders and we customarily schedule a regular Board meeting on the same day as our annual meeting. Seven of the ten non-employee directors serving at the time of our 2020 Annual Meeting of Shareholders held on March 17, 2020 were in attendance.

Board Committees

The Board has four committees, the Audit Committee, Compensation & Human Resources Committee, Nominating & Governance Committee, and Finance Committee. Each committee has a charter that is posted on our website at www.thetorocompany.com/corporategovernance. The charter of each committee describes the principal functions of the committee. As provided in their respective charters, each of the Compensation & Human Resources Committee, Nominating & Governance Committee, and Finance Committee may form and delegate authority to subcommittees when appropriate. Additionally, the Compensation & Human Resources Committee may delegate to one or more executive officers of the Company the authority to approve equity compensation awards under established equity compensation plans of the Company to employees other than the executive officers of the Company. On an annual basis the Audit Committee, Nominating & Governance Committee and Compensation & Human Resources Committee review the adequacy of their charter and their performance. The Finance Committee periodically reviews its charter and performance, with such review historically conducted on an annual basis. The Chair of each Board committee provides a summary of the matters discussed in their committee meeting to the full Board.

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The Board has determined that each of the members of the Audit Committee, Compensation & Human Resources Committee and Nominating & Governance Committee meets the independence and other requirements established by applicable law, the rules and regulations of the SEC, the NYSE listing standards and the Internal Revenue Code of 1986, as amended, or Code, as applicable.

The current membership of each committee, the number of times each committee met, including by executive session, during fiscal 2020 and key functions of each committee are noted in the following table. Mr. Olson is not a member of any Board committee. In fiscal 2020 Mr. Olson attended, and currently may attend, various committee meetings, or portions of such meetings as appropriate, as a member of Management at the invitation of such Board committees.

 

 

 

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Board’s Role in Risk Oversight

Management is primarily responsible for the identification, assessment and management of the key risks faced by our Company. We engage in an enterprise risk management, or ERM, process, which is coordinated primarily through our internal audit function, and involves:

The Board’s oversight of these risks primarily occurs in connection with the exercise of its responsibility to oversee our business, including through the review of our long-term strategic plans, annual operating plans, financial results, merger and acquisition related activities, material legal proceedings, and management succession plans. In addition, the Board relies on its committees to assist with risk oversight within their respective areas of responsibility and expertise as follows:

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The Board believes that its oversight of risk is enhanced by its current leadership structure, as previously discussed, because our Chairman and CEO, who is ultimately responsible for our Management’s risk responsibility, also chairs regular Board meetings and, with his in-depth knowledge and understanding of our Company, is well positioned to bring key business issues and risks to the attention of the full Board.

Executive Compensation Process

At the beginning of each fiscal year, the Compensation & Human Resources Committee reviews and approves compensation for each of our executive officers which generally includes:

In connection with this review and approval, the Compensation & Human Resources Committee receives information regarding:

Additionally, the Committee obtains executive compensation recommendations from our Chairman and CEO, Vice President, Human Resources and General Counsel, and Managing Director, Total Rewards and Employee Services that reflect individual performance; future potential; corporate and/or division performance, as applicable; tenure in the position; comparison to market; level of professional experience; duties and responsibilities; internal pay comparisons; and outside market factors, including general economic conditions. In addition, as needed during the fiscal year, the Committee reviews significant events that have occurred at our Company, including merger and acquisition activity and, for fiscal 2020, the impact of the COVID-19 pandemic, and assesses whether such events necessitate a change in compensation for our executive officers.

Neither the Chairman and CEO nor the Vice President, Human Resources and General Counsel provide input or recommendations with respect to his or her own compensation. The Chair of the Committee is also responsible for coordinating a performance evaluation for the Chairman and CEO based on feedback from all non-employee directors in connection with the ratification of the Chairman and CEO’s compensation by the Board. Information on the compensation of our named executive officers is found under “Executive Compensation” beginning on page 28. Also, at the beginning of each fiscal year, the Committee certifies the achievement of the applicable performance goals previously established by the Committee for the annual cash incentive awards and performance share awards and approves resulting payouts, if any.

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The Compensation & Human Resources Committee retained Willis Towers Watson to assist in the design and review of our executive compensation program during fiscal 2020. Additional information regarding the role of Willis Towers Watson during fiscal 2020 is found under “Compensation Discussion and Analysis—Role of the Independent External Compensation Consultant” on page 32. From time to time, the Committee also has engaged Willis Towers Watson to perform other compensation consulting services, which in fiscal 2020 included a review of non-employee director compensation, an assessment of risk as it relates to our incentive plans, compensation consulting services relating to incentive plan performance measures and marketplace practices, and compensation consulting advice relating to how companies were navigating compensation matters during the COVID-19 pandemic. For the services performed for us in fiscal 2020, the Committee assessed the independence of Willis Towers Watson pursuant to SEC and NYSE rules and concluded that the work of Willis Towers Watson did not raise any conflicts of interest. Representatives from Willis Towers Watson attended all of the Committee meetings in fiscal 2020, including executive sessions without Management present, to act as a resource to the Committee in carrying out its responsibilities. The Committee, through its Chair, can request an independent meeting with representatives from our independent external compensation consultant at any time. The Committee also has the authority to obtain advice and assistance from external legal, accounting or other advisers.

Director Nomination and Refreshment Process

In identifying new nominees for election to the Board when vacancies occur, the Nominating & Governance Committee may solicit recommendations for nominees from other members of our Board or Senior Management. In addition, the Committee may (i) consider candidates put forth by external search or placement firms, (ii) formally engage such firms to assist it in identifying and evaluating qualified nominees, and/or (iii) consider certain individuals who contacted the Chairman of the Board, the Lead Independent Director and/or the Board of Directors and expressed an interest in serving on the Board.

When reviewing the requisite skills and characteristics of potential new director nominees, the Nominating & Governance Committee, pursuant to our Corporate Governance Guidelines, will consider a variety of criteria, including an individual’s independence, diversity, age, skills, business experience, professional experience and industry experience, each in the context of the needs of the Board as a whole. Although the Committee does not have a formal policy regarding consideration of diversity in identifying director nominees, the Committee will evaluate a nominee based on his or her background, skills, business and professional experiences, viewpoints, and geographical representation, as well as more traditional diversity factors. As a result, the composition of the current Board reflects diversity in business and professional experiences, age, gender, race/ethnicity, background, and skills. In addition, the Committee and the Board are committed to having a Board that is diverse from a gender, race, and/or ethnicity perspective and will look to add individuals to our Board that have such diversity attributes, along with requisite experience, to further bolster the diversity of our Board as opportunities arise.

Once a proposed candidate is identified, the Nominating & Governance Committee may solicit the views of Senior Management, Board members and any other individuals it believes may have insight into a particular candidate. The Committee may designate one or more of its members and/or other Board members to interview any proposed candidate. The Committee then will recommend a director nominee to the Board based on its evaluation of such criteria.

The Nominating & Governance Committee will consider director candidates recommended to it by our shareholders. Those candidates must be qualified and exhibit the experience and expertise required of the Board’s own pool of candidates, as well as have an interest in our business, and the demonstrated ability to attend and prepare for Board, committee and shareholder meetings. Any candidate must state in advance his or her willingness and interest in serving on the Board. Candidates should represent the interests of all shareholders and not those of a special interest group. The Committee will evaluate candidates recommended by shareholders using the same criteria it uses to evaluate candidates recommended by others as described above. A shareholder that desires to nominate a person for election to the Board at a meeting of shareholders must follow the specified advance notice requirements contained in, and provide the specific information required by, our Amended and Restated Bylaws. The current requirements of our Amended and Restated Bylaws are as described under “Shareholder Proposals and Director Nominations for the 2022 Annual Meeting” beginning on page 65.

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Related Person Transactions and Policies and Procedures Regarding Related Person Transactions

Our Corporate Governance Guidelines set forth in writing our policies and procedures regarding the review, approval and ratification of related person transactions. All reportable related person transactions must be reviewed, approved or ratified by the Nominating & Governance Committee. In determining whether to approve or ratify such transactions, the Committee will take into account, among other factors and information it deems appropriate:

Transactions in the ordinary course of business, between us and an unaffiliated corporation of which one of our non-employee directors or director nominees serves as an officer, that are at arm’s length, at prices and on terms customarily available to unrelated third party vendors or customers generally, in which the non-employee director or director nominee had no direct or indirect personal interest, nor received any personal benefit, and in amounts that are not material to our business or the business of such unaffiliated corporation, are deemed conclusively pre-approved.

Board of Directors Business Ethics Policy Statement

It is our policy to maintain the highest level of moral, ethical and legal standards in the conduct of our business. Pursuant to our Corporate Governance Guidelines, the Board has adopted, and each director annually signs, a Board of Directors Business Ethics Policy Statement. The policy can be found on our website at www.thetorocompany.com/ethics.

Code of Conduct and Code of Ethics for our CEO and Senior Financial Personnel

All of our directors and employees are required to comply with our Code of Conduct to help ensure that our business is conducted in accordance with the highest level of moral, ethical and legal standards. We also have a Code of Ethics for our CEO and Senior Financial Personnel applicable to our CEO (our principal executive officer), our Vice President, Treasurer and Chief Financial Officer (our principal financial and accounting officer), and certain senior accounting and/or treasury personnel who are also bound by the provisions set forth in the Code of Conduct relating to ethical conduct, conflicts of interest and compliance with the law. Our Code of Conduct and Code of Ethics for our CEO and Senior Financial Personnel can be found on our website at www.thetorocompany.com/ethics. If necessary, we intend to satisfy the disclosure requirements of Item 5.05 of the Current Report on Form 8-K regarding amendments to or waivers from any provision of our Code of Ethics for our CEO and Senior Financial Personnel by posting such information on our website at www.thetorocompany.com/ethics.

Communications with Directors

Shareholders and other interested parties may communicate directly with our Board of Directors, our Board committees, our non-employee directors as a group, our Lead Independent Director, or any other specified individual director in writing by (i) sending a letter addressed to The Toro Company Board of Directors, c/o General Counsel, 8111 Lyndale Avenue South, Bloomington, Minnesota, 55420-1196, or (ii) sending an email to [email protected]. Substantive communications, such as corporate governance matters or potential issues relating to accounting, internal controls or other auditing matters, are forwarded by our General Counsel to the relevant director(s) as appropriate. Communications not requiring the substantive attention of our Board, such as employment inquiries, sales solicitations, donation requests, questions about our products, and other such matters, are handled directly by our Management.

