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NOTICE OF ANNUAL MEETING

 

ANNUAL MEETING
OF SHAREHOLDERS

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BUSINESS
OVERVIEW

OUR PURPOSE: OPERATING BY A HIGHER STANDARD TO BUILD A BETTER WORLD   Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, automated joining, assembly and cutting systems, plasma and oxyfuel cutting equipment, and has a leading global position in brazing and soldering alloys. Headquartered in Cleveland, Ohio, U.S., we operate 55 manufacturing locations in 18 countries and distribute to over 160 countries. In 2020, we generated $2.7 billion in sales. As an innovation leader with the broadest portfolio of solutions and the industry’s largest team of technical sales representatives and application experts, we are known as the Welding Experts®. Our portfolio of welding and cutting solutions is designed to help customers achieve greater productivity and quality in their manufacturing and fabrication processes. We leverage our global presence and broad distribution network to serve an array of customers across various end markets including: general metal fabrication, energy, structural steel construction and infrastructure (commercial buildings and bridges), heavy industries (agricultural, mining, construction and rail equipment, as well as shipbuilding), and automotive/transportation.

 

OUR GLOBAL FOOTPRINT

 

 

OUR GUIDING PRINCIPLE: THE GOLDEN RULE

TREAT OTHERS AS YOU WOULD LIKE TO BE TREATED

 

For over 125 years, we have achieved success through innovation and business practices that seek to align our stakeholders. Our long-term strategic initiatives and investments drive alignment by providing:

 

The 2025 Strategy’s key financial and sustainability targets align with substantially all of the Company’s key short-term and long-term compensation metrics and are incorporated in the Chief Executive Officer’s compensation goals and cascade throughout the organization.

 

KEY FINANCIAL METRICS	2025 GOAL	SHORT-TERM COMPENSATION METRICS	LONG-TERM COMPENSATION METRICS
Average Annual Sales Growth (organic & inorganic)	Mid-to-high single-digit percent 2020-2025	X (Individual Performance Goals or Business Unit Performance Goals May include Sales Growth)	X1 (Three-Year Cumulative Growth of Adjusted Net Income for Compensation Purposes)
Average Adjusted Operating Income Margin	Average 15% 2020-2025	X1 (Representative of EBITB)
Average Operating Working Capital Ratio	15% in 2025	X1
Return on Invested Capital (ROIC)	Top quartile performance vs. proxy peers		X1

 

(1)	Performance measures used in the design of the executive compensation program are defined in Appendix A

 

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Employee engagement and development is a key focus of our 2025 Strategy as a highly engaged workforce is safer, innovative, productive, and generates long-term value for the organization. Our 2025 Strategy human capital investments enhance employee development and training through a range of online self-guided and instructor-led educational and experiential programs, skills training and career resources. This programming continues to expand to reach employees globally with learning and development opportunities targeted to all levels of the organization to promote personal development, career pathways and employee retention at Lincoln Electric.

 

In addition to our educational and career development programs, our annual talent and succession planning process reviews 100% of our global professional staff to ensure an appropriate talent pipeline for critical roles in general management, engineering and operations. This evaluation includes our CEO and all segment and functional leaders who use this process to identify and support high potential and diverse talent in a succession planning for the next generation of Lincoln Electric’s leaders.

 

The 2025 Strategy also incorporates the following long-term 2025 safety and environmental goals:

 

 

In addition, we focus on product stewardship in the design and manufacture of our products to improve safety, advance energy efficiency and reduce waste in our customers’ welding operations. We measure energy efficiency improvements achieved in our welding equipment as we transition our equipment portfolio from a transformer-based platform to a more efficient digital, inverter-based system. Product stewardship initiatives also include efforts to reduce packaging waste, digitization of product reference material, and the increased use of intermodal transportation to reduce the carbon footprint of our products in the supply chain.

 

PROXY
SUMMARY

 

This section provides an overview of important items related to this Proxy Statement and the 2021 Annual Meeting. We encourage you to read the entire Proxy Statement for more information before voting.

 

2020 PERFORMANCE HIGHLIGHTS

We operated as an “essential business” in 2020 and continued to manufacture and service customers globally, while maintaining the health and safety of our employees and communities through best practice Center for Disease Control and World Health Organization health and safety measures and remote work arrangements. Despite the unprecedented operational and safety challenges posed by the COVID-19 pandemic, our employees and operating model were resilient. Our strong balance sheet and liquidity allowed us to minimize the impact on wages, benefits and bonus programs, with the objective of maintaining our workforce through the pandemic, while investing in long-term growth and advancing our strategic commercial and operational initiatives. In addition, early implementation of cost reduction actions helped mitigate the impact of lower demand. To ensure product availability, we maintained higher levels of working capital to minimize the risk of supply chain disruptions during the pandemic. These actions resulted in solid returns, cash flow generation, and 117% cash conversion in 2020.

Sales decreased 11.6% to approximately $2.7 billion primarily due to 12.2% lower organic sales, which were partially offset by a 1.3% benefit to sales from an acquisition. Operating income margin declined 180 basis points to 10.6% versus the prior year, primarily due to lower sales and rationalization and asset impairment charges. Adjusted operating income margin held relatively steady, declining 50 basis points to 12.4% as price management and approximately $88 million in cost reduction benefits substantially mitigated the unfavorable impact of lower volumes.

 

 

See Appendix A for definitions and/or reconciliation of these metrics to results reported in accordance with GAAP. Performance measures used in the design of the executive compensation program are presented within the Compensation Discussion and Analysis section.

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Despite challenging operating conditions, we continued to pursue a balanced capital allocation strategy to generate strong shareholder returns. In 2020, we returned $232 million to shareholders through our dividend program and share repurchases. In addition, the Board approved the Company’s 25^th consecutive dividend increase, raising the dividend payout by 4.1%.

 

 

Safety and operational excellence are a priority at Lincoln Electric and we proudly achieved record safety, carbon reduction and recycling performance in 2020. This achievement, combined with improved environmental performance across most metrics, demonstrates the continued structural improvements achieved in the business through our 2025 Strategy and our commitment to best-in-class performance.

 

	2020 GOAL (VS. 2011 BASELINE)	2020 PERFORMANCE (VS. 2011 BASELINE)
Safety (DART)	75% Reduction	Record 85% Reduction
Greenhouse Gas Emissions (Absolute)	15% Reduction	Record 36% Reduction
Energy Intensity	30% Reduction	25% Reduction1
Recycling (All Waste)	70% Rate	Record 75.1% Rate

 

(1)

Our 2020 energy intensity performance was unfavorably impacted by production hours due to the COVID-19 pandemic.

 

Increased outreach was critical in 2020 to safeguard local communities facing the health and economic impact of the COVID-19 pandemic. Internally, the Company minimized the impact on wages, benefits and bonus programs, with the objective of maintaining its workforce through the pandemic. In addition, the Company’s employee assistance program supported eligible employees who required extra financial support. Community engagement was extended beyond our standard program of grants, scholarships, employee matching, in-kind donations and volunteerism. Emergency grants to foodbank programs, participation in a COVID-19 rapid response fund in Cleveland (our global headquarters), and personal protection equipment donations to first responders were key 2020 initiatives. In addition, we maintained our community educational/career programming among secondary and high school students to address skills gaps in industry and maintain awareness of attractive career pathways in manufacturing. This programming, along with expanded training and development opportunities for our employees in 2020, were key efforts to ensure long-term success for our key stakeholders.

 

 

 

CORPORATE GOVERNANCE HIGHLIGHTS

Lincoln Electric has a solid track record of integrity and corporate governance practices that promote thoughtful management by its officers and Board of Directors, facilitating profitable growth while strategically balancing risk to maximize shareholder value. Below is a summary of certain Board and governance information with respect to 2020:

 

ENVIRONMENTAL, SOCIAL & GOVERNANCE (ESG) POLICIES AND ENVIRONMENTAL GOALS
Compensation and Executive Development Committee oversight of corporate culture, diversity and inclusion	✔
Audit Committee oversight of ESG matters, including environmental, health & safety	✔
Audit Committee oversight of information security matters	✔
ESG performance incorporated into CEO’s annual performance goals	✔
Global Code of Conduct and Ethics	✔
Human Rights Policy	✔
No-Harassment  Policy	✔
Anti-Corruption Policy	✔
Supplier Code of Conduct	✔
Environmental, Health, Safety & Quality Policy	✔
Environment management system	✔
Long-term safety and environmental goals	✔

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DIRECTOR NOMINEES AND BOARD SUMMARY

 

PROPOSAL 1   Election of 12 Directors to serve until 2022 Annual Meeting or until their successors are duly elected and qualified		The Board recommends a vote FOR all Director Nominees. Our Nominating and Corporate Governance Committee and our Board of Directors have determined that each of the Director nominees possesses the right skills, qualifications and experience to effectively oversee Lincoln Electric’s long-term business strategy.
	➜	See “Proposal 1 – Election of Directors” beginning on page 19 of this Proxy Statement.

 

You are being asked to vote on the election of twelve Director nominees. Selected biographical information of each Director nominee, as well as committee membership and committee chair information is listed below. Additional information can be found in the Director biographies under Proposal 1.

 

DIRECTOR NOMINEES

 

Name	Age	Director Since	Independent	Audit	Compensation & Executive Development	Nominating & Corporate Governance	Finance	Other Public Company Boards
Curtis E. Espeland (Lead Independent Director) Retired Executive Vice President and CFO, Eastman Chemical Company	56	2012	✔	·			·	—
Patrick P. Goris Senior Vice President and CFO, Carrier Global Corporation	49	2018	✔	·		·		—
Stephen G. Hanks Retired President and CEO, Washington Group International	70	2006	✔	♦			·	—
Michael F. Hilton Retired President and CEO, Nordson Corporation	66	2015	✔		·	·		2
G. Russell Lincoln President, N.A.S.T. Inc.	74	1989	✔	·			·	—
Kathryn Jo Lincoln Chair and CIO, Lincoln Institute of Land Policy	66	1995	✔		·	♦		—
William E. MacDonald, III Retired Vice Chairman, National  City  Corporation	74	2007	✔		♦		·	—
Christopher L. Mapes (Chairman) President and CEO, Lincoln Electric Holdings, Inc.	59	2010						1
Phillip J. Mason Retired President, EMEA Sector of Ecolab, Inc.	70	2013	✔		·		♦	—
Ben P. Patel Senior Vice President and Chief Technology Officer, Cooper Tire & Rubber Company	53	2018	✔	·		·		—
Hellene S. Runtagh Retired President and CEO, Berwind Group	72	2001	✔		·	·		—
Kellye L. Walker Executive Vice President and Chief Legal Counsel Eastman Chemical Company	54	2020	✔		·	·		—

♦ Chair  · Member

 

 

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RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM SUMMARY

 

PROPOSAL 2   Ratification of independent registered public accounting firm		The Board recommends a vote FOR this proposal. Our Board of Directors recommends that shareholders vote “FOR” the ratification of the appointment Ernst & Young LLP as Lincoln Electric’s independent registered public accounting firm for the year ending December 31, 2021.
	➜	See “Proposal 2 – Ratification of Independent Registered Public Accounting Firm” beginning on page 87 of this Proxy Statement.

