UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

 

 

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VALVOLINE INC.

(Name of Registrant as Specified In Its Charter)

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100 Valvoline Way

Lexington, KY 40509

December 16, 2019

Dear Valvoline Inc. Shareholder:

On behalf of our Board of Directors and management, we cordially invite you to attend the 2020 Annual Meeting of Shareholders of Valvoline Inc. The meeting will be held on Thursday, January 30, 2020, at 8:00 a.m. (ET), at Valvoline’s principal office, 100 Valvoline Way, Lexington, KY 40509.

We are pleased to provide access to our proxy materials via the Internet under the U.S. Securities and Exchange Commission’s “notice and access” rules. As a result, we are mailing to most of our shareholders a Notice of Internet Availability of Proxy Materials (“Notice”) instead of a paper copy of this Proxy Statement, a proxy card and our 2019 Annual Report. The Notice contains instructions on how to access those documents over the Internet, as well as instructions on how to request a paper copy of our proxy materials. All shareholders who do not receive a Notice, including shareholders who have previously requested to receive paper copies of proxy materials, will receive a paper copy of the proxy materials by mail. We believe that this approach provides a convenient way for you to access our proxy materials and vote your shares, while reducing the costs of printing and distributing our proxy materials and conserving natural resources.

The attached Notice of Annual Meeting and Proxy Statement describe the business to be conducted at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented and voted at the meeting. We encourage you to promptly vote and submit your proxy via the Internet or by telephone using the instructions on the Notice, or, if you received paper copies of the proxy materials, you may also vote by following the instructions on the proxy card and signing and returning it in the pre-addressed postage-paid envelope provided for your convenience. If you attend the Annual Meeting, you can vote in person even if you previously submitted your proxy.

We appreciate your continued confidence in Valvoline and look forward to seeing you at the meeting.

Sincerely,

 

Samuel J. Mitchell, Jr. Chief Executive Officer				Stephen F. Kirk Chairman of the Board

 

Notice of Annual Meeting of Shareholders

 

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON JANUARY 30, 2020. This Proxy Statement and our 2019 Annual Report to Shareholders are available at http://investors.valvoline.com/financial-reports/proxy.

 

Table of Contents

 

 

Questions and Answers About the Annual Meeting

 

 

 

 

 

 

 

 

Proposal One - Election of Directors

 

Proposal and Required Vote

Our Board of Directors (the “Board”) currently consists of the following nine members: Gerald W. Evans, Jr., Richard J. Freeland, Stephen F. Kirk, Carol H. Kruse, Stephen E. Macadam, Vada O. Manager, Samuel J. Mitchell, Jr., Charles M. Sonsteby and Mary J. Twinem. Other than Mr. Evans, each member of the Board was elected at the 2019 Annual Meeting of Shareholders. Mr. Evans was elected by the Board, effective December 1, 2019. Each of the current members of our Board has been nominated for election at the Annual Meeting. See the “Corporate Governance—Valvoline’s Board of Directors” section of this Proxy Statement for further information about the structure, operations and roles of our Board. The Governance and Nominating Committee (“G&N Committee”) of our Board has confirmed that all nine nominees will be available to serve as directors upon election and recommends their election.

Directors are elected at each annual meeting of shareholders and hold office until the following annual meeting of shareholders and until their successors have been duly elected and qualified. Pursuant to our Articles, a director nominee in an uncontested election must receive the affirmative vote of a majority of votes cast with respect to that director nominee in order to be elected to our Board. Therefore, to be elected at the Annual Meeting, a director nominee must receive more votes cast “for” his or her election than votes cast “against” his or her election. Abstentions and broker non-votes will not be counted as votes cast. Nominees elected at the Annual Meeting will serve until our 2021 Annual Meeting of Shareholders and will hold office until their successors are duly elected and qualified.

Pursuant to the Board’s resignation policy in our Corporate Governance Guidelines (published on our website at http://investors.valvoline.com/governance), any nominee who is serving as a director at the time of an uncontested election who fails to receive a greater number of votes “for” his or her election than votes “against” his or her election will tender his or her resignation for consideration by the Board no later than two weeks following the certification of the shareholder vote. The Board will decide, through a process managed by the G&N Committee, whether to accept the resignation within 90 days following the annual meeting of shareholders. The Company will then promptly disclose the Board’s decision and reasons therefor. As a condition to his or her nomination, each person nominated by the G&N Committee must agree in advance to abide by the policy. Each nominee has agreed to abide by this policy.

If no voting specification is made on a properly returned or voted proxy card, Samuel J. Mitchell, Jr. or Julie M. O’Daniel (as proxies named on the proxy card) will cast the votes represented by such proxy card FOR each of the nine nominees named in this Proxy Statement. Should any of the nominees be unable or unwilling to stand for election at the time of the Annual Meeting, the proxies may vote for a replacement nominee recommended by the Board, or the Board may reduce the number of directors to be elected at the Annual Meeting.

Information Concerning Director Nominees

The nine individuals nominated for election as directors at the Annual Meeting are Gerald W. Evans, Jr., Richard J. Freeland, Stephen F. Kirk, Carol H. Kruse, Stephen E. Macadam, Vada O. Manager, Samuel J. Mitchell, Jr., Charles M. Sonsteby and Mary J. Twinem. Each of these nominees is currently a member of our Board and has agreed to stand for election. Background information about each director nominee is set forth below, including information regarding the specific experiences, characteristics, attributes and skills considered in connection with the nomination of each director nominee, all of which the Board believes provide the Company with the perspective and judgment needed to guide, monitor and execute its strategies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Board unanimously recommends that shareholders vote FOR the election of each director nominee.				✓

 

Proposal Two - Ratification of Independent Registered   Public Accounting Firm

 

The Audit Committee of our Board of Directors (the “Audit Committee”) reviews our accounting firm’s qualifications, performance and independence in accordance with regulatory requirements and guidelines to determine whether to reappoint such firm as our independent registered public accounting firm. We refer to the fiscal years ending September 30, 2018, 2019 and 2020 as “fiscal 2018,” “fiscal 2019” and “fiscal 2020,” respectively. Based on its review, the Audit Committee has recommended to the Board, and the Board has approved, the appointment of Ernst & Young LLP to audit Valvoline’s Consolidated Financial Statements and Internal Control Over Financial Reporting for fiscal 2020. See the “Corporate Governance—Valvoline’s Board of Directors—Committees” section of this Proxy Statement for further information about the role and responsibilities of our Audit Committee.

The following table presents the aggregate fees (including out-of-pocket costs) for professional services rendered by the member firms of Ernst & Young LLP and their respective affiliates (collectively, “EY”) for fiscal 2019 and fiscal 2018. The fees paid to EY shown in the table below were all pre-approved in accordance with Audit Committee procedures discussed in the “Audit Committee Matters” section of this Proxy Statement.