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Complaint Procedures

We maintain procedures to receive, retain and treat complaints regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. A 24-hour, toll-free confidential ethics helpline and a confidential web-based reporting tool are available for the submission of concerns regarding these and other matters by any employee. Concerns and questions received through these methods relating to accounting, internal accounting controls or auditing matters are promptly brought to the attention of the Chair of the Audit Committee and are handled in accordance with procedures established by the Audit Committee. Complete information regarding our complaint procedures is contained within our Code of Conduct, which may be accessed on our website as noted above.

 

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Director Compensation Program for Fiscal 2020

Overview.    Our non-employee director compensation program is designed to attract and retain experienced and knowledgeable directors and to provide equity-based compensation to align the interests of our directors with those of our shareholders. At the beginning of fiscal 2020, our non-employee director compensation was expected to be comprised of equity compensation, in the form of annual stock and stock option awards, and cash compensation, in the form of annual retainers that are paid quarterly. However, recognizing the significance of the COVID-19 pandemic and the uncertainty at that time as to the impact that the pandemic could have on our business and employees, in April 2020, the Board decided to cancel their fiscal 2020 quarterly retainer payments and determined that an amount equal to such payments should instead be donated by TTC to the Melrose/Hoffman Employee Critical Needs Fund to help support our employees during this critical time.  As such, an amount equal to the cancelled retainers that would otherwise have been payable in each of our third and fourth fiscal quarters of 2020 was donated to the Melrose/Hoffman Employee Critical Needs Fund.  

Each of the components of our Board compensation is described in more detail below. The Board compensation program structure, together with the feature of The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated, or the 2010 Plan, that enables our directors to elect to receive a portion or all of their cash compensation in the form of our common stock, causes a substantial portion of our non-employee director compensation to be linked to our common stock performance. As a current employee director, Mr. Olson does not receive any additional compensation for his service as a director.

Process for Consideration and Determination of Director Compensation.    The Board has delegated to the Compensation & Human Resources Committee the responsibility, among other things, to review and recommend to the Board any proposed changes in non-employee director compensation. In connection with such review, the Compensation & Human Resources Committee is assisted in performing its duties by our Human Resources Department and also engages an independent external compensation consultant to provide analysis regarding non-employee director compensation.

The Compensation & Human Resources Committee engaged Willis Towers Watson to review our non-employee director compensation for fiscal 2020. The Willis Towers Watson review consisted of, among other things, analysis of board and committee compensation trends, a competitive assessment based on a selected group of manufacturing companies operating in the United States that are similar in size to us from a revenue and market capitalization perspective, and a separate analysis of lead director compensation. In September 2019, prior to the beginning of fiscal 2020, the Compensation & Human Resources Committee considered this data and recommended to the Board that certain changes be made to the non-employee director compensation program for fiscal 2020 from fiscal 2019, including increases in the annual stock award and the annual Board retainer, and the Board approved these changes. Subsequently, due to the worldwide impact of the COVID-19 pandemic, in April 2020, the Board took action to cancel the third and fourth quarter fiscal 2020 cash retainers and directed TTC to donate a like amount to the Melrose/Hoffman Employee Critical Needs Fund. Cash retainers were reinstated at the beginning of fiscal 2021 and no changes were made to the structure or amounts of our non-employee director compensation for fiscal 2021.

Elements of Our Non-Employee Director Compensation Program.    The following table sets forth our fiscal 2020 non-employee director compensation program.

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The following summarizes the key characteristics of the elements of our non-employee director compensation program:

 

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Stock Option Vesting.    Except as described below, stock options granted to our non-employee directors vest in three equal installments on each of the first, second and third year anniversaries of the grant date and remain exercisable for a term of ten years after the grant date.

If a director becomes disabled or dies, all outstanding unvested stock options will vest in full on the date the director’s service ceases by reason of such disability or death and all outstanding stock options may be exercised up to the earlier of the date the stock options expire or one year after the date the director’s service ceased by reason of such disability or death.

If a director has served as a member of the Board for ten full fiscal years or longer and terminates his or her service on the Board, other than due to death or disability, his or her outstanding unvested stock options will continue to vest in accordance with their terms and the director may exercise the vested portions of the stock options for up to four years after the director’s date of termination, but not later than the date the stock options expire. If a director has served as a member of the Board for less than ten full fiscal years and terminates his or her service on the Board, other than due to death or disability, his or her outstanding unvested stock options will expire and be canceled and the director may exercise any vested portions of the stock options for up to three months after the director’s date of termination, but not later than the date the stock options expire. The following directors have served as a member of the Board for ten full fiscal years or longer: Janet K. Cooper, Gary L. Ellis, Katherine J. Harless, Jeffrey M. Ettinger and Gregg W. Steinhafel.

If there is a change in control of our Company, stock options granted under the 2010 Plan will vest immediately and remain exercisable for the remaining term. The general definition of a change in control under the 2010 Plan is described under “Potential Payments upon Termination or Change in Control—Change in Control” beginning on page 57.

Director Compensation for Fiscal 2020

The following table provides summary information concerning the compensation of each individual non-employee director who served during fiscal 2020. Richard M. Olson, our Chairman and CEO, is not compensated separately for his service as a director. Mr. Olson’s compensation is discussed in the “Executive Compensation” section beginning on page 28. Amounts in the table are not reduced to reflect elections, if any, by the non-employee directors to defer receipt of compensation. Deferral elections are described in more detail in the footnotes to the table. Earnings on nonqualified deferred compensation are not on a basis that is considered to be above-market or preferential.

 

 

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Selection of Independent Registered Public Accounting Firm

The Audit Committee selects our external auditor. In this regard, the Audit Committee evaluates the qualifications, performance and independence of our external auditor and determines whether to re-engage the current external auditor. As part of its evaluation, the Audit Committee considers, among other factors, the quality and efficiency of the services provided by the external auditor, including the performance, technical expertise, and industry knowledge of the lead audit partner and the audit team assigned to our account; the overall strength and reputation of the external audit firm; the external auditor’s global capabilities relative to our business; the external auditor’s knowledge of our operations; and the external auditor’s fees. Upon consideration of these and other factors, the Audit Committee has selected KPMG LLP, or KPMG, to serve as our external auditor for fiscal 2021. Although it is not required to do so, the Board, as it traditionally has done in the past, is asking our shareholders to ratify the Audit Committee’s selection of KPMG. If our shareholders do not ratify the selection of KPMG, the Audit Committee may reconsider its selection. Even if the selection is ratified by our shareholders, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such a change would be in the best interests of our Company and our shareholders.

Representatives of KPMG will be present at the annual meeting to answer appropriate questions. They also will have the opportunity to make a statement if they wish to do so.

Audit, Audit-Related, Tax and Other Fees

The following table sets forth the aggregate fees billed to us for professional services rendered by KPMG for fiscal 2020 and fiscal 2019 by category, as described in the footnotes to the table.

 

 

Pre-Approval Policies and Procedures

The Audit Committee Charter requires that the Audit Committee review and approve in advance the retention of our external auditor for all types of audit and non-audit services to be performed for us by our external auditor and approve the fees for such services, other than de minimis non-audit services allowed by relevant rules and regulations. All of the services provided to us by KPMG for which we paid Audit Fees, Audit-Related Fees and Tax Fees, as shown in the table above, were pre-approved by the Audit Committee in accordance with these pre-approval policies and procedures.

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Audit Committee Report

This report is furnished by the Audit Committee with respect to our financial statements for fiscal 2020.

Ultimate responsibility for good corporate governance rests with our Board, whose primary roles and responsibilities involve oversight, counseling and providing direction to our Management in the best long-term interests of TTC and our shareholders. As set forth in its charter, the Audit Committee assists our Board by, among other things, providing oversight of our accounting and financial reporting processes, the audits of our annual financial statements and internal control over financial reporting. A copy of our Audit Committee Charter, which further describes the role and responsibilities of the Audit Committee, is available online at www.thetorocompany.com/corporategovernance.

Management is primarily responsible for the establishment and maintenance of our accounting and financial reporting processes, including our internal controls, and for the preparation and presentation of complete and accurate financial statements. Our independent registered public accounting firm, KPMG LLP, is responsible for performing an independent audit of our financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (U.S.), or PCAOB, expressing an opinion as to the conformity of the financial statements with generally accepted accounting principles, and expressing an opinion on the effectiveness of our internal control over financial reporting.

In performing its oversight role, the Audit Committee has (i) reviewed and discussed with Management our audited financial statements for fiscal 2020, (ii) discussed with representatives of KPMG the matters required to be discussed by PCAOB Auditing Standard 1301 (Communications with Audit Committees), (iii) received the written disclosures and the letters from KPMG required by applicable requirements of the PCAOB regarding KPMG’s communications with the Audit Committee concerning KPMG’s independence, and (iv) discussed with representatives of KPMG its independence and concluded that it is independent from TTC and its Management.

Based on the review and discussions referred to in the foregoing paragraph and subject to the limitations on its responsibilities set forth in its charter, the Audit Committee recommended to our Board that our audited financial statements for fiscal 2020 be included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020, for filing with the SEC.

Audit Committee:

Janet K. Cooper (Chair)

Gary L. Ellis

Katherine J. Harless

Jeffrey L. Harmening

Michael G. Vale

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The Board is providing our shareholders with an advisory vote on our executive compensation pursuant to the Dodd-Frank Wall Street Consumer Protection Act, or the Dodd-Frank Act, and Section 14A of the Exchange Act. This advisory vote, commonly known as a say-on-pay vote, is a non-binding vote on the compensation paid to our named executive officers as set forth in the “Executive Compensation” section of this proxy statement beginning on page 28, including in the “Compensation Discussion and Analysis,” the accompanying compensation tables and the corresponding narrative discussion and footnotes. At the 2020 Annual Meeting of Shareholders held on March 17, 2020, over 93% of the votes cast by our shareholders were in favor of our say-on-pay vote. The Compensation & Human Resources Committee believes that such results affirmed shareholder support of our approach to executive compensation.