 

EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

PROPOSAL 3   Approval, on an advisory basis, of NEO Compensation		The Board recommends a vote FOR this proposal. Our Board of Directors recommends that shareholders vote “FOR” the approval, on an advisory basis, of compensation of our NEOs for 2020.
	➜	See “Proposal 3 – Approval, on an Advisory Basis, of Named Executive Officer Compensation” beginning on page 89 of this Proxy Statement and “Compensation Discussion and Analysis” beginning on page 38 of this Proxy Statement.

 

We have a long history of driving an incentive management culture, emphasizing pay for performance to align compensation with the achievement of enterprise, segment and individual goals.

We believe our compensation program and practices provide an appropriate balance between profitability, cash flow and returns, on the one hand, and suitable levels of risk-taking, on the other. This balance, in turn, aligns compensation strategies with shareholder interests, as reflected by the consistently high level of shareholders voting for the compensation of our NEOs.

 

2020 NAMED EXECUTIVE OFFICERS

 

The Compensation Discussion and Analysis (CD&A) provides information regarding our executive compensation program for the

following NEOs in 2020:

	Christopher L. Mapes   Chairman, President and Chief Executive Officer			Steven B. Hedlund   Executive Vice President, President, Americas and International Welding
	Gabriel Bruno   Executive Vice President, Chief Financial Officer and Treasurer			Jennifer I. Ansberry   Executive Vice President, General Counsel and Secretary
	Michele R. Kuhrt   Executive Vice President, Chief Human Resources Officer

 

Vincent K. Petrella (retired during 2020)   Former Executive Vice President, Chief Financial Officer and Treasurer

George D. Blankenship (retired during 2020)   Former Executive Vice President, President, Americas Welding

 

ACTIONS TO FURTHER ALIGN EXECUTIVE COMPENSATION WITH SHAREHOLDER INTERESTS

 

The Compensation and Executive Development Committee of the Board reviews the framework of our executive compensation program and seeks to align executive pay with our pay for performance philosophy. Each year, our Compensation and Executive Development Committee monitors our executive compensation program and how it relates to our corporate performance and shareholder interests. The historically high approval of our “say-on-pay” proposals on the compensation of our NEOs, including at the 2020 Annual Meeting, demonstrate the alignment of our executive compensation program with corporate performance and shareholder interests.

In 2020, our Compensation and Executive Development Committee reviewed the overall design of our executive compensation program, particularly in light of the transition to the 2025 Strategy. The overall design of our executive compensation program was held consistent with policies developed in prior years. Throughout the year, our Compensation and Executive Development Committee monitored the impact of the COVID-19 pandemic on our executive compensation program, including pay for performance, alignment with stockholder’s interests, and motivation and retention of key talent.

 

2020 EXECUTIVE COMPENSATION PRACTICES
What We Do		What We Don’t Do
We have long-term compensation programs focused on profitability, net income growth, ROIC and total shareholder returns	✔	We do not allow hedging or pledging of our shares	✘
We use targeted performance metrics to align pay with performance	✔	We do not reprice stock options and do not issue discounted stock options without shareholder approval	✘
We maintain stock ownership guidelines (5x base salary for CEO; 3x base salary for other NEOs)	✔	We do not provide excessive perquisites	✘
We have shareholder-approved incentive plans	✔	We do not have multi-year guarantees for compensation increases	✘
We have a broad clawback policy	✔
We have a double-trigger change in control policy	✔

 

NO ADJUSTMENTS TO COMPENSATION PROGRAMS FOR THE COVID-19 PANDEMIC

 

During 2020 we did not make any changes or adjustments to our executive compensation program specifically in response to the COVID-19 pandemic. The Compensation and Executive Development Committee did not modify individual performance goals or the corporate performance goals that were established at the beginning of the fiscal year, prior to the onset of the COVID-19 pandemic, for the annual bonus (EMIP) or outstanding performance share awards.

 

COMPENSATION FRAMEWORK & PHILOSOPHY

 

Our compensation program is designed to attract and retain exceptional employees. We also maintain a strong pay for performance culture. As indicated below, we design our compensation system to reflect current best practices, including setting base pay below the competitive market for each position, targeting incentive-based cash compensation above the competitive market and promoting quality corporate governance in compensation decisions. We believe these practices result in sustained, long-term shareholder value and reflect our philosophy that the pay for our best performers should align with the results of our long-term goals.

 

 

Our executive compensation program consists of three primary elements of total direct compensation: base salary (fixed), short-term incentive compensation (at-risk) in the form of an annual bonus (EMIP), and long-term incentive compensation (at-risk) in the form of stock options, restricted stock units (RSUs) and performance shares.

 

·  Base salary is the only component of total direct compensation that is fixed ·  Short-term incentive compensation is based on annual consolidated and, if applicable, segment performance, and individual performance

·  Long-term incentive compensation is based on our financial performance over a three-year cycle ·  Variable, “at risk,” pay is a significant percentage of total compensation

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AVERAGE MIX OF KEY COMPENSATION COMPONENTS AND KEY COMPENSATION METRICS

 

The following charts present the mix of 2020 target direct compensation for our Chief Executive Officer (CEO) and all of our other NEOs, as established in the beginning of 2020. As shown below, 85% of our CEO’s compensation value and, on average, 69% of all of our other NEOs’ compensation value was “at risk,” with the actual amounts realized based on annual and long-term performance as well as our stock price.

 

 

We use the following key performance measures in our short-term and long-term compensation programs.

 

Key Performance Metrics Tied to Executive Compensation
Metric	Short-Term Compensation (Annual Bonus)	Long-Term  Incentive  Compensation Program  (3-yr  Performance  Cycle)
EBITB1,2 (Earnings before interest, taxes and bonus)	✔
Average Operating Working Capital to Sales2 ratio	✔
Consolidated, segment and individual performance	✔
Adjusted Net Income2 growth		✔
Return on Invested Capital (ROIC)2		✔
Total Shareholder Return (TSR)2		✔
Individual Performance Goals3	✔

 

(1)

EBITB is an internal measure that tracks our adjusted operating income.

(2)

Financial performance measures used in the design of the executive compensation program are defined in Appendix A. Average Operating Working Capital to Sales for Compensation Purposes, Adjusted Net Income for Compensation Purposes, and Return on Investment Capital for Compensation Purposes have discrete definitions relative to our executive compensation program.

(3)

Individual performance goals are set annually and a significant portion of our executive officers’ individual performance goals are tied to one or more aspect of our 2025 Strategy including sustainability and human capital matters.

 

 

LINCOLN ELECTRIC HOLDINGS, INC.

TABLE OF CONTENTS

NOTICE OF ANNUAL MEETING	5
BUSINESS OVERVIEW	6
PROXY SUMMARY	9
PROPOSAL 1—ELECTION OF DIRECTORS	19
Director Nominees	20
Corporate Governance	26
Compensation-Related Risk	30
Related-Party Transactions	30
Our Board Committees	31
Director Compensation	33
EXECUTIVE COMPENSATION	37
Compensation Discussion And Analysis	38
Compensation Committee Report	63
Executive Compensation Tables	64
Termination And Change In Control Arrangements	77
Pay Ratio	82
MANAGEMENT OWNERSHIP OF SHARES	83
Beneficial Ownership Table	83
Equity Compensation Plan Information	84
OTHER OWNERSHIP OF SHARES	85
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION	86
ANNUAL MEETING PROPOSALS	87
Proposal 1—Election Of Directors	87
Proposal 2—Ratification Of Independent Registered Public Accounting Firm	87
Proposal 3—Approval, On An Advisory Basis, Of Named Executive Officer Compensation	89
AUDIT COMMITTEE REPORT	92
FAQS	93
APPENDIX A—DEFINITIONS AND NON-GAAP FINANCIAL MEASURES	97

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Cautionary Note on Forward-Looking Statements: This Proxy Statement contains forward-looking statements regarding Lincoln Electric’s strategy and current expectations within the applicable securities laws and regulations. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance,” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general economic, financial and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror, natural disasters and pandemics, including the current coronavirus disease (“COVID-19”) outbreak, on the Company or its customers, suppliers and the economy in general. The Company has experienced the negative impacts of COVID-19 on its markets and operations; however, the ultimate duration and severity on the Company’s business remains unknown. Although the Company’s customers have re-opened and increased operating levels, such customers may be forced to close or limit operations should a resurgence of COVID-19 cases occur. Given this continued level of economic and operational uncertainty over the impacts of COVID-19, the ultimate financial impact cannot be reasonably estimated at this time. For additional discussion, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. These forward-looking statements speak only as of the date on which such statements were made, and we undertake no obligation to update these statements except as required by federal securities law.

 

PROPOSAL 1—ELECTION OF DIRECTORS

 

DIRECTOR NOMINEES

Curtis E. Espeland Patrick P. Goris Stephen G. Hanks Michael F. Hilton

G. Russell Lincoln Kathryn Jo Lincoln William E. MacDonald, III Christopher L. Mapes

Phillip J. Mason Ben P. Patel Hellene S. Runtagh Kellye L. Walker

 

Our shareholders are being asked to elect twelve Directors to serve until the 2022 Annual Meeting or until their successors are duly elected and qualified. All of the Director nominees, other than Ms. Walker, who was elected to the Board on October 20, 2020, have been previously elected by our shareholders.

 

Each of the nominees has agreed to stand for re-election. The biographies of all of our Director nominees can be found later in this section.

 

If any Director nominee is unable to stand for election, the Board may provide for a lesser number of nominees or designate a substitute. In the latter event, shares represented by proxies solicited by the Directors may be voted for the substitute. We have no reason to believe that any of the nominees will be unable to stand for election.

 

MAJORITY VOTING POLICY

 

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

 

YOUR BOARD RECOMMENDS A VOTE FOR EACH DIRECTOR NOMINEE LISTED ABOVE

 

ANNUAL MEETING ATTENDANCE; NO SPECIAL ARRANGEMENTS

 

Directors are expected to attend each annual meeting. The Director nominees plan to attend this year’s virtual Annual Meeting. At the 2020 Annual Meeting, all of our then-current Directors attended our virtual annual meeting.

 

None of the Director nominees has any special arrangement or understanding with any other person pursuant to which the Director nominee was or is to be selected as a Director or nominee. There are no family relationships, as defined by Securities and Exchange Commission (SEC) rules, among any of our Directors or executive officers. SEC rules define the term “family relationship” to mean any relationship by blood, marriage or adoption, not more remote than first cousin.