 

(in thousands)		2019				2018
Audit Fees(1)		$	2,939			$	3,037
Audit-Related Fees(2)		$	15			$	30
Tax Fees(3)		$	74			$	14
All Other Fees(4)		$	61			$	—
Total		$	3,089			$	3,081

 

(1)

Audit fees include fees and expenses associated with the annual audit of Valvoline’s consolidated financial statements and internal controls over financial reporting and review of Valvoline’s interim consolidated financial statements. Audit fees also include fees associated with various audit requirements of Valvoline’s foreign subsidiaries (statutory audit requirements).

 

(2)	Audit-related fees relate to reviews of our franchise disclosure filings.

 

(3)	Tax fees principally relate to U.S. and foreign tax compliance and tax consulting services.

 

(4)	Other fees in fiscal 2019 relate to permitted risk management advisory services.

Our shareholders are being asked to ratify the appointment of EY as Valvoline’s independent registered public accounting firm for fiscal 2020. The appointment of EY will be deemed ratified if the number of votes cast “for” ratification exceed the number of votes cast “against” it. Abstentions and broker non-votes will not be counted as votes cast “for” or “against” ratification. If our shareholders fail to ratify the appointment of EY, the Audit Committee may, but is not required to, reconsider the selection of such firm. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

The Company has been advised by EY that neither the firm, nor any covered person of the firm, has any financial interest, direct or indirect, in any capacity in Valvoline or its subsidiaries.

One or more representatives of EY will be present at the Annual Meeting to respond to questions from shareholders and will be given the opportunity to make a statement.

If no voting specification is made on a properly returned or voted proxy card, Samuel J. Mitchell, Jr. or Julie M. O’Daniel (as proxies named on the proxy card) will cast the votes represented by such proxy card FOR the ratification of EY as Valvoline’s independent registered public accounting firm for fiscal 2020.

 

The Board unanimously recommends that shareholders vote FOR the ratification of EY as Valvoline’s independent registered public accounting firm for fiscal 2020.
				✓

 

Proposal Three - Non-Binding Advisory Resolution Approving   Executive Compensation

 

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, under Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are seeking your vote, on a non-binding advisory basis, on the compensation of our named executive officers as described in the Compensation Discussion and Analysis, compensation tables and narrative disclosure, as provided in this Proxy Statement. Specifically, shareholders are being asked to vote upon, and the Board has approved and unanimously recommends, the following non-binding advisory resolution:

RESOLVED, that the compensation paid to Valvoline’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.

The Board believes that our executive compensation program is well-designed, appropriately aligns executive pay with Company performance and incentivizes desirable executive performance. This proposal gives you an opportunity to express your own view of our fiscal 2019 executive compensation practices. While the vote does not address any specific item of compensation and is not binding on the Board, the Board and its Compensation Committee (the “Compensation Committee”) value the opinions of our shareholders and will consider the outcome of the vote when making future compensation decisions.

The advisory resolution approving our executive compensation shall be deemed approved if the number of votes cast “for” the resolution exceed the number of votes cast “against” the resolution. Abstentions and broker non-votes will not be counted as votes cast “for” or “against” the resolution.

If no voting specification is made on a properly returned or voted proxy card, Samuel J. Mitchell, Jr. or Julie M. O’Daniel (as proxies named on the proxy card) will cast the votes represented by such proxy card FOR the approval of the resolution.

 

The Board unanimously recommends that shareholders vote FOR the advisory resolution on our executive compensation.
				✓

 

Corporate Governance

 

Valvoline’s Board of Directors

Composition

Our business and affairs are managed under the direction of our Board. Our Corporate Governance Guidelines require that two-thirds of our directors be independent, as defined in our Director Independence Standards (published on our investor relations website at http://investors.valvoline.com/governance) (“Independence Standards”), which incorporate the requirements of SEC rules and NYSE listing standards. Within this framework, the G&N Committee is charged with determining and refreshing, as appropriate, the composition of our Board. The G&N Committee seeks to fill our Board with exceptionally talented and diverse directors, with expertise and leadership experience in the markets in which we operate.

Our Board currently consists of the following nine members: Gerald W. Evans, Jr., Richard J. Freeland, Stephen F. Kirk, Carol H. Kruse, Stephen E. Macadam, Vada O. Manager, Samuel J. Mitchell, Jr., Charles M. Sonsteby, and Mary J. Twinem. All of the directors, other than Mr. Evans, were elected at the 2019 Annual Meeting of Shareholders. At its meeting on November 14, 2019, the Board increased its size from eight to nine members and elected Mr. Evans, effective December 1, 2019, to serve as a member of the Board with a term expiring at the 2020 Annual Meeting. Each of the current directors has been nominated for re-election at the 2020 Annual Meeting. See the “Proposal One—Election of Directors” section of this Proxy Statement.

During fiscal 2019, seven meetings of the Board were held. Each director attended at least 75% of the total meetings of the Board and the Committee(s) on which he or she served.

Leadership Structure

Our Amended and Restated By-Laws (“By-Laws”) provide the Board flexibility in determining the appropriate leadership structure for the Company. Currently, Mr. Mitchell serves as our Chief Executive Officer and Mr. Kirk serves as Chairman of the Board. The Board currently believes that separating the roles of Chairman and Chief Executive Officer is in the best interest of the Company because it allows Mr. Mitchell to focus on operating and managing the day-to-day activities of our business, while Mr. Kirk can focus on Board leadership independent of management.

The Board will periodically review and reassess our Board leadership structure and determine whether it is in the Company’s and our shareholders’ best interest to continue the separate roles of Chairman and Chief Executive Officer. In the event that the Board combines the role of Chairman and Chief Executive Officer, our Corporate Governance Guidelines require the Board to appoint a lead independent director.

Independence

Our Corporate Governance Guidelines require that two-thirds of our directors be independent, as defined in the Independence Standards. The Independence Standards incorporate the requirements of SEC rules and NYSE listing standards, and were adopted by our Board to assist in its determination of director independence. Pursuant to these rules, our Board must make an affirmative determination that those members of the Board who serve as independent directors have no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). Members of the Audit and Compensation Committees are also subject to heightened standards for independence under SEC rules and NYSE listing standards.

Our Board annually reviews director independence in accordance with these requirements. In making its independence determinations, the Board considered relationships and transactions between each director, on the one hand, and Valvoline, its subsidiaries and its affiliates, on the other hand, including the director’s commercial, economic, charitable and familial relationships. As a result of this review, the Board affirmatively determined that Ms. Kruse, Ms. Twinem and Messrs. Evans, Freeland, Kirk, Macadam, Manager and Sonsteby are each independent of Valvoline and its affiliates. Mr. Mitchell was determined not to be independent because he currently serves as Chief Executive Officer of the Company.