Our executive compensation program is generally designed to attract, retain, motivate and reward highly qualified and talented executive officers, including our named executive officers, that will enable us to perform better than our competitors and drive long-term shareholder value. The underlying core principles of our executive compensation program include (i) aligning the interests of our executives with those of our shareholders and linking pay to performance by providing compensation opportunities that are tied directly to the achievement of financial performance goals and long-term stock price performance, and (ii) providing competitive compensation opportunities targeted at the market 50th percentile for both individual elements of compensation and total direct compensation at target levels of financial performance, which we believe allows us to attract and retain the necessary executive talent while motivating and rewarding the accomplishment of annual and long-term financial performance goals and maintaining an appropriate cost structure. The “Compensation Discussion and Analysis,” beginning on page 28, describes our executive compensation program and the executive compensation decisions made by the Compensation & Human Resources Committee in fiscal 2020 in more detail. Important considerations include:

We believe that our executive compensation objectives and core principles have resulted in an executive compensation program and related decisions that have appropriately incentivized the achievement of financial

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goals and produced financial results that have benefited our Company and our shareholders and are expected to drive long-term shareholder value.

Accordingly, the Board recommends that our shareholders vote in favor of the say-on-pay vote as set forth in the following resolution:

RESOLVED, that our shareholders approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including in the “Compensation Discussion and Analysis,” the accompanying compensation tables and the corresponding narrative discussion and footnotes, and any related material disclosed in this proxy statement.

Shareholders are not voting to approve or disapprove the Board’s recommendation. As this is an advisory vote, the outcome of the vote is not binding on us with respect to future executive compensation decisions, including those relating to our named executive officers, or otherwise. Our Compensation & Human Resources Committee and Board expect to take into account the outcome of the vote when considering future executive compensation decisions.

In accordance with the result of the advisory vote on the frequency of the say-on-pay vote, which was conducted at the Company’s 2017 Annual Meeting of Shareholders, the Board of Directors has determined that the Company will continue to conduct an executive compensation advisory vote on an annual basis. Accordingly, the next say-on-pay vote will occur in 2022 in connection with our 2022 Annual Meeting of Shareholders.

 

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Compensation & Human Resources Committee Report

The Compensation & Human Resources Committee has reviewed and discussed the “Compensation Discussion and Analysis” with Management and, based on such review and discussions, recommended to the Board that the “Compensation Discussion and Analysis” be included in this proxy statement and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

Compensation & Human Resources Committee:

James C. O‘Rourke (Chair)

Jeffrey M. Ettinger

D. Christian Koch

Joyce A. Mullen

Gregg W. Steinhafel

Compensation Discussion and Analysis

Overview.  In this Compensation Discussion and Analysis, or CD&A, we describe key principles and approaches used to determine elements of compensation paid or awarded to and earned by the following named executive officers whose compensation is set forth in the “Summary Compensation Table” beginning on page 44:

This CD&A should be read in conjunction with the accompanying compensation tables, corresponding footnotes and narrative discussion, as they provide information and context to the compensation disclosures. Additionally, this CD&A should be read in conjunction with our advisory vote on executive compensation, which can be found under “Proposal Three—Advisory Approval of our Executive Compensation” beginning on page 26.

 

COVID-19 Impact and Compensation Actions.  In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. Throughout fiscal 2020, COVID-19 continued to spread in the U.S. and the rest of the world and negatively impacted portions of the global economy, disrupted global supply chains, and created volatility in financial markets. COVID-19 caused government authorities around the world to implement stringent measures to attempt to help control the spread of the virus, including business shutdowns and curtailments, travel restrictions, prohibitions on group events and gatherings, quarantines, “shelter-in-place” and “stay-at-home” orders, curfews, social distancing, and other measures. The adverse global economic impact of this pandemic had a material impact on parts of our business, employees, customers, and suppliers and caused many challenges for our business and manufacturing operations in fiscal 2020. Like other companies, we took prudent actions to protect the health, safety and well-being of our employees. These actions included increased social distancing within our production facilities, employees working remotely when possible, implementing a COVID-19 leave policy, offering virtual doctor visits at 100% coverage without a co-pay, and allowing for CARES Act distributions under The Toro Company Retirement Plan (the “Retirement Plan”). In addition, in May 2020, due to the uncertainty of the impact of the COVID-19 pandemic on our business at that time, we initiated several proactive cost saving measures to partially mitigate the anticipated impact of COVID-19, while continuing to maintain our focus on the short- and long-term success of the Company. These proactive cost saving measures included base salary reductions for the remainder of fiscal 2020 for certain of our employees, including:

 

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In addition, for the remainder of fiscal 2020, we implemented a freeze on our annual merit process for the majority of our employees, ceased hiring for many open office positions and eliminated the fiscal 2020 discretionary investment fund contribution under our Retirement Plan that would have been paid in fiscal 2021.

 

Fiscal 2020 Financial and Other Highlights.  Our execution in this challenging year continued to be guided by our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering people, all while doing what was necessary to keep our employees safe in our facilities. As a result, despite the challenges and uncertainty we faced in fiscal 2020 as a result of COVID-19, we, among other things:

 

  

We believe that the proactive expense and cost measures taken to partially mitigate anticipated impacts of the COVID-19 pandemic on our business, in combination with the resiliency, commitment and dedication of our employees and channel partners, as well as continued strong demand for our products, allowed us to achieve these financial and other results in fiscal 2020.

Executive Compensation Program Objectives.    Our guiding compensation philosophy is to maintain an executive compensation program that allows us to attract, retain, motivate and reward highly qualified and talented executive officers who will enable us to perform better than our competitors and drive long-term shareholder value. The following core principles provide a framework for our executive compensation program:

Highlights of Compensation Practices.    At our 2020 Annual Meeting of Shareholders, our shareholders had the opportunity to vote on an advisory say-on-pay proposal and over 93% of the votes cast were in favor of such proposal. The Compensation & Human Resources Committee believes that such results affirmed shareholder support of our approach to executive compensation and did not believe it was necessary to, and, therefore, did not, make any significant structural changes to our executive compensation program in fiscal 2020.

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Pay Levels/Mix.    A significant portion of our executive officers’ target total direct compensation is comprised of short- and long-term variable performance-based, or at risk, compensation to directly link their pay to performance. Generally, higher level executive positions have a higher level of pay that is performance-based. For fiscal 2020:

Short-term variable compensation is in the form of annual cash incentive awards. Long-term variable compensation is in the form of stock options that vest over three years and three-year performance share awards. We target pay opportunities within a competitive range of the market 50^th percentile for each element of compensation and in total; however, variance around the market 50^th percentile is dependent on a number of factors. We also provide our executive officers with modest perquisites and market competitive retirement and benefit plans.

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Annual Cash Incentives.   As described in more detail under “Annual Cash Incentives” beginning on page 35, our corporate performance for our annual cash incentive is adjusted to reflect predefined adjustment events, which, for fiscal 2020, resulted in the exclusion of all financial impacts related to the Venture Products acquisition, among other adjustments. We did not adjust our performance measures or goals which were set at the beginning of fiscal 2020 as a result of the COVID-19 pandemic. Accordingly, primarily as a result of the adverse impact of the COVID-19 pandemic on our fiscal 2020 financial results, the corporate performance payout for our fiscal 2020 annual cash incentives was only 30.7% of target:

 

 

 

Long-Term Incentives.    As described in more detail under “Long-Term Incentives—Performance Measures for the Performance Period Ending in Fiscal 2020” beginning on page 40, the three-year cumulative corporate performance for our three-year performance share awards is adjusted to reflect predefined adjustment events, which for fiscal 2018 to fiscal 2020, resulted in the exclusion of all financial impacts related to the CMW and Venture Products acquisitions.  We did not adjust our performance measures or goals which were set at the beginning of fiscal 2018 as a result of the COVID-19 pandemic. Primarily as a result of the exclusion of the CMW and Venture Products acquisitions from fiscal 2019 and fiscal 2020 financial results, respectively, the payout for our fiscal 2018 to fiscal 2020 performance share awards was only 68.6% of target:

 

 

** Corporate average net assets turns is defined as total cost of goods sold divided by the twelve month average of net assets less the twelve month average of cash and cash equivalents. Net assets is defined as the fiscal year monthly average of total assets less accounts payables, accrued liabilities, income taxes and other long-term liabilities.

 

How We Make Compensation Decisions.    There are several elements to our executive officer compensation decision-making, which we believe allow us to most effectively implement our established compensation philosophy. The Compensation & Human Resources Committee, its independent external compensation consultant and Management all have a role in the decision making process for executive officer compensation. These roles are described below:

Role of the Compensation & Human Resources Committee.    The Compensation & Human Resources Committee, which is comprised solely of independent directors, oversees our executive compensation program. Within its duties, the Committee approves compensation for each of our executive officers. In addition, compensation approved by the Committee for our Chairman and CEO is submitted to the independent directors of the Board for ratification. In doing so, the Committee:

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During fiscal 2020, the Committee received input from Willis Towers Watson, its independent external compensation consultant, and our Management, including our Chairman and CEO, Vice President, Human Resources and General Counsel and our Managing Director, Total Rewards and Employee Services.

Role of the Independent External Compensation Consultant.    The Committee has sole authority to hire consultants, approve their fees and determine the nature and scope of their work. The Committee may replace consultants or hire additional consultants at any time.

A representative from Willis Towers Watson attended three Committee meetings in fiscal 2020, including attendance in executive session without Management present. During fiscal 2020, Willis Towers Watson reviewed and discussed executive compensation structure and trends with Management and the Committee and provided market data for all of our executive officers, including our named executive officers, along with a comparison of those executive officers’ current base salaries, target total cash compensation and total direct compensation to the market 25^th, 50^th and 75^th percentiles. Additionally, during fiscal 2020, Willis Towers Watson reviewed executive officer compensation recommendations made by Management in advance of applicable Committee meetings and participated in discussions at the Committee meetings regarding those recommendations. Willis Towers Watson is engaged by the Committee from time to time to perform other compensation consulting services, which in fiscal 2020 included a review of non-employee director compensation, an assessment of risk as it relates to our incentive plans, compensation consulting services relating to incentive plan performance measures and marketplace practices, and compensation consulting advice relating to how companies were navigating compensation matters during the COVID-19 pandemic.

Role of Management.    Management’s role is to provide current compensation information and information regarding executive officer duties and responsibilities to Willis Towers Watson and provide analysis and recommendations on executive officer compensation to the Committee based on the comparison to market; the executive’s level of professional experience; the executive’s duties and responsibilities, including as a result of the completion and/or integration of significant acquisitions; individual performance; future potential; tenure in the position; corporate and/or division performance, as applicable; internal pay comparisons; and outside market factors, including general economic conditions. None of our executive officers provides input or recommendations with respect to his or her own compensation. In April 2020, in light of the ongoing COVID-19 pandemic, Management recommended and the Committee approved proactive base salary reductions for the executive officers and certain other employees for the remainder of fiscal 2020 as one of the several cost measures to partially mitigate the anticipated impact of COVID-19 pandemic on our business at that time.