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DIRECTOR NOMINEES

 

	CURTIS E. ESPELAND Director since 2012 Lead Independent Director since 2018   COMMITTEES: Audit Finance   AGE: 56   OTHER PUBLIC COMPANY DIRECTORSHIPS: None					PATRICK P. GORIS Director since 2018   COMMITTEES: Audit Nominating and Corporate Governance   AGE: 49   OTHER PUBLIC COMPANY DIRECTORSHIPS: None
	Experience Mr. Espeland is the former Executive Vice President and Chief Financial Officer of Eastman Chemical Company, an advanced materials and specialty additives manufacturer, a position he held from 2014 until his retirement in 2020. Mr. Espeland joined Eastman Chemical Company in 1996 and, during his tenure, he also served as Vice President, Finance and Chief Accounting Officer from 2005 to 2008, and Senior Vice President and Chief Financial Officer from 2008 to 2014.   Reasons for Nomination ·  Extensive experience in corporate finance and accounting, having served in various finance and accounting roles, and ultimately as the Chief Financial Officer, at a large publicly-traded company.   ·  Significant experience in the areas of strategy, mergers and acquisitions, taxation and enterprise risk management.   ·  International auditing experience having served as an independent auditor at Arthur Andersen LLP, working in both the United States and abroad (Europe and Australia).   ·  The Board has determined that Mr. Espeland’s extensive accounting and financial experience qualifies him as an “audit committee financial expert.”   ·  Valuable insight into advancing the business priorities of Lincoln Electric’s international operations gained from his international business experience.   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric.					Experience Mr. Goris has served as the Senior Vice President and Chief Financial Officer of Carrier Global Corporation, a leading global provider of healthy, safe and sustainable building and cold chain solutions, since November 2020. Prior to joining Carrier, he served as Senior Vice President and Chief Financial Officer of Rockwell Automation, a global industrial automation and information solutions provider, since February 2017. He also served as Vice President, Investor Relations and Vice President, Finance, Architecture and Software from 2015 to 2017 and Vice President, Finance, Architecture and Software and Operations and Engineering Services from 2013 to 2015 at Rockwell Automation.   Reasons for Nomination ·  Relevant global financial expertise from serving in various finance roles, and ultimately as the Chief Financial Officer, of publicly-traded, multinational organizations.   ·  Extensive experience in accounting, financial planning and analysis, investor relations and mergers and acquisitions.   ·  Experience with a global industrial automation and information solutions company provides Mr. Goris with broad exposure to digital operations and “smart” manufacturing solutions using data and analytics, which enhances operational intelligence, productivity and risk management in manufacturing processes. These are key initiatives for our business and our customers’ businesses.   ·  The Board has determined that Mr. Goris’ extensive accounting and financial experience qualifies him as an “audit committee financial expert.”   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric.

 

	STEPHEN G. HANKS Director since 2006   COMMITTEES: Audit (Chair) Finance   AGE: 70   OTHER PUBLIC COMPANY DIRECTORSHIPS: McDermott International, Inc. (NYSE: MDR) through May 2018 Babcock & Wilcox Enterprises, Inc. (NYSE: BW) through March 2018					MICHAEL F. HILTON Director since 2015   COMMITTEES: Compensation and Executive Development Nominating and Corporate Governance   AGE: 66   OTHER PUBLIC COMPANY DIRECTORSHIPS: Ryder Systems, Inc. (NYSE: R) since 2012 Regal Beloit Corporation (NYSE: RBC) since December 2019 Nordson Corporation (NASDAQ: NDSN) through 2019
	Experience Mr. Hanks’ 30-year tenure with global engineering and construction company Morrison Knudsen Corporation and its successor, Washington Group International, Inc. included serving the last eight years as President, Chief Executive Officer and a member of its Board of Directors, retiring in January 2008. Mr. Hanks also formerly served as Washington Group’s Executive Vice President, Chief Legal Officer and Secretary. In addition, Mr. Hanks has extensive board experience, previously serving as a director of McDermott International, Inc. from 2009 to May 2018 and Babcock & Wilcox Enterprises, Inc. from 2010 to March 2018.   Reasons for Nomination ·  Executive leadership experience, both as CEO and CFO, of a U.S. publicly-traded company with international reach.   ·  Diverse professional skill set, including finance (having served as CFO of Morrison Knudsen) and legal and governance competencies (such as enterprise risk management, corporate compliance and legal strategy).   ·  The Board has determined that Mr. Hanks’ experience as a CEO and CFO of a publicly-traded company qualifies him as an “audit committee financial expert.”   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric and several other publicly-traded companies.					Experience Mr. Hilton is the former President and Chief Executive Officer of Nordson Corporation (Nasdaq: NDSN), a company that engineers, manufactures and markets differentiated products and systems used for precision dispensing of adhesives, coatings, sealants, biomaterials, polymers, plastics and other materials, fluid management, test inspection, UV curing and plasma surface treatment, a position he held from 2010 until his retirement in 2019. During his tenure at Nordson Corporation, Mr. Hilton also served as a director. Prior to joining Nordson, Mr. Hilton was Senior Vice President and General Manager for Air Products and Chemicals, Inc., a global company that provides a unique portfolio of atmospheric gases, process and specialty gases, performance materials, and equipment and services, with specific responsibility for leading its $2 billion global Electronics and Performance Materials segment.   Reasons for Nomination ·  With over 30 years of global manufacturing experience, Mr. Hilton brings to the Board an intimate understanding of management leadership.   ·  Extensive experience with strategy development and day-to-day operations of a multi-national company, including product line management, new product technology, talent development, manufacturing, distribution and other sales channels, business processes, international operations and global markets expertise.   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric and several other publicly-traded companies.

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	G. RUSSELL LINCOLN Director since 1989   COMMITTEES: Audit Finance   AGE: 74   OTHER PUBLIC COMPANY DIRECTORSHIPS: None					KATHRYN JO LINCOLN Director since 1995   COMMITTEES: Compensation and Executive Development Nominating and Corporate Governance (Chair)   AGE: 66   OTHER PUBLIC COMPANY DIRECTORSHIPS: None
	Experience Mr. Lincoln has served as the president of N.A.S.T. Inc., a personal investment firm, since 1996. Prior to joining N.A.S.T. Inc., Mr. Lincoln served as the Chairman and Chief Executive Officer of Algan, Inc.   Reasons for Nomination ·  As an entrepreneurial businessman with executive leadership and investment experience, including 25 years running a $50 million business, Mr. Lincoln understands business risk and the importance of hands on management.   ·  Experience as a board member of various organizations, including as a board member of the Cleveland Museum of Natural History.   ·  As the grandson of James F. Lincoln and as a long-term trustee, Mr. Lincoln provides the Board with his historic perspective on the Company’s unique culture and its incentive management system.   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric.					Experience Ms. Lincoln has served as the Board Chair and Chief Investment Officer of the Lincoln Institute of Land Policy, an independent, global foundation focused on addressing significant policy issues through innovation land use and taxation methods, since 1996. As Chief Investment Officer, Ms. Lincoln manages and directs all aspects of the Institute’s endowment, including strategic asset allocation and policy development, which have contributed to its current $650 million asset base. In her role as Chair, she plays a crucial role in the strategic direction and planning of the Institute, with ongoing involvement in the development of education programs, demonstration projects and impact measurement. Ms. Lincoln is a member of the Board of HonorHealth Network, and Claremont Lincoln University, and formerly served as a director of Johnson Bank Arizona, N.A. She is also the Co-Chair of the International Center for Land Policy Studies and Training in Taiwan.   Reasons for Nomination ·  Extensive leadership experience, addressing strategic planning, asset allocation matters and corporate governance.   ·  As a Lincoln family member and long-standing Director of Lincoln Electric, Ms. Lincoln has a keen sense of knowledge about Lincoln Electric, its culture and the founding principles.   ·  Broad experience and commitment to board and corporate governance excellence, named as a Board Leadership Fellow of the National Association of Corporate Directors. Named by WomenInc. as one of 2019’s most influential corporate directors.   ·  Valuable knowledge of key governance matters gained through her various directorships, including as a director of Lincoln Electric.

 

	WILLIAM E. MACDONALD, III Director since 2007   COMMITTEES: Compensation and Executive Development (Chair) Finance   AGE: 74   OTHER PUBLIC COMPANY DIRECTORSHIPS: None					CHRISTOPHER L. MAPES Director since 2010 Chairman since 2013   COMMITTEES: None   AGE: 59   OTHER PUBLIC COMPANY DIRECTORSHIPS: The Timken Company (NYSE: TKR) since 2014
	Experience Mr. MacDonald is the former Vice Chairman of National City Corporation, a diversified financial holding company, a position he held from 2001 until his retirement in 2006, where he was responsible for its seven-state regional and national corporate banking businesses, the Risk Management and Credit Administration unit, Capital Markets and the Private Client Group. Mr. MacDonald joined National City in 1968 and, during his tenure, held a number of key management positions, including Senior Executive Vice President of National City Corporation and President and Chief Executive Officer of National City’s Ohio bank.   Reasons for Nomination ·  Extensive experience leading a large corporate organization with over 35,000 employees and structuring complex financing solutions for large and middle-market businesses.   ·  Experience addressing human resources and development challenges facing a publicly-traded company.   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric and several other publicly-traded companies.					Experience Mr. Mapes is the Chairman, President and Chief Executive Officer of Lincoln Electric. Mr. Mapes has served as President and Chief Executive Officer since December 2012. In December 2013, Mr. Mapes was appointed as Chairman of the Board in addition to his other responsibilities. From September 2011 to December 2012, Mr. Mapes served as the Chief Operating Officer of Lincoln Electric. From 2004 to August 2011, Mr. Mapes served as an Executive Vice President of A.O. Smith Corporation, a global manufacturer with a water heating and water treatment technologies business, which has residential, commercial, industrial and consumer applications, and the President of its former Electrical Products unit. Mr. Mapes started his career with General Motors and has held roles in industrial manufacturing for over 35 years.  In addition, Mr. Mapes has served as a director of The Timken Company since 2014.   Reasons for Nomination ·  Extensive leadership experience in large, global publicly-traded companies engaged in manufacturing operations.   ·  Keen understanding of the manufacturing industry and challenges organizations face growing globally.   ·  In addition to business management experience, Mr. Mapes has an MBA and a law degree.   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric.

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	PHILLIP J. MASON Director since 2013   COMMITTEES: Compensation and Executive Development Finance (Chair)   AGE: 70   OTHER PUBLIC COMPANY DIRECTORSHIPS: GCP Applied Technologies (NYSE: GCP) through May 2020					BEN P. PATEL Director since 2018   COMMITTEES: Audit Nominating and Corporate Governance   AGE: 53   OTHER PUBLIC COMPANY DIRECTORSHIPS: None
	Experience Mr. Mason is the former President of the Europe, Middle East & Africa Sector (EMEA Sector) of Ecolab, Inc., a leading provider of food safety, public health and infection prevention products and services, a position he held from 2010 until his retirement in 2012. Prior to leading Ecolab’s EMEA Sector, Mr. Mason had responsibility for Ecolab’s Asia Pacific and Latin America businesses as President of Ecolab’s International Sector from 2005 to 2010 and as Senior Vice President, Strategic Planning in 2004. In addition, Mr. Mason has public company board experience, previously serving as a director of GCP Applied Technologies from 2016 to May 2020.   Reasons for Nomination ·  Executive leadership experience in an international business unit for a U.S. publicly-traded company, providing Mr. Mason extensive international business expertise, business-to-business and industrial sector experience.   ·  Extensive international business experience, starting, developing and growing businesses abroad, in both mature and emerging markets, having established businesses in China, South Korea, Southeast Asia, Brazil, India, Russia, Africa and the Middle East.   ·  Strong finance and strategic planning proficiency, including merger and acquisition experience, along with significant experience working with and advising boards on diverse issues confronting companies with international operations.   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric.					Experience Mr. Patel has served as Senior Vice President, Chief Technology Officer of Cooper Tire & Rubber Company, a global manufacturer of specialized passenger car, light truck, medium truck, motorcycle and racing tires since November 2019. He previously served as Senior Vice President and Chief Technology Officer of Tenneco, Inc., a manufacturer of automotive emission control and ride control products and systems. During his 8-year tenure at Tenneco, beginning in 2011, he held roles leading regional advanced technology development and establishing a global research and development organization. Prior to joining Tenneco, Mr. Patel held numerous positions with increasing responsibility, including senior scientist, at the General Electric Company during his thirteen-year tenure with the organization.   Reasons for Nomination ·  Over 20 years of experience serving with publicly-traded, global products and technology companies.   ·  Broad expertise in material science, automation and “smart” systems, as well as extensive research and development experience.   ·  Mr. Patel has been a leader in global innovation and research initiatives, which lends tremendous support to our focus on being an innovation leader in our industry and our advanced manufacturing growth strategy, which helps customers identify value and efficiencies in their welding and cutting operations.   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric.