In addition, the Board determined that Ms. Twinem and Messrs. Manager and Sonsteby each satisfy the heightened independence standards applicable to audit committee members, including those under Exchange Act Rule 10A-3. Similarly, the Board determined that Ms. Kruse, Ms. Twinem and Messrs. Evans, Freeland, Kirk, Macadam, Manager

 

 

and Sonsteby each satisfy the heightened independence standards applicable to compensation committee members as set forth in NYSE listing standards.

Committees

Our Board of Directors has established three standing committees: an Audit Committee, a Compensation Committee and a Governance & Nominating Committee (each a “Committee” and, collectively, the “Committees”) to assist in the performance of the Board’s various functions. All Committee members are appointed by our Board upon recommendation of the G&N Committee.

Listed below are the members of each of the three Committees. As discussed above in “—Independence,” our Board has determined that all of the members of these Committees are independent as defined by our Independence Standards, including, in the case of Audit and Compensation Committee members, the heightened standards for independence under SEC rules and NYSE listing standards.

 

Audit Committee
Vada O. Manager		Charles M. Sonsteby*		Mary J. Twinem
Compensation Committee(1)(2)
Gerald W. Evans, Jr.		Richard J. Freeland		Stephen F. Kirk
Carol H. Kruse		Stephen E. Macadam		Vada O. Manager
Charles M. Sonsteby		Mary J. Twinem*
Governance and Nominating Committee(1)(2)
Gerald W. Evans, Jr.		Richard J. Freeland		Stephen F. Kirk
Carol H. Kruse		Stephen E. Macadam		Vada O. Manager*
Charles M. Sonsteby		Mary J. Twinem

 

*

Chair

(1)	Effective December 4, 2018, Ms. Kruse became a member of the Compensation and G&N Committees.

(2)	Effective December 1, 2019, Mr. Evans became a member of the Compensation and G&N Committees.

The responsibilities of each of our Committees are described below. Each of the Committees operates under a written charter; must meet at least four times a year, plus additional meetings as circumstances require; has authority to retain independent legal, accounting or other advisors; makes regular reports to the Board; and reviews its own performance annually. Each Committee’s charter is available on our investor relations website at http://investors.valvoline.com/governance.

 

Audit Committee		Number of Meetings in Fiscal 2019: 10

The Board has established the Audit Committee in accordance with Section 3(a)(58) of the Exchange Act. The Audit Committee is currently composed of three members and the Board has determined that each member of the Audit Committee is “independent” and “financially literate,” as such terms are defined by NYSE listing standards. In addition, the Board has determined that each member of the Audit Committee is an “audit committee financial expert” as that term is defined by SEC rules. A director may not serve on the Audit Committee if he or she serves on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service and time commitment would not impair the director’s ability to effectively serve on the Audit Committee.

The Audit Committee is responsible for, among other things, assisting the Board in fulfilling its oversight responsibilities with respect to:

 

•

overseeing the integrity of our financial reporting process, including earnings releases and the filing of financial reports;

 

 

 

•

reviewing the quality and adequacy of accounting and financial controls;

 

•

selecting and evaluating the performance of our internal auditors, who report directly to the Audit Committee;

 

•

approving fees and services of our independent registered public accounting firm;

 

•

overseeing our internal audit function, including the head of internal audit;

 

•

reviewing the effectiveness of our legal and regulatory compliance programs;

 

•

reviewing, at least annually, our enterprise risk assessment and management policies, including the Company’s major enterprise and financial risk exposures and steps taken by management to monitor and mitigate such risks;

 

•

evaluating significant financial matters and decisions, such as capital structure, dividend policy, offerings of corporate securities, major borrowings, credit facilities, derivatives and swaps policies (including entry into swaps in reliance on the end-user exception), post audits of capital investments, capital projects, commercial commitments and merger, acquisition and divestiture activities;

 

•

overseeing funding and investment policy related to employee benefit plans;

 

•

reviewing and investigating any matters pertaining to the integrity of executive management, and overseeing compliance by management with laws, regulations and our Global Standards of Business Conduct;

 

•

reviewing, at least annually, the Company’s insurance program, including casualty, property, cyber and directors’ and officers’ liability insurance;

 

•

reviewing, at least annually, the Company’s cyber security risks and programs established to manage such risks; and

 

•

establishing and maintaining procedures for handling complaints regarding accounting, internal auditing controls and auditing matters, including procedures for confidential, anonymous submission of such complaints.

 

Compensation Committee		Number of Meetings in Fiscal 2019: 6

The Compensation Committee is currently composed of eight members and the Board has determined that each member of the Compensation Committee is “independent” as such term is defined by NYSE listing standards and SEC rules and qualifies as a “non-employee director” pursuant to Rule 16b-3 under the Exchange Act.

The Compensation Committee is responsible for, among other things:

 

•

overseeing the implementation and administration of the Company’s compensation plans;

 

•

adopting, amending, terminating and otherwise designing employee benefits plans;

 

•

ensuring that Valvoline’s executive compensation programs are appropriately competitive, support organizational objectives and shareholder interests and emphasize pay for performance linkage;

 

•

reviewing, evaluating and approving compensation of all key senior executives, including the corporate goals and objectives with respect to CEO compensation;

 

•

reviewing compensation policies and practices for all employees, and assessing risks associated with such policies and practices;

 

•

approving any employment agreements, consulting arrangements, severance or retirement arrangements, change in control agreements and/or special or supplemental benefits covering any current or former executive officer;

 

•

overseeing the execution of CEO and senior management development and succession plans;

 

•

reviewing and approving any perquisites provided to executive officers;

 

•

reviewing and recommending to the Board the form and amount of director compensation;

 

•

overseeing regulatory compliance on compensation matters, including the Company’s policies on structuring compensation programs to preserve tax deductibility;

 

 

 

•

reviewing and approving the “Compensation Discussion and Analysis” section and “Compensation Committee Report” included in this Proxy Statement;

 

•

overseeing compliance with NYSE requirements relating to shareholder approval of equity compensation plans; and

 

•

determining the independence and compensation of, and overseeing the work completed by, any compensation consultant, independent legal counsel or other advisor that it retains.