Use of Market Data.    Since one of the objectives of our executive compensation program is to provide market competitive compensation opportunities, during fiscal 2020 the Committee used market data provided by Willis Towers Watson to help evaluate and make compensation decisions. Market data, which is size-adjusted, is provided by Willis Towers Watson through its executive compensation database, which includes roughly 500 participating companies. We believe that the market for our executive officer talent is not limited to the manufacturing industry; therefore, we do not focus specifically on manufacturing companies within the database, nor do we identify a separate group of peer companies within the manufacturing industry for executive compensation purposes. The market data provided by Willis Towers Watson was in aggregate form and, therefore, individual data for participating companies in the survey was not considered when determining executive officer compensation in total or for any individual officer or element.

 

Elements of Our Executive Compensation Program.    During fiscal 2020, our executive compensation program consisted of the following key elements: base salary, annual cash incentive, long-term incentives in the form of stock options and performance share awards, health and welfare benefits, retirement plans and

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perquisites. The following table provides some of the key characteristics of and purpose for each element along with key actions taken during fiscal 2020.

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We describe each key element of our executive compensation program in more detail in the following pages, along with the compensation decisions made in fiscal 2020.

Base Salary.

General.    We review base salaries for our executive officers on an annual basis to ensure that they remain market competitive and reflect the scope and responsibility of their positions. Base salaries for our executive officers are reviewed and discussed at the regular meeting of the Compensation & Human Resources Committee held in November or December of each year. Additionally, base salaries for executive officers are periodically reviewed upon a significant change in an executive officer’s responsibilities or role or for broad-based mid-year changes like the COVID-19 related salary reductions.

Discussion and Analysis.    When we recommended fiscal 2020 base salaries for our named executive officers, the following factors were considered: current base salary; positioning relative to competitive market data; scope and complexity of the position; experience; tenure; historical and current levels of function, division, and individual performance; future potential; and internal pay comparisons. Subsequent to the determination of fiscal 2020 salaries, annual base salaries for our executive officers and other certain employees were reduced on a tiered structure, effective as of May 1, 2020 for the remainder of fiscal 2020 as a result of the uncertainty of the COVID-19 pandemic on our business at that time. In addition, effective as of May 16, 2020, the annual base salary for Mr. Rodier was increased in connection with his expanded responsibilities for our contractor and residential businesses.

Fiscal 2020 annual base salaries, fiscal 2020 annual base salary increases compared to fiscal 2019 and fiscal 2020 annual base salaries compared to the market 50^th percentile as of the time the fiscal 2020 base salaries were established at the beginning of fiscal 2020 are provided in the table below for our named executive officers. Additionally, the table reflects the COVID-19 related base salary reductions that were effective as of May 1, 2020 as well as the total base salary earnings for fiscal 2020. The total fiscal 2020 base salary earnings are also reflected in the “Salary” column of the “Summary Compensation Table” beginning on page 44.

 

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(2)  The “Fiscal 2020 Annual Base Salary Compared to Market 50^th Percentile” column for Ms. Dahl is reflective of her market position as compared to an executive officer with oversight for only the human resources function as a market comparison for an executive officer with oversight over two separate significant functions was not available at the time her fiscal 2020 base salary was determined.

As of the beginning of fiscal 2020, Mr. Olson’s fiscal 2020 annual base salary was increased to $1,025,000; this 10.8% increase was intended to bring his base salary to the market 50^th percentile. Base salary increases for Ms. Peterson and Mr. Hamilton were intended to bring their respective annual base salaries closer to the market 50^th percentile and those increases are generally representative of market merit increases for executive officers. At the beginning of fiscal 2020, in connection with his role as Group Vice President, Construction Businesses, Mr. Rodier received a 5.2% increase, from $385,000 to $405,000, which was intended to bring his base salary closer to the market 50^th percentile for a group vice president role for the revenue scope of his role at that time.  On May 16, 2020, in connection with his expanded responsibilities for our contractor and residential businesses, Mr. Rodier’s base salary was increased an additional 23.5% to $500,000 to compensate him for his increased responsibilities and to bring his base salary closer to the market 50^th percentile for a group vice president that has the breadth and revenue scope of the role that Mr. Rodier has at TTC.  The General Counsel transition to Ms. Dahl was announced in November 2019, and accordingly, the base salary increase for Ms. Dahl was reflective of the expanded scope of her responsibilities to include the General Counsel role in addition to her already existing executive officer roles of Vice President, Human Resources and Distributor Development.  Ms. Dahl became TTC’s Vice President, Human Resources, Distributor Development and General Counsel on January 10, 2020. The Compensation & Human Resources Committee believes that this increase was appropriate given her significant expanded responsibilities as TTC’s General Counsel.

Annual Cash Incentives.

General.    To help ensure we meet our compensation program objective of linking pay to performance, we provide the opportunity for our executive officers to earn an annual cash incentive, which is designed to motivate attainment and reward accomplishment of annual financial business goals. This is done by establishing financial goals that link to our annual financial plan.

At the beginning of each fiscal year, during its regular meeting held in November or December, the Compensation & Human Resources Committee approves a target award expressed as a percentage of base salary for each executive officer. Additionally, the Committee approves specific performance measures, weightings, goals and performance adjustment events, if any, at the corporate and division and/or business level for the fiscal year. The performance measures are derived from a list of performance measures included in our 2010 Plan. For each performance measure, a threshold, target and maximum level of performance is defined, which have corresponding payout percentages. During the fiscal year, the Committee reviews progress against the pre-established goals. In addition, as needed during the fiscal year, the Committee reviews significant events that have occurred at our Company and assesses whether such events necessitate a change in target awards or performance measures, weightings and goals for any annual cash incentive award granted to our executive officers.  Following the end of the fiscal year, at the Committee’s regular meeting held in November or December, Management presents a summary of, and the Committee certifies, actual performance as compared to the pre-established goals along with a corresponding payout percentage, which is expressed as a percent of target performance. Annual cash incentive awards are paid out to the executive officers in December.

Target Awards.    When determining the target award for each executive officer, the Committee reviews the market 50^th percentile for target total cash compensation (sum of base salary and target annual cash incentive) for the position in which such executive officer serves. Our objective is that when we achieve target levels of performance for each measure, resulting total cash compensation paid to our executive officers is within a reasonable range of the market 50^th percentile. Actual total cash compensation will generally exceed the market 50^th percentile if actual performance for each measure exceeds the pre-established target annual financial business goals and will generally be less than the market 50^th percentile if actual performance for each measure is below the pre-established target annual financial business goals. In addition to considering the market data, the

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Committee also considers experience, tenure, scope and complexity of the executive officer’s position, individual contributions and performance, as well as internal pay equity. Actual awards can range from 0% (if threshold levels of performance are not met) to 200% of the target award (if maximum levels of performance are met for all of the performance measures) and the resulting competitiveness of total cash compensation will also vary accordingly.

In December 2019, the Committee approved the fiscal 2020 target awards for our named executive officers.   After the fiscal 2020 target awards had been established, the adverse global economic impact from the COVID-19 pandemic began.  As discussed, fiscal 2020 annual base salaries for executive officers were reduced on May 1, 2020 for the remainder of our fiscal 2020.  As a result, the fiscal 2020 target awards and the fiscal 2020 target total cash compensation, which are expressed as a percentage of base salary earnings, for our named executive officers were reduced accordingly. Information regarding our fiscal 2020 target annual cash incentive awards and the impact of the COVID-19 pandemic are provided below.

 

We believe that the fiscal 2020 target annual cash incentive awards that were established at the beginning of fiscal 2020 and, for Mr. Rodier, that were established on May 16, 2020 in connection with his expanded responsibilities, are within a reasonable range of market competitive annual cash incentive opportunities given all relevant factors described previously and that the differentiation of target awards among our named executive officers was appropriate given the scope and responsibility of their respective positions. The change in the target award for Mr. Olson was made to align his total cash compensation closer to the market 50^th percentile.  The change in the target award for Mr. Rodier was made to reflect the expanded scope of his responsibilities to include our contractor and residential businesses. The change in the target award for Ms. Dahl was made to reflect the significant increase in her duties and responsibilities to include the role of General Counsel, which was added to her responsibilities on January 10, 2020. The Committee determined it was appropriate to keep the target awards for fiscal 2020 consistent with those in fiscal 2019 for the other named executive officers.  In addition, given the reduction in fiscal 2020 annual base salaries for our executive officers and certain other employees on May 1, 2020, the Committee determined that no additional changes were necessary for the annual cash incentive target percentage as a result of the COVID-19 pandemic. The fiscal 2020 annual base salary reductions that went into effect on May 1, 2020 for our executive officers impact the fiscal year base salary earnings used in the calculation for the actual cash incentive amounts. Details regarding actual total cash compensation for fiscal 2020 can be found under “Annual Cash Incentives—Actual Cash Compensation Discussion and Analysis” beginning on page 38.

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Performance Measures, Weightings and Goals.    Each year, the Committee determines performance measures, weightings, goals and performance adjustment events, if any, for the annual cash incentive awards. We believe that in order to motivate our executive officers to achieve annual financial business goals, it is important to select performance measures designed to motivate our executive officers to achieve our annual financial plan, as well as drive shareholder value. Key drivers in our annual financial plan for fiscal 2020 included profitability, revenue growth, and asset efficiency; and, accordingly, the performance measures for fiscal 2020 and their weightings were intended to support these key drivers.

Our executive officers with all corporate responsibilities for the full fiscal year, which includes all of our named executive officers, had 100% of their annual cash incentive tied to corporate performance to encourage an enterprise-wide performance perspective. The corporate performance measures and weightings established at the beginning of fiscal 2020, were as follows:

At its meeting in December 2019, the Committee’s first meeting of fiscal 2020, threshold, target and maximum goals were established by the Committee for each corporate performance measure. Target levels of performance were established based on our annual financial business plan, which takes into account our prior fiscal year actual financial business results, our competitive situation and the general outlook for our business during the current fiscal year. Additionally, the diluted net adjusted EPS threshold goal, which was set at 80% of plan, must have been met in order for there to be any payout for corporate participants.

As provided for and in accordance with our 2010 Plan, the Committee also established specific adjustment events for determining corporate performance payouts under the fiscal 2020 annual cash incentive awards. The impact of an acquisition on the fiscal 2020 annual cash incentive award payouts was determined by the size of the acquisition based on projected annual revenue for the first twelve months following the closing of an acquisition, as follows:

In addition, any externally driven changes in accounting principles and standards were to be excluded if the cumulative net impact on the payout of all such accounting adjustments affected the award payout by more than 2%. The COVID-19 pandemic was not factored into the annual cash incentive award performance metrics, goals or adjustment events.