 

	HELLENE S. RUNTAGH Director since 2001   COMMITTEES: Compensation and Executive Development Nominating and Corporate Governance   AGE: 72   OTHER PUBLIC COMPANY DIRECTORSHIPS: Harman International Industries (NYSE: HAR) through 2017 NeuStar, Inc. (NYSE: NSR) through 2017					KELLYE L. WALKER Director since 2020   COMMITTEES: Compensation and Executive Development Nominating and Corporate Governance   AGE: 54   OTHER PUBLIC COMPANY DIRECTORSHIPS: None
	Experience Ms. Runtagh is the former President and Chief Executive Officer of the Berwind Group, a diversified pharmaceutical services, industrial manufacturing and real estate company, a position she held in 2001. From 1997 through 2001, Ms. Runtagh was Executive Vice President of Universal Studios, a media and entertainment company. Prior to joining Universal Studios, Ms. Runtagh spent 27 years at General Electric Company, a diversified industrial company, in a variety of leadership positions. In addition, Ms. Runtagh has extensive board experience, previously serving as a director of Harman International Industries from 2008 to 2017, NeuStar, Inc. from 2006 to 2017, and several other publicly-traded companies.   Reasons for Nomination ·  Over 30 years of experience in management positions with technology focused global companies, with responsibilities in management ranging from marketing and sales to finance, as well as engineering and manufacturing.   ·  Diverse management experience, including growing businesses while maintaining high corporate governance standards.   ·  Extensive experience as a director of publicly-traded companies.   ·  Valuable knowledge of key governance matters gained as a director of Lincoln Electric and several other publicly-traded companies.					Experience Ms. Walker has served as the Executive Vice President and Chief Legal Officer of Eastman Chemical Company, an advanced materials and specialty additives manufacturer, since April 2020. In this role, Ms. Walker has overall leadership and responsibility for Eastman’s legal organization. She also served as Executive Vice President and Chief Legal Officer of Huntington Ingalls Industries, Inc., America’s largest military shipbuilder, from 2015 to 2020. Prior to joining Huntington Ingalls Industries, Inc., Ms. Walker served as Senior Vice President, General Counsel and Secretary at American Water Works Company, Inc.   Reasons for Nomination ·  Seasoned senior executive with 25 years of experience with publicly-traded companies, helping to increase organizational value through forward thinking, strategic discipline and a focus on continuous improvement.   ·  Extensive experience in corporate governance, compliance and litigation management, government affairs, strategy development, product stewardship and regulatory affairs, global business conduct and global health, safety, environment and security.   ·  Long-standing general counsel of publicly-traded companies and has also served as Chief Administrative Officer, leading human resources, information technologies, government affairs and corporate communications functions.   ·  Extensive leadership across various industries including global public companies, government organizations and utility companies that will lend value to advance our 2025 Strategy.

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CORPORATE GOVERNANCE

 

GOVERNANCE FRAMEWORK

We are committed to effective corporate governance and high ethical standards. We adhere to our ethical commitments in every aspect of our business, including our commitments to each other, in the marketplace and in the global, governmental and political arenas. These commitments are spelled out in our Code of Corporate Conduct and Ethics, which applies to all of our employees (including our CEO and our other NEOs) and Directors.

 

We encourage you to visit our website at www.lincolnelectric.com, where you can find detailed information about our corporate governance programs/policies including:

 

·  Code of Corporate Conduct and Ethics   ·  Governance Guidelines

·  Charters for our Board Committees   ·  Director Independence Standards

 

	CORPORATE GOVERNANCE HIGHLIGHTS
	BOARD OF DIRECTORS   ·  Our Board held six meetings in 2020   ·  During 2020, each of our Directors attended at least 75% of the total full Board meetings and meetings of committees on which he or she served during the time he or she served as a Director   ·  Size of Board: 12   ·  Plurality vote with director resignation policy for failures to receive a majority vote in uncontested director elections   ·  Lead Independent Director   ·  All Directors are expected to attend the Annual Meeting   BOARD COMPOSITION   ·  Number of independent Directors: 11   ·  Diverse Board including a complementary mix of backgrounds, experiences and expertise, as well as balanced mix of ages, tenure of service and gender   ·  Several current and former CEOs   ·  Global experience   ·  Audit Committee has multiple financial experts   BOARD PROCESSES   ·  Independent Directors meet without management present ·  Annual Board and Committee self-assessments   ·  Board orientation program   ·  Governance Guidelines approved by Board   ·  Board has an active role in risk oversight   ·  Full Board review of succession planning annually		BOARD ALIGNMENT WITH SHAREHOLDERS   ·  Annual equity grants align interests of Directors and officers with shareholders   ·  Annual advisory approval of named executive officer compensation   ·  No poison pill   ·  Stock ownership guidelines for Directors and officers   COMPENSATION   ·  No employment agreements   ·  Executive compensation is tied to performance: 85% of CEO target pay and 69% of all of our other NEO target pay is performance-based (at risk)   ·  Anti-hedging and anti-pledging policies for Directors and officers   ·  Recoupment/clawback policy   INTEGRITY AND COMPLIANCE   ·  Code of Corporate Conduct and Ethics for employees, officers and Directors   ·  Environmental, health and safety guidelines and goals, including long-term sustainability goals   ·  Annual compliance training relative to ethical behavior   ·  Enterprise risk management program with Board oversight

 

SHAREHOLDER ENGAGEMENT

We are committed to engaging in constructive conversations with shareholders and nurturing long-term relationships with the investment community. We maintain an active shareholder engagement program where executives and management from various departments meet with shareholders regularly to discuss a variety of topics including business performance, strategic initiatives, corporate governance practices, corporate sustainability initiatives, executive compensation, and other matters of shareholder interest. The Board values an active investor relations program as it believes that shareholder input strengthens its role as an informed and engaged fiduciary.

 

Our shareholder engagement program includes participation at investor conferences, holding meetings and tours at Lincoln Electric, visiting investors at their offices, hosting tradeshow tours, being accessible to shareholder inquiries throughout the year and communicating with transparency. In 2020, we maintained active engagement with the investment community despite COVID-19 restrictions with calls/videoconferencing, a virtual annual shareholder meeting, virtual investor conferences and non-deal roadshows, as well as a virtual Lincoln Electric product exposition. Our efforts were recognized by Institutional Investors’ “All-American Executive Team” 2020 rankings, where our CEO, CFO and Investor Relations were among the top-3 midcap machinery executives in their respective areas. In addition, we reached out to investors representing approximately 49 percent of our outstanding shares to discuss corporate governance and sustainability (ESG) matters. We continued to gain good insights on our practices and policies and received positive feedback on the execution of our strategy, corporate governance, executive compensation, environmental, health and safety practices, and our investor relations program.

 

CORPORATE SUSTAINABILITY MATTERS

The Board recognizes the importance of achieving our goals responsibly, and this alignment with our key stakeholders also drives long-term value creation.

 

Our approach to sustainability began 125 years ago by our founders who established the Company under the guiding principle of The Golden Rule: Treating others how you would like to be treated. Our culture, values and our commitment to diversity and inclusion reflect The Golden Rule and our Purpose of Operating by a Higher Standard to Build a Better World.

 

Our governance structure for sustainability includes Board oversight, primarily driven by the Audit Committee, and sustainability metrics are incorporated into the annual goals of our CEO and our other executives. Our Executive Vice President and General Counsel oversees corporate environmental, health and safety (EH&S) initiatives and global reporting, and works closely with business unit leadership and local facilities to implement, monitor and measure our results. During 2020, we established an internal sustainability counsel with a primary focus on enhancing product stewardship for sustainable solutions.

 

The following policies and business practices exemplify our commitment to ESG matters: 

·  Our guiding principle is The Golden Rule; ·  Our Code of Corporate Conduct and Ethics; ·  Our Supplier Code of Conduct; ·  Health, safety and wellness initiatives for our employees, customers and communities; ·  Our Human Rights Policy; ·  Equal employment opportunities, along with our pledge to treat employees fairly, with dignity, and without discrimination in any form; ·  Focus on improving environmental performance, including long-term safety and environmental goals and performance reporting, and an emphasis on product stewardship; ·  Training and development programs to attract and retain high performing employees and help them reach their full potential;		·  Community engagement through employee-led fundraisers, grants provided by The Lincoln Electric Foundation, scholarships, in-kind gifts, and an employee matching and “Dollars for Doers” program to support volunteerism; ·  Positively impacting manufacturing and industry by promoting the art and science of welding among students and young professionals through our business initiatives, partnerships with schools and associations, and programming at the J.F. Lincoln Foundation; and ·  Enhancing diversity and inclusion through employee resource groups including our Diversity Councils, Veterans, Women in Lincoln Leadership, and Young Professionals organization.

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OUR BOARD OF DIRECTORS

Our Board oversees management in the long-term interest of Lincoln Electric and our stakeholders. The Board’s major responsibilities include:

 

·  Overseeing the conduct of our business   ·  Reviewing and approving key financial objectives, strategic and operating plans and other significant actions ·  Evaluating CEO and senior management performance and determining executive compensation ·  Planning for CEO succession and monitoring management’s succession planning for other key executives

·  Establishing an appropriate governance structure, including appropriate Board composition and succession planning ·  Overseeing enterprise risk management   ·  Overseeing the ethics and compliance program   ·  Overseeing ESG and diversity and inclusion matters

 

HOW WE SELECT DIRECTOR NOMINEES

In evaluating Director candidates, including persons nominated by shareholders, the Nominating and Corporate Governance Committee expects that any candidate must have these minimum qualifications:

 

·  Demonstrates character, integrity and judgment   ·  High-level managerial experience or experience dealing with complex business matters ·  Ability to work effectively with others   ·  Sufficient time to devote to the affairs of Lincoln Electric

·  Specialized experience and background that will add to the depth and breadth of the Board ·  Independence as defined by the Nasdaq listing standards (for non-employee Directors)   ·  Financial literacy

 

BOARD DIVERSITY

To maintain Board diversity, the Nominating and Corporate Governance Committee is committed to include in each director candidate search individuals that represent diversity of race and gender. The Nominating and Corporate Governance committee also considers diversity of national origin, professional background and capabilities, knowledge of specific industries, and geographic experience. Throughout 2020, the Nominating and Corporate Governance Committee reviewed the skills, qualifications and experience of each Director nominee to ensure that each can effectively oversee our long-term business strategy.