 

Governance and Nominating Committee		Number of Meetings in Fiscal 2019: 6

The G&N Committee is currently composed of eight members and the Board has determined that each member is “independent” as such term is defined by NYSE listing standards. The G&N Committee is responsible for, among other things:

 

•

identifying qualified nominees (i) for shareholder election and (ii) for election by the Board to fill any vacancies that occur between annual meetings of shareholders, in each case, consistent with criteria approved by the Board relating to personal and professional integrity, ability, judgment, expertise, experience and diversity;

 

•

reviewing potential director candidates and nominations for re-election and reporting the results of such reviews to the Board;

 

•

identifying board members qualified to fill any vacancies on a committee of the Board;

 

•

reviewing appropriateness of directors’ continued service on the Board or the committees of the Board;

 

•

reviewing transactions pursuant to the Company’s Related Person Transaction Policy set forth in the Company’s Corporate Governance Guidelines;

 

•

recommending stock ownership guidelines for employees and non-employee directors and programs and procedures relating to director evaluation, retention and retirement;

 

•

defining and reviewing the responsibilities of the Board with respect to the Company’s corporate governance, including review of proposed amendments to the Articles, By-laws and Corporate Governance Guidelines of the Company and the conduct of the meetings of the Board, the committees of the Board and the Company’s shareholders;

 

•

reviewing and recommending policies and procedures to ensure the Board and its committees are properly constituted and organized;

 

•

reviewing all Board committee charters;

 

•

reviewing and, if necessary, making recommendations as to shareholder proposals; and

 

•

reviewing the succession process for senior management.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee (Ms. Kruse, Ms. Twinem and Messrs. Evans, Freeland, Kirk, Macadam, Manager and Sonsteby) (i) was an officer or employee of Valvoline at any time during or prior to fiscal 2019 or (ii) is or was a participant in a “related person” transaction with Valvoline since the beginning of fiscal 2019. No executive officer of the Company served on the compensation committee or board of any company that employed any member of Valvoline’s Compensation Committee or Board of Directors.

The Board’s Operations

Chairman of the Board.     Mr. Kirk was unanimously appointed by the Board to serve as our Non-Executive Chairman, effective October 1, 2017 and was reappointed to that role on January 30, 2019. The Chairman of the Board organizes Board activities to effectively provide guidance to, and oversight and accountability of,

 

 

management. To fulfill that role, the Chairman of the Board, among other things, creates and maintains an effective working relationship with the Chief Executive Officer and the other members of senior management and the Board, assures that the Board agenda is appropriately directed to the matters of greatest importance to the Company and provides senior management with the Board’s advice, direction and opinions. The Non-Executive Chairman preserves the distinction between management and oversight, maintaining the responsibility of management to develop corporate strategy and the responsibility of the Board to review and express its views on corporate strategy.

Board and Committee Meetings.    The Board and Committees must hold regularly scheduled meetings. Directors are expected to attend all meetings of the Board and of the Committees on which they serve. Non-management directors meet in executive session at each regularly scheduled meeting of the Board, and at other times as they may determine appropriate.

Evaluation of Board Effectiveness.    The Board must conduct annual self-evaluations to determine whether it and its Committees are functioning effectively. The G&N Committee receives comments from all directors and reports to the Board with an annual assessment of the Board’s performance, with a focus on the Board’s contribution to the Company and areas in which the Board or its Committees can improve. We may also engage independent, third-party governance experts from time to time to conduct interviews and/or assessments regarding the structure and effectiveness of our Board and its committees. The Committees of our Board of Directors have all adopted charters defining their respective purposes and responsibilities. Pursuant to these charters, the Committees must review their respective performances at least annually and each of the Committees has authority to engage independent legal, accounting or other advisors.

The Board’s Role in Risk Oversight

The Board has an active role, as a whole, and also at the committee level, in overseeing management of the Company’s risk. The Board approves and monitors the fundamental financial and business strategies of the Company and maintains policies and procedures designed to ensure that the assets of the Company are properly safeguarded and enterprise risks are properly managed, that appropriate financial and other controls are maintained, that processes are in place for maintaining the integrity of the Company and that the Company’s business is conducted in compliance with applicable laws and regulations. Management is responsible for the day-to-day management of risk, and members of our senior management regularly report to the Board and its Committees on current and emerging risks and the Company’s approach to avoiding and mitigating risk exposure. The Board reviews in detail the Company’s most significant risks and whether management is responding consistently within the Company’s overall risk management and mitigation strategy. While the Board is ultimately responsible for overall risk oversight at our Company, the Committees assist the Board in fulfilling its oversight responsibilities in certain areas. In particular, the Audit Committee has primary responsibility for monitoring the Company’s major financial risk exposures and the steps the Company has taken to control such exposures, including the Company’s risk management policies and processes. Prior to September 2019, the Audit Committee also assisted the Board in fulfilling its oversight responsibility with respect to environmental, health and safety (“EH&S”) risks and programs. Given the importance of EH&S matters, the Board amended the Audit Committee charter to move this oversight function to the full Board. EH&S risks and programs are now reviewed by the Board at least twice per year. The Compensation Committee monitors the risks associated with our compensation policies and procedures. The G&N Committee is charged with reviewing and recommending governance policies and procedures, including Board and Committee structure, leadership and membership, that ensure independence of the Board as it exercises its corporate governance and risk oversight roles. The G&N Committee also reviews transactions pursuant to our Related Person Transaction Policy (which is further described in “—Other Governance Policies and Practices—Related Person Transaction Policy”).

Other Governance Policies and Practices

Overview of Governance Principles

We are committed to adhering to sound corporate governance practices. We have adopted Corporate Governance Guidelines, which include our Related Person Transaction Policy. These Guidelines provide the framework for our Board of Directors’ governance of the Company and include a general description of our Board’s purpose,

 

 

responsibilities and member qualification standards. As further discussed in “—Valvoline’s Board of Directors—Independence,” our Corporate Governance Guidelines require that at least two-thirds of our directors be independent. Our Related Person Transaction Policy requires our directors and executive officers to identify annually and on an as needed basis potential transactions with related persons or their firms that meet certain criteria set forth in our Related Person Transaction Policy.

We also require compliance with our code of business conduct, entitled “Global Standards of Business Conduct,” which applies to all of our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. Our Global Standards of Business Conduct promote honest and ethical conduct, compliance with applicable laws, rules and regulations, prompt reporting of violations of the standards set forth therein and full, fair, accurate, timely and understandable disclosure in reports filed with the SEC.

Our Corporate Governance Guidelines (including our Related Person Transaction Policy), Global Standards of Business Conduct and Committee charters are published on our investor relations website at http://investors.valvoline.com/governance. These documents are also available in print at no cost to any shareholder who requests them. We intend to post any amendments or waivers to our Global Standards of Business Conduct (to the extent applicable to our directors and executive officers) on our investor relations website or in a Current Report on Form 8-K.

Related Person Transaction Policy

Federal securities laws require us to describe any transaction since the beginning of the last fiscal year, or any currently proposed transaction, in which the Company was or is to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest. Related persons are directors and executive officers, nominees for director and any immediate family members of directors, executive officers or nominees for director. We are also required to describe our policies and procedures for the review, approval or ratification of any Related Person Transaction.