Corporate Performance Measures and Goals.    The table below summarizes the fiscal 2020 corporate performance measures and goals applicable to our named executive officers. In fiscal 2020, pursuant to the predefined adjustment events, all financial impacts related to the Venture Products acquisition, among other adjustment events, were excluded from the payout calculation.  We did not adjust our performance measures or goals which were set at the beginning of fiscal 2020 as a result of the COVID-19 pandemic.

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Corporate Performance Discussion and Analysis.    Primarily as a result of the impact of COVID-19 on our business in fiscal 2020, the resulting corporate performance payout for our fiscal 2020 annual cash incentives was only 30.7% of target. All of our named executive officers had 100% of their annual cash incentive awards tied to corporate performance for all of fiscal 2020; and therefore, their annual cash incentive award payouts were at 30.7% of target. Applying their individual target awards as a percent of base salary earning during fiscal year, this translated to payouts of fiscal year base salaries of approximately 35% for Mr. Olson, 23% for Ms. Peterson, 20% for Mr. Rodier and 18% for each of Mr. Hamilton and Ms. Dahl.

Actual Cash Compensation Discussion and Analysis.    Fiscal 2020 actual total cash compensation (which represents the sum of actual fiscal 2020 base salary earnings and actual fiscal 2020 total annual cash incentive award payout) is reflected in the table below.

 

Long-Term Incentives.

General.    We believe that our use of long-term incentives tied to our common stock, along with our stock ownership guidelines, help align the interests of our executive officers with the interest of our shareholders. Therefore, we provide the opportunity for our executive officers to earn market competitive long-term incentives in the form of both stock options and performance share awards that are granted annually. With respect to annual grants of long-term incentive awards, in addition to considering market data, we also consider for each executive officer the scope and complexity of the position, experience, tenure, internal pay comparisons, function, division, and individual performance and historical targeted grant levels.

Generally, one-half of the long-term incentive value is delivered in the form of stock options and one-half is delivered in the form of performance share awards. We believe this mix of equity strikes the appropriate balance between rewarding increases in the market value of our common stock and achievement of company specific performance measures. Actual value realized from our long-term incentive awards may vary from the market 50^th percentile based on the price of our common stock for stock options and performance against our three-year cumulative financial business plan in the year of the grant for performance share awards. In addition to stock options and performance share awards, we occasionally use awards of restricted stock units in connection with the hiring of new executive officers, mid-year promotions of existing executive officers, leadership transition or retention purposes.

Stock Options.    Each year at its regular meeting held in November or December, the Compensation & Human Resources Committee approves the annual grant of stock options to our executive officers. If we deliver strong shareholder returns, our stock price presumably will increase, thereby increasing the value of the stock options and executives’ resulting total compensation. If shareholder value is not delivered and our stock price does not increase, the options will have no value. Annual stock options are generally granted on the date of the Committee’s meeting or, if such meeting is held before the announcement of our financial results for the recently completed fiscal year, on the second business day following such issuance, and have a per share exercise price equal to the closing price of our common stock on the grant date.

To determine the number of options to award to our executive officers, we start with a total target value of stock options and divide that value by the expected value of an option to purchase a share of our common stock, using a Black-Scholes option pricing method. The calculation of the expected value is based on the average closing price of our common stock over the last three months of the prior fiscal year. The three-month average allows for smoothing of any volatility that may be associated with a particular date’s stock price.

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Stock options granted to our executive officers on an annual basis vest in three equal installments on each of the first, second and third year anniversaries of the grant date and are exercisable for a period of ten years following the grant date. The three-year vesting schedule is consistent with the three-year performance period for our performance share awards. We believe the three-year period for both stock options and performance share awards provides retention value and focuses our executive officers on attainment of long-term performance. The Compensation & Human Resources Committee periodically reviews option vesting schedules and terms.

Occasionally the Committee will approve stock option awards for use in certain situations, including hiring of new executive officers, mid-year promotions of existing executive officers, leadership transition or retention purposes. Vesting may be either performance-based or time-based. Performance-based awards are derived from one or more of the performance measures included in our 2010 Plan. Under our 2010 Plan, stock options with time-based vesting can vest no more rapidly than ratably over three years.

Performance Share Awards.    Each year at its regular meeting held in November or December, the Compensation & Human Resources Committee approves the annual grant of performance share awards to our executive officers. Performance share awards are paid out in shares of our common stock following completion of a three-year performance period if certain performance goals are achieved. Performance goals are derived from performance measures included in our 2010 Plan.

To determine the number of target performance share awards to be granted to our executive officers, we start with a total target value of performance share awards to be delivered. That value is divided by an expected value per share to determine the number of performance share awards to grant at target. The expected value per share is equal to the average closing price of our common stock over the last three months of the prior fiscal year.

At the beginning of the first fiscal year in the three-year period, the Compensation & Human Resources Committee establishes performance measures, weightings, goals and performance adjustment events, if any, for the entire three-year performance period, as well as thresholds and maximums. Factors we consider when establishing the performance goals for the three-year period include our prior fiscal year actual financial business results, our longer-term strategic plan outlook, including our projections for performance for years two and three of the three-year award term, and of our competitive situation and outlook. During the fiscal year, the Committee reviews progress against the performance goals for performance share awards for all outstanding performance periods. At the end of the three-year performance period, at the Committee’s regular meeting in November or December, Management presents a summary of, and the Committee certifies, performance against the performance goals, including the applicability of any performance adjustment events, and a corresponding payout, which is expressed as a percent of target. Shares of our common stock are paid out to the executive officers in December. Actual payouts for performance share awards can range from 0% (if the threshold levels of performance are not met) to 200% of the target award (if maximum levels of performance are met).

Restricted Stock Unit Awards.    Occasionally, the Committee will approve awards of restricted stock units for use in certain situations, including hiring of new executive officers, mid-year promotions of existing executive officers, leadership transition or retention purposes. Vesting may be either performance-based or time-based. Performance-based awards are derived from one or more of the performance measures included in our 2010 Plan. Under our 2010 Plan, restricted stock units with time-based vesting can vest no more rapidly than ratably over three years.

Fiscal 2020 Grants.    The number of stock options granted to our named executive officers for fiscal 2020 can be found in the “Grants of Plan-Based Awards for Fiscal 2020” table beginning on page 47. The per share exercise price of the options is $76.53, which is equal to the closing price of our common stock on the grant date, which for fiscal 2020 was December 19, 2019. The grant date fair value of those awards can be found in the “Summary Compensation Table” beginning on page 44 in the “Option Awards” column and in the “Grants of Plan-Based Awards for Fiscal 2020” table beginning on page 47 in the “Grant Date Fair Value of Stock and Option Awards” column.

On December 3, 2019, the Committee granted performance share awards for the fiscal 2020 through fiscal 2022 performance period. The number of performance shares at threshold, target and maximum levels of performance for the fiscal 2020 through fiscal 2022 performance period can be found in the “Grants of Plan-Based Awards for Fiscal 2020” table beginning on page 47 in the “Estimated Future Payouts Under Equity Incentive Plan Awards” columns. The grant date fair value of those awards at target can be found in the “Summary Compensation Table” beginning on page 44 in the “Stock Awards” column“ and in the “Grants of Plan-Based Awards for Fiscal 2020” table beginning on page 47 in the “Grant Date Fair Value of Stock and Option Awards” column.

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On May 19, 2020, in connection with his expanded responsibilities, Mr. Rodier was granted 1,600 restricted stock units and an additional 25,300 stock options. Both of these grants have three-year ratable vesting, and therefore, vest in three approximately equal installments on the first, second and third anniversary of the grant date. The grant date fair value of those awards can be found in the “Summary Compensation Table” beginning on page 44 the “Stock Awards” column“ and the “Option Awards” column and in the “Grants of Plan-Based Awards for Fiscal 2020” table beginning on page 47 in the “Grant Date Fair Value of Stock and Option Awards” column.

Performance Measures for the Performance Period Beginning in Fiscal 2020.    For the fiscal 2020 to fiscal 2022 performance share awards, the following corporate performance measures and weightings were established for all of our executive officers:

At its meeting in December 2019, threshold, target and maximum goals were established for the fiscal 2020 to fiscal 2022 performance share awards. The specific performance goals for the three-year award period are maintained by us as proprietary and confidential. The Committee believes that disclosure of these specific performance goals would represent competitive harm to us as such cumulative corporate goals and results are not publicly disclosed and are competitively sensitive. For each performance measure, the target goal reflects the cumulative three-year financial plan set at the corporate level. Based on historical performance, the Committee believes the attainment of target performance levels, while uncertain, could be reasonably anticipated. Threshold goals represent the minimum level of performance necessary for there to be a payout for that performance measure and the Committee believes the threshold goals are likely to be achieved. Maximum goals represent the performances at which payouts are 200% of the target award. Even if actual results exceed the maximum goals, the payouts are capped at 200% of the target award. Maximum goals represent levels of performance at which the Committee determined a payout of 200% of target would be appropriate. The Committee believes that the maximum goals established are more aggressive goals.

In addition to approving performance measures, goals and weightings, the Committee also established, in accordance with our 2010 Plan, specific corporate adjustment events for determining payouts under the fiscal 2020 to fiscal 2022 performance share awards. The impact of acquisitions on the evaluation of performance will be determined based on the size of the acquisition as determined by projected annual revenue for the first twelve months after the closing of an acquisition as follows:

Any externally driven changes in accounting principles and standards will be excluded from the evaluation of performance if the cumulative net impact on the payout of all such accounting adjustments affects the award payout by more than 2%, unless such accounting change was included in the annual plan and cumulative goals. The COVID-19 pandemic and its impact on fiscal 2020 and future results was not factored in to threshold, target and maximum goals or the adjustment events that were established for the fiscal 2020 to fiscal 2022 performance share awards.

Performance Measures for the Performance Period Ending in Fiscal 2020.    The performance share awards that were granted in fiscal 2018 for the fiscal 2018 to fiscal 2020 performance period were approved for payout upon the Committee’s certification of performance against the goals and impact of any predefined adjustment events at its meeting on December 1, 2020. Pursuant to the predefined adjustment events, all financial impacts related to our acquisitions of CMW and Venture Products were excluded from the payout calculation, as were

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certain other predefined adjustment events. We did not adjust our performance measures or goals which were set at the beginning of fiscal 2018 as a result of the COVID-19 pandemic.  Primarily as a result of the exclusion of the CMW and Venture Products acquisitions from our fiscal 2019 and fiscal 2020 financial results, respectively, the payout for our fiscal 2018 to fiscal 2020 performance share awards was only 68.6% of target.    