 

We are also committed to having Director candidates that can provide perspective on the industry challenges that we face and our long-term commitment to a pay for performance culture. The Nominating and Corporate Governance Committee’s process for identifying and evaluating nominees for Director includes annually discussing prospective Director specifications, which serve as the baseline to evaluate candidates. When recruiting new Director candidates, we may involve a recognized search firm, and the CEO and/or a member of the Nominating and Corporate Governance Committee (usually, the Chair) will contact the prospective director to gauge his or her interest and availability. The candidate will then meet with several members of the Board, including our Lead Independent Director. At the same time, references for the prospect will be contacted. A background check is generally completed before a final recommendation is made to the Board to appoint a candidate to the Board.

 

In October 2020, Ms. Kellye Walker was elected to the Board. In recruiting Ms. Walker, the Nominating and Corporate Governance Committee considered her background and skills and determined that her extensive leadership experience across various industries in legal, corporate governance and strategy development would be integral in helping advance our 2025 Strategy.

Shareholders may nominate one or more persons for election as Director of Lincoln Electric. The process for doing so is set forth in the FAQs section of this Proxy Statement. Director candidates recommended by our shareholders will be considered by the Nominating and Corporate Governance Committee in accordance with the criteria outlined above.

 

DIRECTOR INDEPENDENCE

Each of our non-employee Directors meets the independence standards set forth in the Nasdaq listing standards, which are reflected in our Director Independence Standards. To be considered independent, the Nominating and Corporate Governance Committee must affirmatively determine that the director has no material relationship with Lincoln Electric. In addition to outlining the independence standards set forth in the NASDAQ listing standards, the Director Independence Standards outline specific relationships that are deemed to be categorically immaterial for purposes of director independence. The Director Independence Standards are available on our website at www.lincolnelectric.com.

 

During 2020, the independent Directors met in regularly scheduled Executive Sessions in conjunction with each of the Board meetings. The Lead Independent Director presided over these sessions.

 

BOARD LEADERSHIP

Mr. Mapes, our President and CEO, serves as Chairman of the Board, in addition to his other responsibilities. As Chairman, he is responsible for planning, formulating and coordinating the development and execution of our corporate strategy, policies, goals and objectives. He is accountable for Lincoln Electric’s performance and:

 

·  reports directly to our Board, who reviews and approves his annual performance objectives; ·  works closely with our management to develop our strategic plan; ·  works with our management on transactional matters by networking with strategic relationships; ·  promotes and monitors the Board’s fulfillment of its oversight and governance responsibilities;   ·  encourages the Board to set and implement our goals and strategies;

·  establishes procedures to govern our Board’s work;   ·  oversees the execution of the financial and other decisions of our Board;   ·  makes available to all members of our Board opportunities to acquire sufficient knowledge and understanding of our business to enable them to make informed judgments; ·  presides over meetings of our shareholders; and   ·  sets the agenda for, and presides over, Board meetings.

 

Our Board believes having one individual serve as Chairman and CEO is beneficial to us because the dual role enhances Mr. Mapes’ ability to provide direction and insight on strategic initiatives impacting us and our shareholders. The Board also believes the dual role is consistent with good corporate governance practices because it is complemented by a Lead Independent Director.

 

 

LEAD INDEPENDENT DIRECTOR Our Lead Independent Director focuses on overseeing the Board’s processes and prioritizing the right areas of focus. Our Lead Independent Director is appointed each year by the independent Directors and serves as a liaison between the Chairman of the Board and the independent Directors. Specifically, the Lead Independent Director has the following duties, responsibilities, and expectations:   ·  Collaborates with the Chairman, the Secretary and senior management on the format and adequacy of the information that Directors receive and on the effectiveness of the Board meeting process. ·  Acts independently of the Chairman to review and approve Board meeting agendas and schedules. ·  Acts as a sounding board to the Chairman of the Board on key aspects of the business, and assists in promoting sound corporate governance practices.		Mr. Curtis Espeland currently serves as our Lead Independent Director, a position he has held since 2018. Mr. Espeland was elected to our Board in February 2012. During his tenure on our strong working relationships with his fellow directors, and assisted with the onboarding of our three most recently elected directors.
		·  Calls meetings of the independent Directors as he sees fit, presiding over such meetings.   ·  Speaks on behalf of Lincoln Electric, as the Board determines necessary.

 

BOARD ROLE IN ENTERPRISE RISK MANAGEMENT

In the ordinary course of business, we face various strategic, operating and compliance risks. Our enterprise risk management process seeks to identify and address risks to the organization. Our Board oversees the management of these risks on an enterprise-wide basis, and the Lead Independent Director promotes our Board’s engagement in this process. A fundamental part of the process is to understand the Company’s risks, and to provide oversight as to how management is addressing these risks. The full Board reviews with management its process for enterprise risk management. In addition, the Audit Committee is charged with overseeing the Company’s risk assessment and management process each year, including ensuring that management has instituted processes to identify critical risks and has developed plans to manage such risks.

 

The Company maintains a risk management review process where risk is assessed throughout our entire organization, and is reported to a corporate risk committee comprised of members of our various business units and control functions. Each year, the committee identifies critical risks to the organization and those that are determined to be “high-priority” risks are reported to the executive management committee and the Board. Thereafter, “high-priority” risks are assigned, as appropriate, to various Board Committees, or to the Board as a whole, for further review, analysis and development of appropriate plans for management and mitigation. Information security is a high-priority risk, and the Audit Committee receives updates at each meeting relative to this risk and the Company maintains a related cyber risk insurance policy.

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BOARD ROLE IN STRATEGY OVERSIGHT

 

One of the Board’s key responsibilities is overseeing the Company’s strategic planning process, including reviewing the steps taken to develop strategic plans and approving the final plans. In 2020, this included receiving periodic updates regarding the Company’s execution and performance during the initial year of the 2025 Strategy. Our Board regularly discusses the key priorities of our Company, taking into consideration global economic, consumer and other significant trends. The Company’s long-term strategic plan is reviewed regularly with the Board, along with its annual operating plan, capital structure and sustainability performance.

 

COMPENSATION-RELATED RISK

 

We regularly assess risks related to our compensation and benefit programs, including our executive compensation program, and our Compensation and Executive Development Committee is actively involved in those assessments. In addition, Willis Towers Watson, a compensation consultant engaged by management, has provided a risk assessment of our executive compensation program in the past. Although we have a long history of pay for performance and incentive-based compensation, we believe our compensation programs contain many mitigating factors to ensure that our employees are not encouraged to take unnecessary risks.

 

As a result of all these efforts, we do not believe the risks arising from our executive compensation policies and practices are reasonably likely to have a material adverse effect on Lincoln Electric.

 

RELATED-PARTY TRANSACTIONS

 

The Board has adopted a policy regarding the review and approval of transactions between the Company and its subsidiaries and certain related parties that are required to be disclosed in proxy statements, which are referred to as “related-party transactions.” Related parties include our Directors, Director nominees, executive officers, persons controlling 5% of our common shares, and the immediate family members of these individuals. Pursuant to the policy, the Audit Committee is responsible for reviewing and approving related-party transactions and will consider information it deems appropriate, including, but not limited to, whether the terms of the transaction are no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, the approximate dollar value of the transaction, and the nature and extent of the related party’s interest in the transaction. No Director will participate in any discussion or approval of a related-party transaction for which he or she is a related party, other than to provide material information concerning the transaction.

 

We define “related-party transactions” generally as transactions collectively over $120,000 in any calendar year, in which any related party had, has or will have a direct or indirect material interest. We have a monitoring and reporting program, which includes requirements to report all actual or potential related party transactions during the year and information regarding all relationships with entities involving a related party.

In February 2020, the Audit Committee considered and approved the on-going related-party transaction involving P&R Specialty, Inc., a supplier to Lincoln Electric. Greg D. Blankenship, the brother of George D. Blankenship, our former Executive Vice President, President, Americas Welding, is the sole stockholder and President of P&R Specialty, Inc. During 2020, we purchased approximately $2.0 million worth of products from P&R Specialty in ordinary course of business transactions. George D. Blankenship has no ownership interest in or any involvement with P&R Specialty. We believe that the transactions with P&R Specialty were, and are, on terms no less favorable to us than those that could have been obtained from unaffiliated parties.

 

OUR BOARD COMMITTEES

 

We have separately designated standing Audit, Compensation and Executive Development, and Nominating and Corporate Governance Committees established in accordance with applicable provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC and Nasdaq rules. The Board also has designated a standing Finance Committee.

 

Each committee has a charter, which details all of the committee’s roles and responsibilities. The following summaries set forth the principal responsibilities of each of committee, as well as other information regarding their makeup and operations. A copy of each committee’s charter may be found on our website at www.lincolnelectric.com.

 

	Audit Committee					Compensation and Executive Development Committee
	Chair: Stephen G. Hanks	Members: Curtis E. Espeland Patrick P. Goris G. Russell Lincoln Ben P. Patel				Chair: William E. MacDonald, III	Members: Michael F. Hilton Kathryn Jo Lincoln Phillip J. Mason Hellene S. Runtagh Kellye L. Walker
	Meetings held in 2020: 6
						Meetings held in 2020: 7
	Key Responsibilities   ·  Independent auditor engagement   ·  Reviews financial statements and disclosures, interim financial reports and earnings press releases ·  Reviews significant litigation and legal matters   ·  Oversees enterprise risk management, risk assessment, ethics and compliance programs, including ESG performance and general information security matters ·  Reviews and evaluates the scope and performance of the internal audit function ·  Reviews internal controls over financial reporting   Each member of our Audit Committee meets the independence standards set forth in the Nasdaq listing standards and have likewise been determined by the Board to have the financial competency required by the listing standards. In addition, because of the professional training and past employment experience of Messrs. Hanks, Espeland and Goris, the Board has determined that they are financially sophisticated Audit Committee members under the Nasdaq listing standards and qualify as “audit committee financial experts” in accordance with SEC rules. Shareholders should understand that the designation of Messrs. Hanks, Espeland and Goris as “audit committee financial experts” is a disclosure requirement and that it does not impose upon them any duties, obligations or liabilities that are greater than those generally imposed on them as members of the Audit Committee and the Board.
						Key Responsibilities   ·  Reviews and recommends to the Board total compensation of our CEO, and reviews and establishes total compensation of our other executive officers ·  Evaluates performance (along with full Board) of our CEO and other executive officers ·  Monitors development, selection process and succession planning of key management ·  Reviews and recommends to the Board, in conjunction with the Nominating and Corporate Governance Committee, the appointment and removal of elected officers ·  Oversees executive compensation policies, practices and programs, as further described in the CD&A ·  Reviews and recommends to the Board new or amended executive compensation plans with our executive officers ·  Oversees diversity and inclusion programming   Each member of our Compensation and Executive Development Committee meets the independence standards set forth in the Nasdaq listing standards and each is deemed to be (1) an outside Director within the meaning of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, and (2) a “non-employee director” within the meaning of Rule 16b-3 of the Exchange Act. The Compensation and Executive Development Committee may, in its discretion, delegate specific duties, responsibilities and authority to a subcommittee, one or more Committee members or one or more executive officers, to the extent permitted by applicable law and stock exchange rules and regulations.