Pursuant to our written Related Person Transaction Policy (the “Policy”), the G&N Committee is responsible for reviewing the material facts of all transactions that could potentially be “transactions with related persons.” The Policy covers any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year, (2) the Company is a participant, and (3) any related person has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). Transactions between the Company and any firm, corporation or entity in which a related person is an executive officer or general partner, or in which any related persons collectively hold more than 10% of the ownership interests, are also subject to review under the Policy.

Under the Policy, our directors and executive officers are required to identify annually potential transactions with related persons or their firms that meet the criteria set forth in the Policy, and management is required to forward all such disclosures to the G&N Committee. The G&N Committee reviews each disclosed transaction. The G&N Committee has discretion to approve, disapprove or otherwise act if a transaction is deemed to be a Related Person Transaction subject to the Policy. Only disinterested members of the G&N Committee may participate in the determinations made with regard to a particular transaction. If it is impractical to convene a meeting of the G&N Committee, the Chair of the G&N Committee is authorized to make a determination and promptly report such determination in writing to the other G&N Committee members. All determinations made under the Policy are required to be reported to the full Board of Directors.

Under the Policy and consistent with SEC regulations, certain transactions are not Related Person Transactions, even if such transactions exceed $120,000 in a fiscal year. Those exceptions are:

 

•

Compensation to a director or executive officer which is or will be disclosed in our Proxy Statement;

 

•

Compensation to an executive officer which is approved by the Compensation Committee and would have been disclosed in our Proxy Statement if the executive officer was a “named executive officer”;

 

 

 

•

A transaction in which the rates or charges involved are determined by competitive bids, or which involves common, contract carrier or public utility services at rates or charges fixed in conformity with law or governmental authority;

 

•

A transaction that involves services as a bank depository of funds, transfer agent, registrar, indenture trustee or similar services; and

 

•

A transaction in which the related person’s interest arises solely from the ownership of Valvoline stock and all shareholders receive the same benefit on a pro rata basis.

The G&N Committee determined that there were no Related Person Transactions that were required to be reported under Item 404(a) of Regulation S-K since the beginning of fiscal 2019, nor are there any currently proposed.

Delinquent Section 16(a) Reports

Pursuant to Section 16 of the Exchange Act, the Company’s directors and certain executive officers are required to report, within specified due dates, their initial ownership of Valvoline Common Stock and all subsequent acquisitions, dispositions or other transfers of interest in such securities, if and to the extent reportable events occur which require reporting by such due dates. The Company is required to identify in its Proxy Statement whether it has knowledge that any person required to file such a report may have failed to do so in a timely manner. Based on that review, all of the Company’s directors and executive officers subject to the reporting requirements satisfied such requirements in full, except for one Form 4 which was filed late by the Company, on behalf of Mr. Macadam, for a single transaction related to the deferral of his Board retainer that is invested in the Valvoline Common Stock Fund within the Company’s 2016 Deferred Compensation Plan for Non-Employee Directors.

Communication with Directors

As set forth in our Corporate Governance Guidelines, the Board believes that management is responsible for communicating on behalf of the Company. However, at the request of management, individual Board members may meet or otherwise communicate with shareholders and other interested parties. Persons interested in communicating with the Board, or with a specific member or Committee of the Board, may do so by writing to the Chief Legal Officer of Valvoline, 100 Valvoline Way, Lexington, KY 40509. Communications directed to our Chief Legal Officer will be reviewed and distributed to individual directors, as appropriate, depending on the subject matter and facts and circumstances outlined in the correspondence. Communications that are not related to the duties and responsibilities of the Board, or are otherwise inappropriate, will not be forwarded to the directors, although all communications directed to the Board will be available to any director upon request.

Attendance at Annual Meeting

Although Valvoline does not have a formal policy regarding attendance by directors at Valvoline’s annual meetings of shareholders, Valvoline strongly encourages all directors to attend. All of Valvoline’s then current directors were present at the prior year’s annual meeting of shareholders.

Nomination of Directors

G&N Committee Recommendations for and Nominations of Directors.    Pursuant to our Corporate Governance Guidelines and the G&N Committee’s charter, the G&N Committee is responsible for leading the search for and recommending qualified director nominees for shareholder election to the Board for the next annual meeting of shareholders and for proposing director nominees for election by the Board to fill vacancies which occur between annual meetings of shareholders. The G&N Committee does not set specific, minimum qualifications that director nominees must meet to be nominated for election to the Board, but rather believes that each nominee should be evaluated on his or her individual merits, taking into account the needs and composition of the Board at the time. The G&N Committee considers candidates who bring a wide range of attributes to the Board. The general criteria the G&N Committee looks for in selecting an individual as a director nominee is someone who exhibits the highest personal and professional integrity, who has demonstrated exceptional ability and judgment and who shall be effective in serving the interests of the Company’s shareholders. The G&N Committee shall seek director candidates

 

 

 

 

who exhibit the following personal and professional qualifications: (1) significant experience in the lubricants, automobile or consumer marketing industries; (2) product or process innovation experience; (3) international business expertise; (4) diverse experience in policy-making in business, government, education and/or technology, or in areas that are relevant to the Company’s global business and strategy; (5) possess an inquisitive and objective nature, practical wisdom and mature judgment; and (6) the ability to work with the Company’s existing directors and management. The G&N Committee also believes that diversity of race, ethnicity, gender and age are important factors in evaluating candidates for Board membership. The G&N Committee has from time to time retained the services of Russell Reynolds Associates, a third party search firm, to assist the G&N Committee in identifying and evaluating candidates for Board membership who best match the personal and professional criteria described above.

Shareholder Recommendations for Directors.     Shareholders wishing to recommend candidates for consideration by the G&N Committee should send their recommendation via registered, certified or express mail to the Corporate Secretary of Valvoline at 100 Valvoline Way, Lexington, KY 40509. Recommendations should be received no later than September 1, 2020, to be considered by the G&N Committee in connection with its review of candidates for election at our 2021 Annual Meeting of Shareholders. Suggestions for director candidates should include the information described in Section 3.03 of our By-laws, and any other relevant information, as to the proposed candidate. The G&N Committee will review all director candidates in accordance with its charter and Valvoline’s Corporate Governance Guidelines, and it will identify qualified individuals consistent with the personal and professional criteria described above. Individuals recommended by shareholders in accordance with these procedures will be evaluated by the G&N Committee in the same manner as individuals who are recommended through other means.