The table below outlines the corporate performance measures and weightings, as well as threshold, target and maximum goals that were established by the Committee at the beginning of fiscal 2018, along with actual levels of performance when factoring in adjustment events, for the fiscal 2018 to fiscal 2020 performance share awards.

Corporate Performance Discussion and Analysis.    When applying the actual performance when factoring in the defined adjustment events against the weightings of the performance measures, the fiscal 2018 to fiscal 2020 payout was 68.6% of target. As a result, all of our named executive officers received a performance share payout that was 68.6% of target.

Target Total Direct Compensation.    As described previously, when analyzing compensation, we look at base salary, target total cash compensation and target total direct compensation in comparison to the market 50^th percentile when establishing new base salary levels, target annual cash incentive awards and long-term incentive awards. Actual value realized from long-term incentives is dependent on the stock price at the time of exercise for stock option grants and actual payout of performance share awards at the end of the three-year term, which is dependent on actual cumulative performance against established performance goals. Therefore, it is difficult to assess actual total direct compensation on an annual basis in comparison to the market since the market data may have changed significantly when actual long-term incentive results are fully realized. We believe it is important to continue to review target total direct compensation when establishing long-term incentive grants. The fiscal 2020 target total direct compensation (sum of actual base salary, including as reduced on May 1, 2020, target annual cash incentive, including as based on the reduced salary, and target value of equity awards), for each named executive officer is in the table below.

Health, Welfare and Retirement Benefits and All Other Compensation.

Health and Welfare Benefits.    We believe that providing competitive health and welfare benefits at a reasonable cost is an important part of any employee’s compensation package and promotes employee health. Our executive officers participate in the same health and welfare benefits as our full-time office salaried employees. These health and welfare benefits for fiscal 2020 included medical and dental insurance; life, accidental death and dismemberment insurance; and disability insurance. These benefits, including plan design and cost, are analyzed annually. We also implemented benefits to address the COVID-19 pandemic, including a special leave policy, fully covered virtual doctor visits without a co-pay, and permitted changes to dependent care flexible spending amounts.

Retirement Benefits.    We believe that it is important to allow our employees, including our executive officers, the opportunity to save for retirement through our Retirement Plan, which is our defined contribution plan. The majority of our U.S.-based employees participate in the Retirement Plan and certain of our subsidiaries participate in different retirement plans. For 2020, the Retirement Plan included a 401(k) plan with a Company match. Company contributions for fiscal 2020 to our Retirement Plan on behalf of our named executive officers can be

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found under “All Other Compensation for Fiscal 2020” beginning on page 45. In addition, consistent with actions taken by many other employers, we implemented several of the CARES Act provisions, including providing for withdrawals from our Retirement Plan pursuant to the CARES Act.

Nonqualified Deferred Compensation Plans.     To help ensure our executive officers’ ability to provide financial security and save for retirement, we maintain three nonqualified deferred compensation plans, which include: The Toro Company Deferred Compensation Plan, or Deferred Plan, The Toro Company Deferred Compensation Plan for Officers, or the Deferred Plan for Officers and The Toro Company Supplemental Benefit Plan, or Supplemental Benefit Plan. These plans, which are unsecured and unfunded, are described under “Nonqualified Deferred Compensation for Fiscal 2020” on page 51.

Perquisites.    The perquisites provided during fiscal 2020 to our executive officers are described in “All Other Compensation for Fiscal 2020” beginning on page 45. We believe these perquisites are an important part of our overall compensation package and help us attract, retain and reward top executive talent. Specifically, we believe that these perquisites assist in promoting the financial security and health of our executive officers and encourage the use and promotion of our products.

Charitable Giving.    We support charitable organizations for our employees through our matching gift program. The program for our executive officers provides that a gift or gifts by an executive officer and his/her spouse to one or more tax exempt 501(c)(3) charitable organizations located in the United States will be matched by us in an aggregate amount of up to $3,000 per year. In fiscal 2020, we also provided for unlimited matching gifts in addition to the $3,000 limit for gifts to certain charitable organizations that address poverty and food insecurity challenges as a result of the COVID-19 pandemic or that have diversity, equity and inclusion focused missions.

Employment, Severance and Change in Control Arrangements.    None of our executive officers have any employment or severance agreements or arrangements other than as provided for in our CIC policy and other than certain change in control provisions in our equity plans. Accordingly, our executive officers do not have the right to cash severance or additional benefits in connection with a termination of employment except in connection with a change in control of our Company as described under “Potential Payments Upon Termination or Change in Control—Change in Control” beginning on page 57. Each executive officer is a party to our standard confidentiality, invention and non-compete agreement.

We believe our CIC policy and other change in control arrangements are important because they provide retention incentives and additional monetary motivation to complete a transaction that the Board believes is in the best interests of our Company and shareholders. We believe it is in the best interests of our Company and our shareholders to assure that we will have the continued dedication of our executives, notwithstanding the possibility, threat or occurrence of a change in control. We also believe it is imperative to diminish any distraction of our executives by virtue of the personal uncertainties and risks, including personal financial risks, created by a pending or threatened change in control of the Company.

Our CIC policy incorporates a “double trigger” mechanism and provides for a severance payment for an executive officer if within three years after a change in control an executive officer’s employment is terminated by us without just cause or the executive officer terminates his or her employment for good reason, or if such termination occurs at the request of a third party who had taken steps reasonably calculated to effect the change in control. Our CIC policy does not provide a “gross-up” for 280G excise taxes and, as a condition to the payment of any severance payment, the executive officer must execute a release of claims against us.

In addition to our CIC policy, we also have change in control provisions in our 2010 Plan and prior equity plans and individual award agreements that apply to our executives, as well as other employees, that provide for immediate vesting acceleration upon a change in control. More information regarding these provisions is also provided under “Potential Payments Upon Termination or Change in Control—Change in Control” beginning on page 57. Because the immediate vesting of stock options, restricted stock units and certain other awards is triggered by the change in control itself, and is not dependent upon a termination of employment within a certain protection period, these acceleration provisions are known as a “single trigger” change in control arrangements. We believe these “single trigger” change in control arrangements for equity awards granted provide important retention incentives during what can often be an uncertain time for employees and provide executives with additional monetary motivation to focus on and complete a transaction that our Board believes is in the best interests of our shareholders rather than seeking new employment opportunities. If an executive were to leave prior to the completion of the change in control, non-vested options or other awards held by the executive would terminate.

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The Compensation & Human Resources Committee reviews our change of control arrangements periodically to ensure that they remain appropriate.

Stock Ownership Guidelines.    We maintain stock ownership guidelines that enable us to meet our compensation objective of aligning the interests of our executive officers with those of our shareholders. Our stock ownership guidelines are described in more detail in “Stock Ownership Guidelines” on page 64. As of October 31, 2020, each of our executive officers required to meet the stock ownership guidelines had met such guideline.

Hedging and Pledging.    Our insider trading policy prohibits officers and directors from engaging in hedging or pledging of our securities. Our anti-hedging and pledging policy is described in more detail in “Anti-Hedging and Anti-Pledging Policies” on page 64.

Tax Deductibility of Compensation.    Prior to the enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”), in designing our executive compensation program, we considered the deductibility of executive compensation under Code Section 162(m). The 2017 Tax Act, among other things, repealed the exemption from Code Section 162(m)’s $1 million deduction limit for “performance-based” compensation for taxable years beginning after December 31, 2017. Our compensation plans were designed with the intention of satisfying the requirements for “performance-based” compensation as defined in Code Section 162(m) prior to the effective date of the 2017 Tax Act so that such awards would be exempt from the Code Section 162(m) deduction limitation. While we designed these plans to operate in this manner, the Committee could administer the plans in a manner that did not satisfy such requirements in order to achieve a result that the Committee determined to be appropriate, including by revising performance goals and/or adjustment events as needed to ensure our pay practices continued to align with performance even if this resulted in a disallowance of a deduction for amounts in excess of $1 million.

Despite the changes to Section 162(m) as a result of the 2017 Tax Act, consistent with our executive compensation philosophy of linking pay to performance and aligning executive interests with those of our shareholders, we currently expect that we will continue to structure our executive compensation program so that a significant portion of total executive compensation is linked to the performance of our Company even though amounts in excess of the Code Section 162(m) limit are no longer deductible.

Assessment of Risk Related to Compensation Programs

We determined that our compensation policies, practices and programs and related compensation governance structure work together to minimize exposure to excessive risk while appropriately pursuing growth, profitability and asset efficiency strategies that emphasize shareholder value creation. In reaching such determination, we noted that (i) base salaries for all employees are targeted within a competitive range of the market 50^th percentile, are not subject to performance risk and, for non-executive employees, constitute the largest part of their total compensation; (ii) incentive or variable compensation awarded to our executive officers, which constitutes the largest part of their total compensation, is appropriately balanced between annual and long-term performance and cash and equity compensation, and utilizes performance measures and goals that are drivers of long-term success for our Company and our shareholders; and (iii) caps on performance-based awards are used.

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Summary Compensation Table

The following table summarizes compensation for each of the last three fiscal years awarded to, earned by or paid to individuals who served as our principal executive officer and principal financial officer and each of the other three most highly compensated executive officers during fiscal 2020. We collectively refer to these executive officers as our “named executive officers” for fiscal 2020. The “Compensation Discussion and Analysis” beginning on page 28, provides additional information about compensation paid to our named executive officers. Amounts in this Summary Compensation Table are not reduced to reflect elections, if any, by the named executive officers to defer receipt of base salary, annual cash incentive award payouts or performance share award payouts. Elections to defer these forms of compensation are described in more detail under “Nonqualified Deferred Compensation for Fiscal 2020” beginning on page 51. Earnings on nonqualified deferred compensation are not on a basis that is considered to be above-market or preferential.

 

 

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All Other Compensation for Fiscal 2020

All other compensation for fiscal 2020 includes the value of Company contributions to our retirement plan(s), the value of modest perquisites provided and the matching portion by the Company for charitable donations by our named executive officers, all of which are described below.

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Specific amounts included in the fiscal 2020 “All Other Compensation” column of the “Summary Compensation Table” are in the table below.