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	Nominating and Corporate Governance Committee					Finance Committee
	Chair: Kathryn Jo Lincoln	Members: Patrick P. Goris Michael F. Hilton Ben P. Patel Hellene S. Runtagh Kellye L. Walker				Chair: Phillip J. Mason	Members: Curtis E. Espeland Stephen G. Hanks G. Russell Lincoln William E. MacDonald, III
						Meetings held in 2020: 5
	Meetings held in 2020: 5
	Key Responsibilities   ·  Reviews our corporate governance framework including external developments related to corporate governance matters ·  Reviews appropriate composition of the Board, identifies Board candidates and recommends Director nominees ·  Reviews shareholder proposals and shareholder engagement activities ·  Reviews non-employee Director compensation program in light of best practices and makes recommendations to the Board ·  Reviews and determines Director independence ·  Oversees the self-evaluation process of the Board and Committees ·  Reviews environmental, social and governance matters   Each member of our Nominating and Corporate Governance Committee meets the independence standards set forth in the Nasdaq listing standards.					Key Responsibilities   ·  Reviews financial performance, including comparing financial performance to budgets and goals ·  Reviews capital allocation, dividend and share repurchasing strategies ·  Reviews operating budgets   ·  Reviews capital expenditures   ·  Reviews M&A activity and integration performance   ·  Oversees strategic planning and financial policy matters   Each member of our Finance Committee meets the independence standards set forth in the Nasdaq listing standards. All of our Directors typically attend the Finance Committee meetings, a practice that has been in place for the past several years.

 

DIRECTOR COMPENSATION

 

OUR BOARD COMPENSATION PROGRAM

 

Based upon the recommendations of the Nominating and Corporate Governance Committee, the Board determines our non-employee Director compensation. The Nominating and Corporate Governance Committee periodically reviews all elements of Board compensation in relation to our proxy peer group (as identified in the CD&A), trends in Board compensation and other factors it deems appropriate. In consultation with Korn Ferry as an independent advisor, the Nominating and Corporate Governance Committee did not recommend any adjustments to Board compensation during 2020.

 

The objectives of our non-employee Director compensation program are to attract highly qualified and diverse individuals to serve on our Board and to align their interests with those of our shareholders. An employee of Lincoln Electric who also serves as a Director does not receive any additional compensation for serving as a Director.

 

All non-employee Directors receive cash retainers and an annual stock-based award for serving on our Board. Stock-based compensation is provided under our 2015 Stock Plan for Non-Employee Directors.

 

GOOD GOVERNANCE PRACTICES

 

Lincoln Electric seeks to attract and retain highly qualified individuals to serve on the Board of Directors. To that end, Lincoln Electric maintains the philosophy of paying non-employee Directors fairly and reasonably, considering external market factors, consistent with good governance practices. With respect to our non-employee Director compensation program, our governance practices include:

 

What We Do		What We Don’t Do
Reasonable limits on non-employee Directors’ annual equity awards included in 2015 Stock Plan for Non-Employee Directors	✔	No Hedging or Pledging of Lincoln Electric Stock	✘
Total compensation is positioned at the peer median	✔	No Excessive Perquisites	✘
Non-employee Director compensation approved by full Board	✔	No Excise Tax Gross-Ups or Tax Reimbursements	✘
Full-value equity award granted at a fixed-value	✔
Double Trigger Provisions for Change in Control	✔
Stock Ownership Guidelines	✔
Independent Advisor	✔

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The following is a summary of our current Director compensation program:

 

 

		Board Level	Lead Independent Director	Committee Chairs
Cash	Retainer1	$ 80,000	Additional $28,000	Additional $20,000 for Audit $15,000 for Compensation and Executive Development, Finance and Nominating and Corporate Governance
	Meeting Fees2	—	–	–
Equity	Annual Restricted Stock Unit (RSU) Award approx. value3	$135,000	–	–
	Initial RSU Award approx. value3,4	$135,000	–	–

 

(1)

Directors have the ability to defer annual cash compensation under the Non-Employee Directors’ Deferred Compensation Plan.

(2)

We do not have separate meeting fees, except if there are more than eight full Board or Committee meetings in any given year, Directors will receive $1,500 for each full Board meeting in excess of eight meetings and Committee members will receive $1,000 for each Committee meeting in excess of eight meetings in total.

(3)

Directors have the ability to defer RSUs under the Non-Employee Directors’ Deferred Compensation Plan.

(4)

The initial award will be pro-rated based on the Director’s length of service during the twelve-month period preceding the next regularly scheduled annual equity grant, which normally occurs in the fourth quarter of each year.

 

2020 DIRECTOR COMPENSATION TABLE
Name	Fees Earned or Paid in Cash ($)	Stock Awards1 ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	Total ($)
Curtis E. Espeland	108,0002	134,916		242,916
Patrick P. Goris	80,0002	134,916	2,3083	217,224
Stephen G. Hanks	100,000	134,916		234,916
Michael F. Hilton	80,000	134,916		214,916
G. Russell Lincoln	80,000	134,916		214,916
Kathryn Jo Lincoln	95,0002	134,916		229,916
William E. MacDonald, III	95,000	134,916		229,916
Phillip J. Mason	95,000	134,916		229,916
Ben P. Patel	80,0002	134,916		214,916
Hellene S. Runtagh	80,000	134,916		214,916
Kellye L. Walker	15,870	153,680		169,550

 

(1)

On December 10, 2020, 1,129 RSUs were granted to each non-employee Director under our 2015 Stock Plan for Non-Employee Directors. For Ms. Walker, 184 RSUs were also granted to her on October 20, 2020 upon her initial election to the Board.

The Stock Awards column represents the grant date fair value under Accounting Standards Codification (ASC) Topic No. 718 based on a closing price of $119.50 per share on December 10, 2020, and, with respect to the award granted to Ms. Walker, a closing price of $101.98 per share on October 20, 2020. Assumptions used in the calculation of these amounts are included in footnote 10 to our audited financial statements for the fiscal year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the SEC on February 19, 2021.

As of December 31, 2020, the number of RSUs held by each non-employee Director was 1,129, except for Ms. Walker, who held 1,313. Each of Messrs. Goris, Hanks, Hilton and Patel and Ms. Lincoln elected to defer receipt of the RSUs that were granted in 2020 under our Non-Employee Directors’ Deferred Compensation Plan.

(2)

All of Messrs. Espeland’s, Goris’ and Patel’s and Ms. Lincoln’s Board fees were deferred under our Non-Employee Directors’ Deferred Compensation Plan.

(3)

The amount shown for 2020 represents the difference in earnings under the Moody’s Corporate Bond Index fund in our Non-Employee Directors’ Deferred Compensation Plan and a hypothetical rate.

 

OTHER ARRANGEMENTS

 

We reimburse Directors for reasonable out-of-pocket expenses incurred in connection with attendance at Board meetings, or when traveling in connection with the performance of their services for Lincoln Electric.

 

CONTINUING EDUCATION

 

Directors are generally reimbursed up to $5,000 for continuing education expenses (inclusive of travel expenses) for programs each Director may elect to attend. We also incorporate continuing education topics for Directors into our Board meetings from time to time.

 

STOCK OWNERSHIP GUIDELINES

 

In keeping with the philosophy that Directors’ interests should be aligned with the shareholders’ interest and as part of the Board’s continued focus on corporate governance, all of our non-employee Directors must adhere to our stock ownership guidelines. RSUs, including any RSUs that have been deferred under the Non-Employee Directors’ Deferred Compensation Plan, count toward the stock ownership amount; shares held in another person’s name (including a relative) do not. The stock ownership guidelines can be met by satisfying one of the two thresholds noted in the chart below. As of December 31, 2020, all of our non-employee Directors had satisfied the stock ownership guidelines, except for Ms. Walker who was elected to the Board in 2020.

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Directors have five years from the date of election to the Board to satisfy the stock ownership guidelines. The Nominating and Corporate Governance Committee reviews the guidelines at least every two-and-a-half years to ensure that the components and values are appropriate—a review was conducted during 2019, with the assistance of Korn Ferry as an independent advisor, and it was determined that no changes to the guidelines were necessary at this time, as the 5 times annual retainer guideline was consistent with the peer group median. As there was no modification and this was a mid-cycle review, the absolute share target remained unchanged. The next review is anticipated to occur in 2021.

 

Retainer Multiple			Number of Shares
Shares valued at 5x annual Board retainer ($400,000)	OR		4,368*

 

*

Represents shares equal to $400,000 based on the closing price of Lincoln Electric stock as of December 29, 2017 (the last trading day of the calendar year) of $91.58.

 

EQUITY AWARDS

 

The non-employee Directors’ RSUs awards are granted under the 2015 Stock Plan for Non-Employee Directors. Under the terms of the awards, RSUs vest in full one year after the date of grant, with accelerated vesting in the event of a change in control of Lincoln Electric if the Director’s service is terminated or if the award is not assumed upon the change in control, or upon the death or disability of the Director. During the period in which RSUs remain unvested, dividend equivalents pay out in cash when dividends are generally paid to shareholders.

 

DEFERRED COMPENSATION PLAN

 

The Non-Employee Directors’ Deferred Compensation Plan allows the non-employee Directors to defer payment of all or a portion of their annual cash compensation and RSUs granted to them. This plan allows each participating non-employee Director to elect to begin payment of the deferred amounts as of the earlier of termination of services as a Director, death or a date not less than one full calendar year after the year the fees are initially deferred.

 

The investment elections available under the plan for cash compensation deferred are the same as those available to executives under our Top Hat Plan, which is discussed in the narrative under 2020 Deferred Compensation Benefits. RSU deferrals are deemed invested solely in a Lincoln Electric Stock fund, and no other plan deferrals are eligible for investment into that fund.

 

EXECUTIVE COMPENSATION

 

Our long-term strategy is focused on key actions and initiatives that generate long-term profitable growth within our targeted markets through value-added solutions and operational excellence. We believe this approach engages our business team in creating a long-term value proposition for shareholders that generates above-market returns through an economic cycle while maintaining a short-term focus on improving profitability and driving operating excellence. More information on our business and strategy can be found in the “Business Overview” section at the beginning of this Proxy Statement. 

 

The Compensation Discussion and Analysis (CD&A) describes our executive compensation programs and how they apply to our NEOs. The CD&A contains statements regarding future performance targets and goals. These targets and goals are disclosed in the context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We caution investors not to apply these statements in other contexts.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

EXECUTIVE SUMMARY

 

Our approach to executive compensation is generally the same as our approach to employee-wide compensation, with a strong belief in pay for performance and a long-standing commitment to incentive-based compensation.

 

While maintaining our performance-driven culture, our executive compensation program is designed to achieve the following objectives:

 

 

KEY FINANCIAL PERFORMANCE

 

We have a strong track record of delivering increased value to our shareholders and we have typically delivered above-market performance across various financial metrics over many economic cycles. Our long-term strategy seeks to achieve profitable sales growth both organically and through acquisitions by emphasizing value-added solutions and differentiated technologies. We anticipate this strategy will yield improved profit margins and returns, and will generate best-in-class financial performance measured against our peer group.

 

We operated as an “essential business” in 2020 to ensure product availability for customers. Despite the unprecedented safety and operational challenges posed by the global pandemic, we achieved solid returns with a 17.7% ROIC, strong cash flow generation, and 117% cash conversion. Sales decreased approximately 11.6% to approximately $2.7 billion primarily due to 12.2% lower organic sales, which were partially offset by a 1.3% benefit to sales from an acquisition. Operating income margin declined 180 basis points to 10.6% versus the prior year primarily due to lower sales and rationalization and asset impairment charges. Adjusted operating income margin held relatively steady, declining 50 basis points to 12.4% as price management and approximately $88 million in cost reduction benefits substantially mitigated the unfavorable impact of lower volumes.