Shareholder Nominations of Directors.    Our By-laws permit eligible shareholders to directly nominate candidates for election at annual meetings of shareholders. Our By-laws require that the Company be given advance written notice of shareholder nominations for election to the Board of Directors. Such notice must contain the information required by our By-laws with respect to the nominee and the shareholder and must be timely. To be timely for purposes of an annual meeting, such notice must be received at least 90 but not more than 120 days before the first anniversary of the prior year’s annual meeting; provided, however, if the annual meeting is to be held more than 30 days earlier or more than 60 days later than such anniversary date, notice must be received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting and (ii) the 10th day following the day on which public announcement of such meeting is first made. Based on the January 30, 2020, date for our upcoming Annual Meeting, shareholder nominations must be received no earlier than October 2, 2020, and no later than November 1, 2020, to be considered timely for our 2021 annual meeting of shareholders, assuming such meeting will be held no more than 30 days before and no more than 60 days after January 30, 2021. The chairman of an annual meeting of shareholders may refuse to acknowledge the nomination of any person not made in compliance with our By-laws. Shareholders should send all director nominations for the 2021 Annual Meeting of Shareholders via registered, certified or express mail to the Corporate Secretary of Valvoline at 100 Valvoline Way, Lexington, KY 40509.

A copy of our By-laws has been filed with the SEC and is available on the SEC’s website, http://www.sec.gov, and the Company’s website, http://investors.valvoline.com/governance, or may be obtained by written request to: Valvoline’s Corporate Secretary, 100 Valvoline Way, Lexington, KY 40509.

 

Executive Compensation

 

 

 

 

 

Executive Summary

Fiscal 2019 Highlights

Driven by the continuing strong performance of the Quick Lubes segment, Valvoline delivered modest growth in adjusted EBITDA in fiscal 2019, despite challenging market dynamics in the retail channel that are continuing to impact the Company’s Core North America segment. The Company’s fiscal 2019 highlights are summarized below:

 

FY19 Financial Highlights		FY19 Operational Highlights				FY19 Strategic Highlights
•   Sales grew 5% year-over-year to $2.4 billion, while lubricant volume declined 2% to 178.4 million gallons		•		Quick Lubes – Record system-wide Same Store Sales(2) (SSS) growth of 10.1% year-over-year, the 13th consecutive year of SSS growth		•		Added 143 net Quick Lube stores, including Oil Changers acquisition in Canada
•   Net Income of $208 million and EPS of $1.10 •   Adjusted EBITDA(1) grew 3% to $478 million and adjusted EPS(1) grew 8% to $1.39		•		Core North America – lubricant volume of 92.1 million gallons down year-over-year due to challenging market dynamics in the retail channel		•		Expanded Vehicle Recall Awareness program and launched Electric Vehicle fluid product line
•   Full-year cash flow from operations of $325 million •   Free cash flow(1) generation of $217 million		•		International – Volume growth in Europe throughout the year and a return to growth in Latin America in the fourth quarter, offset volume declines in China, leading to flat International volume of 58.2 million gallons		•		Acquired manufacturing facility in Eastern Europe, opening-up new markets and enhancing our supply chain capabilities and customer service

 

(1)	For a reconciliation of adjusted EBITDA, adjusted EPS and free cash flow, non-GAAP measures, refer to Appendix A.

 

(2)

Valvoline determines same store sales growth on a fiscal year basis, with new stores excluded from the metric until the completion of their first full fiscal year in operation. Valvoline does not recognize sales from franchised stores as Quick Lubes segment revenue. Quick Lubes segment revenue is limited to sales at Company-owned stores, sales of lubricants and other products to franchisees, and royalties and other fees from franchised stores. For more information on management’s use of key business metrics, including same store sales, refer to the “Key Business Measures” section on Page 33 of the Company’s Form 10-K for fiscal 2019.

 

 

 

 

Changes to the Fiscal 2019 Compensation Program

The Compensation Committee annually reviews the components of the Company’s executive compensation program to ensure that it aligns with the compensation philosophy and shareholder interests. In fiscal 2019, the Compensation Committee made a few modifications to the Company’s annual incentive plan, as described below:

 

		What We Did				Why We Did It
Annual Incentive Plan		•		Changed weighting of Operating Income metric from 80% to 85% and Total Lubricant Volume metric from 20% to 15% for Valvoline corporate employees		•   To better align with the Company’s strategic goals.
		•		Changed weighting of Valvoline Operating Income metric from 30% to 40%, Operating Segment Operating Income from 50% to 45%, and Operating Segment Metrics from 20% to 15% for Operating Segment employees		•   The increased weighting of Valvoline Operating Income is designed to create better alignment of operating segment employees with the total organization.
		•		Increased threshold payout opportunities to 50% of target from 20% of target		•   To better align the annual incentive plan with market practice and to reflect the rigor built into our threshold performance goals.

Compensation Philosophy

The Compensation Committee has adopted a Compensation Philosophy that is intended to align our compensation program with the interests of our shareholders. This philosophy supports our business strategy, key financial objectives, and corporate vision to deliver profitable growth.

 

Objectives		•		Attract, retain, and motivate a high-performing employee population.
		•		Link a meaningful portion of compensation to sustained long-term performance that will create shareholder value.
		•		Provide transparency to key stakeholders.
		•		Mitigate risk through sound design and decision making.
Supports Profitable Growth		•		Balance short-term financial goals with long-term shareholder value creation.
		•		Routinely evaluate compensation program effectiveness.
		•		Ensure participants are not motivated to take excessive risk.
		•		Recognize individual and team contributions and potential through pay decisions.
Use of Multiple Levers to Deliver   Total Compensation		•		Base salary attracts and retains by providing a market competitive fixed income.
		•		Annual incentive programs focus executives on short-term financial performance.
		•		Long-term incentive awards align executive with shareholder interests, link compensation with key business objectives and earnings per share and total shareholder return, and build meaningful executive ownership in the company.
Pay Positioning		•		Benchmark pay levels and practices against an appropriate peer group and the competitive market.
		•		Targets the 50th percentile of the competitive range for target total direct compensation and allows company and/or individual performance to drive actual compensation up or down.

 

 

 

 

Pay for Performance

This section describes how Valvoline’s short-term and long-term performance is linked to the NEOs’ fiscal 2019 compensation.

 

How do we link performance and pay?		•		A substantial portion of our NEOs’ pay is tied to short-term and long-term  incentives.
		•		The performance metrics balance key short-term financial goals with long-term shareholder value creation.
		•		For fiscal 2019, the annual incentive plan was based on Valvoline Operating Income and Lubricant Volume, with Operating Segment performance and strategic initiatives included for operating segment leaders.
		•		Performance-based long-term incentive awards made during fiscal 2019 are based on Valvoline EPS performance targets that reflect strong year-over-year growth.
How did we perform?		2019 Annual Incentive Plan
		•		Operating Income, as adjusted under the plan, of $416.9 million was above threshold but below target performance, resulting in a payout of 74.4% of the target incentive allocated to this metric.
		•		Lubricant Volume of 178.4 million gallons was below threshold performance, resulting in no payout of the target incentive allocated to this metric.
		2017-2019 Performance Stock Units (“PSUs”)
		•		Valvoline EPS of $1.357 for fiscal 2017, $1.385 for fiscal 2018, $1.365 for fiscal 2019 and cumulative EPS of $4.108 over the three-year performance period, each as adjusted under the plan, resulted in a payout of 40.27% of the PSUs.
		•		Valvoline’s TSR of -2.0% over the three-year performance period, representing the 23rd percentile of the TSR performance of the S&P 500 index, was below threshold performance, resulting in a -25% adjustment of the PSU payout.
		•		With the TSR modifier, the total payout of the 2017-2019 PSUs was 30.20% of target.