 

Grants of Plan-Based Awards for Fiscal 2020

We currently grant cash and equity awards under our 2010 Plan. During fiscal 2020, plan-based awards granted to our named executive officers included annual cash incentive awards, performance share awards, restricted stock unit awards, and stock option awards. More details on these grants can be found within the “Compensation Discussion and Analysis.”

The following table summarizes all plan-based awards granted to our named executive officers during fiscal 2020.

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Outstanding Equity Awards at Fiscal Year-End for 2020

The following table summarizes all outstanding equity awards previously granted to our named executive officers that were outstanding on October 31, 2020, the last day of fiscal 2020. Specifically, it reflects exercisable and unexercisable stock options, unvested restricted stock unit awards and unvested performance share awards.

 

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Option Exercises and Stock Vested for Fiscal 2020

The following table summarizes all of the stock options exercised during fiscal 2020 and performance share awards that were paid out or deferred by our named executive officers for the fiscal 2018 to fiscal 2020 performance period. No restricted stock units held by our named executive officers vested during fiscal 2020.

 

Nonqualified Deferred Compensation for Fiscal 2020

We maintain three nonqualified deferred compensation plans in which our named executive officers are eligible to participate.

The Toro Company Deferred Compensation Plan.    This plan allows a select group of management or highly compensated employees, including our executive officers, to defer on a pre-tax basis his or her calendar year base salary and/or fiscal year annual cash incentive payout to a date in the future. Participants can defer up to 50% of calendar year base salary and up to 100% of the fiscal year annual cash incentive award payout. Deferred amounts are placed into a participant’s account and the participant may invest such deferred amounts in an array of funds that are consistent with or comparable to funds provided in the Retirement Plan. Deferral elections are made on an annual basis, before the beginning of the new fiscal year. Participants must elect a distribution date that is at least two years later than the date the compensation otherwise would have been received. Participants elect the frequency of payments and the number of payments to receive at the time of distribution. Participants are always 100% vested in their accounts.

The Toro Company Deferred Compensation Plan for Officers.    This plan allows key employees that receive performance share awards, including our executive officers, an opportunity to defer receipt of shares of our common stock paid out under such awards to a date in the future. Participants can defer up to 100% of the

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common stock payout. Each year, before the third fiscal year of the three-year performance period begins, participants are given the opportunity to defer the receipt of those shares to some point in the future. Participants must elect a distribution date that is at least two years later than the date the shares would have been received. Participants elect the frequency of payment and the number of payments to receive at the time of distribution. Participants are always 100% vested in their accounts.

The Toro Company Supplemental Benefit Plan.    This plan is maintained for the purpose of providing to a select group of management or highly compensated employees, including our executive officers, benefits in excess of the limitations on benefits and contributions imposed by Code Sections 401(a)(17) and 415. Our credits under this plan are made on a calendar year basis, usually in the first calendar quarter following the end of the prior calendar year. In calendar year 2019, for participant earnings above the compensation limit, we credited the investment savings contribution under this plan. For calendar year 2020, based on changes we made to the Retirement Plan, we revised the Supplemental Benefit Plan such that contributions would be credited based on all forms of employer contributions, which may include Company matching, investment savings and ESOP contribution amounts. For calendar year 2019, employer matching contributions and an investment savings contribution were made to the Retirement Plan, but not ESOP contributions, and for calendar year 2020, employer matching contributions were made for the Retirement Plan, but neither an investment savings contribution or ESOP contribution were made. Therefore, employer matching and an investment savings contribution for calendar 2019 and employer matching contributions for calendar 2020 were credited under the Supplemental Benefit Plan. Amounts credited are placed into a participant’s account and the participant may select the deemed investment of such deferred amounts in an array of funds that are consistent with or comparable to funds provided in the Retirement Plan. Participants elect the funds into which these contributions are allocated, as well as the frequency of payments and the number of payments to receive. Participants are always 100% vested in their accounts.

Nonqualified Deferred Compensation for Fiscal 2020 Table.    The following table reflects any named executive officer contributions and Company contributions for fiscal 2020 to our nonqualified deferred compensation plans.

 

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Includes the following amounts reported in the “Summary Compensation Table” in the “All Other Compensation” column for fiscal years 2018 and 2019.

 

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Potential Payments Upon Termination or Change In Control

Overview.    The following discussion describes the payments and benefits to which our named executive officers are entitled in various termination of employment and change in control situations. The intent of this discussion is to describe those payments and benefits for which the amount, vesting or time of payment is altered by the termination of employment or change in control situation. Therefore, this discussion does not describe all payments and benefits a named executive officer may receive following a termination or change in control, such as the following accrued, vested or non-forfeitable compensation and benefits:

None of our executive officers have any employment or severance agreements or arrangements other than as provided for in our CIC policy and other than certain change in control provisions in our equity plans. Accordingly, our named executive officers do not have the right to cash severance or additional benefits in connection with a termination of employment except in connection with a change in control of our Company, as described under “Potential Payments Upon Termination or Change in Control—Change in Control” beginning on page 57. Each of our executive officers is a party to our standard confidentiality, invention and non-compete agreement.

Voluntary Resignation and Retirement.    In the event of a named executive officer’s voluntary resignation or retirement, we would not be obligated to pay or provide any additional payments or benefits, unless the named executive officer meets the criteria for “retirement” in connection with his or her voluntary resignation. For purposes of our compensation arrangements, “retirement” generally means the voluntary termination of employment at or after the age of 55 and with a number of years of service that, when added together with the named executive officer’s age, equals at least 65.

If a named executive officer meets the criteria for “retirement” in connection with his or her voluntary resignation, the named executive officer generally would be entitled to or, in the case of annual cash incentive awards and performance share awards, may receive upon approval by the Compensation & Human Resources Committee, the following additional payments and benefits:

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Any such payment for any prorated annual cash incentive or performance share awards would be made at the same time payments are made to our other executive officers after the certification of performance achieved by the Compensation & Human Resources Committee at the meeting following the completion of the applicable performance period.

Disability or Death.    In the event of a termination as the result of the disability or death of a named executive officer, the named executive officer, or his or her beneficiary, would be entitled to or, in the case of annual cash incentive awards and performance share awards, may receive upon approval by the Compensation & Human Resources Committee, the following additional payments and benefits:

Any such payment for any prorated annual cash incentive or performance share awards would be made at the same time payments are made to our other executive officers after the certification of performance achieved by the Compensation & Human Resources Committee at the meeting following the completion of the applicable performance period.

Involuntary Termination by TTC.    Since our named executive officers do not have employment or severance agreements or arrangements other than as provided for in our CIC policy, we would not be obligated to provide any additional payments or benefits to our named executive officers in the event of an involuntary termination of employment by us. Any negotiated separation arrangement typically requires that the named executive officer sign a release and waiver of claims and comply with confidentiality and non-compete restrictions.

Termination by TTC for Cause.    In the event of a termination of a named executive officer’s employment by us for cause, we would not be obligated to provide any additional payments or benefits to the executive. In addition, we may have certain clawback rights, as described below under “Clawback Provisions.”

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Change in Control.    We have a CIC policy generally applicable to our executive officers. Our CIC policy incorporates a “double trigger” mechanism and provides for a cash severance payment and certain other benefits if within three years after a change in control the named executive officer’s employment is terminated by us without just cause or the named executive officer terminates his or her employment for good reason, or if such termination occurs at the request of a third party who had taken steps reasonably calculated to effect the change in control. The payments and benefits the named executive officer would be entitled to receive include:

Our CIC policy does not provide a “gross-up” for 280G excise tax and, as a condition to the payment of any severance payment, the named executive officer must execute a release of claims against us. If a change in control, as generally defined below, has not occurred, our Board may terminate our CIC policy after two years’ advance notice of such termination.

In addition to our CIC policy, our 2010 Plan provides that if we experience a change in control, as generally defined below, whether or not there is a qualifying termination of employment:

 

Alternatively, the Compensation & Human Resources Committee may elect to terminate such options, restricted stock awards, restricted stock unit awards or performance share awards in exchange for a cash payment for each option, restricted stock, restricted stock unit or performance share award in an amount equal to the excess, if any, between the consideration received by shareholders of our Company for shares of our Company in connection with the change in control and the exercise or purchase price, if any, of the option, restricted stock, restricted stock unit award or performance share award, multiplied by the number of shares subject to such option or award. Our 2010 Plan does not provide a “gross-up” for 280G excise tax, but does provide for a reduction of payments if such payments would result in lower after-tax income taking into consideration the 280G excise tax.

For purposes of our CIC policy and 2010 Plan, and subject to limited exceptions, a “change in control” occurs if:

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Additionally, under our nonqualified deferred compensation and retirement plans, upon the occurrence of a change in control, we must transfer cash or property to a “rabbi” trust for the benefit of plan participants in an amount sufficient to cause the trust to be funded at a level equal to the present value of all accumulated or accrued benefits then payable to or on behalf of plan participants.

Potential Payments Upon Termination or Change In Control.    The following table quantifies the payments and benefits for which the amount, vesting or time of payment is altered by each of the foregoing termination of employment or change in control situations. For purposes of quantifying payments and benefits, amounts are calculated (i) for each named executive officer as if the termination or change in control occurred on October 30, 2020, the last business day of our 2020 fiscal year; and (ii) using a per share value of $82.10, which represents the closing price of our common stock, as reported on the NYSE, on October 30, 2020. Material assumptions used in calculating the estimated payments and benefits are described in footnotes to the table.

 

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Clawback Provisions.    Our 2010 Plan and the related award agreements contain a “clawback” provision which provides that if, within one year after the termination of employment the participant is employed or retained by or renders services to a competitor, violates any confidentiality agreement or agreement governing the ownership or assignment of intellectual property rights or engages in any other conduct or act determined to be injurious, detrimental or prejudicial to any interest of our Company, all rights of such participant under the 2010 Plan and any agreements evidencing an award then held by the participant will terminate and be forfeited and the Committee may require the executive to surrender and return to our Company any shares received, and/or to disgorge any profits or any other economic value made or realized by the participant during the period beginning one year prior to the participant’s termination of employment or other service with our Company or any affiliate or subsidiary, in connection with any awards or any shares issued upon the exercise or vesting of any awards granted under such plan. In addition, if we are required to prepare an accounting restatement due to our material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, then any participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 must reimburse us for the amount of any award received by such individual under the 2010 Plan during the 12-month period following the first public issuance or filing with the SEC, as the case may be, of the financial document embodying such financial reporting requirement. These clawback provisions are in addition to any automatic clawback or forfeiture law, rule or regulation of which our named executive officers may be subject, including under the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act, as well as any policy that may be adopted by us.