 

Our focus on operational excellence resulted in record safety performance for 2020 and we exceeded three of four of our 2020 environmental goals (with energy intensity not being achieved due to reduced working hours across the globe as a result of the pandemic, although actual energy consumption was down year over year). These results demonstrate the continued structural improvements achieved in the business as the organization pursues best-in-class performance.

 

We also focused on the continued development and commercialization of innovative solutions and leveraged new digital solutions to engage with customers virtually to drive long-term growth. In 2020, we maintained our R&D spend of approximately 1.9% of revenue. Our investments in innovation generated a sales vitality index from new products launched in the last five years of 31%, and we increased our vitality index in equipment systems to 54%. The vitality index represents the percentage of 2020 sales from new products launched in the last five years, excluding the International Welding Segment and customized automation sales.

 

 

See Appendix A for definitions and/or reconciliation of these metrics to results reported in accordance with GAAP. Performance measures used in the design of the executive compensation program are presented within this Compensation Discussion and Analysis section.

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We remain focused on generating long-term value for our shareholders through a disciplined capital allocation strategy. In 2020, we deployed approximately $59 million towards capital projects focused primarily on growth and operational efficiency and returned approximately $232 million of cash to shareholders through our dividend program and share repurchases. In the last five years, we have repurchased an aggregate amount of $994 million in shares and have increased the dividend rate by 59%. Our Board increased the dividend payout rate for 2021 by an additional 4.1%, marking 25 years of consecutive dividend increases.

 

  

FINANCIAL MEASURES USED FOR COMPENSATION PURPOSES

 

We consider various types of widely reported financial metrics, each of which is related to our executive compensation program in some way. Some of these financial metrics directly impact our executive compensation program, while others are the closest approximation to the metrics that we use in our programs. We believe that all of these financial metrics are critical to the short-term and long-term growth and performance of our organization.

 

Short-term financial metrics used to evaluate operational performance and used in our annual bonus (EMIP) design are:

 

•

Adjusted earnings before interest, taxes and bonus (EBITB), and

•

Average operating working capital to net sales ratio (AOWC/Sales) for Compensation Purposes.

 

The following charts illustrate our performance in these or comparable metrics.

 

 

Financial metrics considered in our long-term incentive compensation program include:

 

•	Growth of Adjusted Net Income for Compensation Purposes (over a three-year cycle),		•	Share price appreciation, including dividends (TSR).
•	Three-year average ROIC for Compensation Purposes indexed to peer performance, and

 

The following charts illustrate our Adjusted Net Income for Compensation Purposes and ROIC for Compensation Purposes. The results for ROIC for Compensation Purposes are compared to our peer group, the S&P 400 Midcap Index (S&P 400), in which we participate, and the S&P 400 Midcap Manufacturing Index. The ROIC for Compensation Purposes percentile rankings show the position of our financial results compared to the particular group, with a 50th percentile ranking indicating median (or market) performance. Percentiles below 50 indicate below-market performance, while percentiles above 50 indicate above-market performance. Information is based on the most recently available public information (as accumulated by an independent third party), as of January 2021 when the analysis was performed.

 

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TOTAL SHAREHOLDER RETURN (TSR)

 

The following 3-Year (2018-2020) TSR Performance Percentile Rank chart illustrates our TSR performance compared to our peer group, the S&P Composite 500 Stock Index (S&P 500), the S&P 400, and the S&P 400 Midcap Manufacturing Index. The TSR percentile rankings show the position of our TSR Performance compared to the particular group, with a 50th percentile ranking indicating median (or market) performance. Percentiles below 50 indicate below-market performance, while percentiles above 50 indicate above-market performance. This information is based on the most recently available public information (as accumulated by an independent third party), as of January 2021 when the analysis was performed.

 

 

The following line graph compares the yearly percentage change in the cumulative total shareholder return on our common stock against the cumulative total return of the S&P 500 and the S&P 400 for the five-year calendar year period commencing January 1, 2016 and ending December 31, 2020. This graph assumes that $100 was invested on December 31, 2015 in each of our common shares, the S&P 500 and the S&P 400. A peer-group index for the welding industry, in general, is not readily available because the industry is comprised of a large number of privately held competitors and competitors that are smaller parts of large publicly traded companies.

 

 

PAY FOR PERFORMANCE, OBJECTIVES AND PROCESS

 

In designing our executive compensation program, a core philosophy is that our executives should be rewarded when they deliver financial results that provide value to our shareholders. Therefore, we have established a program that ties executive compensation to superior financial performance.

 

To assess pay for performance, we evaluate the relationship between CEO pay and TSR performance considering the ISS methodology. This allows us to understand the relative degree of alignment over a three-year period between the pay opportunity delivered to the CEO and the performance achieved by shareholders relative to the ISS peer group. The ISS peer group for this analysis is comprised of 24 companies of which 11 companies overlap with our peer group. In conjunction with ISS resources, this analysis is performed by management’s compensation consultant, Willis Towers Watson, which is reviewed by the Compensation and Executive Development Committee (the “Committee”) and by its independent consultant, Korn Ferry.

 

In evaluating pay and performance alignment, the analysis focuses on CEO pay primarily as reflected in the Summary Compensation Table, with the exception of valuing equity-based awards. All stock-based awards (both time- and performance-vesting) are calculated by multiplying the number of underlying shares by the closing stock price on the grant date, and option awards are calculated using the ISS Black-Scholes option pricing model. This means that for us, the CEO is evaluated based on the following compensation elements for the applicable three-year period:

 

•  Base pay; •  Annual bonus (EMIP); •  The value of restricted stock units (“RSUs”) granted (based on the closing price of our common stock as of the grant date); •  The value at target of performance shares granted (based on the closing price of our common stock as of the grant date);

•  The value of stock options granted (based on the ISS Black-Scholes pricing model as of the grant date); •  Actual nonqualified deferred compensation earnings; and •  All other compensation for the applicable three-year period.

 

As the following chart demonstrates, for the 2018-2020 performance period, our ranking for TSR performance was slightly above the median of the ISS peer group for the most recent three-year period. For the same period, our ranking for CEO pay was above the median. The shaded area in the chart below highlights the area in which ISS has a low overall concern level. As shown in the chart below, our ranking for TSR performance and our ranking for CEO pay has consistently fallen within the shaded area and demonstrates an overall alignment over the three most recent three-year performance periods. Based on this analysis, the Committee is satisfied with the alignment of our CEO’s pay with the performance of the Company.

 

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While we consider the ISS methodology in assessing pay for performance, we view it as one of the variables for evaluating pay for performance alignment. We have provided the ISS analysis in assessing pay for performance for investors that might be utilizing it in evaluating pay for performance.

 

2020 EXECUTIVE COMPENSATION ACTIONS

 

During 2020, the Committee reviewed the design of our executive compensation program to help ensure consistency with our pay for performance philosophy. Each year, the Committee monitors our executive compensation program and how it relates to our corporate performance and shareholder interests. At our 2020 Annual Meeting, we received 98% approval, based on the total votes cast, for our annual advisory say-on-pay vote to approve the compensation of our NEOs. The Committee considered this result, in connection with its review of the overall design of our executive compensation program, particularly in light of the transition to the 2025 Strategy. The Committee believes the voting results demonstrate significant support for our executive compensation program, and the Committee chose not to make any substantial changes to the existing program for 2020 specifically in response to the 2020 say-on-pay voting results. The Committee expects, however, to continue to work with its compensation consultant to monitor changes in executive compensation trends to keep our executive compensation program aligned with best practices in our competitive market.

 

In addition, beginning in March 2020, the Committee and senior leadership team closely monitored the impact of the COVID-19 pandemic on our executive compensation program, to help ensure ongoing alignment between our executive’s incentives and our stockholders’ long-term interests during a period of extraordinary market volatility. Ultimately, the Committee made no changes or adjustments to our executive compensation program in response to the COVID-19 pandemic.

 

NO ADJUSTMENTS TO COMPENSATION PROGRAMS FOR THE COVID-19 PANDEMIC

 

During 2020 we did not make any changes or adjustments to our executive compensation program specifically in response to the COVID-19 pandemic. The Committee did not modify individual performance goals or the corporate performance goals that were established at the beginning of the fiscal year, prior to the onset of the COVID-19 pandemic, for the annual bonus (EMIP) or outstanding performance share awards.

 

KEY EXECUTIVE TRANSITIONS

 

During 2020, two NEOs, Vincent Petrella and George Blankenship, retired from the Company. Prior to their retirements, Mr. Petrella served as our Executive Vice President, Chief Financial Officer and Treasurer and Mr. Blankenship served as our Executive Vice President, President, Americas Welding. In connection with these retirements, Gabriel Bruno was appointed Executive Vice President, Chief Financial Officer and Treasurer and Steven Hedlund was appointed Executive Vice President, President, Americas and International Welding. More information is provided below regarding the compensation for Messrs. Petrella and Blankenship for 2020, including in connection with their retirements.

 

GOOD GOVERNANCE PRACTICES

 

In addition to our emphasis on above-market financial performance and pay for performance, we design our executive compensation program to be current with best practices and good corporate governance. We also consider the risks associated with any particular program, design or compensation decision. We believe these assessments result in sustained, long-term shareholder value. Some of those governance practices are described in the Compensation-Related Risk section in this Proxy Statement.

 

The following table highlights certain of our good governance practices relative to our executive compensation program:

 

What We Do		What We Don’t Do
Pay for Performance Focus (Compensation programs weighted heavily toward variable, “at risk,” compensation; perform annual reviews of market competitiveness and the relationship of compensation to financial performance)	✔	No Guaranteed Pay (No multi-year guarantees for compensation increases, including base pay, and no guaranteed bonuses)	✘
Balanced Compensation (Compensation opportunities linked to both short-term and long-term periods of time, while aligning compensation with several financial performance metrics that are critical to achievement of sustained growth and shareholder value creation)	✔	No Repricing or Replacement of Underwater Stock Options without Prior Shareholder Approval	✘
Double Trigger Provisions for Change in Control	✔	No Payment of Dividends on Unvested Equity	✘
Stock Ownership Guidelines for all Executive Officers	✔	No Excessive Perquisites	✘
Clawback Policy	✔	No Excise Tax Gross-Ups or Tax Reimbursements	✘
Independent Compensation Committee and Consultant	✔	No Hedging or Pledging of Lincoln Electric Stock	✘

 

OUR COMPENSATION PHILOSOPHY

 

CORE PRINCIPLES

 

The primary components of our executive compensation program, summarized below, help ensure that we maintain our performance-driven culture:

Type	Component and Competitive Target		Philosophy and Objective
Fixed Compensation	Base Pay		·  Targeted at the 45th percentile of market (below market) to place stronger emphasis on incentive compensation ·  Provide market-competitive fixed pay reflective of an executive officer’s role, responsibilities and individual performance in order to attract and retain top talent
Incentive-Based Compensation	Target Total Cash Compensation with Annual Bonus (EMIP)		·  Targeted above the competitive market, so that target total cash compensation (base pay and annual bonus which incorporates financial targets and individual performance goals) is set at 65th percentile of market ·  Drive financial performance, including adjusted earnings before interest, taxes and bonus (EBITB) and average operating working capital to net sales ratio ·  Deliver individual performance against specific business objectives, including executing on our 2025 Strategy, increasing our customer satisfaction, developing and engaging a diverse and talented workforce, driving sustainable innovation and improving operating efficiencies
	Long-Term Incentive Compensation		·  Targeted at the 50th percentile of market (at market) ·  Divided equally among 3 programs: (1) stock options; (2) restricted stock units (RSUs); and (3) Performance Shares ·  Incentivize achievement of long-term value creation through financial performance objectives weighted more heavily toward rewards for share price appreciation and long-term profitability

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In addition to the primary components of our executive compensation program, we provide benefits and perquisites that we believe, taken as a whole, are at the market median.