 

 

 

 

2019 Annual Incentive Plan⁽¹⁾⁽²⁾

 

Executive

Incentive Metric

Weighting

Threshold

Target

Max

Actual

Payout%

Mr. Mitchell Ms. Meixelsperger Ms. O’Daniel

Valvoline Operating Income  Valvoline Total Lubricant Volume

85.00%   15.00%

$   402.1      184.2

$    432.4      189.9

$   449.7      197.9

$   416.9       178.4 Weighted Total

74.4%     0.0%   63.2%

Mr. Puckett(3)

Valvoline Incentive Plan Metrics

Valvoline Operating Income  Quick Lubes Operating Income  Quick Lubes Same Store Sales  Quick Lubes Express Care Store Unit Growth  Quick Lubes Franchise Store Unit Growth  Valvoline Incentive Plan Metrics (Total)

40.00%   45.00%     9.00%     4.50%     1.50% 100.00%

$   402.1 $   157.6 $1,159.6     15     25

$    432.4 $    169.4 $1,195.5     30     34

$   449.7 $   176.2 $1,231.5     15     50

$   416.9 $   179.5 $1,241.0     12     37 Weighted Total

74.4% 150.0% 150.0%     0.0% 109.4% 115.7%

Quick Lubes Strategic Initiatives

100.00%

Partially Achieved

Fully Achieved

N/A

Fully Achieved

100.0%

Mr. Moughler(4)

Valvoline Incentive Plan Metrics

Valvoline Operating Income  Valvoline Total Lubricant Volume  International Operating Income  International Lubricant Volume  Valvoline Incentive Plan Metrics (Total)

64.29%     8.10%   20.71%     6.90% 100.00%

$   402.1      184.2 $     90.3        66.5

$   432.4       189.9 $     97.1        68.6

$   449.7      197.9 $   101.0         71.3

$   416.9      178.4 $     90.9        62.8 Weighted Total

74.4%     0.0%   54.1%     0.0% 59.04%

International Strategic Initiatives

100.00%

Partially Achieved

Fully Achieved

N/A

Fully Achieved

100.0%

 

(1)	In millions, except store counts. Lubricant volume in gallons.

 

(2)

For fiscal 2019, the Compensation Committee approved certain adjustments of approximately $18 million to operating income for purposes of determining annual incentive payouts. International lubricant volume includes specialty of 4.6 million gallons. Quick Lubes franchise store unit growth excludes acquisitions.

 

(3)

Mr. Puckett’s fiscal 2019 target annual incentive opportunity was 60% of his base salary in effect at the end of the performance period. Of such amount, 50% is measured according to Valvoline Incentive Plan metrics and the other 10% is measured on pre-established strategic initiatives approved by the Compensation Committee, including the rollout and pilot of the Company’s OEM recall and tire referral program initiatives and finalizing the Company’s SuperPro execution platform. At its meeting in November 2019, the Compensation Committee certified target performance for the rollout and pilot of the referral programs and finalizing the SuperPro execution platform, resulting in full achievement and a 100% payout of Mr. Puckett’s strategic initiatives for fiscal 2019.

 

(4)

Mr. Moughler’s fiscal 2019 target annual incentive opportunity was 60% of his base salary in effect at the end of the performance period. Of such amount, 50% is measured according to Valvoline Incentive Plan metrics and the other 10% is measured on pre-established strategic initiatives approved by the Compensation Committee, including the implementation of supply chain improvements and developing OEM business. At its meeting in November 2019, the Compensation Committee certified target performance for the implementation of supply chain improvements and OEM business development, resulting in full achievement and a 100% payout of Mr. Moughler’s strategic initiatives for fiscal 2019.

 

In March 2019, Mr. Moughler transitioned into his current role as Senior Vice President and Chief Supply Chain Officer, and his Valvoline Incentive Plan metrics for the remainder of the fiscal year were based on corporate metrics. Prior to such time, Mr. Moughler’s Valvoline Incentive Plan metrics were based on International metrics. The table above, reflects Mr. Moughler’s blended weightings for the Valvoline Incentive Plan metrics. Mr. Moughler’s strategic initiatives did not change.

 

 

 

 

Payouts for 2017-2019 PSUs

 

EPS Performance Targets												TSR Modifier
Payout		FY17 (25%) EPS		FY18 (25%) EPS		FY19 (25%) EPS		FY17 - FY19 (25%) EPS				Relative TSR Performance		Adjustment
25%		$1.323		$1.350		$1.377		$4.049				£ 25 th %ile		-25%
50%		$1.341		$1.386		$1.433		$4.159				26th – 74th %ile		0%
100%		$1.376		$1.458		$1.546		$4.379
150%		$1.408		$1.536		$1.677		$4.621
200%		$1.441		$1.614		$1.808		$4.863				³ 75 th %ile		+25%
Actual Achievement		$1.357		$1.385		$1.365		$4.108				TSR: -2.0%
Payout		74%		49%		0%		38%				23rd  %ile of S&P 500
Total Payout		40.27%										-25% Adjustment
Total Payout (as adjusted for Relative TSR Performance): 30.20%

To reinforce our pay-for-performance philosophy, the total compensation program for the NEOs is highly incentive-based and therefore fluctuates based on financial results and stock price performance. This approach motivates executives to consider the impact of their decisions on both the short-term and long-term performance of the Company and shareholder value creation, while taking appropriate types and amounts of risk.

For fiscal 2019, approximately eighty percent (80%) of the CEO’s target compensation and approximately sixty percent (60%) of the other NEOs’ target compensation, on average, was at-risk.

Pay Mix of CEO and Other NEOs⁽¹⁾

 

 

(1)	Totals may not foot due to rounding. Excludes one-time special recognition RSU award made to Mr. Puckett.