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Pay Ratio Disclosure

In accordance with Item 402(u) of Regulation S-K, passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we calculated the ratio of annual total compensation of Mr. Olson relative to the annual total compensation of our median employee.

To determine the median employee, we identified that, as of October 31, 2020, our total employee population was 10,103 employees, which included employees from all our subsidiaries. We identified our median employee from this population (excluding Mr. Olson) by using base salary as our consistently applied compensation measure. Once we identified our median employee, we calculated the annual total compensation of our median employee using the same methodology that we used to calculate the annual total compensation of our named executive officers, including Mr. Olson, in the Summary Compensation Table. Mr. Olson’s annual total compensation for fiscal 2020, as set forth in the Summary Compensation Table on page 44, was $5,997,357. Annual total compensation for our median employee for fiscal 2020 was $40,791. The ratio of annual total compensation of Mr. Olson to the annual total compensation of our median employee for fiscal 2020 is 147:1.

We believe the pay ratio presented above is a reasonable estimate calculated in a manner consistent with applicable SEC rules. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above.

Compensation Committee Interlocks and Insider Participation

        No member of the Compensation & Human Resources Committee was an officer or employee of TTC during fiscal year 2020 or in any prior year, and no member of the Compensation & Human Resources Committee had a relationship that would require disclosure under Item 404(a) of Regulation S-K. There were no compensation committee interlocks as described in Item 407(e)(4) of Regulation S-K.

 

 

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Significant Beneficial Owners

The following table sets forth information known to us as of January 19, 2021, as to entities that have reported to the SEC or have otherwise advised us that they are a beneficial owner, as defined by the SEC’s rules and regulations, of more than five percent of our outstanding common stock.

 

 

 

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Directors and Executive Officers

The following table sets forth information known to us regarding the beneficial ownership of our common stock as of January 19, 2021, by (i) each of our current non-employee directors (including our non-employee director nominees), (ii) individuals who served as our “principal executive officer” or “principal financial officer” during fiscal 2020 and the next three most highly compensated executive officers named in the “Summary Compensation Table” beginning on page 44, and (iii) all current directors and executive officers as a group.

 

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Stock Ownership Guidelines

We maintain stock ownership guidelines described in the table below to align the interests of our non-employee directors and executive officers with those of our shareholders. Non-employee directors are expected to meet this guideline within five years of joining the Board. Executive officers are expected to meet the guideline within five years of the date of hire or promotion. As of January 19, 2021, each of our non-employee directors and executive officers who is required to meet a stock ownership guideline met such guideline.

Anti-Hedging and Anti-Pledging Policies

The Toro Company Insider Trading Policy (the “Insider Trading Policy”) addresses hedging, pledging and other transactions which might give the appearance of impropriety. Under the Insider Trading Policy, we consider it inappropriate for any person subject to the policy, including all directors, officers and employees of TTC, to engage in speculative transactions in TTC securities or other transactions which might give the appearance of impropriety. In addition, we discourage any person subject to the Insider Trading Policy from engaging in frequent trading in TTC securities because such trading also may give the appearance that such trades were timed to take advantage of material non-public information. Accordingly, our Insider Trading Policy either prohibits or limits the following types of transactions:

 

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The following table provides information about shares of our common stock that may be issued under our equity compensation plans as of October 31, 2020, the last day of fiscal 2020.

 

 

Shareholder Proposals and Director Nominations for the 2022 Annual Meeting

The 2022 Annual Meeting of Shareholders is expected to be held on March 15, 2022. In order for a shareholder proposal to be included in our proxy statement for the 2022 Annual Meeting, (i) our General Counsel must receive such proposal no later than the close of business on October 6, 2021, unless the date of the 2022 Annual Meeting is delayed by more than 30 calendar days; and (ii) such proposal must satisfy all of the requirements of, and not otherwise be permitted to be excluded under, Rule 14a-8 promulgated by the SEC and our Amended and Restated Bylaws.

Under our current Amended and Restated Bylaws, in order for a shareholder to nominate one or more persons for election to the Board at the 2022 Annual Meeting of Shareholders or propose any other business to be brought before the 2022 Annual Meeting, complete and timely notice must be given in writing and in proper form to our General Counsel not later than December 16, 2021, nor earlier than November 16, 2021. However, if the date of the 2022 Annual Meeting is advanced by more than 30 days or delayed by more than 60 days from the first anniversary date of the 2021 Annual Meeting of Shareholders, such notice must be delivered not earlier than the 120th day prior to the date of the rescheduled 2022 Annual Meeting and not later than the close of business on the later of the 90th day prior to the date of the rescheduled 2022 Annual Meeting or the 10th day following the day on which we first make a public announcement of the date of the rescheduled 2022 Annual Meeting. Any notice must contain the specific information required by our Amended and Restated Bylaws, including, among other things, information about: any proposed nominee and his or her relationships with the shareholder submitting the nomination; any agreements, arrangements or understandings the shareholder may have with any proposed nominee or other parties relating to the nomination or other proposal; and the interests that the shareholder has related to our Company and its shares, including as a result of, among other things, derivative securities, voting arrangements or short positions. Such information must be updated as of the record date for the 2022 Annual Meeting and as of the date that is 10 business days prior to the date of the 2022 Annual Meeting. This summary information regarding our Amended and Restated Bylaws is qualified in its entirety by reference to the full text of the Amended and Restated Bylaws, a copy of which can be found on our website at www.thetorocompany.com/corporategovernance. If a nomination or proposal is not timely and properly made in accordance with the procedures set forth in our Amended and Restated Bylaws, or does not contain the specific

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information required by our Amended and Restated Bylaws, such nomination or proposal will be defective and will not be brought before the 2022 Annual Meeting. If a nomination or proposal is nonetheless brought before the 2022 Annual Meeting and the Chairman does not exercise the power and duty to declare the nomination or proposal defective, the persons named in the proxy may use their discretionary voting with respect to such nomination or proposal.

Householding of Annual Meeting Materials

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one set of these documents may have been sent to multiple shareholders at a shared address. Additional copies of this proxy statement and our Annual Report on Form 10-K are available upon request to our General Counsel at 8111 Lyndale Avenue South, Bloomington, Minnesota, 55420-1196, by telephone at 888-237-3054, or by e-mail to [email protected]. These documents also may be downloaded and printed from our website at www.thetorocompany.com/proxy. Any shareholder who wants to receive separate copies of our proxy statement and annual report in the future, or any shareholder who is receiving multiple copies and would like to receive only one copy per household, should contact his, her or its bank, broker or other nominee record holder.

Annual Report

A copy of TTC’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020, as filed with the SEC, will be sent to any shareholder, without charge, upon written request to our General Counsel at 8111 Lyndale Avenue South, Bloomington, Minnesota, 55420-1196. You also may obtain our Annual Report on Form 10-K on the Internet at the SEC’s website, www.sec.gov, or on our website at www.thetorocompany.com/proxy. Our Fiscal Year 2020 Annual Report, which contains information about our business but is not part of our disclosure deemed to be filed with the SEC, also is available on our website at www.thetorocompany.com/proxy.

Cost and Method of Solicitation

We will pay the cost of soliciting proxies and may make arrangements with brokerage houses, custodians, nominees and other fiduciaries to send proxy materials to beneficial owners of our common stock. We will reimburse these third-parties for reasonable out-of-pocket expenses. In addition to solicitation by mail, our non-employee directors, executive officers and other employees may solicit proxies by telephone, electronic transmission and personally. Our non-employee directors, executive officers and other employees will not receive compensation for such services other than regular non-employee director or employee compensation. We have retained Morrow Sodali LLC, 470 West Avenue, Stamford, Connecticut, 06902, for an estimated fee of $8,000, plus out of pocket expenses, to assist in distributing proxy materials and soliciting proxies in connection with our 2021 Annual Meeting of Shareholders.

Dated: February 3, 2021

 

 

 

 

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Use the Internet to transmit your voting instructions up until 11:59 P.M. Eastern Time on March 15, 2021. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.  During The Meeting - Go to www.virtualshareholdermeeting.com/TTC2021 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.  VOTE BY PHONE - 1-800-690-6903  Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on March 15, 2021. Have your proxy card in hand when you call and then follow the instructions.  VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.  SCAN TO  VIEW MATERIALS & VOTE  VOTE BY INTERNET - www.proxyvote.com or scan the QR code above   D29978-P47188-Z78608  THE TORO COMPANY  8111 LYNDALE AVENUE SOUTH  BLOOMINGTON, MN 55420-1196 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY   THE TORO COMPANY  The Board of Directors recommends you vote FOR the following:  1. Election of Directors  Nominees:  01) Janet K. Cooper  02) Gary L. Ellis  03) Michael G. Vale  The Board of Directors recommends you vote FOR proposals 2 and 3.  2. Ratification of the selection of KPMG LLP as our independent registered public accounting firm for our fiscal year ending October 31, 2021.  3. Approval of, on an advisory basis, our executive compensation.  NOTE: In their discretion, the proxies are authorized to vote on any other business properly brought before the annual meeting or any adjournment or postponement of the annual meeting.  Please sign exactly as your name(s) appear(s) on this proxy. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.  For All Withhold All For All Except To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below.  For Against Abstain Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date

 

 

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THE TORO COMPANY  ANNUAL MEETING OF SHAREHOLDERS  Tuesday, March 16, 2021  1:30 p.m. CDT  www.virtualshareholdermeeting.com/TTC2021  Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:  The Notice & Proxy Statement for the Annual Meeting of Shareholders on March 16, 2021, and  our 2020 Annual Report are available at www.thetorocompany.com/proxy D29979-P47188-Z78608 The Toro Company  8111 Lyndale Ave South  Bloomington, MN 55420 Proxy  This proxy is solicited on behalf of the Board of Directors for use at the Annual Meeting on March 16, 2021.  The shares of stock held in this account will be voted as you specify on the reverse side or by telephone or Internet. Shares held in employee benefit plans for which a proxy is not received will be voted by the trustee in the same proportion as votes actually cast by plan participants.  If no choice is specified, the proxy will be voted "For" all nominees for Director and "For" Proposals 2 and 3.  By signing, dating and returning this proxy card, you revoke all prior proxies, including any proxy previously given by telephone or Internet, and appoint R. M. Olson and A. E. Dahl, or either of them, with full power of substitution, to vote these shares on the matters shown on the reverse side and on any other business properly brought before the annual meeting or any adjournment or postponement of the annual meeting.  Continued and to be signed on reverse side