 

Individual performance also plays a key role in determining the amount of compensation delivered to an individual in many of our programs, with our philosophy being that the best performers should receive the greatest rewards. The following charts present the mix of 2020 target direct compensation for our CEO and all of our other NEOs, as established in the beginning of 2020. As shown below, 85% of the CEO’s compensation mix was “at risk” and 69% of our other NEOs’ compensation mix was “at risk,” with the actual amounts realized based on annual and long-term performance as well as our stock price.

 

 

THE ROLES OF THE COMMITTEE, EXTERNAL ADVISORS AND MANAGEMENT

 

The Committee, which consists solely of non-employee Directors, has primary responsibility for reviewing, establishing and monitoring all elements of our executive compensation program. The Committee is advised by its independent executive compensation consultant, Korn Ferry, and independent legal counsel as it deems appropriate. Management provides recommendations and analysis to the Committee, and is supported in those efforts by its own executive compensation consultant, Willis Towers Watson.

 

ROLE OF THE COMMITTEE
Compensation-Related  Tasks	Organizational  Tasks
Reviews, approves and administers all of our executive compensation plans, including our equity plans	Evaluates the performance of the CEO, including consideration of tone and embodiment of core values, with input from all non-employee Directors
Establishes performance objectives under our short-term and long-term incentive compensation programs1	Reviews the performance capabilities of the other executive officers, including consideration of tone and embodiment of core values, based on input from the CEO
Determines the attainment of performance objectives and the awards to be made to our executive officers under our short-term and long-term incentive compensation programs1	Reviews succession planning for officer positions, including the position of the CEO
Determines the compensation for our executive officers, including salary and short-term and long-term incentive compensation opportunities1	Reviews proposed organization or responsibility changes at the officer level
Reviews compensation practices relating to key employees to confirm that these practices remain equitable and competitive	Reviews our practices for the recruitment and development of a diverse talent pool
Reviews employee benefit plans that relate to executive officers and/or key employees	Retains the services of independent legal counsel from time to time to provide input on various matters

 

(1)

The independent members of the Board takes such action with respect to the CEO.

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ROLE OF EXTERNAL ADVISORS

 

Korn Ferry

 

•  Independent executive compensation consultant for the Committee •  Advises on matters including competitive compensation analysis, executive compensation trends and plan design, peer group company configuration, competitive financial performance and financial target setting •  Reviews analysis and data collected by management (particularly the CEO, the CFO and the Chief Human Resources Officer) and Willis Towers Watson •  Reports directly to the Chairperson of the Committee •  Meets with the Committee in executive session without the participation of management

•  Discusses the CEO’s recommendations with the Committee to help ensure the compensation recommendations are in line with stated compensation philosophies and are reasonable when compared to the competitive market •  The Committee is not bound by Korn Ferry’s recommendation •  Considering all relevant factors (as required by compensation consultant independence standards set forth in applicable SEC rules and Nasdaq listing standards), we have assessed Korn Ferry’s independence, and are not aware of any conflict of interest that has been raised by the work performed by Korn Ferry

 

Willis Towers Watson

 

•  Provides executive compensation analysis and other services directly to management •  Performs data analysis on competitive compensation, competitive financial performance and financial target setting •  Provides analysis to Korn Ferry in advance to allow Korn Ferry to comment upon the findings and recommendations made by management

•  Considering all relevant factors (as required by compensation consultant independence standards set forth in applicable SEC rules and Nasdaq listing standards), we have assessed Willis Towers Watson’s independence, and are not aware of any conflict of interest that has been raised by the work performed by Willis Towers Watson

 

ROLE OF CEO AND MANAGEMENT

 

•  Provides compensation-related recommendations to the Committee •  The CEO recommends the compensation for other executive management positions and provides the Committee with assessments of their individual performance (both of which are subject to Committee review)		•  Performs individual performance assessments based on achievement of various financial and leadership objectives set by the CEO •  Receives suggestions from the Committee for modifications to financial and leadership objectives where warranted

OUR METHODOLOGIES

 

SELECTION OF COMPENSATION ELEMENTS

 

As part of its annual review, the Committee evaluates whether changes in the philosophy or structure are warranted in light of emerging trends, business needs and/or financial performance. The Committee then uses competitive market data, performance assessments, and independent executive compensation consultants and management recommendations to set the pay components along the targets described above (for example, 45th percentile for base pay). Actual pay for executive management will generally fall within a range of these targets (plus or minus 20%). Absent significant increases due to promotion, increases for break-through individual performance or significant changes in the competitive market data, pay increases are generally in line with national trends.

 

MARKET COMPARISON DATA

 

We collect competitive market compensation data from multiple nationally published surveys, from proxy data for a peer group of companies and from proxy data for companies in the S&P 400. Nationally published survey market compensation data is statistically determined (through regression analysis) to approximate our revenue size and aged to approximate more current data. We did not select the companies that comprise any of these survey groups, and the component companies’ identities were not a material factor in this analysis. The Company worked with Willis Towers Watson during 2020 with respect to the benchmarking methodology used, and based on the analysis, we will generally blend 50% survey and 50% peer data for benchmarking executive compensation for our NEOs commencing in 2021.

 

PEER GROUP

 

We use a peer group of publicly traded industrial companies that are headquartered in the U.S. that serve a number of different market segments and that have significant foreign operations. These are companies for which Lincoln Electric competes for talent and shareholder investment. In addition, we only select companies with solid historical financial results (removing companies from the peer group when their financial performance has consistently fallen below an acceptable level) and companies with sales that are within 2.5 times that of Lincoln Electric, with the exception of Illinois Tool Works (ITW), as ITW is a global competitor with its largest presence in the U.S. The Committee conducts an annual review of our peer group, with the assistance of Korn Ferry as an independent advisor. In 2020, the Committee determined that no changes to the peer group were necessary, but it acknowledged that additional consideration may be needed in 2021 to monitor changing business models of certain peers and due to the effect of the pandemic across the current peer group.

 

For 2020, our peer group consisted of the following 18 publicly traded industrial corporations:

 

Ametek Inc.	Flowserve Corporation	Kennametal Inc.	SPX Corporation
Carlisle Companies Incorporated	Graco Inc.	Nordson Corporation	The Timken Company
Colfax Corporation	IDEX Corporation	Regal Beloit Corporation	The Toro Company
Crane Co.	Illinois Tool Works Inc.	Roper Technologies, Inc.
Donaldson Company, Inc.	ITT Inc.	Snap-On, Incorporated

 

EXECUTIVE COMPENSATION STRUCTURE

 

In evaluating our executive compensation structure, the Committee considers three primary elements: (1) business needs, (2) individual performance and (3) pay for performance review.

 

Business Needs	Individual Performance	Organizational Tasks
·  Independent compensation consultant (Korn Ferry) provides information about emerging trends in executive compensation, along with Committee members’ own reading and study	·  Individual performance is a significant factor in determining annual changes (up or down) to pay components	·  The Committee conducts an annual assessment of our financial performance and pay for performance, in determining whether changes will be made to the existing philosophy or structure and before setting compensation levels for the upcoming year
·  Trends considered in light of our compensation philosophies and various business needs	·  Annual bonus (EMIP) includes an individual performance component in determining the percentage of target bonus to be paid (described below and noted in the 2020 EMIP Matrix)	·  The annual assessments are used to evaluate whether executive compensation is properly aligned with our financial performance
·  Business needs that are evaluated can include: talent attraction or retention strategies, growth expectations, strategic programs, cost-containment initiatives, management development needs and our company culture	·  Individual performance is measured against how well an executive demonstrates proficiency in key leadership competencies, as well as the executive’s achievement against objectives established for him or her at the beginning of the year
·  No single factor guides whether changes will be made, as the Committee uses a holistic approach, considering a variety of factors	·  For the past three years, individual performance ratings for the annual bonus for officers have ranged from 107% to 130%

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The following chart highlights the process and timing of compensation determinations and payouts:

Prior Year Fourth Quarter		Current Year First Quarter		Throughout Current Year
·  Committee reviews our compensation program and philosophy, including determining if our compensation levels are competitive with our peer group and if any changes should be made to the program for the next year		·  Committee determines the individual performance goals of the CEO (with Board approval) and sets the performance goals for each corporate-based (financial) component		·  Committee meets regularly throughout the year, with management and in executive session
·  Committee determines the principal components of compensation for the NEOs		·  CEO sets individual performance goals for each of the other NEOs, which are reviewed by the Committee		·  Ongoing review of Company performance against performance goals
·  Management engages compensation consultant (Willis Towers Watson) to provide a competitive market assessment of pay levels for the executive officers, including the NEOs		·  Individual performance goals of CEO and the other NEOs are designed to drive our corporate goals and our 2025 Strategy
		·  Base pay, annual bonus targets and long-term incentive awards are set at a regularly scheduled Committee meeting
		·  Payout amounts for the annual bonus (EMIP) and Performance Shares are determined at the first available Committee meeting (normally in February) or a subsequent special meeting (normally in March), once financial results are available

ELEMENTS OF EXECUTIVE COMPENSATION

 

Each compensation component for our NEOs is described below, with specific actions that were taken during 2020 noted. For 2020 compensation amounts, please refer to the Summary Compensation Table and other accompanying tables below.

 

BASE PAY

 

Base salary is provided to our executives to compensate them for their time and proficiency in their positions, as well as the value of their job relative to other positions at Lincoln Electric. Base salaries are set based on a subjective evaluation of the executive’s experience, expertise, level of responsibility, leadership qualities, individual accomplishments and other factors. That being said, we aim to set base salaries at approximately the 45th percentile of the market (slightly below market) in keeping with our philosophy that greater emphasis should be placed on variable compensation.

 

2020 AND 2021 BASE PAY

 

Ahead of 2020, the Committee reviewed officer pay, including all NEOs, as compared to the market. Based on this review, and in light of our overall cost-containment initiatives, management did not recommend, and the Committee did not approve, increases at the start of the year for any NEO’s 2020 base salary, other than for Ms. Kuhrt as detailed below.

 

NEO	Increase %	2020 Base Salary1
Christopher L. Mapes	—	$1,000,000
Gabriel Bruno	—	$   346,750
Steven B. Hedlund	—	$   425,000
Jennifer I. Ansberry	—	$   411,730
Michele R. Kuhrt	2.4%	$   343,000
Vincent K. Petrella	—	$   553,350
George D. Blankenship	—	$   515,000

 

(1)

Base salaries effective as of January 1, 2020.