 

 

 

 

What We Do vs. What We Don’t Do

 

What We Do		What We Don’t Do
✓  Emphasize pay-for-performance   ✓  Utilize a balance of cash-based short-term and equity-based long-term incentive  compensation   ✓  Engage in rigorous goal-setting process for all incentive metrics   ✓  Apply meaningful stock ownership guidelines   ✓  Subject all equity awards to double-trigger change in control vesting provisions   ✓  Maintain a strong clawback policy   ✓  Use a representative and relevant peer group   ✓  Use an independent compensation consultant   ✓  Provide Board oversight of incentive compensation risk		û   No tax gross ups on change in control payments û  No single-trigger change in control payments û  No hedging or pledging of Company stock û   No excessive perquisites û  No repricing of equity awards û  No share recycling û   No employment agreements û  No dividends or dividend equivalents on unearned PSUs

Elements of Valvoline’s Executive Compensation Program

Valvoline’s executive compensation program for fiscal 2019 consisted of the following elements for our NEOs:

 

		Element of Compensation		Purpose
Annual Cash Compensation		Base Salary		To provide market competitive compensation representative of individual experience, performance and level of responsibility.		Fixed
		Annual Incentive Compensation		To provide performance-based annual cash award based on Valvoline (Operating Income and Lubricant Volume) and Operating Segment performance in order to motivate and reward key employees for achieving our short-term business objectives.		Variable
Long-Term Incentive		Stock Appreciation Rights		To align participants’ interests with shareholders. Value only realized if stock price increases
		Time-Vested Restricted Stock Units		To enhance the program’s ability to retain key talent and drive long-term behavior.
		Performance Stock Units		To provide performance-based equity compensation based on Valvoline’s EPS growth with a relative TSR modifier in the form of performance stock units to drive Valvoline’s long-term performance.
Benefits and Perquisites		Retirement Benefits		To provide tax-efficient means for building savings for retirement over the term of employment. Includes a 401(k) plan with matching company contributions.		Fixed
		Health and Welfare Benefits		To provide access to medical care for employees and their families, as well as financial security to the families of employees who may become ill, disabled, or die during active employment.
		Executive Perquisites – Financial Planning		To address the complex tax and financial situations of our senior executives.
		Severance Pay Plan		To provide for protection of compensation in the event of a covered termination and secure restrictive covenants to protect the Company’s interests.
		Change in Control Agreements		To attract and retain highly skilled management talent, provide protection of compensation, which allows executives to remain objective and act in the best interests of shareholders without regard for their future employment status in the event of a change in control and covered termination, and secure restrictive covenants to protect the Company’s interests.

 

 

 

 

How We Make Pay Decisions

Role of Consultant

The Compensation Committee directly engages Deloitte Consulting LLP (“Deloitte” or the “compensation consultant”) to serve as the outside advisor on executive compensation matters. Deloitte’s role includes, but is not limited to, assessment of the following items:

 

•

The competitiveness of total compensation provided to Valvoline’s key executives;

 

•

Executive stock ownership guidelines;

 

•

Change in control severance agreements for key executives;

 

•

Incentive compensation program design and risk;

 

•

Composition of the peer group used to benchmark executive compensation;

 

•

The degree of difficulty of the performance targets under incentive compensation plans;

 

•

Compensation-related disclosures, including this CD&A;

 

•

The competitiveness of Valvoline’s non-employee director compensation program;

 

•

The impact of new regulations on Valvoline’s executive compensation programs; and

 

•

The alignment of actual pay and performance.

In addition to the compensation services provided by Deloitte to the Compensation Committee, Deloitte affiliates provided certain services at the request of management consisting of (i) tax accounting and compliance; (ii) tax planning assistance; (iii) advisory and assurance services on behalf of our internal audit department; and (iv) a review of the Company’s self-insurance reserves. The total fees of compensation-related services and other services are shown in the table below.

Fees Paid to Consultant

 

		FY19				%
Executive Compensation Fees		$	195,171				34	%
All Other Fees		$	373,297				66	%
Total		$	568,468				100	%

The Compensation Committee believes that, given the nature and scope of these projects, these additional services did not raise a conflict of interest and did not impair Deloitte’s ability to provide independent advice to the Compensation Committee concerning executive compensation matters.

In making this determination, the Compensation Committee considered, among other things, the following factors:

 

•

The types of non-compensation services provided by Deloitte;

 

•

The amount of fees for such non-compensation services, noting in particular that such fees are negligible when considered in the context of Deloitte’s total revenues for the period;

 

•

Deloitte’s policies and procedures concerning conflicts of interest;

 

•

Deloitte representatives who advise Valvoline’s Compensation Committee do not provide any non-compensation related services to Valvoline;

 

•

There are no other business or personal relationships between Valvoline management or members of the Valvoline Compensation Committee and the Deloitte representatives who provide compensation services to Valvoline; and

 

•

Neither Deloitte nor any of the Deloitte representatives who provide compensation services to Valvoline own any Valvoline Common Stock or other securities of Valvoline.

 

 

 

 

Peer Group

As detailed in our compensation philosophy, we benchmark pay levels and practices against a peer group for the purposes of evaluating NEO compensation. Annually, the Compensation Committee utilizes the services of Deloitte to prepare a peer group analysis and make recommendations on the companies to be included in the peer group. To establish the peer group for fiscal 2019 compensation decisions, Deloitte performed a comprehensive review of our peer group in June 2018 using the following criteria:

 

•

Industry; specifically, companies that market consumer (durable and non-durable) goods, focus on the automotive industry, operate in the lubricants / chemical space, and/or maintain a large retail footprint or market primarily through retail channels;

 

•

Size;

 

•

Complexity;

 

•

Peer group similarity (including a “peer of peer” analysis); and

 

•

Competitive market for talent.

The peer group was reviewed and approved by the Compensation Committee, with assistance from management, at its meeting in July 2019, and is comprised of the following companies:

Peer Group

 

Company

Size(1)

Consumer Brand /Retail(2)

Chemical(3)

Automotive(4)

Valvoline

✓

✓

✓

✓

The Clorox Company

✓

✓

Spectrum Brands Holdings, Inc.

✓

✓

✓

Snap-on Incorporated

✓

✓

✓

Church & Dwight Co., Inc.

✓

✓

✓

Cooper Tire & Rubber Company

✓

✓

✓

The Scotts Miracle-Gro Company

✓

✓

✓

Revlon, Inc.

✓

✓

✓

Edgewell Personal Care Company

✓

✓

✓

Tupperware Brands Corporation

✓

✓

Nu Skin Enterprises, Inc.

✓

✓

✓

NewMarket Corporation

✓

✓

✓

Central Garden & Pet Company

✓

✓

✓

Energizer Holdings, Inc.

✓

✓

W. R. Grace & Co.

✓

✓

✓

Monro Muffler Brake, Inc.

✓

✓

✓

Innospec Inc.

✓

✓

Quaker Chemical Corporation

✓

✓

WD-40 Company

✓

✓

 

(1)	Generally, between one-half and two times the size of Valvoline’s revenue

 

(2)	Markets durable and non-durable consumer products and/or maintains a large retail footprint or markets primarily through retail channels

 

(3)	Operates in lubricants / chemical space

 

(4)	Focuses on the automotive industry